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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 ..... peal of the Assessee against the Order, dated 10/02/2020, passed Under Section 201(1)/201(1A) of the Income Tax Act, 1961 [hereinafter referred to as 'the Act']. 3.1. The Assessee has raised following grounds in appeal: I. Ground I "1. On the facts and circumstances of the case and in law, the Ed. CITIA) erred in upholding the order of ACTT (TDS)-2(1) Mumbai. ("AO") by treating Appellant as Assessee-in- Default for non-deduction of tax without first determining whether recipient has paid tax in accordance with section 191 of the Act. 2. The Appellant prays that in absence of finding that the recipient has not directly paid taxes or discharged its tax liability, if any, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s prays that the interest levied us 201(14) of the Act be deleted or appropriately reduced V. General The Appellant craves leave to add to, alter and / or amend all or any of the foregoing grounds of appeal. 4. The relevant facts are brief are that the Appellant is a non-deposit taking non-banking finance company registered with the Reserve Bank of India engaged, inter alia, in the business of lending. During the relevant previous year the Appellant purchased from Piramal Enterprises Ltd. (PEL), related entity of the Appellant, Non-Convertible Debentures (NCDs), Inter Corporate Deposits (ICDs) and Term Loans portfolio. A Survey under Section 133B(2) of the Act was conducted 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 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ds/ICDs/Term Loans as the same were transferred to the Appellant at book value and the consideration paid to PEL was equal to the carrying value as standing in the books of accounts of PEL. (d) PEL had already deducted tax at source in respect of interest accrued while recording the same in its books of accounts and that the same also been deposited in the accounts with the Government Treasury. In case the stand taken by the Assessing Officer was accepted, the same would amount to subjecting interest income which has accrued in the hands of the transferor to tax twice. (e) PEL had accounted for the purchase price given by the Appellant to PEL in its books of accounts and had taken the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be made from the Appellant on account of failure of the Appellant to deduct tax from such payments in view of the provisions contained in Proviso to Section 201(1A) of the Act. The CIT(A) also observed that during the assessment proceedings the Appellant was not able to comply with the requirement of Rule 31ACB of the Income Tax Rules, 1962 [for short 'IT Rules]. However, taking note of the fact that the Appellant has now been able to upload Form No. 26A as per Rule 31ACB of IT Rules, the CIT(A) directed the Assessing Officer to verify compliance of Rule 31ACB of the IT Rules and to rework the demand/interest in accordance with Section 201(A)/201(1A) of the Act provided the Appellant 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant by the order passed by the CIT(A). 9. We have considered the rival submissions and perused the material on record. 10. The case set up by the Assessing Officer and confirmed by the CIT(A) is that the Appellant had committed default in complying with the provision contained in Section 193/194A of the Act as the Appellant had failed to deduct tax at source from the payments made to PEL which were in excess of the principle value of the ICDs/NCDs/Term Loans recorded in the books of accounts of PEL. On perusal of Section 193 and 194A of the Act we find that any person responsible for paying any income by way of 'interest on securities' or 'interest other than interest on securities' 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal had accepted the contention of the assessee that to trigger the provisions contained in Section 2(28A) of the Act provisions the existence of 'moneys borrowed or debt incurred' is necessary. In absence of 'moneys borrowed or debt incurred' the payment made by the assessee in that case could not have been subjected to deduction of tax at source in terms of Section 194A of the Act. Further, the nature of income in the hands of the recipient and the nature of expenditure of the said sum in the hands of the payer need not be the same. The relevant extract of the aforesaid decision of the Tribunal reads as under: "16. In order to decide whether interest retained by the NBFCs on the pool 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 sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the present case, the question of payment or crediting of interest by the assessee in favour of NBFC does not arise. Therefore, in the absence of any funds borrowed or debt incurred by the assessee from the NBFC, we are of the considered view that the part interest allowed to be retained back with the originating NBFC cannot be said to be interest within the meaning of section 2(28A) of the Act. Further, it is pertinent to note that under section 194A of the Act, the payment must be in the nature of interest in order to make the payer responsible for deducting tax a the time of payment or credit of such income. Therefore, though the payment by 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, particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passes to include service fee or other charge and such fee is in respect of the money borrower or any debt incurred or, for unutilised credit facility. Here also, such fee or charge is in respect of money borrowed only i.e. given by the lender to the borrower. The service fee or other charge does not bring within its ambit any third party or intermediary who has not given any money. The fundamental proposition permeating between various kinds of payments which has been termed as "interest" in the section is that, these payments are paid/payable to the lender either for giving loan or for giving 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 rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew, the aforesaid judgment of Hon'ble Bombay High Court in the case of American Express International Banking Corpn (Supra) does not apply to the facts of the present case. Further, as held by the Tribunal in the case of State Bank of India (Supra), the nature of income in the hands of the recipient and the nature of expenditure of the said sum in the hands of the payer need not be the same. 13. Accordingly, In view of the above, we overturn the order dated 07/03/2024 passed by CIT(A) and delete the demand of INR.55,34,39,682/- raised upon the Appellant vide order dated 10/02/2020 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 fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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