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2025 Supreme(Online)(ITAT) 4804
INCOME TAX APPELLATE TRIBUNAL (MUMBAI BENCH)
SHRI SANDEEP SINGH KARHAIL, J
Deputy Commissioner of Income Tax (TDS)– 2(1), Mumbai – Appellant
Versus
Piramal Enterprises Limited – Respondent
ITA No.4431/Mum/2025
For the Appellants/Petitioners: Shri R.A. Dhyani, CIT-DR
For the Respondents: Shri Ronak Doshi
No obligation to deduct TDS arises under sections 193 and 194A when the payment is not classified as interest due to lack of borrower-lender relationship.
Headnote:(A) Income Tax Act, 1961 - Sections 193, 194A, 201(1), 201(1A) - TDS on accrued interest - Assessee, a non-deposit taking NBFC, purchased loans that included accrued interest - The tribunal found that payment was not ‘interest’ and thus no obligation to deduct TDS arose under sections 193 and 194A of the Act. (Paras 5, 7, 8)
(B) Tax Deduction at Source - The nature of payment does not constitute interest due to absence of borrower-lender relationship - Obligation to deduct TDS under sections 193 and 194A is contingent on existing debt or moneys borrowed. (Paras 10, 11)
Facts of the case:
The Revenue disputed whether the payment for acquiring loans included accrued interest, leading to a TDS obligation. The tribunal concluded that the actual nature of payment was not interest as there was no borrower-lender relationship; thus, the obligation to deduct TDS was not applicable.
Findings of Court:
The tribunal upheld the findings of the Addl./Joint CIT(A) that the provisions of sections 193 and 194A were not triggered; therefore, the Revenue's appeal was dismissed.
Issues: The main issue was whether transactions between the parties established an obligation for TDS under sections 193 and 194A.
Ratio Decidendi: The tribunal ruled that in the absence of borrowed funds or debt incurred, there was no tax deduction obligation under sections 193 and 194A; thus, the assessment order was found not sustainable.
Result: Appeal by the Revenue dismissed.
| Table of Content |
|---|
| 1. revenue's appeal based on alleged non-compliance in interest payment. (Para 1 , 2 , 3) |
| 2. assessee's classification of payments as asset purchase, not interest. (Para 4 , 5 , 6) |
| 3. tribunal decision upholding non-applicability of tds on payments. (Para 7 , 8) |
| 4. overall conclusion affirming dismissal of revenue's appeal. (Para 9) |
ORDER
PER SANDEEP SINGH KARHAIL, J.M.
The Revenue has filed the present appeal against the impugned order dated 09/05/2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Additional/Joint Commissioner of Income Tax (Appeals)-2, Delhi, [“learned Addl./Joint CIT(A)”], which in turn arose from the order passed under section 201(1)/201(1A) of the Act, for the assessment year 2019-20.
2. In this appeal, the Revenue has raised the following grounds: –
“1. Whether the Addl. CIT(A) erred in allowing the appeal of PHL Finvest Pvt. Ltd. without considering the fact that the payment made by PHL Finvest Pvt. Ltd. to Piramal Enterprises Lid. for acquisition of loan assets included accrued interest as well?
2. Whether the Addl. CIT(A) erred in granting relief to the assessee by holding the sections 193 and 194A are not applicable to the transactions between PHL Finvest Pvt. Ltd. and Piramal Enterprises Ltd.?
3. Whether the Addl. CIT(A) erred in accepting the view of the assessee that there is no income, for provisions of TDS to be applicable, without appreciating the fact that transaction between PHL Finvest Pvt. Ltd. and Piramal Enterprises Ltd. is different from the transaction between Piramal Enterprises Ltd. & borrower?"”
3. The brief facts of the case are that the assessee is a non-deposit taking Non-Banking Finance Company registered with the Reserve Bank of India. The primary activity of the assessee includes lending/investing. In the course of its business, the assessee purchased loans (including NCDs, ICDs and term loans) from Piramal Enterprises Ltd and Piramal Capital and Housing Finance Limited at carrying value, comprising the principal and accrued interest till the date of transfer of the loan. In order to verify whether the assessee properly complied with the provisions contained in Chapter XVIIB of the Act, a survey under section 133B(2) of the Act was conducted at the premises of the assessee on 19/11/2019. During the survey, on verification of the trial balance and accounts, it was observed that the assessee typically accrues interest in the books based on the period of its holding of the loan and has defaulted in deducting TDS on accrued interest and excess interest on revision in interest rates for the financial year 2018-19. Accordingly, notice under section 201(1)/201(1A) of the Act was issued to the assessee calling for various details. In response, the Authorised Representative of the assessee attended and filed relevant details from time to time, which were examined and taken on record. During the proceedings, it was observed that the assessee has credited the following interest income, which attracts TDS, but has not deducted TDS on such payment: –
| S.N. | Instrument | Principal Value | Accrued Interest | Total assets transferred |
| 1 | ICD | 2046898849 | 21839480 | 2047863413 |
| 2 | NCD (Listed) | 4880000000 | 546634564 | 5730551357 |
| 3 | NCD (Un-Listed) | 23065257336 | 2117495646 | 24810139835 |
| 4 | Term Loan | 67608170801 | 1234542696 | 68497578697 |
| Grand Total | 97600326986 | 3920512387 | 101086133303 |
4. Accordingly, the assessee was asked to show cause as to why it should not be treated as “assessee in default” within the meaning of section 201(1)/201(1A) of the Act on its failure to deduct the withholding tax at 10% in respect of accrued interest on ICDs and term loan under the provisions of section 194A and accrued interest on NCDs under section 193 of the Act. In response, the assessee submitted that it has acquired the loans in the course of its business and the payment made to the transferors is the purchase consideration for acquiring the right to receive the principal along with interest from the debtor at maturity. The ass
