2023 (7) TMI 1518 - AT - Income Tax

TDS u/s 195 - payment made by assessee to various bank as Nostro account maintenance charges - Addition u/s 40(a)(i) on non deduction of TDS - Nostro Accounts Maintenance Charges were levied by overseas banks/branches on the Assessee were with respect to the Nostro Accounts maintained outside India. HELD THAT - Tribunal in the case of Oman International Bank SAOG 2014 (1) TMI 191 - ITAT MUMBAI held that the provisions of Section 40(a)(i) of the Act cannot be attracted in case of the deemed remittance of Nostro Account Maintenance Charges without deduction of tax at source. In the case before us also the CIT(A) has concluded that the Assessee was not under obligation to withhold tax from Nostro Account Maintenance Charges in terms of Section 195 of the Act and therefore, could not be treated as an assessee in default . Accordingly, demand raised by the Assessing Officer on the Assessee under Section 201(1) and 201(1A) of the Act was deleted by the CIT(A). In our view, the order passed by the CIT(A) does not suffer from any infirmity to this extent. We do not find merit in the contention advanced by Ld. Departmental Representative that Nostro Account Maintenance Charges are in the nature of interest as defined under Section 2(28A) of the Act. The service fee and other charges included in the above definition of interest are those charged in respect of (i) moneys borrowed, or (ii) debt incurred or (iii) in respect of any credit facility (which has not been utilized). In the case before us, the Assessing Officer has not brought on record any material to establish that the Assessee has borrowed money or incurred debt or availed any credit facility, and the Nostro Account Maintenance Charges have been charged in respect of the same. - Decided in favour of assessee.

Summary

Issues Involved:

1. Whether Nostro Account Maintenance Charges are subject to tax deduction at source under Section 195 of the Income Tax Act, 1961.
2. Whether the Assessee can be considered an 'assessee in default' for not deducting tax at source on Nostro Account Maintenance Charges.

Issue-Wise Detailed Analysis:

1. Nostro Account Maintenance Charges and Tax Deduction at Source under Section 195:

The primary issue in these appeals is whether Nostro Account Maintenance Charges paid by the Assessee, a non-resident banking organization, to overseas banks are subject to tax deduction at source under Section 195 of the Income Tax Act, 1961. The Assessing Officer had disallowed the deduction claimed by the Assessee for Nostro Account Maintenance Charges on the grounds that these charges fell within the definition of 'interest' under Section 2(28A) of the Act and thus required tax deduction at source. Consequently, a demand was raised under Sections 201(1) and 201(1A) for non-compliance.

The Assessee contended that Nostro Account Maintenance Charges do not qualify as 'interest' as defined in Section 2(28A) since they are not related to any money borrowed or debt incurred. The charges were directly debited by overseas banks and did not involve any remittance by the Assessee. The Assessee argued that these charges are not taxable in India as they represent the normal business income of overseas banks, accruing outside India. The Assessee also cited CBDT instructions and prior tribunal decisions, including the case of Oman International Bank SAOG, which supported their stance that such charges are not subject to tax deduction at source.

Upon reviewing the submissions, the CIT(A) agreed with the Assessee, holding that Nostro Account Maintenance Charges are not in the nature of 'interest' and do not accrue or arise in India. The CIT(A) relied on previous tribunal decisions, which consistently held that such charges are not subject to tax deduction at source under Section 195, as they represent business income of foreign banks accruing outside India. The Tribunal upheld the CIT(A)'s decision, finding no merit in the Revenue's contention and confirming that the Assessee was not obligated to deduct tax on these charges.

2. Assessee in Default for Non-Deduction of Tax:

The second issue pertains to whether the Assessee can be considered an 'assessee in default' for not deducting tax at source on Nostro Account Maintenance Charges. The Assessing Officer had treated the Assessee as an 'assessee in default' and raised demands under Sections 201(1) and 201(1A) for the alleged failure to deduct tax.

The CIT(A), however, found that the Assessee was not liable to deduct tax at source on Nostro Account Maintenance Charges, as these charges were not taxable in India. Consequently, the CIT(A) deleted the demands raised by the Assessing Officer. The Tribunal concurred with the CIT(A), noting that the Revenue had not provided any evidence to demonstrate that the Assessee had borrowed money or incurred debt, which would necessitate tax deduction under Section 195. The Tribunal emphasized that the charges were not in the nature of 'interest' and did not accrue in India, thereby affirming the CIT(A)'s decision to not treat the Assessee as an 'assessee in default'.

In conclusion, the Tribunal dismissed both appeals by the Revenue for the Assessment Years 2013-14 and 2014-15, upholding the CIT(A)'s decision that Nostro Account Maintenance Charges are not subject to tax deduction at source under Section 195, and the Assessee cannot be considered an 'assessee in default' for the same.