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2018 (5) TMI 1586 - AT - Income TaxTDS u/s 194A - Non deduction of TDS on borrowing fees - assessee in default - borrowing fee paid to the lenders through NSCCL - it is the contention of the assessee from the very beginning that since the identity of the lenders are not known to the assessee it could not have deducted tax at source while making such payment. Thus, the TDS provisions become unworkable. - Held that - on a reading of the Scheme as a whole, it appears that the lender and borrower of securities have no contact with each other as the entire transaction is regulated through NSCCL. Keeping in perspective the aforesaid facts, the contention of the assessee that, while making payment of borrowing fee it was not aware of the identity and other details of the lender, assumes importance. Neither the Assessing Officer nor the learned Commissioner (Appeals) have conducted any enquiry with the NSCCL for ascertaining the fact as to whether at the time of making the borrowing fee or prior to it assessee was in knowledge of the identity and other details of the lender. Matter restored before AO - in the event it is ultimately found that at the time of paying the borrowing fee to NSCCL or even prior to it, the assessee was unaware of the identity and other details of the lenders, then it cannot be fastened with the liability of deduction of tax under section 194A
Issues Involved:
1. Demand raised under section 201(1) and interest charged under section 201(1A) of the Income Tax Act, 1961, due to non-deduction of tax at source on borrowing fee paid through National Securities Clearing Corporation Ltd. (NSCCL). Issue-wise Detailed Analysis: 1. Demand Raised and Interest Charged under Section 201(1) and 201(1A) for Non-Deduction of Tax at Source: The assessee, a company engaged in capital market brokerage, was subject to a survey under section 133A of the Income Tax Act on 22nd July 2011. During this survey, discrepancies were found regarding non-deduction of tax at source on an amount of ?7,23,21,065 debited under finance cost for the financial year 2011-12. The amount was paid to NSCCL under the Securities Lending and Borrowing Scheme, 1997 (SLB) of SEBI to settle short selling of securities. The assessee contended that the borrowing fee paid to NSCCL was not in the nature of income at NSCCL's hands as it was shown as a liability in NSCCL's books, and since the identity of the ultimate payees was unknown, TDS provisions could not be applied. The assessee also argued that the borrowing fee was not in the nature of interest, thus section 194A was not applicable. The Assessing Officer (AO) rejected these arguments, stating that NSCCL was not exempt from TDS provisions and that the nature of receipts in the hands of the recipient was immaterial. The AO held that the borrowing fee constituted interest under section 2(28A) and raised a demand of ?72,32,106 under section 201(1) and levied interest of ?22,41,952 under section 201(1A), totaling ?94,74,058. The Commissioner (Appeals) upheld the AO's decision, agreeing that NSCCL acted as an intermediary and that the borrowing fee was in the nature of interest. The Commissioner (Appeals) noted that the identity of the lenders was known to NSCCL, and therefore, the assessee's argument that TDS provisions were unworkable was not acceptable. On appeal, the assessee reiterated that the borrowing fee was paid through NSCCL, which acted as an intermediary, and the identity of the lenders was unknown to the assessee, making it impossible to deduct tax at source. The assessee also argued that the borrowing fee was not in the nature of interest. The Tribunal considered the rival submissions and the materials on record. It noted that the SLB Scheme mandated transactions through an approved intermediary like NSCCL, with no direct agreement between lenders and borrowers. The Tribunal observed that the borrowing fee paid by the assessee was ultimately received by the lenders of the securities, with NSCCL acting as a pass-through entity. The Tribunal found that the Department did not adequately ascertain whether the assessee knew the identity of the lenders at the time of payment. The Tribunal concluded that if the assessee was unaware of the identity of the lenders, it could not be held liable for deducting tax at source under section 194A, as the TDS provisions would become unworkable. The Tribunal restored the issue to the AO for re-adjudication after proper enquiry, emphasizing that the assessee could not be compelled to perform an impossible act. The Tribunal also restored the issue of whether the borrowing fee constituted interest for fresh decision by the AO, if necessary. In conclusion, the Tribunal partly allowed the assessee's appeal for statistical purposes, directing the AO to re-examine the matter with a focus on the assessee's knowledge of the lenders' identities at the time of payment. Order Pronounced:Order pronounced in the open Court on 23.05.2018.
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