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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI S. RIFAUR RAHMAN, AM & SHRI AMARJIT SINGH, JM
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, AM AND SHRI AMARJIT SINGH, JM आयकर अपील सं/ I.T.A. No. 1446/Mum/2020 (निर्धारण वर्ा / Assessment Year: 2019-2020) ITO (TDS)-2(1)(4) बिधम/ M/s. Rainbow Devices Trust Room No.612, 6th Floor, K. C/o. Axis Trustee Services Vs. G. Mittal Ayurvedic Ltd. 2nd Floor, 29 South West, Hospital Building, Charni Road (W), Mumbai-400002. Ruby IT Park (Ruby Mills) Dadar (W), Mumbai-400028. PAN NO. AADTR3790H आयकर अपील सं/ I.T.A. No. 1447/Mum/2020 (निर्धारण वर्ा / Assessment Year: 2019-2020) बिधम/ ITO (TDS)-2(1)(4) M/s. Rent-A- Device Trust Room No.612, 6th Floor, K. C/o. Axis Trustee Services Vs. G. Mittal Ayurvedic Hospital Ltd. 2nd Floor, 29 South West, Building, Charni Road (W), Mumbai-400002. Ruby IT Park (Ruby Mills) Dadar (West), Mumbai- 400028. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AADTR4732R (अपीलाथी /Appellant) (प्रत्यथी / Respondent) ..
Revenue by: Shri Sanjeev Kashyp (DR) Assessee by: Shri Nimesh Vora सुनवाई की तारीख / Date of Hearing: 09/02/2022 घोषणा की तारीख /Date of Pronouncement: 03/03/2022 आदेश / O R D E R PER AMARJIT SINGH, JM: The revenue has filed the above mentioned appeals against the different order passed by the Commissioner of Income Tax (Appeals) -60, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y. 2019-20.
ITA Nos. 1446 to 1447/Mum/2020 A.Y. 2019-20 ITA. NO.1446/Mum/2020 2. The revenue has filed the present appeal against the order dated 12.12.2019 passed by the CIT(A)-60, Mumbai relevant to the A.Y. 2019- 20.
The revenue has raised the following grounds: -
"1. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) was justified in holding that the payment made by M/s.Rainbow Devices Trust to M/s. OPC Asset Solutions Private Limited is not rent for the use of equipment/mobile handsets and hence not liable for TDS u/s.1941 of the Income Tax Act, 1961.” 2. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the demand of tax of Rs.33,01,32,933/- raised u/s.201(1)/201(1A) of the Income Tax Act, 1961 without appreciating that the payment made by M/s.Rainbow Devices Trust to M/s.OPC Asset Solutions Private Limited was in the nature of rent/advance rent, and was thus liable for TDS at the rate of 2% u/s.194I of the Act.” 3. “The appellant craves leave to amend or alter any ground or add a new ground which may be necessary at the time of hearing of the case or thereafter.” 4. The brief facts of the case are that an information was received from the ITO(TDS)-2(2)(4), Mumbai vide letter No.ITO(TDS)- 2(2)(4)/Securitization – OPC/2018-19 dated 20.12.2018 that M/s. Rainbow Device Trust, the assessee in the present case has paid an amount of Rs.1500 crores and Rs.60,42,399/- to M/s. OPC Assets Solutions Private
ITA Nos. 1446 to 1447/Mum/2020 A.Y. 2019-20 Limited and took the entire portfolio in respect of renting out of the Mobile Handsets to M/s. Reliance Retail Ltd. (RRL). Information has also been received from the ITO(TDS)-1(1)(2), Mumbai vide letter No. ITO(TDS)- 1(1)(2)/Forwarding of survey information/2018-19 dated 28.11.2018 in the case of M/s. Rainbow Device Trust. This amount of Rs.1500 crores and Rs.60,42,399/- paid by M/s. Rainbow Device Trust to M/s. OPC Assets Solutions Private Limited was nothing but payment of accumulated rent, which was chargeable to TDS u/s 194I of the Act @ 2%. The rent agreement was executed between the parties. The term of rent agreement is hereby mentioned below: -
“2.2 The Renter agrees that the execution and delivery of this Agreement by the Renter to OPC constitutes the Renter's irrevocable consent and authorisiation that OPC may pay the Supplier at the rates specified in the invoices....”
'2.6.1 The Renter acknowledges and confirms that the Goods which are subject matter of this Agreement, have been selected by the Renter and have been acquired by the OPC at the request of the Renter solely for the purpose of renting the Goods to the Renter…….”
“2.6.5 The Renter shall be responsible for making payment of all costs associated with taking the delivery of the Good from the Supplier.
2.7.12 The OPC shall at all times retain the ownership of the Goods.
2.8.4 The Renter acknowledge that OPC may be raising finance by assigning, transferring of securitizing the receivables.
ITA Nos. 1446 to 1447/Mum/2020 A.Y. 2019-20 2.8.5 “……….. the Renter’s payment obligations shall continue notwithstanding any defect (including, without limitation, any latent defect) in, breakdown, accident loss, theft or damage to the Goods and the Renter shall not be entitled to withhold payment of any rental even if the Goods (or any of them do not function or are no longer useful…………”
2.9.1 Each Good shall be returned to the OPC within a maximum period of 6(Six) months from the expiry of the Renting term.
2.9.2 oon redelivery, the Goods shall be in the same operating order, repair, and condition as and when originally delivered to the Renter.
2.9.6 In the event that OPC has issued rejection letter, the Renter will make the payment of an amount equal to the residual value of the Goods.
2.9.7 The residual value means the financial interest as per OPC’s books which OPC acquires in the Goods at the commencement of the Renting Term under this Agreement and retains for the duration of the Renting Term.
5.2 Renter agree to insure the Goods at the Renter’s sole cost and expense,
9.7.4 The Renter hereby agrees and undertake that it shall promptly reimburse all the costs associated with any such assignment/securitization undertaken by the OPC including stamp duty payable, cost & expense of any trustee, rating agency etc.
9.7.5 The Renter agrees that it shall promptly indemnify OPC and its assignee for all claims/demands arising out of any indirect tax or GST
ITA Nos. 1446 to 1447/Mum/2020 A.Y. 2019-20 implications in relation to renting of the Goods or the assignment of the receivables including but not limited to any legal cost.” 5. On appraisal of the letter agreement, it was found that the payment was nothing as only the rental payment for mobile handsets. The mobile handset was not purchased by Reliance Retail Ltd. (RRL) or by M/s. Rainbow Device Trust and mobile hand set were returned to M/s. OPC Assets Solutions Pvt. Ltd. in working conditions after the period of 3 years. A show cause notice u/s 201(1)/201(1A) of the Income Tax Act, 1961 dated 02.01.2019 was issued and after the reply of the assessee, the AO hold that the payment of Rs.1500 crores and Rs.60,42,399/- by assessee M/s. Rainbow Device Trust to M/s. OPC Assets Solutions Pvt. Ltd. is covered u/s 194I of the Act and the TDS deductible on the same @ 2% and corresponding amount of interest chargeable u/s 201(1A) of the Act was payable by assessee. The default u/s 201(1) being non deduction of tax u/s 1941 @ 2% was assessed to the tune of Rs.30,01,20,848/- and the interest u/s 201(1A) @ 1% per month was assessed to the tune of Rs.3,00,12,085/-. The total payable amount u/s 201(1)(1A) was assessed to the tune of Rs.33,01,32,933/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee but the revenue was not satisfied, therefore, the revenue has filed the present appeal before us.
ISSUE NOs. 1 & 2 5. Issue nos. 1 & 2 are inter connected, therefore, are being taken up together for adjudication. The contention of the revenue is that the payment made by appellant has rightly been considered by AO as rent for use of equipment/mobile handsets, therefore, the assessee was under obligation to
ITA Nos. 1446 to 1447/Mum/2020 A.Y. 2019-20 deduct the TDS u/s 194I of the I. T. Act, 1961. It is further argued that the CIT(A) has wrongly been deleted the demand raised u/s 1941 and the interest on demand has also been wrongly deleted, hence the finding of the CIT(A) is liable to be set aside. However, on the other hand the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deem it necessary to advert the finding of the CIT(A) on record: -
Decision: 4. The order of CIT(A) being erroneous be set aside and A.O‟s order be restored.
I have gone through the TDS assessment order, the grounds of appeal and the appellant's AR submission on the grounds. The facts of the case are as follows:
Axis Trustee Services Limited (ATSL) has settled a Trust - Rainbow Devices Trust., (Trust). The Trust was assigned the receivables from OPC Solutions Private Limited (OPC). The receivables represent the lease rent receivable by OPC from Reliance Retail Limited (RRL) to whom assets were provided by OPC on lease. The Trust has issued a series of Pass Through Certificates (PTCs) to the Investors, being mutual funds specified under section 10(23D) of the Income-tax Act, 1961 (Act).
ITA Nos. 1446 to 1447/Mum/2020 A.Y. 2019-20
1 1 Reliance Retail OPC Solutions Limited (Lessee) Pvt. Ltd. (Lessor)
2 3 6
Rainbow Trust (Trust)
7 4 5 8
Mutual Funds (Investors)
OPC provides the assets on lease to RRL.
RRL is liable to lease rentals to OPC over the period of lease.
OPC assigns the receivables to the Trust.
The trust issues PTCs to the Mutual Funds.
The Mutual Funds subscribe to the PTCs issued by the Trust.
ITA Nos. 1446 to 1447/Mum/2020 A.Y. 2019-20 6. The proceeds realised from the issue of PTCs are paid to OPC by the Trust as purchase consideration for acquiring the receivable. (As per appellant’s aR, no tax withholding on such payments as payment is for acquisition f receivables).
RRL pays the quarterly lease rental payments directly to the Trust. (No tax withholding on such payment as per Notification No.46/2016 dated 17 June 2016).
The lease rentals realised by the Trust are passed onto the Mutual Funds. (No tax withholding on such payments as per the provisions of section 196 of the Act.)
The TDS AO has considered the transaction at point no.6 which is actually the payment given to OPC as purchases consideration for acquiring the receivables. The AO has held that the appellant had ought to have deducted tax @ 2% on the amounts paid by the appellant in this transaction.
As per appellant's AR contention, the receivables have been bought by the Trust using the funds of the investors. In consideration of the same, the Trust was making payouts to the Investors who are mutual funds. On the said amounts, the Trust has not deducted tax as per the provisions of section 196 of the Act which exempts such payments made to mutual funds specified under section 10(23D) of the Act.
The primary contention of the appellant's AR is that the Trust has made payments to OPC for acquisition of receivables i.e. purchase of the right to receive amounts due to OPC. As regards, the characterization of payments made by the Trust, the same cannot be in the nature of lease rentals since the Trust has not taken any assets
ITA Nos. 1446 to 1447/Mum/2020 A.Y. 2019-20 on lease from OPC. The payment is for acquisition of an „asset‟ viz. „receivable‟, therefore, the characterization of payment is „acquisition of asset‟ and cannot be characterized as „lease rentals‟. Such payments are not liable to tax withholding under any provisions of Chapter XVII-B of the Act.
In, nutshell, The Assessing Officer's Contention can be summarized in following points:
The Assessing Officer (AO) has quoted various clauses of the rent agreement between OPC and RRL while issuing the order dated 10 January 2019 (Order).
Further, the AO relied on the agreement between OPC and RRL while passing the Order. The relevant extract of the Order is provided below for appreciation of AO‟s argument:
3.1 “The contention of the assesse is unacceptable in view of the foregoing discussion and the terms of the agreement entered between M/s OPC Assets Solutions Privete Limited and M/s Reliance Retail Limited wherein it is clearly said that there was a rental agreement for the usage of mobile handsets by M/s Reliance Retail Limited from M/s OPC Asset Solutions Private Limited and this portfolio was taken over M/s Rainbow Devices Trust through Securitization Trust. But the basic character of the transaction remains „Rent‟ and therefore is liable for deduction of TDS."
The AO has computed interest payable under Section 201(1A) of the Act from 1 April 2018.
ITA Nos. 1446 to 1447/Mum/2020 A.Y. 2019-20 2. The Appellant‟s Contention can be summarized on following points:
The Order has been passed by the AO based on the reading of various clauses of the rent agreement entered into between OPC and RRL. In fact the AO should have considered the Deed of Assignment dated 24 July 2018 for Rainbow Devices Trust Trust while arriving at the conclusion on determining withholding tax.
The AO simply rejected the submission made by the Appellant dated 3 January 2019 explaining why the provisions of section 194-I of the Act shall not apply on payments made by the Appellant to OPC.
The AO concluded that the basic characteristic of the transaction remains „rent‟. He has concluded the same without any cogent reasons. Further, the said securitisation transaction has happened between two unrelated parties and as per the SEBI regulations in this regard.
Further, the principles from various judicial precedents have been relied by th Appellant to state that the payment made by the Appellant for the acquisition or receivables cannot to re-characterised as lease rentals as done by the learned Ao in the order.
After going through the assessment order and the appellant's AR, the following legai ang factual points emerge which are crucial for decision making:
The AO failed to appreciate that the securitisation trust has been formed under separate regulations of Securities and Exchange Board of India (SEBI). As per the SEBI regulations and the specific clauses
ITA Nos. 1446 to 1447/Mum/2020 A.Y. 2019-20 of Deed, it is beyond doubt that OPC has unconditionally and irrevocably sold, transferred, assigned and conveyed ail rights, title, benefit and interest in the receivables and together with all other rights, benefits, powers, risk and guarantees and indemnities in relation thereto to the Appellant. Therefore, the payments made against acquisition of receivables, being in the nature of securitization transaction (as per SEB! regulatons), by Appellant to OPC cannot be treated as payment of rent for use of mobile sets under any circumstances.
The AO disregarded the nature of payment being made by the Appellant (the special purpose distinct entity) to OPC (the originator) for acquisition of the receivables (securitisation activity) as per the prescribed-SEBI! regulations.
The term „Rent‟ has been defined in the: Act to mean any payment for the „use of any equipment‟, etc. Therefore, the payment by the Appellant to OPC should be in the nature of rent or for that matter, the agreement has to be for the use of equipment. The Appellant has clearly submitted that there is.no rental agreement between OPC and the Appellant for the use of mobile handsets and, therefore, the payment made by the Appellant cannot be treated as being in the nature of rent. Also, the mobile handsets are, still being used by RRL and the rent agreement between RRL and OPC for use of.the mobile handsets is still valid and in existence.
One of the consequence of execution of the Deed of Assignment dated 24/07/2018, between the Appellant and OPC is that the-rent is to be paid by RRL-to the Appellant instead to OPC. Accordingly, at best it could be said that the amount in. the nature of rent (from RRL
ITA Nos. 1446 to 1447/Mum/2020 A.Y. 2019-20 perspective) is being received by the Appellant-arid not being paid by the Appellant. Further, it is clarified that RRL is not required withhold tax on such payment to the Appellant based on the provisions of section 197A (1F) of the Act. "
The Deed of Assignment dated 24/07/2018 vide clause 2.1 specifically provides -that, in consideration of the amount being paid, OPC unconditionally and irrevocably sells, transfers, assigns and conveys ail rights, title, benefit and interest of OPC in the receivables and together with all other rights, benefits, powers, risk and guarantees and indemnities in relation the-etc.
4, At clause 2.7.12 of the rent agreement, it is specified that the OPC shall at all-time retain the ownership of the goods. This also signifies that the payment has not been made for purchase of assets which are on rent but it is the “receivables” which is a securitized asset which has been purchased by the trust.
Even the Stamp Duty Acts recognises that lease transactions are different from securitisation transactions and separate stamp duty rates have been prescribed to be paid for such Agreements,
After going through the entire factual and legal matrix of the case, it is clear that the appellant is paying a consideration to OPC on the basis of purchase of right to receive the rents under the Assignment Deed and not in lieu of rent. Thus, in form and substance such transaction
cannot be characterized as „rent‟ and hence, provisions of section 194-1 of the Act will not apply. Thus the AO is not correct in re- characterising and rewriting transactions between the Appellant and
ITA Nos. 1446 to 1447/Mum/2020 A.Y. 2019-20 OPC. Accordingly, the order passed by the AO is dismissed and the appellants ground is allowed.” 6. On appraisal of the above mentioned finding, we find that the CIT(A) after thoroughly going through the transaction has held that the payment made by assessee is not liable to be taxed in view of the provisions u/s 194I. In brief, the trust made the payment to OPC for acquisition of receivable i.e. purchase and right to receive amount due to OPC. Accordingly, the characteristic of the payment made by trust cannot be treated in the nature of lease rental since the trust has not taken any assets on lease from OPC. The payment was for acquisition of an asset viz receivable, therefore, the characterization of payment was acquisition of assets and cannot be characterized as lease rental. In brief, the assessee was paying a consideration to OPC on the basis of purchase and right to receive the rents under the Assignment Deed and not in lieu of rent. Therefore, such transaction cannot be characterized as rent so the provision u/s 194-I of the Act will not apply. The CIT(A) has discussed the each and every aspect of the transaction and allowed the claim of the assessee. The facts are not distinguishable at this stage. Therefore, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfered with at this appellate stage. Accordingly, these issued are decided in favour of the assessee against the revenue.
ITA. No.1447/Mum/2020 8. The facts of the present case are quite similar to the facts as narrated above while deciding in ITA. No.1446/Mum/2020, therefore, there is no need to repeat the same. The finding given above while deciding the ITA.
ITA Nos. 1446 to 1447/Mum/2020 A.Y. 2019-20 No.1446/Mum/2020 is quite applicable to the facts of the present case also as mutatis and mutandis. Accordingly, we dismiss the appeals of the revenue bearing ITA. No.1447/Mum/2020.
In the result, the appeals filed by the revenue are hereby dismissed. Order pronounced in the open court on 03/03/2022
Sd/- Sd/- (S. RIFAUR RAHMAN) (AMARJIT SINGH) लेखध सदस्य / ACCOUNTANT MEMBER न्यधनिक सदस्य/JUDICIAL MEMBER मुंबई Mumbai; ददनांक Dated : 03/03/2022 Vijay Pal Singh (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधिक िंजीकधर /(Dy./Asstt. Registrar) आिकर अिीलीि अनर्करण, मुंबई / ITAT, Mumbai