TaxTMI 
TaxTMI 
2023 (12) TMI 806
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.... 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 merely because a certificate to this effect in the prescribed form could not be furnished. Ground No 3: Non-grant of adjournment as requested The learned CIT(A) erred in not granting sine die adjournments as requested by the Appellant. Ground No 4: 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. 3. The brief facts are that assessee, M/s. Vivriti Cibus 0....
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....ent). Therefore, it is clear that the EIS is an income arising on account of securitisation of underlying assets and, therefore, distribution of such income by the assessee Trust do require deduction of TDS u/s 194LBC of the Act. ) * It is contended that EIS is the residual amount that flows to the originator of the loan without the said EIS income being in relation to the investment made by the originator in the ST. It is also contended that EIS income can flow to the originator irrespective of whether such originator holds any securities in the ST or not and that prior to 2012 amendment, there was no requirement for the originator to have minimum investment in the ST and even in such cases the EIS used to flow to the originator. * Here, it is to submit that EIS is not mentioned in the 2006 guidelines of the RBI. A reference of surplus income found in Para 7.2 of 2006 guidelines, "7.2 The originator should effectively transfer all risks/ rewards and rights/obligations pertaining to the asset and shall not hold any beneficial interest in the asset after its sale to the SPV An agreement entitling the originator to any surplus income on the securitised asse....
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....ent made by the originator in the ST is not correct. After 2012 guidelines, the Originator has to maintain the MRR throughout the securitisation period, therefore, the EIS and the MRR (originator's holding of PTCs) are also interlinked. If the Originator do not keep MRR all the times, the question of EIS do not arise at all. Therefore, EIS is indeed linked with the investment of the Originator in the Securitisation scheme and, hence, the assessee trust must have deducted the TDS u/s 194LBC on the EIS paid to the Originator. * After recording to Section 115TCA and meaning of securitized debt instrument and the investor has given in the said Section he held that from the above definitions, it can be said that the deed of assignment (wherein Originator and assessee trust-SPV are the parties) is also an instrument in nature of securitised debt instrument which acknowledges the beneficial interest of Originator in respect to receivable in the nature of EIS. Hence, by virtue of above definitions, the Originator can safely be termed as the "investor" holding deed of assignment (securitised debt instrument) which acknowledges the interest of Originator (EIS) in the debt or rec....
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.... 8 Nov. 17 3280594.61 984178.38 9 Dec. 17 3369566.45 1010869.93 10 Jan. 18 2866592.26 859977.67 11 Feb. 18 2835938.68 850781.60 12 Mar. 18 2743001.93 822900.57 1,88,67,795 56,60,338 7. Thereafter, he has computed the interest u/s. 201(1A) of Rs. 13,97,257/- and finally determined the default with respect to non-deduction of TDS and interest of Rs. 70,57,600/-. 8. The ld. CIT(A) after incorporating the entire order of the AO and relevant portion of the assessee's submission has confirmed the order of the AO in every cryptic manner which is reproduced hereunder:- "4. I have perused the order of the AO, submission of appellant and overall facts of the case 4.1 The appellant has failed to deduct the TDS on the payment of Rs. 1,88,67,795/- under the head Excess Interest Spread (EIS) The Assessing Officer has explained in detail the TDS liability of the assessee The failure on the part of assessee has resulted into the action of treating it as "assessee in default." 4.2 As mentioned by the Assessing Officer in para 10 to 10.6 that assessee has not filed Form No. 26A in the....
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.... and interest. As per waterfall mechanism, the cash flow received was to be utilized in the manner provided in Clause 7.6 & 7.6.1. For the sake of ready reference, the relevant clause reads as under:- 7.6.A The Waterfall Mechanism is based on the following principles: (a) Series Al interest shall be due and payable on each Payout Dute and Series A1principal shall only be expected on any Payout Date (b)Series Al Principal shall be due and payable on the Series A1 Final Maturity Date (b) All Investor Payouts shall follow the priority of payments as set out in the Waterfall Mechanism. 7.6.1 Till such time Series A1 PTCS have not been fully redeemed, the Total Collections, the Clean Up Purchase Consideration, if the same has been received, and any monies recovered pursuant to legal proceedings, shall be utilised by the Trustee in the following order of priority (a) payment of Senior Costs. PROVIDED THAT the Servicing Fee shall only be appropriated from the EIS component of the Total Collections, and if, in any Collection Period the EIS component of the Total Collections is insufficient to make a complete payment of the Servicing Fee....
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.... securities debt instrument as under:- "Investor means a person who is holder of any securitised debt instrument or securities or security receipts issued by the securitisation trust' Securitised debt instrument shall have the same meaning as assigned to it in clause F2 (s) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956 (42 of 1956)' 11. Clause (s) of sub regulation (1) of regulation 2 of the Securities and Exchange Board of India (Public offer and listing of Securitised Debt Instruments) Regulations 2008 define Securitised debt instrument ('SDI") 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 Act issued by a special purpose distinct entity 12. Sub clause (ie) of clause (h) of Section 2 of the Securities Contracts (Regulations) Act, 1956 states the below: 'any certificate or instrumen....
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....rument in the securitization trust and therefore, cannot be reckoned as investor. Once the originator has not subscribed in PTCs, but the MRR is maintained via cash collateral and in the form of ccollateralizing of excess receivables, then the first condition provided in Section 194LBC is not fulfilled and therefore, in our opinion there cannot be any obligation to deduct tax in terms of said Section. 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 pursuant to any investment in the securitization trust or return of investment so made. Even assuming AMPL is to be treated as an investor, then also 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....