INCOME TAX ACT, 1961

--Income deemed to accrue or arise in India --Usance interestPurchase of raw-material on 180 days credit--The assesse-company was engaged in the business of manufacturing of cables of different types. The assessee purchased raw material from various parties who were all non-residents. As per the terms of supply by the non-residents, the assessee had furnished irrevocable letter of credit payable 180 days from the date of bill of lading. For the period of 180 days for which the assessee availed credit, the assessee had to pay finance charges or what is known in business parlance as 'Usance Interest'. The assessee had during the previous year paid the finance charges to the various suppliers of raw material. The individual transactions in respect of which finance charges/usance interest was paid is given as annexure-1 to this order. The nature of usance interest can be explained by taking one of the transaction with Outokumpu of Sweden, one of the non-resident from whom the assessee purchased raw material. Outokumpu of Sweden raised an invoice dt.15-6-2001 on the assessee for shipment of 10 M.tons of High Conductivity electrolytic copper tapes c.i.f. Mumbai. The value of the consignment was 28874.80 US $ equivalent to Rs. 13,87,145. The terms of payment was that the assessee has to furnish irrevocable letter of credit payable 180 days from date of Bill of Lading with Swedish Bankers. Another invoice dated 20-6-2001 was raised by Outokumpu, Sweden for interest for the period of 180 days for US $ 626.58 equivalent to Rs. 30,101. The assessee furnished letter of credit issued by Development Credit Bank Ltd., Fort, Bombay, dated 18.5.2001 bearing LC No.235 favouring O, Sweden. On 12-1-2001, the DC Bank Ltd., Fort, Bombay made payment of Rs. 14,17,246 on the due date. The assessee accounted for Rs. 30,101 as finance charges or usance interest and claimed it as deduction while computing income. According to the assessing officer, the finance charges were in nature of interest and were chargeable to tax in India in the hands of the non-residents because the interest income had accrued or arisen in India. The assessing officer was of the further view that the total assessee ought to have deducted tax at source at the time of making payment to the non-residents. Since the assessee had not deducted tax at source as aforesaid, the assessing officer was of the view that the sum of Rs. 18,31,162 claimed as finance charges by the assessee has to be disallowed in view of the provisions of section 40(a)(i). The assessing officer accordingly disallowed a sum of Rs. 18,31,162 claimed as finance charges and added the same to the total income of the assessee. The CIT(A0, however, did not accept the pla of the assessee. Held: The facts of the present case go to show that the intention of the parties to the contract was clear and the price of the material to be supplied was reflected in a separate invoice and the buyer in lieu of the credit facility of 180 days from the date of bill of lading was required to pay interest at stipulatd rate for which a separate invoice was prepared. There was no nexus between the interest amount and fixation of the pice of the raw-materials purchased. The nexus of interest was only with the period from which the purchase price of the raw-material became due, viz., the date of bill of lading. Thus, there was no scope for contending that the outstanding price was not a 'debt incurred' within the meaning of section 2(28A). On the facts of the presen case, the payment in question, namely, usance interest, is interest within the meaning of section 2(28A). Since the same is interest within the meaning of the Act, the same would be deemed to have accred and arisen in India in view of the provisions of section 9(1)(v)(b).