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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 ..... HIGH COURT] as held that the assesses was duty bound to deduct tax at source even in respect of bank charges incurred for providing Letters of Credit to foreign sellers. Since in the present case, the assesses imported the raw material for its consumption based on a letter of credit and paid the Usance charges, the beneficiary of such charges is the foreign seller. The issuing bank of the assesses has merely acted as an agent of the assesses. The Usance charges therefore constitute income of a non-resident as envisaged in the provisions of Section 9(1)(v)(b) read with Section 5(2) 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) - Decided in favour of the Revenue. - TAX APPEAL NO. 45 OF 2015 AND TAX APPEAL NO. 46 OF 2015 AND TAX APPEAL NO. 51 OF 2015 - - - Dated:- 2-11-2020 - M. S. SONAK DAMA SESHADRI NAIDU, JJ . Mr. Chetan Kumar Gouda, Advocate for the Appellant. Ms. Amira Razaq, Standing Counsel for the Respondent. JUDGMENT (Per M. S. Sonak, J.): Heard Mr. Chetan Kumar Gouda along wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the IT Act were not at all attracted and there was no legal obligation to deduct any tax 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 correctly disallowed this expenditure. Ms. Razak relies on the following decisions in support of her contentions: (i) British Bank of Middle East v. Commissioner of Income Tax (1998) 233 ITR 251 (Bombay); (ii) M/s. Uniflex Cables Ltd. v. Dy. Commissioner of Income Tax (2012) 19 Taxmann.com 315 (Mumbai); and (iii) Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponsible for paying to a nonresident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) (or section 194LD) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries ) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: [Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode.] [Explanation 1.- For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 not really interfered on its intrinsic merit. The interference was only on account of the subsequent amendment which entered force with the retrospective effect. The Gujarat High Court, had taken the view that Usance interest is payable in terms of Section 2(28A) of the IT Act and therefore, the provisions of Section 195 were clearly applicable to such assesses. If the assesses, failed to deduct tax at source, then, the expenditure so incurred was not entitled to be exempted from the total income of such assesses. 24. In this case, the assessment officer, has quite correctly held that Usance means the allowable period of time permitted by the customs between the date of bill and its payment. The Usance of a bill varies between cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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