TaxTMI 
TaxTMI 
2026 (8) TMI 1328
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....as requested by the Appellant. Ground No 2: Appellant being treated as 'assessee in default' The learned CIT(A) erred on facts and in law in dismissing the appeal filed against the order passed under section 201/201(1A) ('the order') of the Income-tax, Act 1961 ('the Act') of the Income-tax officer (TDS)-1(2)(3) ['learned AO'] and by treating the Appellant as 'assessee in default". Ground No 3: 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 and had taken into account such sum for computing income in its ITR and had also paid the tax due on the income declared by them in such ITR, the Appellant could not be regarded as an assessee in default. Ground No 4: Levy of interest under section 201(1A) of the Act The CIT(A) er....
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....s a special purpose vehicle to raise monies to finance the acquisition of a loan portfolio of one Indian School Finance Company Private Limited (i.e. the originator) by issuing securities ('pass through certificates' or 'PTCs') to investors. Pursuant to the assignment of loan portfolio, it became the legal owner of the receivables and received all cash flows from borrowers (i.e. principal repayment and interest). The cash received by the assessee was utilised in a pre-determined manner (known as the waterfall mechanism for utilisation of cash). The Excess Interest Spread (EIS') is the surplus remaining with it after meeting all other commitments, which is then paid to the Originator. The only issue involved in this case pertains to liability to deduct TDS under section 194LBC of the Act on EIS paid by the assessee to the originator. 4. According to the assessment order, the AO held that EIS was income arising on account of Securitisation of underlying assets and, therefore, distribution of such income by the assessee required deduction of tax at source under section 194LBC of the Act. Не further held that MRR and EIS were interlinked because if MRR is not k....
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....he Act casts an obligation for deduction of tax at source if the following two conditions are satisfied: • The income is payable to an investor; and • The income is in respect of investment in the securitisation trust. 5.3 It is submitted that in the present case, the originator has not subscribed to any PTCs issued by the trust and, hence, it cannot be regarded as an investor in the trust. The originator has fulfilled the MRR by way of cash collateral. EIS is the residual amount that is paid over to the originator and is not in respect of any investment in the securitization trust. If there is any surplus left with the ST, such surplus or EIS flows to the Originator. EIS is paid even if there is no investment made by the originator in the securitization trust, as in the present case. The MRR requirement was introduced by RBI for the first time in the year 2012 and prior to that there was no requirement for the originator to comply with MRR. Even then, that is, prior to 2012, EIS was paid to the originator irrespective of whether or not the originator subscribed to the PTCs. This shows that the payment of EIS to the originator is completely independent ....
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....r. In case where minimum retention requirement commitment has met via any other permissible alternator, the originator does not have hold in instrument in the securitization trust and therefore, cannot be reckoned as investor. Once the originator has not subscribed in PTCs, but the MRR is months) maintained via cash collateral and in the form of collateralizing 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 s....