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November 2022

Section 194LD of the Act – NCDs issued by Indian Co. qualifies as rupee denominated bond of an Indian company and are entitled to concessional withholding tax rate of 5 per cent

By Geeta Jani | Dhishat B. Mehta | Bhaumik Goda
Chartered Accountants
Reading Time 2 mins
Heidelberg Cement AG vs. ACIT
[2022] 143 taxmann.com 79 (Delhi - Trib.)
11 [ITA No: 531/Del/2022] A.Y.: 2017-18
Date of order: 26th September, 2022

Section 194LD of the Act – NCDs issued by Indian Co. qualifies as rupee denominated bond of an Indian company and are entitled to concessional withholding tax rate of 5 per cent

FACTS

The assessee had invested in rupee-denominated Non- Convertible Debentures (‘NCDs’) of an Indian company (I Co). I Co offered interest on NCDs at 5 per cent u/s 115A(1)(a)(iiab) r.w.s. 115A(1)(BA)(i) of the Act.

The AO took a view that assessee is not eligible to offer interest income at 5 per cent as section 194LD only covers ‘rupee denominated bonds’. The assessee appealed to the DRP. The DRP upheld the order of the AO. Being aggrieved, the assessee appealed to ITAT.

HELD

The Act does not define the term ‘Bond’. Hence, ITAT relied on the decision of the Delhi High Court in DIT vs. Shree Visheshwar Nath Memorial Public Ch. Trust (2010) 194 taxman 280 (Delhi), wherein it was held that the term ‘debenture’ includes the bond of a company.

Applying this test, ITAT held that debentures are bonds for the purposes of section 194LD of the Act and accordingly, interest paid on NCDs issued by an Indian company will qualify for concessional tax rate of 5 per cent.
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