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TMI Blog2020 (11) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... ince, the issues involved in all these appeals are virtually identical and also the substantial questions of law as framed, are identical. 3. For convenience, Tax Appeal No.45 of 2015 is taken as the lead matter. 4. These Tax Appeals were admitted on 05.10.2015 on the following substantial question of law:- (A) Whether the ITAT failed to realise that since the appellant paid LC Charges/commission charges which are in the nature of bank charges to their own Nationalized Banks based in India towards opening of the Letter of Credit it could not be construed under the 195(1) that such Usance charges were paid or were payable to a non resident supplier and, consequently, was liable to pay TDS? 5. The assesses filed return of income for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at source on such amount. 10. Mr. Gouda submits that the CIT (Appeals) had quite correctly appreciated this matter and the ITAT was not justified in interfering with the well-reasoned order of CIT (Appeals). 11. Ms. Amira Razak, learned counsel for the respondent defends the impugned order made by the ITAT based on the reasoning reflected therein. She points out to the definition of "interest" in Section 2(28A) of the IT Act and submits that the charges paid by the bankers for obtaining letters of credit in order to import raw material from abroad also amount to interest. She submits that before the payment of such amount therefore, the assesses were duty bound to deduct tax at source. Since this was admittedly not done, the ITAT quite c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are to be held as "interest", Section 195 of the IT Act is not attracted if such Usance charges were paid to the Indian bankers and not to the purchasers abroad. 15. Now Section 2(28A) of the IT Act defines "interest" in the following terms: "2(28A) - "interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised." 16. Perusal of the aforesaid definition makes it clear that the expression "interest" for the purpose of the IT Act includes any service fee or other charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether called "Interest Payable Account" or "Suspense Account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.] [Explanation 2.-For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has- (i) a residence or place of business or business connection in India; or (ii) any other presence in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a ship from outside India shall be deemed to be the interest payable on a debt incurred in a foreign country in respect of the purchase outside India. 22. The explanation made it clear that Usance interest is exempted from payment of income tax in respect of ship-breaking activity. It is only on account of this amendment which came into force after the decision of the Gujarat High Court, that, the issue was answered in favour of the assesses and against the Revenue. The Hon'ble Supreme Court ruled that on account of this exemption which was given the retrospective effect, since tax was not assessable in India, there was no question of TDS being deducted by the assesses. 23. This means that the decision of the Gujarat High Court was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the IT Act. Therefore, the provisions of Section 195(1) of the IT Act were attracted and the assesses were obliged to deduct tax at source failing which, such expenditure, could not be exempted under Section 40(a)(i) of the IT Act. 26. The assessment officer notes and there is no serious challenge that the foreign sellers were located in countries with whom the assesses have transacted are covered by DTAA but the provisions of DTAA state that interest is chargeable to tax in both the contracting states. Since, Usance charges are covered in the definition of interest under Section 2(28A) of the IT Act, the assesses were obliged to deduct tax at source in terms of Section 195(1) of the IT Act. 27. The ruling in Gnanasigamani Nadar v. C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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