Case Law Details
When the assessee reimburses interest payments to parent company for availing loans under its borrowing facility given by the bank, No TDS obligation arises u/s 194A.
As per the language used by the Parliament what is contemplated is the ‘interest in the form of income’. In the present case the argument of the assessee is that it is only reimbursement of the interest payment in respect of the funds utilised by the assessee towards borrowing facility of it’s parent company. We find that as per the facts on record the assessee company was originally incorporated on 19.06.2003 with the name of ‘Onsoft Technologies Ltd.’ but the said name was subsequently changed to ‘Onward eServices Ltd.’. Nowhere it is controverted that he assessee-company is a subsidy of ‘OTL’. The assessee company entered into Agreement with the parent company dated 21.06.2003 and took over the business of providing ‘Software Driven Solutions’ vide Agreement of Assignment of Business. As per the terms of the said Agreement, the assessee also took over the different liabilities of the parent company along with assigned of its business, which included sundry creditors, advances from customers, provisions for salary and funds base working capital cash credit limit of Rs.5 cores. (Page no.20 of the paper book). In the Audit report for year ending 30th June, 2003, factum of acquisition of running business of ‘Banking Software Solutions Division’ of ‘OTL’ (Parent company) is mentioned (page no.21 of the compilation). In the balance sheet Schedule –II under the head ‘unsecured loans’ the ‘Bridge Loan’ from the parent company ‘OTL’ towards banking borrowing to the extent of Rs.5 crore is shown (page no.22 of the compilation). As per Note No.5 (page No.23 of the compilation) it is made clear that the working capital limit of Rs.5 crore currently enjoyed by the parent company for which approval is awaited from the bank. In the interim period M/S. OTL has advanced a ‘Bridge Loan’ of similar amount. From the above evidence, it can safely be concluded that the parent company was enjoying borrowing facilities from the bank through it’s parent company and the funds have been advanced to the assessee as the bank has not approved transferring the said borrowing facility to the assessee. As per the contention of the assessee to the extent of the funds utilised in respect of bank borrowing in the name of the parent company, the interest cost is reimbursed. In fact, the assessee is paying only the interest to the bank but it is through the parent company as admittedly parent company is not in lending business, as the transfer of the bank liability on the name of the assessee is awaited for the approval.
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