AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 448
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....da ('ITO Noida') without any jurisdiction: 1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) ['the CIT(A)1] erred in not accepting the contention of the appellant that the order under section 201 (1)/201(1 A) of the Act has been passed without jurisdiction and hence is bad in law. 2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that the ITO Noida had, vide letter dated 27 November 2012, itself transferred the records pertaining to the impugned proceedings to the Income-tax Officer in Mumbai ('ITO Mumbai'). 3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that the records were transferred to ITO Mumbai since the foreign remittance related to the impugned transaction pertained to the Mumbai office of the appellant. Deductibilitv of tax at source under section 195 in respect of payments made to the Singapore branch of ICICI Bank Limited, which is a tax resident of India: 4. On the facts and in the circumstances of the case and in law, the CIT(....
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....made to ICICI Bank Ltd., offshore branch, Singapore. In response to the show cause notice, the assessee submitted that it has borrowed external commercial borrowings from ICICI Bank Ltd. which has a branch in Singapore. Therefore, any interest payment made to ICICI Bank Ltd., Singapore branch is payment made to a resident, which is covered u/s. 194A(3)(iii) of the Income Tax Act, 1961 and, hence, the question of deduction of tax at source does not arise. The assessee further submitted that the ICICI Bank Ltd is a banking company to which Banking Regulation Act, 1949 applies and since the provisions of section 194A(3)(iii) of the Income Tax Act, 1961 exempts such entities from deduction of tax at source, there was no default on the part of the assessee in deduction of tax on interest payment to ICICI Bank Ltd., Singapore branch. 4. The Assessing Officer after considering the submissions of the assessee held that the assessee has failed to deduct tax at source as per section 195(1) on interest payment made to ICICI Bank Ltd., Singapore branch for the assessment years 2009-10 to 2011-12, aggregating to Rs. 11,69,45,505/- and, hence, held the assessee deemed to be in default u/s. 20....
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.... However, to make it crystal clear, that these interest payments are liable for TDS, the provisions of section 195(1) are reproduced as under- Section 195(1):- "Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act, (not being income chargeable under the head 'Salaries' shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force." Section 195(2):- "Where the person responsible for paying any such cum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine (by general or special order) the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (I) only on that proportion of the sum which is so chargeable." ....
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....esident in India, at any time after the expiry of- (i) two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 has been filed; (ii) four years from the end of the financial year in which payment is made or credit is given, in A Y other case: Provided that such order for a financial year commencing on or before the lsl day of April, 2007 may be passed at any time on or before 31st day of March, 2011. 8. A plain reading of the above provision clarifies that the limitation is imposed only for payments made to residents and there is absolutely no limitation for payments made to non-residents. The Hon'ble Finance Minister while explaining the intent has clarified as under:- "f. Providing time limits for passing of order u/s 201(1) holding a person to be an assessee in default- Currently, the Income Tax Act does not provide for any limitation of time for passing an order u/s 201(1) holding a person to be an assessee in default. In the absence of such a limit, dispute arises where these proceedings are taken up or completed after substantial time as elaps....
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....50J 2688315 9089065 2 2009-10 31082778 3108278 932483 4040761 3 2010-11 21855231 2185523 393394 2578917 Total 11,69,45,505 1,16,94,551 40,14,1921 1,57,08,743 5. Aggrieved by the assessment order, the assessee preferred an appeal before the ld. Commissioner of Income Tax (Appeals). Before the ld. Commissioner of Income Tax (Appeals), the assessee has taken a legal plea challenging the jurisdiction of Assessing Officer in passing the order u/s. 201(1)/201(1A) of the Income Tax Act, 1961. The assessee also filed elaborate written submissions on the issue of applicability of provisions of section 195 of the Act, towards interest payment to ICICI Bank Ltd., Singapore branch and reiterated its submissions made before the Assessing Officer. The assessee further submitted that the Assessing Officer was incorrect in applying the provision of section 195 of the Act, without appreciating the fact that the interest paid to ICICI Bank Ltd., Singapore branch is payment made to a resident which is very clear from the fact that the office of Jt. CIT (OSD)-3(1), Mumbai has issued a letter d....
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.... the Act is clearly applicable and the assessee failed to deduct the applicable TDS and hence, the Assessing Officer was right in holding the assessee as an assessee in default u/s. 201(1)/201(1A) of the Act. The relevant portion to the order of the ld. Commissioner of Income Tax (Appeals) is extracted below: 7.3 Facts of the case emerging from the order dated 30/3/2012 and assessee's submissions are as follows:- 7.4 Terms & Conditions governing the borrowing of ECB funds by the assessee and the letter dated 31/1/2007 of ICICI Bank Limited Singapore branch regarding the Syndicated Term Loan of US $ 20 million are very relevant and throw light on the exact relationship between the assessee, ICIC] BANK Ltd. and the lenders and the nature of transactions and are as follows: Letter dated 31/1/2007 of IC1C1 Bank Limited Singapore branch:- "January 31,2007 CAL-1BG-SGP-QU1 Bajaj Eco-Tec Products Ltd. Bajaj Bhawan, 2nd Floor, jamnalal Bajaj Marg, 226, Nariman Point, Mumbai-400021 KindAttn : Mr. Himanshu Shah Dear Sir, Subject: Syndicated term loan of USD 20.0 million We refer to our discu....
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.....2,500 million with the following capita! structureEquity: Rs. 1,000.0 million Debt : Rs. 1,500.0 million INTEREST RATE: The aggregate of: 1. The applicable margin; and 2. 6 month Libor Interest will be calculated on the total amount outstanding and will be payable at the end of each interest period." The facts emerging from perusal of these documents are as follows; 7.5 The assessee wanted to expand its manufacturing activity at Noida, U.P. factory and therefore approached the ICICI Bank Limited in India for borrowing funds under the External Commercial Borrowing facility of the ICICI Bank Singapore Branch through its bankers which acted merely as an arranger and facility agent for the loans from various lenders located in Singapore for syndicated loan of US Dollars 20 Millions for which it received arranger fees of 1.40% upfront and facility agent fees of US Dollars 10,000 per annum whereas the interest payments were made to veracious lenders located in Singapore through ICICI Bank in India and Singapore branch from time to time. Moreover, various clauses of the terms and conditions clearly stipulate and indicate that a distinction has been drawn....
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....lent in India by foreign non-resident parties are deemed to accrue and arise in India and hence tax at source is deductible in India because the payments in this case are made in India through the medium of a Bank located in India and ICICI Bank Ltd Singapore because the interest paid to a non resident in respect of funds lent in India are deemed to accrue and arise in India and hence provisions of section 195 of IT Act 1961 are squarely applicable in this case because the payment of interest is made to a non-resident and ICICI Bank Ltd which has merely acted as arranger, facilitator and conduit for remittance of funds and nothing else.Jrhus payment of interest was not made to ICICI Bank Ltd. either in India and/or Singapore but the payment of interest was made to various lenders located in Singapore and/or UK and/or anywhere else in the world through the medium and conduit of ICICI Bank Ltd. India and Singapore, that is all. This is the essential difference between payments made to XYZ and payments made through XYZ and if this submission is put forward by the assessee were applied in respect of all the payments made through banking channels in India, whether payments are made to r....
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....ative for the assessee submitted that the ld. Commissioner of Income Tax (Appeals) was erred in not appreciating that there is no failure on the part of the assessee to deduct tax in respect of payment made to ICICI Bank Ltd. and accordingly the assessee is not the assessee in default u/s. 201(1)/201(1A) of the Act. The ld. Authorized Representative further submitted that the assessee has borrowed external commercial borrowings from ICICI Bank Ltd., Singapore branch which is evident from the loan agreement entered between the assessee and the bank, as per which it clearly states that the ICICI Bank Ltd. is the main lender of the loan. The Assessing Officer merely on the basis of certain clauses in agreement came to a wrong conclusion that the ICICI Bank Ltd. is acting as an arranger cum agent to facilitate external commercial borrowing to the assessee. The ld. Authorized Representative further submitted that the assessee has filed necessary evidence including certificate from Jt. CIT(OSD), Central Circle-31, Mumbai to the fact that the global income of the ICICI Bank Ltd., including offshore branches is taxable in India in terms of section 6(3) of the act and, hence, any payment ma....
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....see as an assessee in default u/s. 201(1)/201(1A) of the Act, on the ground that the assessee has paid interest to a non resident entity located outside India which comes within the provision of section 195 of the Act. The Assessing Officer further observed that since the assessee has failed to deduct tax at source u/s. 195, he held the assessee as an assessee in default and computed short deduction of tax and interest u/s. 201(1)/201(1A) of the Act. 12. The Assessing Officer has drawn an adverse inference against the assessee on the basis of Form 15CA and 15CB that the assessee has made payment to a non resident entity ICICI Bank Ltd., Singapore branch. The Assessing Officer further observed that as per the clauses of agreement dated 15.03.2017, the assessee is a borrower and ICICI Bank Ltd, Singapore branch is an arranger cum facility agent which arranged external commercial borrowings from a group of financial institutions to be assembled by the arranger. The Assessing Officer has referred a letter dated 31.01.2007 of ICICI Bank Ltd., Singapore branch addressed to the assessee. As per which, the assessee is a borrower, ICICI Bank Ltd is an arranger cum facility agent and the ....
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....dent banking company does not come within the purview of TDS as per the provision of section 194A(3)(iii) of the Act. The only dispute is with regard to the residential status of lender of external commercial borrowings to the assessee and interest payment on such external commercial borrowings. The assessee claims that it has borrowed external commercial borrowings from Singapore branch and which is a main lender of the loan. Therefore, any interest payment to ICICI Bank Ltd., Singapore branch is not coming within the provisions of section 195 of the Act. No doubt, any payment made to a resident banking company is outside the purview of provision of section 195 of the Act. Similarly, any payment made to a non-resident including a banking company is coming within the provision of section 195 of the Act. The primary dispute is with regard to the residential status of payee in Singapore and the lender of external commercial borrowings. As per the letter of Jt. CIT(OSD)-3(1), Mumbai, the residential status of the ICICI Bank Ltd., has been clarified. To that extent there is no dispute. The remaining dispute is with regard to the lender of external commercial borrowings. Although the as....