2025 (3) TMI 868 - AT - Income Tax

Assessee liable for TDS under section 195 on interest payments to foreign bank

Venugoopal Subramaniyam Raja Versus The Deputy Commissioner of Income Tax, Circle 2 (1), Trichy.

Venugoopal Subramaniyam Raja Versus The Deputy Commissioner of Income Tax, Circle 2 (1), Trichy. - TMI ISSUES PRESENTED and CONSIDEREDThe core legal issue in these appeals was whether the Commissioner of Income Tax (Appeals) was justified in confirming the assessment orders that imposed a tax liability on the assessee for failing to deduct tax at source on interest payments made to RBS Coutts Bank Ltd., Singapore, under Section 195 of the Income Tax Act, 1961.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and Precedents:The relevant legal provisions considered were Sections 9(1)(v)(c), 40(a)(i), and 195 of the Income Tax Act, 1961. Section 9(1)(v)(c) pertains to income deemed to accrue or arise in India, which includes interest payments. Section 195 mandates the deduction of tax at source on payments to non-residents. Section 40(a)(i) disallows deductions for expenses on which tax has not been deducted.The Double Taxation Avoidance Agreement (DTAA) between India and Switzerland, specifically Articles 11(1), 11(2), and 11(3), was also relevant to determine the taxability of the interest payments.Court's Interpretation and Reasoning:The Tribunal noted that the assessee argued the provisions of Section 195 were not applicable since RBS Coutts Bank Ltd. was not a 'person' as defined under the Act. However, the Tribunal, relying on its previous decision in the assessee's case for AY 2008-09, held that the interest payments were taxable in India and the assessee was liable to deduct tax at source under Section 195.The Tribunal emphasized that the DTAA with Switzerland limited the tax rate to 10%, and thus the assessee should have deducted tax at this rate.Key Evidence and Findings:The Tribunal found that the assessee did not deduct tax on interest payments to RBS Coutts Bank Ltd., which was deemed income accruing in India. The Tribunal's previous decision in the assessee's case for AY 2008-09 was pivotal, as it had already adjudicated on similar facts.Application of Law to Facts:The Tribunal applied Section 195 to the interest payments, determining that the payments were subject to tax deduction at source. The Tribunal also applied Section 40(a)(i) to disallow the interest payments as a deductible expense since tax was not deducted.Treatment of Competing Arguments:The assessee's argument that Section 195 was inapplicable was rejected based on the Tribunal's prior ruling and the DTAA provisions. The Tribunal found no new facts or contrary legal precedent to deviate from its earlier decision.Conclusions:The Tribunal concluded that the assessee was liable to deduct tax at source on the interest payments to RBS Coutts Bank Ltd. and upheld the disallowance under Section 40(a)(i) for non-deduction of tax.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning:The Tribunal quoted its previous decision: 'In the above circumstances, in our considered view the interest in question was taxable in India though the rate of tax could not exceed 10% Therefore, in our view, the assessee was liable to deduct tax at source on the aforesaid payment of interest u/s 195 of the Act.'Core Principles Established:The Tribunal reinforced the principle that interest payments to non-residents are subject to tax deduction at source under Section 195, even if the recipient is not a 'person' in the traditional sense, as long as the income is deemed to accrue in India.Final Determinations on Each Issue:The Tribunal dismissed the appeals for all three assessment years (2007-08, 2009-10, and 2010-11), confirming the CIT(A)'s orders and the applicability of tax deduction at source on the interest payments.