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TMI Blog2025 (1) TMI 1165X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of tax at source at the time of credit or payment, whichever is earlier. Therefore, we hold that, given the facts and circumstances of the present case, the provisions contained in Section 193/194A of the Act were not attracted and therefore, the question of Appellant committing default in complying with the same does not arise. It is also admitted position that when the interest income had accrued to PEL, there existed lender-borrower relationship between PEL and the borrowers. Subsequently, the Appellant stepped into the shoes of PEL and as a result, lender- borrower relationship between the Appellant and the borrowers came into existence. The borrowers continued to be under contractual obligation to make payment of interest/accrued interest while the Appellant acquired the right to receive the same. There is no dispute as to the fact that no lender-borrower relationship existed between the Appellant and PEL at any point in time. Therefore, in absence of any statutory/contractual obligation on the part of Appellant to discharge the borrowers obligation to make payment towards interest/accrued interest to PEL, the Appellant cannot be regarding as person responsible for pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant cannot be treated as an Assessee-in-Default us 201 of the Act and hence the said order be quashed. II. Without prejudice to Ground I Ground II 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in uphelding the action of AO of treating the assessee as an 'Assessee-in-Default' on alleged non-deduction of tax in respect of purchase consideration in respect of non- convertible debentures, inter-company deposits and term loans u/s 193 and 1944 of the Act. 2. The Ld. CIT(A), inter-alia, failed to appreciate that: i. In absence of the income component in the said transaction, the provisions of TDS as laid under Section 193 and Section 194/A of the Act cannot apply. ii. Since, the securities are purchased at the carrying value from the Transferor, the interest element embedded in the cum-interest price should be treated as the part of the purchase price. iii. No borrower-lender relationship exists between the Transferor and Appellant and hence no liability arises to deduct the tax under Section 193 and Section 194A of the Act. iv. The amount of interest accrued till the date of transfer already suffers tax deduction at source by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at the premises of the Appellant on 19/11/2019, in which it was discovered that during the relevant previous year the Appellant had credited following interest income to the Profit and Loss Account in relation to NCDs, ICDs and Term Loans portfolio purchased from PEL from which tax had not been deducted at source. S. No. Instrument Principal Value Accrued Interest Total Assets Transferred 1 ICDs 2175,09,59,137 53,48,82,609 2207,70,45,747 2 NCDs (Unlisted) 10008,76,90,602 436,15,38,091 10267,67,16,759 3 Term Loans 63,90,00,000 69,73,124 64,59,73,124 Grand Total 12247,76,49,739 490,33,93,825 12539,97,35,629 4.1. The Assessing Officer noted that the NCDs, ICDs and Term Loans were purchased from PEL at carrying value comprising of principle value and accrued interest. According to the Assessing Officer the payment of INR.490,33,93,825/- made by the Appellant to PEL in excess of the principle value constituted income liable to tax in the hands of PEL. INR.5,41,85,573/- was in the nature of 'Interest Other Than Interest on Securities', and therefore, the Appellant was under obligation to withhold tax in respect of the same under Section 194A of the Act. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same into consideration while offering to tax income for the relevant previous year. Therefore, on this count also, no part of tax required to deduct at source could be recovered from the Appellant in view of the provisions contained in Proviso of Section 201(1) of the Act. 4.3. The above submissions were taken into consideration by the Assessing Officer. However, the Assessing Officer did not find any merit in the same and concluded that Appellant had failed to discharge the obligation to deduct tax from the payments made to PEL in excess of the principle value amounting to INR.490,33,93,825/- in the terms of the provisions contained in Section 194A/193 of the Act. Thus, treating the Appellant as as 'Assessee in Default', the Assessing Officer levied interest of INR.6,31,00,300/- on INR.49,03,39,382/- being the aggregate amount of tax that the Appellant was, according to the Assessing Officer, required to withhold in terms of Section 193/194A of the Act (at the rate of 10%) from the aforesaid excess payment of INR.4,90,33,93,825/-. Accordingly, the Assessing Officer raised aggregate demand of INR.55,34,39,682/- [INR.49,03,39,382/- plus INR.6,31,00,300/- upon the Appellant vide, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was able to satisfy the Assessing Officer in relation to compliance of Rule 31ACB of the IT Rules. Thus, vide order dated 07/03/2024, the CIT(A) partly allowed the appeal preferred by the Appellant. 6. Not being satisfied with the above relief granted by the CIT(A), the Appellant has preferred the present appeal before the Tribunal on the grounds reproduced in paragraph 3.1 above. 7. The Learned Authorised Representative for the Appellant took us through the submissions of the Appellant (as recorded in the order impugned) and submitted that the CIT(A) had failed to appreciate that the judgment of Hon'ble Bombay High Court in the case of American Express International Banking Corpn. Vs. CIT [2002] 125 Taxman 488/258 ITR 601 (Bom.) was not applicable to the facts of the present case. The Appellant had made payment to PEL were acquisition of 'right to receive' accrued interest and same did not fall within the ambit of the expression 'interest' /'interest on securities' as defined in Section 2(28A)/2(28B) of the Act. It was vehemently contended that the provisions contained in Section 193/194A of the Act were not attracted to the facts of the present case as the payments made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties' is under obligation to deduct income tax from the same (a) at the time of credit of such income to the account of the payee, or (b) at the time of payment thereof, whichever is earlier. Thus, the obligation to withhold tax under Section 193/194A of the Act gets fastened on credit or payment, whichever is earlier. It is admitted position that in the present case the accrued interest had been recorded in the books of accounts of PEL. The contention of the Appellant that borrowers had deducted tax at source from such interest income [at the time of credit of such income in the account of PEL in their respective books of accounts] and had deposited the tax so deducted with the Government Treasury as per provisions of the Act has not been controverted by the Revenue. Therefore, in our view, in the present case, the provisions of Section 193/194A of the Act having already been triggered and complied with at the time of credit of interest income to the account of PEL in the books of accounts of the borrowers [i.e. the person responsible for making payment of such interest income at the relevant time], would not again get triggered on payment of the same interest income by the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assets allotted to the assessee falls within the category of "interest" for the purpose of section 194A of the Act, it is firstly pertinent to note the relevant provisions of the Act. As per section 194A of the Act, any person, not being an individual or a HUF, who is responsible for paying to a resident any income by way of interest, shall at the time of credit of such income to the account of payee deduct income tax thereon at the rates in force. The term "interest" has been defined under section 2(28A) of the Act as under- 2(28A) "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;" 17. Therefore, from the plain reading of the provisions of section 2(28A) of the Act, it is evident that interest means interest payable in respect of any money borrowed or debt incurred. As per the Revenue, since 90% of the pool of assets was purchased by the assessee, therefore the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the borrower of the loan, in the present case, is in the nature of interest, however, when the same is allowed to be retained with the originating NBFC by the assessee under the tripartite agreement, the nature of the same is converted to a consideration for the purchase of 90% of the pool of assets. The nature of income in the hands of the recipient and the nature of expenditure of said sum by that person may not always be the same. Therefore, it is no necessary that what is received as interest is also interest when paid, particularly in the absence of any money borrowed or debt incurred. Accordingly, we are of the considered view that there is no obligation on the assessee to deduct tax at source under section 194A of the Act. Thus, levy of tax under section 201(1) and levy of interest under section 201(1A) of the Act for non-deduction of TDS under section 194A of the Act is not sustainable. Accordingly, grounds no.1, 2, and 4 raised in Revenue's appeal are dismissed." (Emphasis Supplied) 11.2. To the same effect is the decision of Mumbai Bench of the Tribunal in the case of Idea Cellular Ltd. Vs. ADIT [2015] 172 TTJ 540 (Mum. Trib) wherein it was held that as under: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the credit facility. Nowhere the definition suggests that payment of interest includes some kind of fee paid to a third party who has not given any loan or any credit facility. The ld. CIT(A) held that Arranger fee paid is nothing but a part of debt or loan taken by the assessee and utilised thereof and, therefore, it is interest payable within the meaning of section 2(28A). In our opinion, such an interpretation cannot be upheld because, it is not a part of debt or loan payable to the lender but it has been paid for facilitating the loan for the borrower from the lender. The element of relationship between the borrower and lender is a key factor to bring the payment within the ambit of definition of interest u/s 2(28A). The Arranger fee may be inextricably linked with the loan or utilisation or loan facility but it is not a part of interest payable in respect of money borrowed or debt incurred, because the relationship of a borrower or a lender is missing. 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 fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed under Section 201(1)/201(1A) of the Act. Ground No.II and IV raised by the Appellant are allowed while all the other Grounds raised by the Appellant are dismissed as having been rendered infructuous. ITA No.2348/Mum/2024 (Assessment Year 2018-2019) ITA No.2347/Mum/2024 (Assessment Year 2019-2020) ITA No.2345/Mum/2024 (Assessment Year 2020-2021) 14. Now we would take up appeals for the Assessment Years 2018-19, 2019-20 & 2020-21 arising from three separate orders, each dated 07/03/2024, passed by the Learned CIT(A). 15. During the course of hearing both the sides had agreed that the finding/adjudication in relation to appeal for the Assessment Year 2017-2018 above shall apply mutatis mutandis to corresponding grounds/issues raised in the aforesaid three appeals as there was no difference in the facts and circumstances of the case. 16. We have perused the three orders, each dated 10/02/2020, passed under Section 201(1)/201(1A) of the Act whereby, in identical facts and circumstances, demand of INR.5,10,63,188/- INR.5,09,79,788/- and INR.12,68,16,610/- was raised for the Assessment Year 2018-2019, 2019-2020 and 2020-2021, respectively. 17. Accordingly, in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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