2024 (2) TMI 1383 - AT - Income Tax

TDS u/s 194LBC - payments made to the Originator as Excess Interest Spread (EIS) - Appellant was established as a securitization trust/special purpose distinct entity engaged, inter alia, in acquisition of loan portfolio from the financial institutions ( Originator ) - HELD THAT - On perusal of the MRR Guidelines, we are of the view that in cases where the MRR commitment is met via any other permissible alternative, the originator cannot be regarded as an Investor since the Originator does not hold any investment in the special purpose distinct vehicle/securitization trust. In our view, an originator can also be Investor provided such originator makes investment in the special purpose distinct vehicle/securitization Trust by subscribing to PTC or other securities/instruments. However, it is admitted that in the present case the Originator has neither subscribed to PTCs nor had made any other investment. MRR has been maintained via cash collateral and in the form of collateralising of excess receivables. Therefore, the decision of Vivriti Cibus 2023 (12) TMI 806 - ITAT MUMBAI wherein Tribunal had deleted the demand raised upon the assessee u/s 201(1A) of the Act for non-compliance with the provision of Section 194LBC and held that Appellant was not under obligation to withhold tax from payment of EIS to the Originator. Assessee appeal allowed.

Summary

Issues Involved:
1. Condonation of Delay
2. Appellant being treated as 'assessee in default'
3. Non-applicability of Section 194LBC of the Act
4. Levy of interest u/s 201(1A) of the Act

Condonation of Delay:

The appellant sought condonation of a 50-day delay in filing the appeal, attributing it to the resignation of the associate/employee responsible for tracking income-tax notices. The Tribunal condoned the delay, citing the judgment of the Hon'ble Supreme Court in the case of Collector, Land Acquisition vs. Mst. Katiji & Ors. (1987) 167 ITR 471 (SC).

Appellant being treated as 'assessee in default':

The appellant challenged the CIT(A)'s order that treated it as an 'assessee in default' u/s 201/201(1A) of the Income Tax Act, 1961, for not deducting tax at source under Section 194LBC on the Excess Interest Spread (EIS) paid to the originator.

Non-applicability of Section 194LBC of the Act:

The Tribunal noted that Section 194LBC applies if income is payable to an investor in respect of investment in the securitization trust. The appellant argued that the originator was not an investor as defined under the Act because the originator did not hold any Pass Through Certificates (PTCs) or other securities/instruments. The Tribunal agreed, citing the decision in M/s Vivriti Cibus 013 2017 Vs. Income Tax Officer (TDS)-2(3)(3), Mumbai [ITA No. 3171/Mum/2022], which held that Section 194LBC is not applicable to EIS payments when the originator does not hold any investment in the securitization trust.

Levy of interest u/s 201(1A) of the Act:

The Tribunal deleted the demand of INR 4,21,30,230/- under Section 201(1) and INR 47,22,191/- under Section 201(1A), aggregating to INR 4,68,52,422/-, concluding that the appellant was not under obligation to withhold tax from the EIS payments to the originator.

Conclusion:

For both Assessment Years 2017-18 and 2018-19, the Tribunal allowed the appeals, holding that the provisions of Section 194LBC were not applicable, and thus, the appellant could not be treated as an 'assessee in default' nor liable for interest u/s 201(1A).