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Informist, Wednesday, Aug. 19, 2026

 

--SC: Referral charges from banks, insurance cos to auto dealers taxable 

 

NEW DELHI – The Supreme Court Wednesday held that automobile dealers obtaining referral charges from banks and insurance companies on customers availing motor vehicle loans and buying insurance policies, respectively, would be a business auxiliary service and hence taxable under Section 65(105)(zzb) of Chapter V of The Finance Act, 1994. It said the automobile dealers are promoting the business of the banks and insurers concerned, for which they are receiving an amount as stipulated in their agreement.

 

The apex court said that since TVS Motor Co. Ltd. had paid out the entire liability of tax prior to issuance of notice, there should be no penalty levied on the company regarding referral charges. Sub-section (3) of Section 73 of the Finance Act mandates that if there is short levy or short payment of tax, but if the tax liability is satisfied prior to the notice being issued, the department must desist from issuing a show-cause notice, the court said.

 

There was some confusion insofar as liability is concerned and so TVS Motor had not disclosed the income generated from the referral charges as business auxiliary service in the service tax returns filed, the company said. The matter pertained to the period from the financial year 2003-04 (Apr-Mar) to FY07. Even if the notice was issued within that period, the satisfaction of the liability prior to the issuance of notice would mean the penalty imposed should be set aside, the court ruled.

 

The tax department had argued that TVS Motor had deliberately shown the referral charges received by it as miscellaneous income to suppress it. The provisions of The Finance Act, 1994, were known to the company and there was no escape from the income being taxed as the company was taking a commission in the form of referral charges for clients referred to banks and insurers, it said. The penalty imposed was in tune with the provisions of the Act, it added.

 

Wednesday, shares of TVS Motor Co. ended at INR 4,361.10 on the National Stock Exchange, up marginally from Tuesday.  End

 

Reported by Surya Tripathi

Edited by Rajeev Pai

 

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