In a recent case reported in (2007 -TMI - 1774 - SUPREME COURT OF INDIA  - Income Tax) the assessee has argued that since the loan were take on behalf of the directors, no TDS is required to be deducted by the assessee company.

In the instant case honorable tribunal (ITAT) has held that,

"there was no obligation on the part of the assessee-company to comply with the statutory requirements of Section 194A of the Income-tax Act, 1961 (for short, the Act) by deducting tax deductible at source (TDS) on interest paid by it for loans availed of by the assessee and repaid by it with interest on the ground that the loans were meant for the directors of the assessee-company and not for the assessee-company and after recording a finding that the directors had misused the name of the company to avail of the loan."

Honorable Supreme Court has reversed the order of ITAT and allowed the appeal of the department holding that the company was required to deduct TDS from the Interest Paid u/s 194.

 

 

TDS obligation: company must withhold tax on interest even if loans were availed for directors' benefit. A company remains subject to the withholding regime on interest paid where loans are availed and repaid by the company but were taken for its directors and obtained through misuse of the company's name; the factual misuse does not negate the company's statutory TDS obligation on such interest payments and the company must comply with withholding requirements.