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TMI Blog2024 (2) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... al and in the form of collateralising of excess receivables. Therefore, the decision of Vivriti Cibus [ 2023 (12) TMI 806 - ITAT MUMBAI ] wherein Tribunal had deleted the demand raised upon the assessee u/s 201(1A) of the Act for non-compliance with the provision of Section 194LBC and held that Appellant was not under obligation to withhold tax from payment of EIS to the Originator. Assessee appeal allowed. - Shri Amarjit Singh, Accountant Member And Shri Rahul Chaudhary, Judicial Member For the Appellant/Assessee : Shri Niraj Seth. For the Respondent/Department : Dr. Kishor Dhule. ORDER PER RAHUL CHAUDHARY, JUDICIAL MEMBER: 1. These are 2 appeals pertaining to Assessment Years 2017-18 and 2018-19 preferred by the Appellant against the orders passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as the CIT(A) ]. Since the appeals involve identical issues the same were heard together and are being disposed by way of a common order. ITA No. 341/MUM/2023 (Assessment Year: 2017-18) 2. We would first take up appeal for the Assessment Year 2017-18 which has been preferred by the Assessee challenging the order, dated 19/1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant as assessee in default. The learned CIT(A) further erred in facts by not granting sine adjournment as requested by the Appellant. 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 Ground No 3 : Levy of interest under section 201(1A) of the Act The learned CIT(A) erred on facts and in law in levying interest under section 201(1A) of the Act. The Appellant craves leave to add, to amend, alter, vary, omit or substitute the aforesaid grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being interest on the aforesaid amount, was raised on the Appellant in terms of Section 201(1)/201(1A) of the Act. 7. The Appeal against the order dated 25/02/2019, passed under Section 201/201(1A) of the Act preferred by the Appellant was dismissed by the CIT(A) vide order, dated 19/10/2022. 8. Being aggrieved by the order, dated 19/10/2022, dismissing the appeal, passed by the CIT(A), the Appellant has preferred the present appeal on the grounds reproduced in paragraph 4 above. All the three grounds raised by the Appellant arise from common factual matrix and are inter-connected, and are therefore, taken up together hereinafter. 9. The Learned Authorized Representative for the Appellant at the outset submitted that issues raised in the present appeal are covered in favour of the Appellant by the decision of the Tribunal in the case of M/s Vivriti Cibus 013 2017 Vs. Income Tax Officer (TDS)-2(3)(3), Mumbai, [ITA No. 3171/Mum/2022, dated 30/11/2023, Assessment Year 2018-19]. The Ld. Authorised Representative for the Appellant submitted that the Assessing Officer and the CIT(A) have failed to appreciate that Section 194LBC of the Act was not applicable to the payments of Excess Inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be treated as an assessee in default. 9.4. Without prejudice to the above, it was contended by the Ld. Authorised Representative for the Appellant submitted that in any event, the payee (i.e. the Originator in the present case) has included EIS as its income in the return of income and discharged its tax liabilities, the Appellant cannot be regarded as an assessee in default. During the course of proceedings under Section 201(1) of the Act, the Assessing Officer held that since the Appellant has not submitted the prescribed Form (i.e. Form 26A that is to be submitted online), the Appellant was to be considered as an assessee in default irrespective of whether the recipient had already paid tax on the amount. Form 26A presupposes an obligation to deduct tax. Since the Appellant was refuting the obligation to deduct tax, and therefore, the Appellant did not submit Form 26A during the course of the proceedings under section 201(1)/(1A) of the Act. However, in order to mitigate the liability, on a without prejudice basis, the Appellant got Form 26A generated on 16/06/2023, i.e., after the orders under Section 201(1)/(1A) of the Act was passed. 9.5. The Ld. Authorised Represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and submitted as under:- 4. xx xx In continuation to the above, we wish to inform you that after the survey, as per instruction by Income Tax, we have started deducting TDS on the EIS w.e.f. Oct. 18 wards payment u/s 194LBC of the Act in respect of all the securitisation trusts under our Trustreship. Also, as per requested by Income Tax we have already communicated to all respective Originators to Deposit TDS en EIS u/s 194LBC for the period of Apr. 18 to Sep 18 and some of the originators have already deposited the TDS for the said period 5. It may be appreciated that the assessee has distributed EIS to the originator. The nature and character of the EIS income accrued to the seller is nothing but return on investments made by the originator in the SPE in the form of excess credit or credit collateral or bank guarantee by securitising part of pool asset subscribed by PTC holders and the seller is also a beneficiary of the pool asset viz. the securitised debts as the originator is bound to retain the securitised pool by virtue of RBI guidelines in the form of MRR. The requisite guidelines of the RBI reproduced by the Assessing Officer in para-4 of its order. 5.1 The assessee has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assigned to the special purpose distinct entity. There is strength in the conclusion that Section 115TCA deals with any income payable to the investor. Further the Section 115 TCA of the Income Tax Act says it is a deeming provision, which means if any income arising or accruing to investors even if not paid or credited to person referred to in sub-section (1), which is investor, shall be deemed to have been credited to the account of the said person (investor) on the last day of previous your. The section 115TCA(3) clears it in explicit terms that whatever income is going out from the Securitization Treat will be income of the investor. Thus, such income payout by the Securitisation Trust irrespective of who is receiving is return on investment and therefore, is subject to TDS m/s 194LBS 30%. 9. In light of the above as also lack of non-substantive response during the course of appellate proceedings including no response at all vis- -vis the last two notices sent, the reasoning adopted by the assessee officer to hold the treat as an assessee default under section 201 (1) and 201 (LA) needs no intervention and is upheld. In the result the appeal is dismissed. 6.1 It may be apprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note that in spite of the ample opportunities provided by the AO and Ld. CIT (A), the assessee has not made substantial submissions during the course of assessment or appellate proceedings or even before the Hon'ble Tribunal; so much so that the assessee has not submitted the copy of the agreement deed, trust deed, Information Memorandum, Financials of the Seller, details of the subscribers of SPE and PTC holders, etc. Therefore, the observation of the Ld. CIT(A) that non-substantive response of the assessee during the appellate proceedings caused the decision of the CIT(A) against the assessee. These documents go to the root cause to find the fact that whether originator is investor or not and whether the deed of assignment, including other documents as mentioned supra is securitization document/instrument or not? It is also not clear what is the class of PTCs issued and subscribed, what is notional amount of PTC, total number of PTCS, coupon rate, percentage of subscription, percentage of credit collateral etc. It is ascertainable whether the assessee has not provided these details during the course of survey proceedings also. Therefore, it is most respectfully submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive the income had it been paid in the previous year. (4) The person responsible for crediting or making payment of the income on behalf of securitisation trust and the securitisation trust shall furnish, within such period, as may be prescribed, to the person who is liable to tax in respect of such income and to the prescribed income-tax authority, a statement in such form and verified in such manner, giving details of the nature of the income paid or credited during the previous year and such other relevant details, as may be prescribed. (5) Any income which has been included in the total income of the person referred to in sub-section (1), in a previous year, on account of it having accrued or arisen in the said previous year, shall not be included in the total income of such person in the previous year in which such income is actually paid to him by the securitisation trust.] Explanation-For the purposes of this Chapter,- (a) investor means a person who is holder of any securitised debt instrument or securities for security receipt] issued by the securitisation trust (b) securities means debt securities issued by a Special Purpose Vehicle as referred to in the guidelines on sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised debt instrument is defined as- [(ie) any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable including mortgage debt, as the case may be;] d. The security receipt is defined in (zg) of sub-section (1) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002).] as under (zg) security receipt means a receipt or other security, issued by a 1 [asset reconstruction company] to any 2[qualified buyer] pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, little or interest in the financial asset involved insecuritisation. 11 In the instant case, it is found that the originator/seller has transferred its pool of asset through securitization deed viz Deed of Assignment to SPE The seller is entitled to receive EIS income from transfer of asset pool. The seller has also provided credit collateral as its share transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Hon. Tribunal has came to conclusion that in order to be eligible to be an investor' within the meaning of section 194 LBC of the IT Act, 1961, the condition precedent is holding of PTCs issued by the trust and if an 'investor' is not holder of PTCs, such investor' is not investor' within the meaning of Section 194 LBC of the IT Act, 1961 even if such investor' is holder of securitisation instrument within the meaning of Section 14 LBC of the IT Act read with Section 2, Clause (h) (ie) of Securities Contracts (Regulation) Act, 1956 [42 OF 1956). It is most respectfully submitted that such interpretation of linking definition investor to PTCs alone would render provisions of Income tax act defining investor redundant. 12.2. It is most respectfully submitted that the Income tax Act has not defined the PTCS anywhere neither linked the definition of investor to PTCs alone as has been held by the Hon. Tribunal The Income tax Act has not defined investor as holder of PTCs as mentioned supra in Para-10. The provisions of the Act clearly define the investor' as a person who is a holder of the 'securitisation instrument having its rights and interest ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the originator/seller has transferred its pool asset through securitization deed viz. Deed of Assignment to SPE. The Seller is entitled to receive EIS income from transfer of asset pool. The Seller has also provided credit collateral, as its share transferred to the Trust as a pool asset in the form of MRR. The deed of assignment is nothing but a 'securitization instrument which acknowledges beneficial interest of the seller within the meaning of sec. 194 LBC of the Act. The nature and character of the returns received by seller from the SPE assessee as EIS is a security receipt or interest in the financial asset involved in process of securitisation of debts and acknowledged by the deed of assignment or securitisation instrument or (by whatever name called). Therefore, it is most respectfully prayed that considering the fact and circumstances of the case and in law the decision lower authorities may be confirmed. 11. We have given thoughtful consideration to the submissions advanced by both the sides and perused the material on record including the orders passed by the authorities below, Assignment Deed; and the decision of the Tribunal in the case of M/s. Vivriti Cibus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Securities Contracts (Regulation) Act, 1956 (42 of 1956) 17. Regulation 2(1)(s) of the Securities and Exchange Board of India (Public offer and listing of Securitised Debt Instruments) Regulations 2008 [for short 2008 Regulations ] defines Securitised Debt Instrument as any certificate or instrument, by whatever name called, of the nature referred to in sub-clause (ie) of Clause (h) of Section 2 of the Securities Contracts (Regulations) Act, 1956 issued by a special purpose distinct entity. 18. Section 2(h)(ie) of the Securities Contracts (Regulations) Act, 1956 reads as under: [(ie) any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable including mortgage debt, as the case may be;] 19. On perusal of the above provisions, it can be concluded that to qualify as Securitized Debt Instrument (a) there must be a certificate or instrument issued by a special purpose distinct entity (i.e., the securitization trust such as the Appellant), (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RR commitment by other permissible alternatives and had not subscribed to the PTCs issued by the securitization trust/appellant. The Revenue has not disputed the aforesaid position. On the other hand, it has been contended by the Revenue that the Assignment Deed constitutes securitized debt instrument. On perusal of the MRR Guidelines, we are of the view that in cases where the MRR commitment is met via any other permissible alternative, the originator cannot be regarded as an Investor since the Originator does not hold any investment in the special purpose distinct vehicle/securitization trust. In our view, an originator can also be Investor provided such originator makes investment in the special purpose distinct vehicle/securitization Trust by subscribing to PTC or other securities/instruments. However, it is admitted that in the present case the Originator has neither subscribed to PTCs nor had made any other investment. MRR has been maintained via cash collateral and in the form of collateralising of excess receivables. Therefore, the decision of the Tribunal in the case of Vivriti Cibus (supra) rendered in identical facts and circumstances, is applicable to the facts and circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 regarded as income in respect of investment. Thus, here in this case second condition is also not fulfilled and accordingly we hold that the TDS liability u/s 194LBC is not applicable on EIS. 18. The other condition as provided in Section 194LBC which is required to be fulfilled is that the income in the hands of AMPL should be in respect of investment in the securitization trust. As observed by us hereinabove, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 018-19 which has been preferred by the Appellant challenging the order, dated 19/10/2022, passed by the CIT(A) for the Assessment Year 2018-19, whereby the Ld. CIT(A) had dismissed the appeal of the Assessee against the Order, dated 25/02/2019, passed under Section 201/201(1A) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 24. The Appellant has raised the following grounds of appeal: Ground No 1: Appellant being treated as 'assessee in default' The Commissioner of Income-tax (Appeals) ['learned CIT(A)'] from the National Faceless Appeal Centre erred on facts and in law in dismissing the appeal filed against the order passed under section 201 ('the order') of the Income-tax, Act 1961 ('the Act') of the Income-tax Officer (TDS)-2(2)(1) ['learned AO'] and by treating the Appellant as 'assessee in default'. The learned CIT(A) further erred in facts by not granting sine adjournment as requested by the Appellant. 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 194L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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