Section 194LBC inapplicable to Excess Interest Spread paid to originator; consequential tax demand and interest deleted.

Excess Interest Spread paid by a securitisation trust to the originator was not subject to tax deduction under section 194LBC because the originator had not subscribed to pass through certificates and had made no investment in the trust; it had only provided cash collateral to meet the minimum retention requirement. The payment was treated as a residual amount, not as income payable to an investor in respect of an investment in the securitisation trust. Following the Tribunal's earlier identical ruling, section 194LBC was held inapplicable, and the consequential demand under section 201(1) and interest under section 201(1A) were deleted.

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Issues: Whether tax was deductible under section 194LBC of the Income-tax Act, 1961 on Excess Interest Spread paid by a securitisation trust to the originator, and whether the consequential demand under section 201(1) and interest under section 201(1A) were sustainable.

Analysis: The originator had not subscribed to any pass through certificates and had not made an investment in the securitisation trust; it had only provided cash collateral to satisfy the minimum retention requirement. The payment of Excess Interest Spread was treated as a residual amount flowing to the originator and not as income payable to an investor in respect of investment in the securitisation trust. The issue was held to be covered by the Tribunal's earlier decision on identical facts, where section 194LBC was found inapplicable when the originator was not an investor and the payment was not referable to investment in the trust.

Conclusion: Section 194LBC was held not applicable to the Excess Interest Spread paid to the originator, and the demand under section 201(1) and interest under section 201(1A) were deleted.

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