Section 2(28A) of the Income Tax Act
The decision most relied on for Section 2(28A) is Merilyn Shipping & Transports v. Addl. CIT (136 ITD 23), cited in 139 of the 128 judgments on BharatTax that turn on this section.
Leading authorities on Section 2(28A)
Section 40(a)(ia) disallowance applies only to expenses that remain payable at the end of the financial year, not to expenses that have been actually paid during the previous year without deduction of tax at source.
Interest paid by banks is allowable as a deduction in computing total income. The decision distinguished the Supreme Court's ruling in Vijaya Bank regarding the deductibility of such interest.
This case establishes that merely having sufficient interest-free own funds does not automatically prevent interest disallowance on interest-free advances; the assessee must affirmatively prove the business or commercial expediency of such advances.
Tax must be deducted at source under Section 194A only on interest that ultimately partakes the character of income for the recipient. If interest does not qualify as income or falls outside the scope of Section 2(28A), there is no obligation to deduct TDS.
Interest received by an industrial undertaking for belated receipt of sale consideration for its products constitutes business income directly derived from the business and is not taxable as 'income from other sources'. This characterization makes such income eligible for business-related deductions.
The primary issue concerns the eligibility for deduction under Section 80IA(4) of the Income Tax Act, 1961, particularly concerning whether an assessee is a 'developer' or 'contractor' for infrastructure projects. The case appears to discuss the impact of subsequent amendments, such as the Explanation inserted by the Finance Act, 2007, on the classification of contracts and the availability of such deductions.
Interest paid for the broken period on purchase of dated government securities and interest received for the broken period on sale of such securities, if treated as trading assets, can be claimed as revenue expenditure under section 28. Income falling under section 18 of the Income Tax Act cannot also fall under section 28.
Amounts exempt under Section 10A of the Income-tax Act do not constitute 'income' for the purposes of Section 195, meaning no tax is deductible at source on such amounts.
Reimbursement of expenses that do not constitute income chargeable to tax under the Income Tax Act is not subject to withholding tax (TDS). Payments made solely for reimbursement of actual expenses incurred by a third party are not taxable income.
Tax is deductible at source under Section 194A only on interest that has 'partaken the character of income' in the hands of the recipient.
