INCOME TAX OFFICER, WARD-1(3)(1)(INTL. TAX), DELHI, NEW DELHI vs. FUSION FINANCE LIMITED (FORMERLY KNOWN AS FUSION MICRO FINANCE LIMITED), DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, D: NEW DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND Smt. RENU JAUHRI, ACCOUNTANT MEMBER IT(IT)A No.- 14/Del/2025 [Assessment Year: 2020-21] Income Tax Officer, Fusion Finance Limited (Formerly Ward -(1)(3)(1), known as Fusion Micro Finance (Intl. Tax), Vs Limited) Room No. 317, E-2 Block, Civic H-1, C-Block, community Centre, Centre, New Delhi-110002. Naraina Vihar, New Delhi-110028. PAN- AAACA0140Q Revenue Assessee IT(IT)A No.- 15/Del/2025 [Assessment Year: 2021-22] Income Tax Officer, Fusion Finance Limited (Formerly Ward -(1)(3)(1), known as Fusion Micro Finance (Intl. Tax), Vs Limited) Room No. 317, E-2 Block, Civic H-1, C-Block, community Centre, Centre, New Delhi-110002. Naraina Vihar, New Delhi-110028. PAN- AAACA0140Q Revenue Assessee

Assessee by Shri Ankit Agrwal, CA Ms. Anjali Agrawal, CA Ms. Komal Goyal, CA & Ms. Sakshi Dande, CA Revenue by Shri M.S. Nethrapal, CIT(DR)

Date of Hearing 14.05.2026 Date of Pronouncement 14.05.2026

IT(IT)A Nos- 14 and 15/Del/2025 Fusion Finance Ltd. ORDER Per Renu Jauhri, Accountant Member:

These two appeals by the Revenue are directed against the two separate orders both dated 28.07.2025 of the ld. Commissioner of Income Tax (Appeals), Delhi 23, [hereinafter referred to as the ‘Ld. CIT(A)] arising out of the assessment order dated 14.06.2024 passed under section 201/201(1A) of the Income Tax Act, 1961 (hereinafter referred to as the ‘the Act’) by the ITO, Ward Int. Tax 1(3)(1), (hereinafter referred to as the ‘AO’) pertaining to Assessment Year (A.Y.) 2020-21 and 2021-22 respectively. These two appeals were heard together and are being disposed of by way of this common order for the sake of convenience and brevity. 2. The grounds in both the appeals are reproduced as under: IT(IT)A No. -14/Del/2025 “1. Whether on the facts and in circumstances of the case, and in law, the Ld. CIT(A) is correct in holding that the interest paid by the assessee on the rupee denominated Non-convertible debentures (NCDs) is covered u/s 194LD of the Income Tax Act, 1961. 2. Whether on the facts and in circumstances of the case, and in law, the Ld. CIT(A) is correct in holding that Non-convertible debentures (NCDs) are same as 'a rupee denominated bond'. There are many characteristic differences in between 'bonds' and 'debentures' and legislature has specifically mentioned investment in 'a rupee denominated bond' for availing benefits of section 194LD of the Income Tax Act, 1961. 3. Whether on the facts and in circumstances of the case, and in law, the Ld. CIT(A) is correct in holding that the facts of the case are covered under case of Hon'ble High Court of Delhi in Shree Visheswar Nath Memorial Public Ch. Trust (333 ITR 248) in which it has been held that definition of 'debentures' and 'bonds' are same. The decision with regard to the definition is generic in nature and does not relates to 'a rupee denominated bond'. The above decision was passed on 18.08.2010 whereas section 2

IT(IT)A Nos- 14 and 15/Del/2025 Fusion Finance Ltd. 194LD of the Income Tax Act, 1961 was introduced in Finance Act 2013 w.e.f. 01.06.2013 which specifically mention 'a rupee denominated bond'. 2.1 IT(IT)A No. -15/Del/2025 “1. Whether on the facts and in circumstances of the case, and in law, the Ld. CIT(A) is correct in holding that the interest paid by the assessee on the rupee denominated Non-convertible debentures (NCDs) is covered u/s 194LD of the Income Tax Act, 1961. 2. Whether on the facts and in circumstances of the case, and in law, the Ld. CIT(A) is correct in holding that Non-convertible debentures (NCDs) are same as 'a rupee denominated bond'. There are many characteristic differences in between 'bonds' and 'debentures' and legislature has specifically mentioned investment in 'a rupee denominated bond' for availing benefits of section 194LD of the Income Tax Act, 1961. 2. Whether on the facts and in circumstances of the case, and in law, the Ld. CIT(A) is correct in holding that the facts of the case are covered under case of Hon'ble High Court of Delhi in Shree Visheswar Nath Memorial Public Ch. Trust (333 ITR 248) in which it has been held that definition of 'debentures' and 'bonds' are same. The decision with regard to the definition is generic in nature and does not relates to 'a rupee denominated bond'. The above decision was passed on 18.08.2010 whereas section 194LD of the Income Tax Act, 1961 was introduced in Finance Act 2013 w.e.f. 01.06.2013 which specifically mention 'a rupee denominated bond'.”

IT(IT)A Nos- 14 and 15/Del/2025 Fusion Finance Ltd. on rupee denominated NCDs issued to registered Financial Institutional Investor / Foreign Portfolio Investors (FII / FPIs). During the year, total interest of Rs. 58,63,58,971/- was paid on rupee denominated NCDs to the registered FII / FPIs (in accordance with appliable rules / circulars of SEBI & RBI). Since NCDs was issued in INR, the assessee deducted tax @5% on the interest payment as these NCDs was covered under clause 2(i) of section 194LD of the Act, which provides for concessional rate on rupee denominated bonds issued by Indian Company to FIIs. However, the AO treated the assessee to be an assessee-in-default u/s 201(1) for short deduction of TDS for the following reasons:

(i) Section 194LD does not apply to rupee-denominated NCDs

(ii) the term ‘bonds’ and ‘debentures’ are not interchangeable.

(iii) Issue of NCDs is not in accordance with ECB framework.

4.1 Accordingly, vide order dated 14.06.2024 the AO raised demand of Rs. 16,62,03,454/- by computing TDS @ 20% (plus surcharge) and interest u/s 201(1A) @ 1% of the tax liability.

IT(IT)A Nos- 14 and 15/Del/2025 Fusion Finance Ltd. after considering the submissions of the assessee and in view of the decision of the Hon’ble Delhi High Court in the case of DIT vs. Shree Visheshwar Nath Memorial Public Ch. Trust (333 ITR 248) (Del.) wherein the bonds and deduction was held to be same. The Ld. CIT(A) further relied upon the following decisions of the co-ordinate benches of the Tribunal in the cases of:-

(i) Heidelberg Cement AG v. ACIT 143 taxmann.com 79 (Delhi-Trib.), wherein it was held that rupee denominated bonds include rupee denominated NCDs under section 194LD of the Act

(ii) Amplus Energy Solutions Pte Ltd. Vs. ACIT (ITA No.- 2417 & 3370/Del/2023), wherein the DRP, referring to the letter dated 30.11.2017 of PCCIT (Intl. tax) issued to CCIT/ CIT, in the context of section 194LD had clarified that for the purpose of section 194LD debentures and bonds are considered to the same, Co-ordinate Bench confirmed the order of the DRP in further appeal.

IT(IT)A Nos- 14 and 15/Del/2025 Fusion Finance Ltd. rate provided u/s 194LD of the Act, for Rs. denominated bonds is not applicable to NCDs. He has further submitted that the decisions of the co-ordinate bench relied upon by the assessee were not accepted by the Department and appeal against these decisions were pending before Hon’ble High Court.

“6.1 I have heard the AR and perused the Assessment Order and documents on record. The issue involved in the present case is whether section 194LD applies to Rupee denominated non-convertible debentures. The case of the AO is that section 194LD applies only to rupee denominated bonds and that the term 'bonds' is not same as 'debentures'.

IT(IT)A Nos- 14 and 15/Del/2025 Fusion Finance Ltd. 6.2 The Appellant has argued before me that the issue that section 194LD applies to Rupee denominated non-convertible debentures is covered in favour of the Appellant by the two decisions of the Jurisdictional Tribunal in the case of Amplus Energy Solutions Pte Ltd v. ACIT (ITA No. 2417&3370/Del/2023) and Heidelberg Cement AG v. ACIT (143 taxmann.com 79 (Delhi-Trib.). 6.3 The Appellant has pointed out that the term 'rupee denominated bonds' as used in section 194LD is not defined under the Act and accordingly, the meaning of the same needs to be understood based on the definitions of bond and debentures as understood in common parlance. The Appellant relied on the decision of Jurisdictional High Court in case of DIT vs. Shree Visheshwar Nath Memorial Public Ch. Trust (333 ITR 248) wherein the Hon'ble High Court after considering the definition of 'debenture' under the Companies Act, held bonds and debentures to one and the same. 6.4 The Appellant has also pointed out the Guidance Note issued by Institute of Chartered Accountants of India and other laws such as company law, SEBI and RBI from which too it is apparent that the term 'bonds' includes even debentures. 6.5 I agree with the contention of the Appellant this issue is covered in the favour of the Appellant by the decision of Amplus Energy Solutions Pte Ltd v. ACIT (ITA No. 2417&3370/Del/2023) and Heidelberg Cement AG v. ACIT (143 taxmann.com 79 (DelhiTrib.) which after relying on the decision of Hon'ble Delhi High Court in Shree Visheshwar Nath Memorial Public Ch. Trust (Supra) has held that non-convertible rupee denominated debentures issued by the Indian companies are covered under section 194LD of the Act. The relevant extract of the decision in Amplus Energy Solutions is as under: "On further appeal, the Hon'ble Delhi Tribunal confirmed the view of the Hon'ble DRP and referring to the decision of the Coordinate Delhi Bench in the case of Heidelberg Cement AG v. ACIT ([143 taxmann.com 79 (Delhi-Trib.)] and the Delhi High Court in Shree Visheshwar Nath Memorial Public Ch. Trust (333 ITR 248), it held that there is no dispute that NCDs are considered to be bonds for the purposes of section 194LD. It further held that what is relevant for section 194LD is that the debt instrument should be rupee denominated so that there is no foreign exchange fluctuation risk at the time of repayment of principal or interest and the nomenclature does not matter. The relevant extracts of the decision are as under: …..

IT(IT)A Nos- 14 and 15/Del/2025 Fusion Finance Ltd. 9. Thus with regard to NCD there is no dispute left that same are considered to be 'Bonds' for the purpose of section 194LD of the Act."... 14. We are of further considered view that as for the purpose of Section 194LD what is important is that the security should be rupee denominated one. Intention being that Indian company does not bear any risk out of foreign exchange fluctuation at the time of repayment of the principal or the interest amount. The distinction between OCD/CCD with NCD is of no consequence and they are debt instrument only like the bonds. …..” (Underlined for Emphasis) 6.6 Hon'ble Delhi Bench in the case of Heidelberg Cement AG v. ACIT ([143 taxmann.com 79 (Delhi-Trib.)], it held that there is no dispute that NCDs are considered to be bonds for the purposes of section 194LD. The relevant extracts of the decision are as under: "Where assessee, a Germany based company, invested in rupee denominated NCDs of Indian companies and offered tax on interest earned from said NCDs at rate of 5 per cent in accordance with section 194LD, in absence of specific definition of bonds in Act, term 'bonds' used in section 194LD should be considered as including NCDs and accordingly concessional rate of 5 per cent was to be allowed. (underlined for emphasis) 6.7 The relevant extracts of the decision of Hon'ble Delhi High Court in Shree Visheshwar Nath Memorial Public Ch. Trust (333 ITR 248)are as under: The Hon'ble Court held as under: "The word 'debenture' is nowhere defined under the Act. However, the Companies Act, 1956 specifically defines this term and as per the definition provided in section 2(12) of the said statute, 'bond' is covered under the expression 'debenture'. The Kerala High Court in CIT v. Cochin Refineries Ltd. [1983] 142 ITR 441/[1982] 11 Taxman 135 held that in the absence of any definition of 'debenture' in the Act, reliance could be placed upon the definition given in section 2(12) and also the common parlance in which this term is understood. Thus, it would be appropriate to rely upon the definition of 'debenture' as contained in section 2(12) and, therefore, it could not be held that the assessee contravened the provisions of section 13(1)(d).

IT(IT)A Nos- 14 and 15/Del/2025 Fusion Finance Ltd. However, the revenue submitted that for the limited purpose, i.e., in the context of section 11 (5) the meaning to be assigned to the expression 'debenture' has to be restricted, viz., exclude 'bond'. In support of this submission, he referred to subsection (5) of section II which specifically deals with the investment in certain specific kinds of bonds. He, thus, argued that only those forms and modes of investments, as are prescribed under sub-section (5) of section II, would be entitled to exemption for the purposes of section Il and the investment in other forms of bonds, by necessary implication of inference, had to be excluded from the exemption list. Sub-section (5) of section II deals with the investment in bonds of a financial corporation, the State Government or the Central Government. No doubt, specific provision is made in respect of investment in these particular kinds of bonds; however, that would not mean that while dealing with the investment in 'debenture', which also qualifies for exemption, restrictive meaning would be given to the term 'debenture', more particularly when this term is not defined under the Act. It is a trite principle of interpretation that in the absence of any definition given to a particular term in a statute, the meaning which is to be given to the said term is the meaning which is understood in common parlance. Even as per new Gem dictionary, the term 'debenture' includes bond of a company or a corporation." 6.8 The AO has not followed the aforesaid decisions on the ground that the Department has preferred an appeal against the said decision which is pending before the High Court of Punjab and Haryana. I find that just because the department has not accepted a particular decision and have preferred appeal before a higher Judicial Authority does not mean that the said decision is not binding in nature. The AO in his order has not pointed out any authority to support his view that the term 'debenture' is different from 'bond'. He has only made certain general observations, which are not factually correct. Hence, following the decisions of the jurisdictional Tribunal as well as referring to all other supporting documents, I am of the view that the term 'bonds' used in section 194LD includes even debentures. 6.9 The contention of the Appellant is also echoed in the internal letter dated 30-11-2017 issued by the PCCIT, International Tax in the context of Section 194LD of the Act to CCIT/CIT under International Tax jurisdiction, wherein it was specifically provided that for the purpose of section 194LD, debentures and bonds are to be considered as one and the same. The relevant extract of the same is reproduced in the decision of Amplus Energy Solutions Pte Ltd (Supra). 6.10 The AO in the Assessment Order has further relied on stated that the CDBT Circular No. 15/2014 dated 17.10.2014 issued in the context 9

IT(IT)A Nos- 14 and 15/Del/2025 Fusion Finance Ltd. of section 194LC and certain RBI regulations/Circulars issued in respect of 'oversees' rupee denominated commonly known as Masala Bonds which prescribes condition like all in cost, maturity period etc., to state that the benefit of section 194LD should not be available. 6.11 However, I agree with the contention of the Appellant that the aforesaid CBDT Circular relied upon by the AO applies only to section 194LC and cannot be made applicable to section 194LD. Section 194LD is not an extension of Section 194LC. If such was the case, then there was no need for the legislation to insert a new section 194LD. Section 194LC applies to all non-resident whereas section 194LD is a specific provision applicable only in case of interest paid to FIls/ QFIs. Therefore, these two sections cannot be equated. Also, RBI regulations/Circulars issued in respect of Masala Bonds are not applicable in case of the Appellant which has issued bonds/debentures in India and not oversees and the conditions such as all-in cost ceiling as stipulated in the various RBI circulars referred by the AO are not relevant for the section 194LD. 6.12 In fact, section 194LD prescribes its own limits for interest rate in respect of bonds/debentures which is different from that what is prescribed in the circular referred to by the AO. The proviso to section 194LD provides that the rate of interest in respect of rupee denominated bond shall not exceed the rate as the Central Government may, by notification in the Official Gazette, specify. Accordingly, the Central Government has issued Notification NO. S.O. 2311(E) [ NO.56/2013 (F.NO.149/81/2013-TPL)], Dated 29-7-2013 under the said proviso, wherein the ceiling rate specified u/s. 194LD is SBI Base Rate plus 500 basis point. As against this the ceiling rate as specified in the Circular relied by the AO is yield of Government securities plus 300 basis points. There cannot be two different interest ceiling rates prescribed for the same provision, which also shows that the Circular referred to by the AO is not applicable. Further, the Appellant has demonstrated that it has duly satisfied the conditions prescribes in section 194LD including the ceiling rate. 6.13 In view of the above, I am of the view that the interest paid by the Appellant on the rupee denominated NCDs is covered u/s. 194LD and the conclusion of AO that provisions of section 194LD do not apply to rupee denominated non-convertible debentures is incorrect.”

9.1 In view of the above, we hold that the order of the Ld. CIT(A) is justified. Following the decisions of the co-ordinate benches in the cases of Heidelberg Cement AG v. ACIT (supra) and Amplus Energy 10

IT(IT)A Nos- 14 and 15/Del/2025 Fusion Finance Ltd. Solutions Pte Ltd. Vs. ACIT (supra), we hold that NCDs are to be considered as bonds for the purpose of section 194LD of the Act. Hence, no interference is called for in the order of the Ld. CIT(A).

9.2 In the result, the appeal of the revenue is hereby dismissed.

Order pronounced in the open court on 14.05.2026.

Sd/- Sd/- [VIKAS AWASTHY] [RENU JAUHRI] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated- 29.05.2026. Pooja. Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT(A) 5. DR

Asst. Registrar, ITAT, New Delhi,