Case Law Details
State Bank of India Vs DCIT (TDS) (ITAT Mumbai)
The case of State Bank of India vs. DCIT (TDS) was brought before the Income Tax Appellate Tribunal (ITAT) Mumbai, with the primary issue revolving around the liability of the assessee, State Bank of India (SBI), to withhold tax at source under sections 194A, 194H, or 194J of the Income Tax Act. Here’s a comprehensive summary of the case:
The background of the case reveals that SBI, a bank established under the State Bank of India Act, 1955, engaged in transactions involving the purchase of loans from Non-Banking Financial Companies (NBFCs) through the Direct Assignment route. These loans were originally granted by NBFCs to borrowers falling within the ambit of priority sectors like agriculture and housing, as per Reserve Bank of India (RBI) guidelines.
The transaction involved SBI purchasing a significant portion (90%-95%) of the loan portfolios from NBFCs, with the remaining portion (5%-10%) retained by the NBFCs. Tripartite agreements were executed between NBFCs (assignors), SBI (assignee), and trusteeship companies (assignee representatives) to facilitate these transactions.
Under these agreements, NBFCs retained a part of the interest income received from borrowers, which became the focal point of dispute. The Revenue contended that this retained interest was subject to tax deduction at source (TDS) under section 194A of the Income Tax Act. However, SBI argued that since it didn’t borrow any funds or incur any debt from NBFCs, there was no obligation to deduct TDS under section 194A.
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