TDS u/s.194A on payment of Finance Charges

[Sathish Kamath]

One of my client has availed loan from a Finance Company, a Public Limited Company engaged in financing of vehicles, in his personal name to buy a vehicle and he has used that vehicle for the purpose of business of the Partnership Firm in which he is one of the Partner. The Firm is paying the loan instalments and also Finance Charges to the above Company. The Firm also claims Depreciation on the above vehicle. My query is whether the Firm is liable to deduct tax at source u/s.194A although the agreement is between the Partner in his individual capacity and the Company? I am told that very recently Supreme Court has given the verdict that TDS is required to be made. If someone is aware of the above judgement please furnish the citation.

[Rama Krishana]

When the firm is paying the interest on loan on behalf of the individual partner on the premise that the asset on which loan has been taken by such individual partners is being used by the firm, deperciation and other benefits are being claimed by the firm, it is easy to say that firm has taken responsibility to pay interest and accordinly liable to TDS u/s 194A.

AI Summary

TDS on interest payments: a payer who covers a partner's loan interest for business use must deduct tax at source. TDS u/s.194A applies where the firm pays instalments and finance charges for a vehicle loan taken in a partner's individual name but used in the firm, and the firm claims depreciation and other benefits; by paying those interest-like amounts the firm assumes the obligation and must deduct tax at source as the commercial payor.