The AO passed an order determining the total income of the assessee at a loss under normal provisions, inter alia, making disallowances of loss on interest rate (hedging contract) and monitoring fees for failure to deduct tax at source u/s. 40(a)(ia).

Tribunal held that the monitoring fees paid by the assessee to DEG Bank, Germany qualified as “interest” both under the Act as well as the Double Taxation Avoidance Agreement between India and Germany and the payment made in question was not liable to tax under the Act in terms of the specific exemption granted under article 11(3)(b) of the DTAA. Hence, no deduction of tax at source was required to be made u/s. 195 of the Act. No violation of S.195, the disallowance made u/s.40(a)(ia) of the Act.(AY 2012-13)