The Income Tax Appellate Tribunal ( ITAT ), Kolkata has held that the finance charges to Non-Banking Financial Companies (NBFCs) are not subject to Tax Deduction at Source ( TDS ) under the provisions of section 194A of the Income Tax Act.
The assessee has debited in his profit and loss account an aggregate sum of Rs.5,68,40,472/- under the head interest and finance charges. While completing the assessment proceedings, the Assessing Officer held that such amounts were payable/paid to different non-banking financial companies and no tax has been deducted at source under section 194A of the Act.
According to the assessee, the finance charges do not interest and hence, section 194A is not attracted since his business was that of hiring out industrial crane and equipment which are acquired on hire purchase finance from the bank and other financial companies. It was contended that the monthly hire -purchase installments were paid in which financial charges were also included.
The Tribunal noted that all such loans, monthly deduction of principal and proportionate interest had been paid by the assessee and claimed in the accounts as finance charges. The total interest debited during the year amounted to Rs.4,41,12,661/- without any deduction of TDS.
“However, out of the four finance Companies, two Companies namely M/s L & T Finance and M/s SREI Equipment and Finance Pvt. Ltd. had issued a confirmation to payer Company that they have duly included the same in their income. For the other two Companies, Chartered Accountant’s certificates confirming that the interest so received have all been duly credited to their income, were also received by the payer company. Therefore, in view of the insertion of the second proviso of section 40(a)(ia) and proviso of section 201(1) which are curative and retrospective in nature, the addition made by the Assessing Officer should be deleted,” the Tribunal said.
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