VENUGOOPAL SUBRAMANYAM RAJA,KUMBAKONAM vs. DCIT CIRLE 2(1), TRICHY

The assessee raised 3 grounds of appeal, amongst which, the only issue emanates for our consideration as to whether the ld. CIT(A) is justified in confirming the disallowance of interest payment in the facts and circumstances of the case.

The assessee is a partner in M/s. Raja Holdings, Kumbakonam in his individual capacity and paid interest to RBS Coutts Bank Ltd., Singapore, which is having its Head Office in Switzerland, without deducting TDS. According to the Assessing Officer, the assessee neither deducted TDS from interest payment made to foreign bank nor filed undertaking with the remitting bank. In view of section 9 of the Act, which stipulates strictly about the taxability of income that arise or accrue in India and the interest payment made by the assessee is an income deemed to accrue or arise in India under section 9(1)(v)(c) of the Act and accordingly, the Assessing Officer disallowed the entire interest expenditure under section 40(a)(i) of the Act for violation of non-deduction of tax under section 195 of the Act for AY 2007-08. On appeal, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer by following the order of this Tribunal in assessee’s own case for AY 2008-

1 I have considered the contention of the appellant. The appellant has contested that the Hon'ble ITAT had misconceived that the appellant had sought exemption from TDS on the Ground that the payment falls under article 11(3) of DTAA with Switzerland. The appellant contested that he had never put such a plea neither before the Assessing Officer nor before the appellate fora. The appellant contested that the payment of interest falls under Article 11(1) of the DTAA with Switzerland.

2 It is seen from the order of the Hon’ble ITAT that the Hon’ble ITAT has taken due cognizance of article 11(1) and 11(2) of the DTAA between India and Switzerland The following finding of the Hon’ble ITAT is reproduced

3 Hence, the Hon'ble ITAT has taken due cognizance of article 11(1) and 11(2) of the DTAA between India and Switzerland and taking cognizance of Article 11(2) the Hon'ble ITAT has given the finding that the rate of tax could not exceed 10%. The Hon'ble ITAT also examined whether case of the appellant is covered by article 11(3) of the DTAA. Hence, the argument of the appellant that the Hon'ble ITAT had considered only article 11(3) and not other articles of the DTAA between India and Switzerland is misplaced and the same is rejected

4 The decision of Hon'ble ITAT, Chennai in appellant's own case for the AY 2008-09 on the same facts is binding on the first appellate authority The appellant has not brought any new facts on record The facts for the year under consideration remain the same as that for the A.Y 2008-09, in which the Hon'ble ITAT Chennai in ITA No. 1249/Mds/2012 has given a finding that the appellant was liable to deduct tax at source on the payment of interest u/s 195 of the Act and by not doing the same the appellant is hit by the provisions of section 40(a)(i) of the Act. Hence, following the decision of the Hon'ble ITAT, Chennai in appellant's own case for the A.Y 2008-09, it is held that the appellant was liable to deduct tax at source on payment of interest of Rs.12,50,693/- and it is admitted fact on part of the appellant that he did not deduct tax at source u/s 40(a)(i) of the Act in respect of payment of I.T.A. No.2855-2857/Chny/24 4 interest of Rs 12.50.693/-, Hence, the payment of interest of Rs.12,50,693/- is hit by the provisions of section 40(a)(i) of the Act. Hence, the AO correctly disallowed the same u/s 40(a)(i) of the Act. Hence, the order of the AO is confirmed and the ground of appeal taken by the appellant is dismissed.

The ld. AR Shri R. Sivaraman, Advocate submits that as per section 195 of the I.T. Act, tax is to be deducted at source only when any payment is made by "any person" to a non-resident and such payment has an element of income embedded in it which is chargeable to tax in India. The expression "any person" referred to in section 195 should mean any person who is a resident in India. Section 195 applies only if payments are made by a resident to another non- resident and not between two non-residents. Section 195 of the Act does not apply to the present transaction because it was between two non-resident entities. The assessee is a non-resident as could be seen from the assessment order for this year where his status is shown as Non- Resident. Thus Sec 195 do not apply to the impugned transaction which has taken place between two non-residents. The ld. AR vehemently argued that the earlier order of the Tribunal did not adjudicate the applicability of provisions of section 195 of the Act and he submits that there is no applicability of section 195 of the Act as the loan was obtained from foreign bank and repayment also made thereon. He argued that since interest paid to foreign bank having no permanent establishment in India, the provisions under section 195 of the Act does not apply. He submits that the ITAT

The ld. DR Shri C. Sivakumar, Addl. CIT strongly supported the order passed by the ld. CIT(A).

Heard both the parties and perused the material available on record. Admittedly, the assessee neither deducted TDS from interest payment made to foreign bank nor filed undertaking with the remitting bank. In view of the provisions of section 9(1)(v)(c) of the Act, the Assessing Officer disallowed the entire interest expenditure under section 40(a)(i) of the Act for violation of non-deduction of tax under section 195 of the Act. We note that the ITAT in assessee’s own case for AY 2008-09, wherein, the Tribunal has taken due cognizance of Article 11(1) and 11(2)

In the result, all the appeals filed by the assessee are dismissed. Order pronounced on 21st August, 2025 at Chennai. (S.R. RAGHUNATHA) ACCOUNTANT MEMBER Chennai, Dated, 21.08.2025