2024 (5) TMI 1233 - AT - Income Tax

TDS u/s 194LBC - assessee is a securitization trust - payments made to the Originator , as Excess Interest Spread (EIS) - HELD THAT - FAA has noticed, and in our view rightly so, that two conditions have to be satisfied before the applicability of Section 194LBC and the consequent obligation for deduction of tax at source, viz. (i) the entity to whom the payment is made is an investor of the securitization trust and (ii) the payment is towards income accruing or arising out of the investment made in securitization trust. In our view neither of these conditions are satisfied in the present case. FAA after perusal of the Assignment Deed dated 28.12.2017 has found on facts that the Originator in this case is neither a holder of any securitized debt instrument, securities or security receipts and thus, cannot be regarded as an investor. FAA has also visited the reasoning articulated by the AO in holding otherwise. AO has opined that the Deed of Assignment dated 28.12.2017 is itself an instrument in the nature of a securitized debt instrument which has been negatived by the FAA - We find that the Deed of Assignment cannot be seen as a securitized debt instrument as has rightly been held by the FAA. There is a clear distinction between the Originator, which is the Assignor of the loan portfolio to the assessee, which is the Assignor and the PTC holders, who are the investors in the securitization trust. As noticed earlier, there may be a case where the Originator in order to comply with the MRR requirement, may be a holder of securitized debt instrument, securities or security receipts in which case for the payment made towards such instruments, the requirement of Section 194LBC of the Act may apply, which is not the factual position obtaining in the present case. Thus, no reason to interfere with the impugned order. We find that the view which we are taking is fortified by the decision of the co-ordinate Bench of this Tribunal in M/s. Vivriti Cibus 2023 (12) TMI 806 - ITAT MUMBAI , which has also been followed by another Division Bench of this Tribunal in SME Pool Series 2024 (2) TMI 1383 - ITAT MUMBAI - Appeal stands dismissed.

Summary

Issues:
Whether a securitization trust is liable to deduct tax at source under Section 194LBC of the Income Tax Act from payments made to the Originator as Excess Interest Spread (EIS).

Analysis:
The judgment revolves around the question of whether a securitization trust, specifically the respondent-assessee, is obligated to deduct tax at source under Section 194LBC of the Income Tax Act from payments made to the Originator as EIS. The securitization process involves various stakeholders, including the Originator, Debtor, and Special Purpose Vehicle (SPV). The SPV issues Pass Through Certificates (PTCs) to investors, and the Originator may provide liquidity support to the SPV. In this case, the respondent-assessee, a securitization trust controlled by M/s. IDBI Trusteeship Services Ltd., failed to deduct TDS from payments made to the Originator, leading to a demand raised by the Income Tax Officer (TDS), Mumbai.

The respondent-assessee contended that Section 194LBC of the Act does not apply as the Originator does not qualify as an 'investor' and should not be equated with PTC holders. The Revenue argued that the Originator should be treated similarly to PTC holders, emphasizing that other securitization trusts have started deducting TDS on EIS payments to the Originator. The CIT(A) accepted the respondent's contention, leading to the Revenue's appeal.

The Tribunal analyzed the nature of the investment by PTC holders versus credit enhancement by the Originator. It noted that the respondent-assessee cannot be considered an investor, as defined in the Act, and thus, was not required to deduct tax while paying the Originator. The Tribunal highlighted the distinction between PTC holders and the Originator in terms of investment and entitlement to returns. It upheld the CIT(A)'s decision, emphasizing that the Originator did not meet the conditions for the applicability of Section 194LBC.

The Tribunal dismissed the appeal, concluding that the Originator's role did not align with the definition of an investor under the Act. It affirmed that the Deed of Assignment was not a securitized debt instrument and that the Originator's position was distinct from PTC holders. The decision was supported by precedents and upheld the CIT(A)'s findings, ultimately ruling in favor of the respondent-assessee.

In conclusion, the judgment clarifies the tax deduction obligations of securitization trusts concerning payments to the Originator, emphasizing the specific criteria for applying Section 194LBC of the Income Tax Act.