No TDS on Jewellery Instalment Scheme Discount as It Is Not Interest | ITAT

Case Details: Motor & General Sales ltd vs. Income-tax Officer (TDS)-II - [2026] 183 taxmann.com 208 (Lucknow-Trib.)

Judiciary and Counsel Details

• Kul Bharat, Vice President & Nikhil Choudhary, Accountant Member
• Rakesh Garg, CA for the Appellant.
• S. H. Usmani, CIT-DR for the Respondent.

Facts of the Case

The assessee, a franchise agent of a jewellery company, was running the Golden Harvest Scheme (GHS). Under the scheme, customers paid 11 monthly instalments toward a future jewellery purchase. At the end of the period, when the jewellery was purchased, the company paid the twelfth-month instalment as a discount.

The Assessing Officer (AO) held that amounts collected under GHS were akin to fixed deposits, and the discount given in the twelfth month was, in substance, interest payable by the assessee to customers. Thus, such interest attracted TDS under section 194A and computed interest treating the assessee as assessee in default under section 201(1). On appeal, the CIT(A) upheld the action taken by the AO. The aggrieved assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that the Golden Harvest Scheme was an invitation to customers to invest a specified amount in monthly instalments, which could be redeemed only by purchasing jewellery after the conclusion of the eleven months. At the time of redemption, the company would offer a discount on the value of jewellery equivalent to one month’s instalment paid by the assessee. Based on the facts and the understanding of the scheme, it appears that the said benefit was an incentive offered to the customer in the course of trading.

Since the amounts paid by customers cannot be redeemed in cash at the end of the deposit period and can be utilised only towards the purchase of jewellery, the scheme cannot be regarded as a fixed deposit scheme but only as an advance towards the purchase of jewellery. Consequently, the discount offered by the company cannot be regarded as payment of interest as per provisions of section 2(28A) but only as an incentive or sales promotion activity extended to encourage customers to purchase jewellery by making payments on an instalment basis instead of a lump sum payment and in this manner creating a larger market for its products to be sold.

Therefore, no case was made out for considering the discount to be interest upon which TDS was deductible under section 194A.

List of Cases Referred to

• Sri Venkatesh Paper Agencies (Hyd.) (P.) Ltd. v. Dy. CIT [2012] 24 taxmann.com 52 (Hyderabad) (para 4).