TDS on Loan Acquisition Payments : ITAT Rules Payments to Piramal Enterprises Not Treated as Interest [Read order]
The tribunal observed that there was no borrower-lender relationship between the assessee and the transferors and relied on rulings in Piramal Capital and Housing Finance Ltd. v. ACIT, State Bank of India v. DCIT, and Idea Cellular Ltd. v. ADIT
The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that payments made to Piramal Enterprises Limited for acquiring loans, including NCDs, ICDs, and term loans, were part of the purchase consideration and not “interest,” and therefore, no Tax Deducted at Source (TDS) was applicable under sections 193 and 194A of Income Tax Act,1961.
The Revenue-appellant, appealed against the order passed by CIT(A) dated 09/05/2025, for the Assessment Year (AY)2019-20. In this case, Piramal Enterprises Limited, respondent-assessee,was a non-deposit-taking Non-Banking Finance Company (NBFC) registered with the RBI and engaged in lending and investing.
It purchased loans, including NCDs, ICDs, and term loans, from Piramal Enterprises Ltd. and Piramal Capital and Housing Finance Ltd. at carrying value, including principal and accrued interest.
A survey under section 133B(2) was conducted on 19/11/2019 to verify TDS compliance. It was found that the assessee accrued interest based on its loan holding period but did not deduct TDS on accrued interest and excess interest due to revised rates for FY 2018-19. A notice under sections 201(1)/201(1A) was issued.
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The assessee explained that the payments to transferors were part of the purchase price for acquiring loans and the right to receive principal and interest, not interest payments, and hence no TDS was required.
The Assessing Officer (AO ) disagreed and, vide order dated 10/02/2020, treated the assessee as an “assessee in default” under sections 194A and 193, raising a demand of ₹37.91 crore, including interest.
On appeal, the Commissioner of Income Tax (Appeals)[ CIT(A) ] relied on ITAT rulings in State Bank of India v. DCIT and Piramal Capital and Housing Finance Ltd. v. ACIT and held that the amount paid for acquiring loans was not “interest.” Since there was no borrower-lender relationship, the assessee was not liable to deduct TDS. The Revenue then appealed before the tribunal.
The two member bench comprising Sandeep Singh Karhail (Judicial Member) and Narendra Kumar Billaiya (Accountant Member) considered the submissions of both sides and examined the material on record. It noted that the assessee had made payments to Piramal Enterprises Ltd. and Piramal Capital and Housing Finance Ltd. for purchasing loans, including NCDs, ICDs, and term loans.
The assessee claimed that the payment was towards the purchase consideration for acquiring the right to receive principal and interest from borrowers at maturity and that no part of the amount could be treated as “interest” paid to the transferors. It further contended that there was no borrower-lender relationship between the assessee and the transferors.
The appellate tribunal observed that a similar issue had been considered in Piramal Capital and Housing Finance Ltd. v. ACIT, where it was held that once borrowers had deducted TDS on the interest income at the time of crediting it to the transferors’ accounts, the assessee was not required to deduct TDS again while acquiring the loans. Accepting the Revenue’s contention would have led to double TDS, which was not intended under sections 193 and 194A of the Act.
The tribunal also referred to the decision in State Bank of India v. DCIT, which clarified that TDS obligations arise only when there is “money borrowed” or “debt incurred.” Since the assessee had purchased the loans and had not borrowed funds from the transferors, the payments made could not be treated as “interest” under section 2(28A).
Similarly, it relied on Idea Cellular Ltd. v. ADIT, where it was held that in the absence of a borrower-lender relationship, such payments cannot be considered as interest for TDS purposes.
Based on these findings, the tribunal upheld the order of the CIT(A), which had relied on the above decisions and concluded that the assessee was not liable to deduct TDS under section 194A. Consequently, the appeal filed by the Revenue was dismissed.
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