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TMI Blog2015 (6) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and withholding of tax is required on the same. 2. The Appellant prays that it be held that the arranger's fee is not interest income within the meaning of section 2(28A) of the Act. GROUND 2: 1. On the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that holding that the arranger's fee paid to the Hongkong and Shanghai Banking Corporation Ltd., Hong Kong for arranging loan facility is fees for technical services as per section 9 (1) (vii) of the Act and withholding of tax is required on the same." 3. Brief facts of the case are that, the assessee (Idea Cellular Limited) had entered into "Term Loan Facility Agreement" dated 10th September, 2009, as borrower, with Finnish Export Credit Ltd., who is the lender. The HSBC, Hongkong had arranged for the loan as "Arranger" and UK based Company, HSBC Bank, PLC acted as a facility agent. The draw-down amount of the facility for the relevant previous year was as under:- Date of drawdown Drawdown Amount (USD) 1-February 2010 24,749,935 2-March 2010 21,661,799 2-March 2010 10,072,293 30-March 2010 3,005,851 TOTAL 59,489,878 3.1 Pursuant to the said agreement dated 10- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the lender but to the Arranger for the purpose of arranging the finance required by the assessee from the lenders. It is not a compensation for use of money and therefore cannot be regarded as interest. The second limb of the assessee's argument was that the income of non-residents would be chargeable to tax in India if it is either received in India or accrued or deemed to accrue in India. Here in this case, the fees were remitted outside India by the assessee, therefore, cannot be held to be taxable in India. The assessee also made detailed submission of non-applicability of Clause (i) of section 9(1) which has been dealt with by the ld. CIT(A) in his appellate order. Lastly, it was submitted that such a payment cannot be termed as 'fees for technical services' within the meaning of section 9(1)(vii), because the services of the arranger do not constitute managerial or consultancy services. In support of his proposition also detailed submissions were made. 5. The ld. CIT(A) held that the payment of 'arranger fee' is not only in the nature of 'interest' but also it is in the nature of 'for technical services' within the meaning of section 9( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88/Mum/2001 for assessment years 1998-99 & 1999-2000 order dated 20-02-2010, wherein with regard to "front-end fees", it was held that it is in respect of debt investment at a certain percentage of proposed investment and thus it has a direct nexus with the debt claimed, therefore, it is covered within the definition of the term interest under the Act. (v) Regarding such a payment falling within the meaning of fees for technical services u/s 9(1)(vii) as contended by the A.O., he held that the arranger fee is in the nature of service fee for managing and arranging the finance for the assessee borrower from the various lenders. The arranger had rendered services by way of arranging the loan which is nothing but in the nature of fees for technical services as any fees which has been paid for rendering any managerial or consultancy services is to be reckoned as for technical services. Accordingly, he held that such payment also fall within the purview of fees for technical services u/s 9(1)(vii). In support, he strongly relied upon the decision of ITAT, Mumbai Bench in the case of Ashapura Minechem v. ADIT in ITA No. 2500/M/2008 for A.Y. 2008-09 order dated 21-05-2010. 5.1 His final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied by the person from whom the money have been borrowed or the person in whose favour the debt has been credited/incurred is also not applicable as Arranger is not lender. Merely because the Arranger fee have been paid in relation to borrowing, that itself does not mean that the said fees are paid in respect of the said borrowing. Arranger fee is in the nature of normal business receipt in the hands of the HSBC, Hongkong and in the absence of any establishment in India taxing of the business receipt in the hands of the Arranger does not arise in India. Regarding treatment of Arranger as fees for technical services, he submitted that ITAT, Mumbai Bench in the case of Credit Lyonnais v. ADIT (International Taxation) reported in [2013] 35 taxmann.com 583 (Mumbai - Trib) held that Arranger's fee for arranging the funds does not amount to fees for managerial or consultancy services within the ambit of 'fees for technical services' as defined in Explanation to section 9(1)(vii). This proposition has been reiterated and followed in the case of DDIT (IT) v. Abu Dhabi Commercial Bank Ltd. Reported in [2013] 37 taxmann.com 15 (Mumbai-Trib). Thus, the issue that Arranger fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stly, assessing and exchange of information between the parties on terms and conditions of the agreement. For this service, the Arranger fee has been paid by the assessee to the Arranger, HSBC. Thus, the Arranger had acted some kind of the broker or a middleman for arranging the loan for the assessee. 10. Now, the issue before us is, whether such a fees paid to the arranger can be termed as "interest" within the meaning of section 2(28A) or "fees for technical services for service" within the meaning of section 9(1)(vii). 11. The definition of "interest" u/s 2(28A) reads as under:- "interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised;" From the above definition, it can be inferred that the term "interest" coveres, firstly, the interest payable in any manner in respect of any money borrowed or debt incurred and, secondly, such interest payable includes any service fee or other charge in respect of the money bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issing. Though, the fees of an Arranger may depend upon the quantum of loan or loan facility arranged but to be included within the meaning of term 'interest', it has to be directly in respect of money borrowed, i.e. directly flowing from the consideration paid for the use of money borrowed. It is a kind of a compensation paid by the borrower to the lender. Thus, Arranger is only a intermediary/third party and accordingly, any fee paid as Arranger fee cannot be termed as "interest" under both the limbs of the definition; given in section 2(28A). Therefore, the assessee was not liable to deduct tax for such payment, as it does not fall within the ambit of interest. 12. Now, coming to the decision of M/s Commonwealth Development (supra) as relied upon by the ld. CIT(A), we find that in this case, the issue was, whether the upfront appraisal fee collected by the assessee company is in the nature of interest. Appraisal fee collected was only for the purpose of verifying the debt even it is not utilised. The Tribunal held that such appraisal fee paid cannot be said to be interest payable in respect of money borrowed or debt incurred and also not in the nature of service fee or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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