Hello,
Our office has a client which is a listed public limited company is liable to deduct tax U/s 194 LC w.e.f. from 1st July, 2012 on foreign borrowings.
The bank from which it has borrowed asked the company to pay the interest amount to the bank in full and insisted on paying the tax to the credit of the government over and above the said interest and also added that the indian company should consider the said tax u/s 194 LC as a part of their borrowing cost.
For e.g Rs 100 is the interest payable and say the rate of TDS is 10% the indian company should pay the foreign bank Rs 100 and over and above that Rs. 10 should be paid to the government.
Now the question is whether the Rs. 10 paid to the government as withholding tax be allowable as expense ( other borrowing cost) for deduction to the indian company?
If not what should be the treatment of such extra amount paid to the foreign bank in the books of accounts?
Should it stand as Assets as receivable from the foreign bank? Or as contingent assets as the matter could become disputed.?
Kindly Help ASAP
CAclubindia
