TaxTMI 
TaxTMI 
2025 (1) TMI 1165
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....(A)'] for the Assessment Year 2017-18, whereby the Ld. CIT(A) had partly allowed the appeal 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....
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.... of the Act. In consequence to the aforesaid grounds, no tax demand u/s 201 of the Act may sustain and consequently, no interest s/s 201(1A) of the Act could be levied. 2. The Appellant this 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 de....
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..... Therefore, payment made to PEL also does not qualified as 'interest on securities' as defined in Section 2(28B) of the Act. (c) Tax withholding provision were not attracted in the fact of the present case since no income had accrued to PEL as a result of transfer of NCDs/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....
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....o deduction of tax at source under Section 194A/193 of the Act. However, the CIT(A) granted partial relief to the Appellant and accepted the contention of the Appellant that in case PEL had offered to tax the entire payment received from the Appellant towards accrued interest income, no recoveries 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. ....
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....nder Section 201(1)/201(1A) of the Act. The Learned Departmental Representative further submitted that CIT(A) had already given directions to the Assessing Officer to verify the compliance of Rule 31ACB of the IT Rules and re-compute the demands accordingly. Therefore, there was no prejudice caused to the 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. Thu....
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....rest/accrued interest to PEL, the Appellant cannot be regarding as person responsible for paying income by way of interest/interest on securities to PEL in terms of Section 194A/193 of the Act. 11.1. In the case of State Bank of India Vs. DCIT [2024] 163 taxmann.com 266 (Mum. Trib.), the Mumbai Bench of Tribunal 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 A....
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....t the assessee has only purchased a part of loan by making the upfront payment and allowing the originating NBFCs to retain part interest on such loan paid by the borrowers. In the present case, there is no material available on record to show that the assessee borrowed any funds or incurred any debt from the NBFC. Such being the 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 nat....
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....nd any fee paid to him is not in respect of the borrowing, because no debt has been incurred by the assessee in favour of the Arranger vis-a-vis the money borrowed. He is merely a facilitator who brings lender and borrower together for facilitating the loan/credit facility. The second limb of the definition is an inclusive definition whereby interest encompasses 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 par....
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....es on account of broken-period-interest and not the treatment of such payment in the hands of the seller receiving the same. In the present case the issue raised for consideration pertains to the treatment of receipt in the hands of seller and the obligation of the payer to withhold tax from the same in term of Section 193/194A of the Act. Therefore, in our view, 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 ....