Nostro Account maintenance charges are not Interest U/S 2(28A)ITO v. The Hongkong & Shanghai Banking Corporation Ltd
- Revenue disallowed the Nostro Account maintenance charges that the assessee had paid outside of India. This disallowance was made under Section 40(a)(i) of the Income Tax Act due to the non-deduction of tax at source according to Section 195. Subsequently, proceedings under Section 201(1) and 201(1A) were initiated against the assessee for Tax Deducted at Source (TDS) non-compliance.
- The assessee argued that these charges had been directly debited by overseas banks and weren’t separately remitted. The Revenue, however, asserted that the Nostro Account maintenance charges should be classified as ‘interest’ under Section 2(28A), consequently treating the assessee as a TDS defaulter.
- The charges paid in relation to Nostro Accounts were fundamentally bank charges incurred for managing accounts situated in foreign banks. These charges were directly debited in the accounts held with these overseas banks.
ITAT Mumbai held as below:
- There was no evidence indicating that the assessee had engaged in borrowing, credit utilization, or incurring debt linked to the Nostro Account maintenance charges.
- These maintenance charges were essentially standard bank fees rather than interest payments.
- The maintenance charges for Nostro Accounts should not be categorized as interest under Section 2(28A) of the Income Tax Act.
The copy of the order is as under: