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TMI Blog2018 (5) TMI 1586X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - ITA no.3041/Mum/2016 - - - Dated:- 23-5-2018 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI ANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER For The Assessee : Shri Farrokh V. Irani, Sr. Counsel For The Revenue : Smt. ArjuGarodia ORDER PERSAKTIJIT DEY, J.M. Aforesaid appeal by the assessee is against order dated 26 February 2016, passed by the learned Commissioner (Appeals) 59, Mumbai, for the assessment year 2012 13. 2. At the outset, learned Counsel appearing for the assessee submitted thatconsidering the smallness of the amount involved, on the instructions of his client, he does not want to press grounds no.4 to 6. In view of the aforesaid submissions of the learned Counsel, grounds no.4 to 6 are dismissed. 3. Grounds no.6, 7 and 8, being general in nature, no separate adjudication is required. 4. In grounds no.1, 2 and 3, assessee has challenged the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Hon'ble Jurisdictional High Court in case of Industrial Development Bank of India v/s ITO, 293 ITR 267 (Bom). Without prejudice, it was also submitted that the borrowing fee paid not being in the nature of interest, the provisions of section 194A of the Act are not applicable. The Assessing Officer, however, did not find merit in the submissions of the assessee. He observed, NSCCL is neither exempt from provisions of TDS under section 197(1) of the Act nor under any express or special provisions of TDS by way of CBDT Circular or Notification. He observed, the nature of receipts in the hands of recipient is immaterial insofar as TDS provisions are concerned. The Assessing Officer observed, only in the event of issuance of no deduction certification under section 197(1) of the Act the payee can refrain from deducting tax at source while making payment. As regards assessee s contention that identity of the persons to whom the amount is paid / credited is not known, the Assessing Officer observed that such contention is not acceptable, since, the assessee has paid the amount to NSCCL and the identity of the person to whom NSCCL would pay is not at all relevant. As re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppearing for the assessee submittedthat for the purpose of borrowing securities, assessee has entered into an agreement with NSCCL which is the approved intermediary of the SEBI under the SLB scheme. He submitted, as per the SLB Scheme 1997, the transaction of lending and borrowing securities has to be carried out through approved intermediary. As per the terms of the Scheme, the lender shall enter into an agreement with the approved intermediary for depositing the securities for the purpose of lending. Similarly, the borrower shall also enter into an agreement with the approved intermediary for the purpose of borrowing security. The learned Sr. Counsel submitted, as per the terms of the scheme, there is no privity of contract between a lender and borrower as the SLB Scheme specifically prohibits such an agreement between the lender and the borrower for the lending or borrowing of securities. He submitted, since the lender and borrower have no privity of contract or even do not know each other, the borrowing fee is paid to NSCCL and the NSCCL in turn pays such fee to the respective lenders. He submitted, since, at the time of payment of the borrowing fee, the assessee, who is a bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will become unworkable in such a situation. The learned Sr. Counsel submitted that in such an event the assessee cannot be forced to do an impossible act. Thus, he submitted, in the aforesaid situation the provisions of section 194A of the Act cannot be applied to the payments made by the assessee to NSCCL. In support of such contentions, the learned Sr. Counsel relied upon the decision of the Hon'ble Delhi High Court in case of UCO Bank v/s Union Bank of India and Ors., judgment dated 11th November 2014, in W.P(C) no.3563 / 2012 and C.M. no.7517/2012. Without prejudice to the aforesaid submissions, the learned Sr. Counsel submitted that the borrowing cost paid by the assessee cannot be considered to be in the nature of interest as defined under section 2(28A) of the Act. 8. The learned Departmental Representative relied upon the observations of the Assessing Officer and the learned Commissioner (Appeals). 9. We have considered rival submissions and perused materials on record. First and foremost we have to deal with the primary and fundamental issue raised by the assessee on the point that in the absence of identity of the payee / recipient of income the assessee cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of securities under the Scheme through an approved intermediary shall not be treated as disposal of the securities. Of course, the Scheme also provides for payment of fee for borrowing securities. Thus, a reading of the Scheme as a whole would indicate that the entire transaction relating to lending and borrowing of securities has to be mandatorily carried out through the approved intermediary.In the present case there is no dispute that the approved intermediary is NSCCL and lending and borrowing of securities for which the borrowing fee has been paid was carried out through NSCCL. The Assessing Officer has held the payment of borrowing fee to NSCCL to be taxable at the hands of NSCCL and accordingly raised the demand under section 201(1) and levied interest under section 201(1A) of the Act. However, the learned Commissioner (Appeals) has correctly appreciated the role of NSCCL while holding that it only acts as an intermediary or facilitator of the transaction of lending and borrowing securities and the borrowing fee is not an income of NSCCL. In fact, NSCCL has also clarified the aforesaid factual position by stating that the borrowing fee received by it is being shown as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xure C clearly states that the approved intermediary shall maintain confidentiality of information about lender or borrower which it has come to possess as a consequence of dealings with it and shall not divulge the same to other clients, the press or any other interested parties. Thus, 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. The learned Commissioner (Appeals) has not referred to any material to demonstrate that at the time of making payment to the NSCCL or prior to it the assessee knew the identity and other details of the lenders to whom NSCCL was ultimately going to pay the borrowing fee. It further appears, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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