Interest Paid to NBFCs are not subject to TDS If they have offered the Interest Income to Tax: ITAT Bangalore [Read Order]

In Azmath Ulla v. ACIT, the Bangalore ITAT held that the interest paid to Non-Banking financial institutions are not subject to deduction of tax at source if such interest amount was offered by such entities to income tax while filing their IT Returns.

The sole grievance of the assessee, in the instant case was that the Assessing Officer disallowed the interest paid to Non Banking Financial Corporations (NBFCs) under Section 40(a)(ia) of the Income Tax Act on ground of non-deduction of TDS. Assessee claimed that Non-Banking Financial Corporations are not covered by section 194A(3)(a)(b) of the Income Tax Act and therefore, no TDS is payable for such amount.

The bench held that if the recipients of interest in question have already considered the same for computing their income offered to tax then the disallowance u/s. 40(a)(ia) is not attracted. “In this case though the assessee did not file the relevant material before the AO in this regard however, it is a fact which existed right from the beginning and the relevant details are available with the revenue regarding the income offered by these NBFCs. Therefore, in view of the facts and circumstances of the case if the certificates filed in support of the claim that the NBFCs have included this amount of interest in computation of their income offered to tax are found to be correct then the compliance u/s. 40(a)(ia) is deemed to have been made and no disallowance is called for. Therefore this issue is set aside to the record of the AO for verification of the fact that the recipient NBFCs have already taken into account the amount of interest received by them for computing the income in their return of income. In case the AO is satisfied that the NBFCs have considered this amount for computation of income in their return of income then no disallowance is called for u/s. 40(a)(ia).”