PIRAMAL CAPITAL AND HOUSING FINANCE LIMITED,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX TDS - 2 (1), MUMBAI, MUMBAI

2. The Ld. CIT(A), inter-alia, failed to appreciate that: i. In absence of the income component in the said transaction, the provisions of TDS as laid under Section 193 and Section 194/A of the Act cannot apply. 2 ITA No.2348/Mum/2024, ITA No.2347/Mum/2024 and ITA No.2345/Mum/2024 Assessment Year: 2017-2018, 2018-2019, 2019-2020 and 2020-2021 ii. Since, the securities are purchased at the carrying value from the Transferor, the interest element embedded in the cum-interest price should be treated as the part of the purchase price. iii. No borrower-lender relationship exists between the Transferor and Appellant and hence no liability arises to deduct the tax under Section 193 and Section 194A of the Act. iv. The amount of interest accrued till the date of transfer already suffers tax deduction at source by the principal borrower either at the time of credit or at the time of payment of interest and thus the same income cannot be made subject to tax deduction twice. v. The Transferor has considered the accrued interest from the borrower for the period till the date of transfer while computing its total income and duly offered the same to tax and thus now no liability arises to deduct the tax on the said transaction.

3. The Appellant prays that it be held that no tax is to be deducted on the purchase consideration so paid and thus the action of the Assessing Officer, upheld by Ld. CIT(A), or treating the Appellant as ‘Assessee in default’ u/s.201 of the Act and consequential levy of interest u/s. 201(1A) be quashed. III. Without prejudice to Ground I and Ground II Ground III:

1. 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in passing the Impugned Order without considering and submissions in form of Form 26A filed physically by the Appellant as the same could not be filed online due to the technical glitches (particularly where multiple years are involved) on the portal.

2. The Appellant prays that based on the Form 26A filed physically by the Appellant, the AD he directed to not treat the Appellant as Assessee-in-Default’ u/s 201 of the Act and hence the said order be quashed IV. Ground IV: CHARGING OF INTEREST UNDER SECTION 201(14) OF THE ACT: 1. On the facts and circumstances of the case and in law, the AG erred in levying interest u/s. 201(1A) 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 3 ITA No.2348/Mum/2024, ITA No.2347/Mum/2024 and ITA No.2345/Mum/2024 Assessment Year: 2017-2018, 2018-2019, 2019-2020 and 2020-2021 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 deducted at source. SNo. Instrument Principal Value Accrued Total Assets Interest Transferred 1 ICDs 2175,09,59,137 53,48,82,609 2207,70,45,747 2 NCDs 10008,76,90,602 436,15,38,091 10267,67,16,759 (Unlisted) 3 Term Loans 63,90,00,000 69,73,124 64,59,73,124 Grand Total 12247,76,49,739 490,33,93,825 12539,97,35,629 4.1. The Assessing Officer noted that the NCDs, ICDs and Term Loans were purchased from PEL at carrying value comprising of principle value and accrued interest. According to the Assessing Officer the payment of INR.490,33,93,825/- made by the Appellant to PEL in 4 ITA No.2348/Mum/2024, ITA No.2347/Mum/2024 and ITA No.2345/Mum/2024 Assessment Year: 2017-2018, 2018-2019, 2019-2020 and 2020-2021 excess of the principle value constituted income liable to tax in the hands of PEL. INR.5,41,85,573/- was in the nature of ‘Interest Other Than Interest on Securities’, and therefore, the Appellant was under obligation to withhold tax in respect of the same under Section 194A of the Act. Whereas, INR.484,92,08,252/- was in the nature of ‘Interest on Securities’, and therefore, the Appellant was under obligation to withhold tax in respect of the same under Section 193 of the Act.

4.2. By way of notice, dated 13/12/2019 and 24/01/2020, the Appellant was asked to show cause as to why the Appellant should not be treated as deemed to be an Assessee in default within the meaning of Section 201(1)/201(1A) of the Act on account of its failure to deduct tax at source from accrued interest on ICDs and Term Loans in terms of Section 194A of the Act and accrued interest on NCD’s in terms of Section 193 of the Act. In response the Appellant filed detailed submission, dated 03/12/2019, wherein on behalf of the Appellant it was contended as under:

(a) The Appellant had made payment to PEL for acquiring right to receive the principle along with interest from the debtors/borrowers on maturity. The consideration was paid for purchase of an asset being ‘right to receive’ and the same cannot be termed as interest paid to PEL.

(b) The payment made by the Appellant to PEL does not fall within the definition of term ‘interest’ as contained in Section 2(28A) of the Act. It was submitted that the aforesaid definition of ‘interest’ necessarily required payment in respect of ‘money borrowed or debt incurred’. In the present case the relationship of borrowers and lenders did not exist between the Appellant and PEL. Therefore, payment made to PEL also 5 ITA No. 2351/MUM/2024, ITA No.2347/Mum/2024 and ITA No.2345/Mum/2024 Assessment Year: 2017-2018, 2018-2019, 2019-2020 and 2020-2021 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 the provisions contained in Proviso of Section 201(1) of the Act.

4.3. The above submissions were taken into consideration by the Assessing Officer. However, the Assessing Officer did not find any merit in the same and concluded that Appellant had failed to discharge the obligation to deduct tax from the payments made to PEL in excess of the principle value amounting to INR.490,33,93,825/- in the terms of the provisions contained in ITA No.2348/Mum/2024, ITA No.2347/Mum/2024 and ITA No.2345/Mum/2024 Assessment Year: 2017-2018, 2018-2019, 2019-2020 and 2020-2021 Section 194A/193 of the Act. Thus, treating the Appellant as as ‘Assessee in Default’, the Assessing Officer levied interest of INR.6,31,00,300/- on INR.49,03,39,382/- being the aggregate amount of tax that the Appellant was, according to the Assessing Officer, required to withhold in terms of Section 193/194A of the Act (at the rate of 10%) from the aforesaid excess payment of INR.4,90,33,93,825/-. Accordingly, the Assessing Officer raised aggregate demand of INR.55,34,39,682/- [INR.49,03,39,382/- plus INR.6,31,00,300/- upon the Appellant vide, order dated 10/02/2020, passed under Section 201(1)/201(1A) of the Act.

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. Thus, the obligation to withhold tax under Section 193/194A of the Act gets fastened on credit or payment, whichever is earlier. It is admitted position that in the present case the accrued interest had been recorded in the books of accounts of PEL. The contention of the Appellant that borrowers had deducted tax at source from such interest income [at the time of credit of such income in the account of PEL in their respective books of accounts] and had deposited the tax so deducted with the Government Treasury as per provisions of the Act has not been controverted by the Revenue. Therefore, in our view, in the present case, the provisions of Section 193/194A of the Act having already been triggered and complied with at the time of credit of interest income to the account of PEL in the ITA No.2348/Mum/2024, ITA No.2347/Mum/2024 and ITA No.2345/Mum/2024 Assessment Year: 2017-2018, 2018-2019, 2019-2020 and 2020-2021 books of accounts of the borrowers [i.e. the person responsible for making payment of such interest income at the relevant time], would not again get triggered on payment of the same interest income by the Appellant to PEL. In case the contention of the Revenue is accepted it would amount to subjecting same interest income to deduction of tax at source once at the time of credit and then again at the time of payment. Whereas Section 193/194A of the Act provide for deduction of tax at source at the time of credit or payment, whichever is earlier. Therefore, we hold that, given the facts and circumstances of the present case, the provisions contained in Section 193/194A of the Act were not attracted and therefore, the question of Appellant committing default in complying with the same does not arise.

11.1. In the case of State Bank of India Vs. DCIT [2024] 163 ITA No.2348/Mum/2024, ITA No.2347/Mum/2024 and ITA No.2345/Mum/2024 Assessment Year: 2017-2018, 2018-2019, 2019-2020 and 2020-2021 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 Act. As per section 194A of the Act, any person, not being an individual or a HUF, who is responsible for paying to a resident any income by way of interest, shall at the time of credit of such income to the account of payee deduct income tax thereon at the rates in force. The term "interest" has been defined under section 2(28A) of the Act as under- 2(28A) "interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised;"

17. Therefore, from the plain reading of the provisions of section 2(28A) of the Act, it is evident that interest means interest payable in respect of any money borrowed or debt incurred. As per the Revenue, since 90% of the pool of assets was purchased by the assessee, therefore the total interest pertaining to the assessee's share first accrued to the assessee and thereafter the same, by virtue of the tripartite agreement, is allowed by the assessee to be retained back by the originating NBFCs. Therefore, in light of the provisions of Sectin 194A read with Section 2(28A) of the Act, it needs to be examined whether the part interest allowed to be retained back with the originating NBFC by the assessee. In the 12 ITA No. 2351/MUM/2024, ITA No.2348/Mum/2024, ITA No.2347/Mum/2024 and ITA No.2345/Mum/2024 Assessment Year: 2017-2018, 2018-2019, 2019-2020 and 2020-2021 present case, it has been disputed that the assessee purchased a pool of loans from the NBFCs by way of Direct Assignment. It is also the claim of the Revenue that by purchasing the loan, the assessee, to the extent of its share, i.e.90%, has stepped into the shoes of the NVFCs, and if there is a default on a particular loan (for the 90% pool assigned to the assessee) the entire loss will come to the assessee. In the present case, it also cannot be disputed that the borrowers have taken the loans from the NBFCs, which were subsequently purchased by the assessee by way of Direct Assignment, and on these loans, the borrowers are paying interest, which is getting deposited in “Collection and Payee Account’, which is the Escrow Account operated by the Assignee Representative and ultimately this interest is distributed amongst the NBFC and the assessee as per the tripartite agreement. Therefore, from the aforesaid undisputed fact, it is sufficiently evident that 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 nature of the same is converted to a consideration for the purchase of 90% of the pool of assets. The nature of income in the hands of the recipient and the nature of expenditure of said sum by that person may not always be the same. Therefore, it is no necessary that what is received as interest is also interest when paid, particularly in the absence of any money borrowed or debt incurred. Accordingly, we are of the considered view that there is no obligation on the assessee to deduct tax at source under 13 ITA No.2348/Mum/2024, ITA No.2347/Mum/2024 and ITA No.2345/Mum/2024 Assessment Year: 2017-2018, 2018-2019, 2019-2020 and 2020-2021 section 194A of the Act. Thus, levy of tax under section 201(1) and levy of interest under section 201(1A) of the Act for non-deduction of TDS under section 194A of the Act is not sustainable. Accordingly, grounds no.1, 2, and 4 raised in Revenue's appeal are dismissed.” (Emphasis Supplied) 11.2. To the same effect is the decision of Mumbai Bench of the Tribunal in the case of Idea Cellular Ltd. Vs. ADIT [2015] 172 TTJ 540 (Mum. Trib) wherein it was held that as under:

“9. Now, the issue before us is, whether such a fees paid to the arranger can be termed as "interest" within the meaning of section 2(28A) or "fees for technical services for service" within the meaning of section 9(1)(vii).

by the Appellant are dismissed as having ITA No.2348/Mum/2024, ITA No.2347/Mum/2024 and ITA No.2345/Mum/2024 Assessment Year: 2017-2018, 2018-2019, 2019-2020 and 2020-2021 been rendered infructuous. ITA No.2347/Mum/2024 (Assessment Year 2019-2020)

14. Now we would take up appeals for the Assessment Years 2018-19, 2019-20 & 2020-21 arising from three separate orders, each dated 07/03/2024, passed by the Learned CIT(A).

ITA No. 2351/MUM/2024, ITA No.2347/Mum/2024 and ITA No.2345/Mum/2024 Assessment Year: 2017-2018, 2018-2019, 2019-2020 and 2020-2021