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TMI Blog2023 (12) TMI 806X X X X Extracts X X X X X X X X Extracts X X X X ..... is maintained via cash collateral and in the form of ccollateralizing of excess receivables, then the first condition provided in Section 194LBC is not fulfilled and therefore, in our opinion there cannot be any obligation to deduct tax in terms of said Section. Cash flow received was to be utilized in the manner provided in the water flow mechanism of the trustee, the Excess Interest Spread (EIS) is the residual amount that flows to the originator and is not pursuant to any investment in the securitization trust or return of investment so made. Even assuming AMPL is to be treated as an investor, then also no tax was required to be deducted u/s. 194LBC on the EIS as the said payment was not in respect of investment made by AMPL in the PTCs issued by the assessee. The surplus here especially represents a reward earned by AMPL that its effort of creating pool of loan receivables which is capable of assigning. The MRR requirement was introduced by RBI for the first time in the year 2012 and prior to such there was no requirement for the originator to comply with MRR and even for such bills prior to 2012 EIS was paid to the originator. This further corroborates that EIS cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Officer (TDS)-2(3)(3) ['learned AO'] and by treating the Appellant as 'assessee in default' Ground No 2: Non-applicability of section 194LBC of the Act The learned CIT(A) erred on facts and in law in upholding the order of the learned AO that tax was required to be deducted at source under section 194LBC of the Act on the amount of excess interest spread paid by the Appellant to the originator. Without prejudice to the above, the learned CIT(A) ought to have held that, since the payee had furnished its income-tax return ('ITR') under section 139 of the Act had taken into account such sum for computing income in its ITR and had paid the sum tax due on the income declared by them in such ITR. The Appellant could not be regarded as an assessee in default merely because a certificate to this effect in the prescribed form could not be furnished. Ground No 3: Non-grant of adjournment as requested The learned CIT(A) erred in not granting sine die adjournments as requested by the Appellant. Ground No 4: Levy of interest under section 201(1A) of the Act The learned CIT(A) erred on facts and in law in levying interest un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... security vested with the Trust/SPV (by virtue of deed of assignment). Therefore, it is clear that the EIS is an income arising on account of securitisation of underlying assets and, therefore, distribution of such income by the assessee Trust do require deduction of TDS u/s 194LBC of the Act. ) It is contended that EIS is the residual amount that flows to the originator of the loan without the said EIS income being in relation to the investment made by the originator in the ST. It is also contended that EIS income can flow to the originator irrespective of whether such originator holds any securities in the ST or not and that prior to 2012 amendment, there was no requirement for the originator to have minimum investment in the ST and even in such cases the EIS used to flow to the originator. Here, it is to submit that EIS is not mentioned in the 2006 guidelines of the RBI. A reference of surplus income found in Para 7.2 of 2006 guidelines, 7.2 The originator should effectively transfer all risks/ rewards and rights/obligations pertaining to the asset and shall not hold any beneficial interest in the asset after its sale to the SPV An agreement entitling the originato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to the investment made by the originator in the ST is not correct. After 2012 guidelines, the Originator has to maintain the MRR throughout the securitisation period, therefore, the EIS and the MRR (originator's holding of PTCs) are also interlinked. If the Originator do not keep MRR all the times, the question of EIS do not arise at all. Therefore, EIS is indeed linked with the investment of the Originator in the Securitisation scheme and, hence, the assessee trust must have deducted the TDS u/s 194LBC on the EIS paid to the Originator. After recording to Section 115TCA and meaning of securitized debt instrument and the investor has given in the said Section he held that from the above definitions, it can be said that the deed of assignment (wherein Originator and assessee trust-SPV are the parties) is also an instrument in nature of securitised debt instrument which acknowledges the beneficial interest of Originator in respect to receivable in the nature of EIS. Hence, by virtue of above definitions, the Originator can safely be termed as the investor holding deed of assignment (securitised debt instrument) which acknowledges the interest of Originator (EIS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -- 3 Jun. 17 -- -- 4 Jul. 17 -- - 5 Aug. 17 -- -- 6 Sep. 17 -- -- 7 Oct. 17 3772100.64 1131630.19 8 Nov. 17 3280594.61 984178.38 9 Dec. 17 3369566.45 1010869.93 10 Jan. 18 2866592.26 859977.67 11 Feb. 18 2835938.68 850781.60 12 Mar. 18 2743001.93 822900.57 1,88,67,795 56,60,338 7. Thereafter, he has computed the interest u/s. 201(1A) of Rs. 13,97,257/- and finally determined the default with respect to non-deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the background of the case, submitted that assessee which is a securitisation trust was created to secure pool of loan receivables from Annapurna Microfinance Pvt. Ltd (AMPL) i.e. seller / originator. To acquire the ownership over the pool of loan receivables of Rs. 25,27,90,940/-, assessee raised funds by issuing Pass Through Certificates (PTCs) to Indus Ind Bank of an equivalent amount (being Series A1 PTCs) which carried fixed yield of 8.75% per annum. This was provided in declaration of trust itself vide clause no.56. The face value of each PTC was Rs. 1/-. Pursuant to the assignment of loan portfolio, the assessee trust became the legal owner of the receivables and all cash flows from borrowers were received by the assessee i.e. principal repayment and interest. As per waterfall mechanism, the cash flow received was to be utilized in the manner provided in Clause 7.6 7.6.1. For the sake of ready reference, the relevant clause reads as under:- 7.6.A The Waterfall Mechanism is based on the following principles: (a) Series Al interest shall be due and payable on each Payout Dute and Series A1principal shall only be expected on any Payout Date (b)Series Al Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) twenty-five per cent, if the payee is an individual or a Hindu undivided family, (ii) thirty per cent, if the payee is any other person. (2) .. 14. From the plain reading of Section it is seen that Section casts an obligation for deduction of tax at source if the following two conditions are satisfied:- Firstly, the income is payable to an investor and Secondly, the income is in respect of investment in the securitization trust. 15. It provides that definition of the term investor shall have the meaning assigned to it in Clause (d) of Explanation to Section 115 TCA. Section 115 TCA in turn defines investor and securities debt instrument as under:- Investor means a person who is holder of any securitised debt instrument or securities or security receipts issued by the securitisation trust' Securitised debt instrument shall have the same meaning as assigned to it in clause F2 (s) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NA Tenor (in months) 7.85 NA Percentage 92.00% 8.00% Principal 25,27,90,490 2,19,81,821 Cashflows 26,74,71,839 NA Rating A- (SO) Unrated Rating Agency ICRA Limited MRR MRR is met via the cash collateral contributed by the seller (6.50% of pool principal securitised as cash collateral and 8.00% of the pool principal is provided as overcollateralization). MRP Minimum seasoning of 6 installments for fortnightly loans and 3 for monthly loans. 17. Ergo, once the originator, (AMPL) is not holding any PTC / SDI, it cannot be regarded as investor as per the terms defined in the aforesaid provisions elaborated above. It is only in a situation where the originator has subscribed to the PTCs of the securitization trust and then only it can be regarded as an investor. In case w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then the liability to deduct TDS does not trigger. 20. Before us without prejudice it has been stated that since the payee i.e. AMPL has discharged its liability to deduct tax in respect of EIS, then assessee cannot be regarded as assessee in default . AO had not accepted this plea, because assessee had not submitted prescribed form 26A. Now before us, assessee had furnished form 26A however, it has been stated that when the process to generate form 26A was initiated there was technical glitches on the income tax portal and when income tax portal was migrated to new format in June 2021 and form 26A functionally was enable on the portal only in April / May 2022, therefore, the assessee was not able to file form 26A before the lower authorities, therefore, the same is being filed before the Tribunal in the form of additional evidences. Once, the form 26A has been filed and AMPL has discharged its liability for tax in respect of EIS, ostensibly in terms of proviso to section 201(1), assessee cannot be treated as assessee in default . Since, we have already held that there is no liability to deduct TDS in the present case, then whether form 26A was filed before the AO or not or h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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