Case Law Details
ITO Vs Hongkong & Shanghai Banking Corporation Ltd. (ITAT Mumbai)
ITAT Mumbai held that Nostro Account Maintenance Charges are in the nature of bank charges levied on transaction and the same are not subject to tax deduction at source u/s. 195 of the Act. Accordingly, disallowance of the same by invoking provisions of Section 40(a)(i) of the Act unjustified.
Facts- The Assessee, a non-resident banking organization incorporated/registered in Hong Kong, was engaged in the business of banking in India through its branch in India in accordance with the Banking Regulation Act, 1949 and Reserve Bank of India Guidelines.
AO received the information that deduction of INR 278,35,306/- claimed by the Assessee in respect of Nostro Account Maintenance Charges paid by the Assessee outside India have been disallowed by AO under Section 40(a)(i) of the Act while framing assessment for the Assessment Year 2013-14 since the Assessee had failed to deduct tax at source as per Section 195 of the Act. Therefore, proceedings u/s. 201(1) and Section 201(1A) of the Act were initiated against the Assessee by AO.
AO concluded that Nostro Accounts Maintenance Charges fell within the definition of term ‘interest’ as defined in Section 2(28A) of the Act. AO treated the Assessee as being an ‘assessee in default’ and vide order dated 31/03/2021, raised a demand of INR 1,72,50,730/- u/s. 201(1) of the Act, being the amount of tax which should have been withheld by the Assessee computed after grossing-up the Nostro Account Maintenance Charges of INR 2,78,35,307/-, u/s. 201(1) of the Act and a demand of INR 1,96,33,817/- u/s. 201(1A) of the Act, being interest computed at the rate of 1% per month on the tax worked out u/s. 201(1) of the Act.
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