Dismissing the appeals the Court held that  since the usance charges for letters of credit were covered in the definition of interest under section 2(28A) the assessee was obliged to deduct tax at source under section 195(1) . According to the definition in section 2(28A) the expression “interest” included any service fee or other charge in respect of any credit facility which has not been utilized. Therefore, the charges paid by the assessee in respect of the credit facility (letter of credit) amounted to interest. Distinguished Gnanasigamani Nadar v. Canara Bank [1990] 1 MLJ 401, Dhakeshwari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC) and Esthuri Aswathiah v. CIT [1967] 66 ITR 478 (SC) . Court also held that though the usance charges were paid to the Indian bankers by way of letter of credit charges and commission, nevertheless, such payments, were part of the transactions which involved purchase or import of raw material from non-residents. The issuing bank of the assessee had merely acted as its agent. The usance charges were the income of the non-resident as envisaged in the provisions of section 9(1)(v)(b) read with section 5(2) and therefore, the provisions of section 195(1) were attracted and the assessee was obliged to deduct tax at source before making such payment failing which, such expenditure, could not be deducted under section 40(a)(i). (AY. 2009-10)