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TDS-SEC 194A

TDS / TCS 1304 views 2 replies

Please explain the case law of CIT v. Century Building Industries P.Ltd (2007) 293 ITR 194 (SC) in detail.My question is why the Company has to deduct the tax on interest?

Replies (2)

The facts of the case are as under.......

"Directors of the company took loans in their individual capacities in the name of the company. The loan amounts were received by cheques in the name of the company and were transferred to the directors on the same day through bank. The repayment of loan with interest was also routed through the company. The lender had advances the loans to the company and the debit was made by the company to the interest account. There was no resolution of the company whereby it has agreed to act as the medium for routing the borrowing and  epayments. The department was right in invoking the provisions of section 201 and 201(1A) for non deduction of tax at source on interest."

When we will read various provisions of TDS, we will find that liability to deduct TDS is on the person making the payment. The condition that payment must be on its own behalf may not be stricly within the words of law. Even when you are making a payment on other persons behalf, you are liable to deduct TDS. For example, if a consignment agent is paying for freight on behalf of the principal, he should deduct TDS even when he will be reimbursed the payment.

Although the principle may have applicability differently in different situation depending upon exact words of law, deeming provisions and departmental circulars- it is one basic principle which should be kept in mind.


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