Interest reimbursed to the sister concerns is not an income & there is no statutory obligation to deduct TDS under Section 194A: ITAT Mumbai
ITAT Mumbai in the case of KD Lite Developers Pvt. Ltd. v. DCIT (ITA 5305, 5325, 5357, 5356, 5354/Mum2024) has held that interest reimbursed to the sister concerns is not an income & there is no statutory obligation to deduct TDS under Section 194A.
Let us have a Short Overview of the Case:
Key Issues
Non-Deduction of TDS: The primary issue was whether KD Lite Developers Pvt. Ltd. should be considered an “assessee in default” for not deducting tax at source (TDS) on interest payments made to its group entities.
Nature of interest payments: The appellant argued that the interest payments were in the nature of reimbursements and thus not liable for TDS under Section 194A of the Act.
KD Lite Developers Pvt. Ltd. is part of the Ruparel Realty Group, engaged in building and developing properties in Mumbai. The group consists of multiple entities, including private limited companies, partnership firms, and proprietary concerns.
The group entities borrow funds collectively, with one entity acting as the principal borrower and others as co-borrowers. The funds are utilized across various projects, and interest payments are reimbursed among the entities based on their respective utilizations.
Tribunal’s Findings
The Tribunal accepted the appellant’s argument that the interest payments were reimbursements for the interest paid by the principal borrower to the lender. These reimbursements did not constitute income in the hands of the recipient group entities.
The Tribunal held that since the interest payments were reimbursements and not income, there was no statutory obligation to deduct TDS under Section 194A.
The Tribunal noted that similar proceedings against other group entities had been dropped by the Assessing Officer under identical circumstances, reinforcing the appellant’s position.
The copy of the order is as under:
