SME POOL SERIES V AUG 2016,MUMBAI vs. INCOME- TAX OFFICER (TDS) 2(2)(1), MUMBAI

Per contra, the Ld. Departmental Representative supported the 10. order passed by the Assessing Officer and the CIT(A). The oral submission made by the Ld. Departmental Representative were supported by the written submissions which are reproduced below:

“2. In the case of M/s SME Pool Series V Aug 2016, the assessment order u/s 201 of the Act, for A.Y. 2017-18 was completed by the Assessing Officer vide order dated 25-02- 2019. 2.1 During the course of assessment proceedings, the Assessing Officer found that the assessee has entered into the Deed of Assignment (Securitisation Deed) for receivables in the process of securitisation of debts. Such Assignment Deed is entered into between M/s Equitas Finance Ltd. (the seller/originator) and M/s Catalyst Trusteeship Ltd. as a Trustee of the assessee and M/s Equitas Finance Ltd. as a servicer on 30/08/2016. The assessee, an SPE (Special Purpose Entity), undertook (purchased) pool assets from the seller. Such securitised pool assets were subscribed by investors through Pass Through Certificates (PIC) within the meaning of provisions of Trust Deed, Deed of Assignment and Information Memorandum, Account Agreement, etc. read with provisions of Income Tax Act, 1961. The SPE has distributed income accrued on such pool of assets to the investors and

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) originator/ seller. The process of securitisation is explained by the AO at Para-2 of its order. 3. During the course of assessment proceedings, the Assessing Officer found that the income distributed by the SPE to originator/seller as Excess Spread of Interest (EIS) is linked to the investment of originator/ seller in SPE in the form of MRR represented through credit collateral, therefore the assessee is a beneficiary of the securitised debts receipts. The assessee failed to deduct TDS on such payment of EIS within the meaning of section 194 LBC of the Act. Therefore, the Assessing Officer invoked the provisions of sec. 194LBC of the Act and found assessee in default and thereby passed an order u/s 201 of the Act. 4. It is noteworthy to mention that during the course of assessment proceedings the assessee has accepted the contention of the Assessing Officer and submitted as under:- “4. xx xx In continuation to the above, we wish to inform you that after the survey, as per instruction by Income Tax, we have started deducting TDS on the EIS w.e.f. Oct. 18 wards payment u/s 194LBC of the Act in respect of all the securitisation trusts under our Trustreship. Also, as per requested by Income Tax we have already communicated to all respective Originators to Deposit TDS en EIS u/s 194LBC for the period of Apr. 18 to Sep 18 and some of the originators have already deposited the TDS for the said period" 5. It may be appreciated that the assessee has distributed EIS to the originator. The nature and character of the EIS income accrued to the seller is nothing but return on investments made by the originator in the SPE in the form of excess credit or credit collateral or bank guarantee by securitising part of pool asset subscribed by PTC holders and the seller is also a beneficiary of the pool asset viz. the securitised debts as the originator is bound to retain the securitised pool by virtue of RBI guidelines in the form of MRR. The requisite guidelines of the RBI reproduced by the Assessing Officer in para-4 of its order. 5.1 The assessee has also submitted that no deduction certificate

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) by furnishing form 26A could be obtained because of technical difficulties as mentioned in para 6 of the Assessment Order thereby admitting that the TDS was liable to be deducted but could not be deducted. 6 Aggrieved, the assessee filed an appeal before the CIT (Appeals). The Ld. CIT(A) vide its order dated 19/10/2022 decided the appeal in favour of the Revenue. The Ld. CIT(A) has observed as under "it is further relevant to refer to the 2012 guidelines of the RBI that the AO has used to counter the assessee's argument that EIS, arose to the originator of the loans without the said EIS income bearing any relation to the investor made by the originator in the securitization trust. After 2012 guidelines, the Originator has to maintain the MRR throughout the securitization period, therefore, the EIS and the MRR (originator's holding of PTCs) are also interlinked. If the Originator does not keep MRR all the times, the question of EIS does not arise at all. Therefore, EIS is indeed linked with the investment of the Originator in the Securitisation scheme and, hence, the assessee was required to have deducted the TDS u/s 14LBC on the EIS paid to the Originator. The AO has, apart from the context of Section 115TCA of the Act, also laid emphasis on the definition of investor as per SEBIs regulations of 2008. It would be relevant to quote from the assessment order which is as follows: It is also prudent to look at the definition of investor" as per clause (h) of sub- regulation (1) of regulation 2 of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008.. “(h) Ïnvestor” means a person holding any securitized debt instrument which acknowledges the interest of such person in the art or receivables assigned to the special purpose district entity”: After looking at the above definitions, it can be said that the 'deed of assignment‟ (wherein „Originator‟ and assessee trust SPV are the parties) is also an instrument in nature of securitized debt instrument which acknowledges the beneficial interest of Originator

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) in respect to receivable in the nature of EIS. Hence, by virtue of above definitions, the Originator can solely be termed as the "investor" holding deed of auction debt instrument) which acknowledges the interest of Originator (EIS) in the debtor receivables assigned to the special purpose distinct entity. There is strength in the conclusion that Section 115TCA deals with any income payable to the investor. Further the Section 115 TCA of the Income Tax Act says it is a deeming provision, which means if any income arising or accruing to investors even if not paid or credited to person referred to in sub-section (1), which is investor, shall be deemed to have been credited to the account of the said person (investor) on the last day of previous your. The section 115TCA(3) clears it in explicit terms that whatever income is going out from the Securitization Treat will be income of the investor. Thus, such income payout by the Securitisation Trust irrespective of who is receiving is return on investment and therefore, is subject to TDS m/s 194LBS 30%. 9. In light of the above as also lack of non- substantive response during the course of appellate proceedings including no response at all vis-à-vis the last two notices sent, the reasoning adopted by the assessee officer to hold the treat as an assessee default under section 201 (1) and 201 (LA) needs no intervention and is upheld. In the result the appeal is dismissed." 6.1 It may be appreciated that the assessee is bound to follow securitization guidelines issued by the competent authority viz. RBI from time to time. Further, it is not disputed that the seller is residual beneficiary of the interest created by securitization documents/instruments which includes the deed of assignment or account agreements, assignment agreements, servicing agreements, the power of attorney and all other instruments, deeds, and documents executed or entered into by or between the Trustee and the Seller from time to time for the purpose of securitizing receivable. Therefore, it cannot be disputed that beneficiaries of pool will be PTC holders including residual beneficiaries or such other persons who has any right over the pool asset or trustor pool property Le securitised debts. The acceptance of the PTC by any investor or a prospective investor is beneficiary of the Trust property alongwith a person who has interest in the

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) Trust property Le. Originator/Seller. Therefore, the Originator as well as PTC holder both are beneficiaries of the Trust property which is asset pool transferred by seller to the SPE. It is worth to mention that the Trust property which is source of the income to the SPE to be distributed to the beneficiaries includes subscription amount for the PTCs issued by the Trust, the receivables and all amounts deposited with the Trust (including the credit collateral provided by the SPE] on realisation of receivables from time to time in accordance with the securitization documents/instrument, the underlinged documents, including cash collateral provided by the assessee SPE. All such trust properties are held in trust and subject to the powers, declaration, directions, and conditions express in the documents i.e. securitization instrument. 7 It is not denied that the MRR is made via credit collateral provided by the seller to the extent of Rs. 18.94 crores. The credit collateral is being provided in the form of credit collateral guarantee. It is pertinent to mention that the credit collateral is used for the benefit of beneficiaries of the trust property. The credit collateral is therefore, pari passu with the subscription amount paid by the investors. Without prejudice to the above, it may be appreciated that the credit collateral is also part of credit enhancement provided by the seller to protect the interest of beneficiaries 8 It is pertinent to note that in spite of the ample opportunities provided by the AO and Ld. CIT (A), the assessee has not made substantial submissions during the course of assessment or appellate proceedings or even before the Hon'ble Tribunal; so much so that the assessee has not submitted the copy of the agreement deed, trust deed, Information Memorandum, Financials of the Seller, details of the subscribers of SPE and PTC holders, etc. Therefore, the observation of the Ld. CIT(A) that non-substantive response of the assessee during the appellate proceedings caused the decision of the CIT(A) against the assessee. These documents go to the root cause to find the fact that whether originator is investor or not and whether the deed of assignment, including other documents as mentioned supra is securitization document/instrument or not? It is also not clear what is the class of PTCs issued and subscribed, what is notional amount of PTC, total number of PTCS, coupon rate, percentage of subscription, percentage of credit collateral etc. It is ascertainable whether the assessee has not provided these details during the course of survey proceedings also.

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19)

Therefore, it is most respectfully submitted that the case may be set aside to the Ld CIT(A) with the direction to the assessee to make substantive submission as mentioned supra. 9. Without prejudice to the above, it is may be appreciated that the there is no dispute with the finding of the fact that the certain income (EIS) is accrued to the Seller as a result of securitisation and transfer of its pool assets to the SPE managed by the servicer and the interests of the seller are acknowledged by the parties through the Deed of Assignment which is a 'securitisation instrument within the meaning of section 194 LBC of the Act. It is also not disputed that the Seller has maintained the MRR as per RBI guidelines in the SPE. It is not disputed that such MRR is linked to the pool asset and is at the disposal of the SPE to be used for the beneficiaries of the SPE including the Seller/Originator. 10. It may be appreciated that as per the provisions of the section 194 LBC "investor" shall have the meaning assigned to it in clause (s) of the Explanation occurring after section 115TCA. a As per the provisions of the section 115 TCA, "investor" means a person who is holder of any securitised debt instrument or securities for security receipt) issued by the securitisation trust. For the sake of ready reference the provisions of section 115TCA are reproduced as under- (1) Notwithstanding anything contained in this Act, any income accruing or arising to, or received by a person, being an investor of a securitisation treat, out of investments made in the securitisation trust, shall be chargeable to income-tax in the same manner as if it were the income accruing or arising to or received by such person, had the investments by the securitisation trust been made directly by him. (2) The income paid or credited by the securitisation trust shall be deemed to be of the same nature and in the same proportion in the hands of the person referred to in sub- section (1), as if it had been received by, or had accrued or arisen to, the securitisation trust during the previous year.

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) (3) The income accruing or arising to, or received by, the securitisation trust, during a previous year, if not paid or credited to the person referred to in sub-section (1). shall be deemed to have been credited to the account of the said person on the last day of the previous year in the same proportion in which such person would have been entitled to receive the income had it been paid in the previous year. (4) The person responsible for crediting or making payment of the income on behalf of securitisation trust and the securitisation trust shall furnish, within such period, as may be prescribed, to the person who is liable to tax in respect of such income and to the prescribed income-tax authority, a statement in such form and verified in such manner, giving details of the nature of the income paid or credited during the previous year and such other relevant details, as may be prescribed. (5) Any income which has been included in the total income of the person referred to in sub-section (1), in a previous year, on account of it having accrued or arisen in the said previous year, shall not be included in the total income of such person in the previous year in which such income is actually paid to him by the securitisation trust.] Explanation-For the purposes of this Chapter,- (a) "investor" means a person who is holder of any securitised debt instrument or securities for security receipt] issued by the securitisation trust (b) "securities" means debt securities issued by a Special Purpose Vehicle as referred to in the guidelines on securitisation of standard assets issued by the Reserve Bank of India, (c) "securitised debt instrument shall have the same meaning as assigned to it in clause (s) of sub- regulation (1) of regulation 2 of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) (d) "securitisation trust" means a trust, being a- (i) "special purpose distinct entity as defined in clause (u) of rub regulation (1) of regulation 2 of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and regulated under the said regulations; or (ii) "Special Purpose Vehicle" as defined in and regulated by the guidelines on securitization of standard assets issued by the Reserve Bank of India: "[or] [(iii) trust set-up by a securitisation company or a reconstruction company formed for the purposes of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), or in pursuance of any guidelines or directions issued for the said purposes by the Reserve Bank of India) which fulfils such conditions, as may be prescribed] [(e) "security receipt shall have the same meaning as assigned to it in clause (2g) of sub-section (1) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act. 2002 (54 of 2002) ] b As per the provisions of clause (s) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956 (42 of 1956) securitised debt instrument means - "securitised debt instrument means any certificate er instrument, by whatever name called, of t nature referred to in sub- clause (i.e) of clause (h) of section 2 of the Act issued by a special purpose distinct entity. c As per Section 2 Clause (h) (i.e.) of Securities Contracts (Regulation) Act, 1956 [42 OF 1956] the securitised debt instrument is defined as- "[(ie) any certificate or instrument (by whatever name

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable including mortgage debt, as the case may be;] d. The security receipt is defined in (zg) of sub-section (1) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002).] as under (zg) “security receipt” means a receipt or other security, issued by a 1 [asset reconstruction company] to any 2[qualified buyer] pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, little or interest in the financial asset involved insecuritisation. 11 In the instant case, it is found that the originator/seller has transferred its pool of asset through securitization deed viz Deed of Assignment to SPE The seller is entitled to receive EIS income from transfer of asset pool. The seller has also provided credit collateral as its share transferred to the Trust as a pool asset in the form of MRR. The deed of assignment is nothing but a securitization deed which acknowledges beneficial interest of the seller within the meaning of 19ILBC of the Act. Therefore, the nature and character of the returns received by the originator/seller from SPE assessee as EIS is a security receiptor interest in the financial asset involved in process of securitisation of debts and acknowledged by the deed of assignment of securitisation instrument or (by whatever name called) within the meaning of section 194 LBC of the Act. 11.1 Therefore, the income accrued to the seller in the capacity of residual beneficiary (beneficiary interest) is nothing but return on investment made by the seller through deed of assignment (securitization instrument). The nature and character of taxability of income accrued to the seller is not disputed. The contents and beneficial interest of the seller in deed of assignment are not doubted. Therefore, considering the facts and circumstances of the case, provisions of sec. 194LBC are applicable in the case of the assessee. 12 Without prejudice to the above, it is most respectfully

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) submitted that the reliance placed by the assessee on the decision of the Hon. Tribunal in the case of M/x Vivriti Cibus 013 2017 ITA No.3171/Mum/2022 is not correct as it can be distinguished on the basis of law laid down by the Income tax statute and by jurisprudence. 12.1 Hon. Tribunal has held that 'securitised debt instrument basically means any certificate or instrument is issued by Special Purpose Vehicle, Le, the securitisation trust which possesses any debt or receivable. The Hon. Tribunal has also recognised the fact and law that originator is required to retain certain interest in the loan portfolio overcollateralization, Le, collateralizing of excess receivables etc. 12.2 Further the Hon. Tribunal has held that even assuming Seller is to be treated as an investor, then also no tax was required to be deducted u/s 194LBC on the EIS, as the said payment was not in respect of investment made by Seller in the PTCs issued by the assessee. The surplus especially represents a reward earned by Seller that its effort of creating pool of loan receivables which is capable of assigning. For the sake of ready reference the relevant part of the decision of Hon‟ble Tribunal is reproduced as under xx xx 12.1 Thereby the Hon. Tribunal has came to conclusion that in order to be eligible to be an investor' within the meaning of section 194 LBC of the IT Act, 1961, the condition precedent is holding of PTCs issued by the trust and if an 'investor' is not holder of PTCs, such investor' is not "investor' within the meaning of Section 194 LBC of the IT Act, 1961 even if such investor' is holder of securitisation instrument within the meaning of Section 14 LBC of the IT Act read with Section 2, Clause (h) (ie) of Securities Contracts (Regulation) Act, 1956 [42 OF 1956). It is most respectfully submitted that such interpretation of linking definition "investor to PTCs alone would render provisions of Income tax act defining "investor redundant. 12.2. It is most respectfully submitted that the Income tax Act has not defined the PTCS anywhere neither linked the definition of "investor to PTCs alone as has been held by the Hon. Tribunal The Income tax Act has not defined investor as holder of PTCs as mentioned supra in Para-10. The provisions of the Act clearly define the investor' as a person who is a holder of the 'securitisation instrument having its rights and

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) interest acknowledged by such instrument. 12.3 It is most respectfully submitted that the Hon. Court cannot omit or substitute the words to the Act and the provisions of the Act must be interpreted as has been provided in the Act. A fiscal statute is to be interpreted on the basis of the language used therein and not de hors the same. No words ought to be added and only the language used ought to be considered so as to ascertain the proper meaning and intent of the legislation. The Court is to ascribe natural and ordinary meaning to the words used by the legislature and the court ought not, under any circumstances to substitute its own impression and ideas in place of the legislative intent as is available from a plain reading of the statutory provisions. The reliance is placed on the decision of Hon. Supreme Court in the case of Orissa State Warehousing Corpo. Vs. CIT (SC) 237 ITR 589. 12.4 Further, it is submitted that it is well settled rule of construction that, in the first instance, the grammatical sense of the words is to be adhered to. If that is contrary to or inconsistent with any expressed intention, or declared purpose of the statute, or if it would involve any absurdity, repugnancy or inconsistency, the grammatical sense must then be modified, extended or abridged, so far as to avoid such inconvenience, but no further. The elementary rule is that words used in a section must be given their plain grammatical meaning. a) The reliance is placed on the following decisions- b) CITVs Gautam Sarabhai Trust (Guj) 173 ITR 216 c) CBDTVs Cochin Goods Transport Association (Ker) 236 ITR 993 d) M.P. Poddar (HUF) & Anr. Vs Appropriate Authority & Anz. (Del) 240 ITR 372 13. Without prejudice to the above, it may be appreciated that in the case of Vivriti as mentioned supra, the Hon. Tribunal has accepted that the Deed of assignment is 'securitisation instrument within the meaning of Section 194 LBC of the IT Act read with Section 2, Clause (h) (ie) of Securities Contracts (Regulation) Act, 1956 [42 OF 1956] and that such instrument is issued by the trust to the Seller and that the Seller is possessor of such securitization instrument.

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) Therefore provisions of section 194 LBC are applicable in the case of assessee even following the observation of the Hon. Tribunal. 14. As such, considering the fact and circumstances of the case and in law, it is most respectfully submitted that the originator/seller has transferred its pool asset through securitization deed viz. Deed of Assignment to SPE. The Seller is entitled to receive EIS income from transfer of asset pool. The Seller has also provided credit collateral, as its share transferred to the Trust as a pool asset in the form of MRR. The deed of assignment is nothing but a 'securitization instrument which acknowledges beneficial interest of the seller within the meaning of sec. 194 LBC of the Act. The nature and character of the returns received by seller from the SPE assessee as EIS is a security receipt or interest in the financial asset involved in process of securitisation of debts and acknowledged by the deed of assignment or securitisation instrument or (by whatever name called). Therefore, it is most respectfully prayed that considering the fact and circumstances of the case and in law the decision lower authorities may be confirmed.” We have given thoughtful consideration to the submissions 11. advanced by both the sides and perused the material on record including the orders passed by the authorities below, Assignment Deed; and the decision of the Tribunal in the case of M/s. Vivriti Cibus Vs. ITO (TDS) [ITA No. 3171/Mum/2022, dated 30/11/2023].

The issue that arises for consideration in the present appeal is 12. whether the Appellant, being a securitization trust/special purpose distinct entity, was under obligation to withhold tax in terms of section 194LBC of the Act in respect of EIS paid by the Appellant to the Originator.

On perusal of the order of the Tribunal in the case of Vivriti Cibus 13. (supra), we find that identical issue stand decided in favour of the Appellant and against the Revenue. In that case, it was held by the

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) Tribunal that the provisions of Section 194LBC of the Act are not attracted in case of payment of EIS to the seller/originator by a securitization trust as the seller/originator did not hold any investment in the securitization trust. Further, EIS received was not in the nature of income from investment and was in the nature of reward earned by the seller/originator on account of creating a pool of loan receivable which was capable of assignment. We concur with the aforesaid decision of the Tribunal in view of the following.

Section 115TCA of the Act was inserted by Finance Act, 2016 with 14. effect from 01/04/2017 provides that any income of an investor of a securitisation trust out of investment made in such securitisation trust shall be chargeable to income tax. Section 194LBC of the Act casts an obligation to withhold tax on the person responsible for making such payment.

Explanation (a) to Section 194LBC of the Act provided that 15. ‘Investor’ shall have the same meaning assigned to it as in Clause (a) of the Explanation to Section 115TCA of the Act which reads as under:-

„Investor‟ means a person who is holder of any Securitised Debt Instrument of securities or security receipts issued by the securitisation trust‟ Thus, investor is defined to mean a holder of Securitised Debt Instrument or security receipt issued by the securitisation trust.

Clause (c) of the Explanation to Section 115TCA of the Act defines 16. expression ‘Securitised Debt Instrument’ [for short ‘SDI’] and reads as under: “Securitised Debt Instrument‟ shall have the same meaning at assigned to it in clause (s) of sub-regulation (1) of regulation 2 of

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956 (42 of 1956)" Regulation 2(1)(s) of the Securities and Exchange Board of India 17. (Public offer and listing of Securitised Debt Instruments) Regulations 2008 [for short ‘2008 Regulations’] defines ‘Securitised Debt Instrument’ as any certificate or instrument, by whatever name called, of the nature referred to in sub-clause (ie) of Clause (h) of Section 2 of the Securities Contracts (Regulations) Act, 1956 issued by a special purpose distinct entity.

“[(ie) any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable including mortgage debt, as the case may be;]”

On perusal of the above provisions, it can be concluded that to 19. qualify as Securitized Debt Instrument (a) there must be a certificate or instrument issued by a special purpose distinct entity (i.e., the securitization trust such as the Appellant), (b) the special purpose distinct entity issuing such certificate/instrument should possess any debt or receivable; and (c) the aforesaid certificate/instrument must acknowledge beneficial interest of such holder of such certificate/instrument in the aforesaid debt/receivable.

The case of the Revenue is that Assignment Deed is a Securitised 20. Debt Instrument recognizing beneficial interest of the Originator in

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) the receivables. However, we do not find any merit in the aforesaid contention raised by the Revenue. The Assignment Deed cannot be regarded as instrument issued by the special purpose distinct entity. A perusal of definition of ‘securitization’ as contained in Section 2(1)(r) of the 2008 Regulation shows that securitization has been defined to mean acquisition of debt or receivables by any special purpose distinct entity from any originator for the purpose of issuance of securitized debt instruments based on such debt or receivables; and such issuance. Thus, the securitization involves acquisition of debt or receivable by the special purpose distinct entity and the issuance of securitized debt instrument to investors based upon such debt or receivable. The Assignment Deed on which reliance has been placed by the Revenue only deals with the first part relating to acquisition of debt or receivables. The Assignment Deed does not deal with issuance of securitized debt instrument.

During the course of hearing reliance was placed by the Ld. 21. Departmental Representative of the revised guidelines of securitization transaction dated 21st August, 2012 issued by the Reserve Bank of India (RBI/2012-13/17 DNBS PD No. 301/3.10.01/2012/13 dt. 21st August, 2012 [for short ‘MRR Guidelines’]. A perusal of the MRR Guidelines makes it clear that the requirement of Minimum Retention Requirement (MRR) was introduced for the originator/seller in 2012. The MRR requirement was introduced to ensure that the originators continue to have stake in the securitized assets so that proper due diligence is carried out in respect of the loans securitized. Reserve Bank of India permitted the originators to fulfill MRR by way of an investment in the securities special purpose distinct entity/

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) securitization trust; or the providing required credit enhancement or by providing cash collaterals, balance sheet support etc. It has been urged that in the case before us the Appellant has made the MRR commitment by other permissible alternatives and had not subscribed to the PTCs issued by the securitization trust/appellant. The Revenue has not disputed the aforesaid position. On the other hand, it has been contended by the Revenue that the Assignment Deed constitutes securitized debt instrument. On perusal of the MRR Guidelines, we are of the view that in cases where the MRR commitment is met via any other permissible alternative, the originator cannot be regarded as an ‘Investor’ since the Originator does not hold any investment in the special purpose distinct vehicle/securitization trust. In our view, an originator can also be ‘Investor’ provided such originator makes investment in the special purpose distinct vehicle/securitization Trust by subscribing to PTC or other securities/instruments. However, it is admitted that in the present case the Originator has neither subscribed to PTCs nor had made any other investment. MRR has been maintained via cash collateral and in the form of collateralising of excess receivables. Therefore, the decision of the Tribunal in the case of Vivriti Cibus (supra) rendered in identical facts and circumstances, is applicable to the facts and circumstances of the present case. In that case the Tribunal had deleted the demand raised upon the assessee under Section 201(1A) of the Act for non-compliance with the provision of Section 194LBC of the Act holding as under:

“16. From the above definitions it can be inferred that securities debt instrument basically means any certificate of instrument is issued by special purpose vehicle, it, the securitisation trust which possesses any debt or receivable. We have also gone through RBI guidelines en security regulations formulated in 2012, wherein it has referred to Minimum Retention Requirement (MRR) prescribing the

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) requirement for the originators to have certain minimum financial commitment whenever these loans are securitized. The originator is required to retain certain interest in the loan portfolio ever collateralization, i.e. collateralizing of excess receivables etc. which has been provided in the following manner in this case 17. Ergo, once the originator, (AMPL) is not holding any PTC /SDI, it cannot be regarded as investor as per the terms defined in the aforesaid provisions elaborated above. It is only in a situation where the originator has subscribed to the PTCs of the securitization trust and then only it can be regarded as an investor. 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 said payment was not in respect of investment made by AMPL in the PTCs issued by the assessee. The surplus here especially represents a reward earned by AMPL that its effort of creating pool of loan receivables which is capable of assigning. The MRR requirement was introduced by RBI for the first time in the year 2012 and prior to such there was no requirement for the originator to comply with MRR and even for such bills prior to2012 EIS was paid to the originator. This further corroborates that EIS cannot be regarded as income in respect of investment. Thus, here in this case second condition is also not fulfilled and accordingly we hold that the TDS liability u/s 194LBC is not applicable on EIS."

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) 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 said payment was not in respect of investment made by AMPL in the PTCs issued by the assessee. The surplus here especially represents a reward earned by AMPL that its effort of creating pool of loan receivables which is capable of assigning. The MRR requirement was introduced by RBI for the first time in the year 2012 and prior to such there was no requirement for the originator to comply with MRR and even for such bills prior to 2012 EIS was paid to the originator. This further corroborates that EIS cannot be regarded as income in respect of investment. Thus, here in this case second condition is also not fulfilled and accordingly we hold that the TDS liability u/s.194LBC is not applicable on EIS. 19. Our aforesaid finding is based on interpretation of the language provided in the statute where the liability to deduct TDS has been provided, only, where any income is payable to an investor in respect of investment in secutarisation trust. The investor' has been defined to mean a person who is a holder of any securitised debt instrument or securities or security receipts issued by the securitization trust. Once AMPL is not an investor and the conditions mentioned in Section 194LBC has not met, then the liability to deduct TDS does not trigger.” Respectfully following the above decision of the Tribunal in the case 22. of M/s Vivriti Cibus (supra), we hold that the provisions of Section 194LBC of the Act would not be attracted in the facts and circumstances of the present case. Therefore, the Appellant was not under obligation to withhold tax from payment of EIS to the Originator. Accordingly, demand of INR 4,21,30,230/- under Section 201(1) of the Act and the demand of INR 47,22,191/- under Section 201(1A) of the Act, aggregating to INR 4,68,52,422/, raised by the Assessing Officer vide order, dated 25/02/2019, is deleted. Without prejudice contention raised by the Appellant are not adjudicated as the same have been rendered academic in nature. Accordingly, in terms of the aforesaid, Ground No. 1, 2 and 3 raised by the Appellant are allowed.

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) ITA No. 342/MUM/2023 (Assessment Year: 2018-19) We would now take up appeal for the Assessment Year 2018-19 23. which has been preferred by the Appellant challenging the order, dated 19/10/2022, passed by the CIT(A) for the Assessment Year 2018-19, whereby the Ld. CIT(A) had dismissed the appeal of the Assessee against the Order, dated 25/02/2019, passed under Section 201/201(1A) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

The Appellant has raised the following grounds of appeal: 24. “Ground No 1: Appellant being treated as 'assessee in default' The Commissioner of Income-tax (Appeals) ['learned CIT(A)'] from the National Faceless Appeal Centre erred on facts and in law in dismissing the appeal filed against the order passed under section 201 ('the order') of the Income-tax, Act 1961 ('the Act') of the Income-tax Officer (TDS)-2(2)(1) ['learned AO'] and by treating the Appellant as 'assessee in default'. The learned CIT(A) further erred in facts by not granting sine adjournment as requested by the Appellant. Ground No 2: 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 had taken into account such sum for computing income in its ITR and had paid the sum tax due on the income declared by them in such ITR, the Appellant could not be regarded as an assessee in default Ground No 3: Levy of interest under section 201(1A) of the Act The Appellant craves leave to add, to amend, alter, vary, omit or substitute the aforesaid grounds of appeal or add a new ground or

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised.” 25. Both the sides agreed that the grounds raised in appeal for Assessment Year 2018-19 are identical to those raised in Assessment Year 2017-18. Since there is no change in facts and circumstances in the case, both the sides has agreed that our findings/adjudication in relation to grounds of appeal raised in Assessment Year 2017-18 shall apply mutatis mutandis to the corresponding grounds raised in appeal for Assessment Year 2018- 19. Accordingly, in terms of paragraph 22 above, Ground No. 1, 2 and 3 raised by the Appellant are allowed.

In the result, both the appeals are allowed. 26.

Order pronounced on 21.02.2024.

Sd/- Sd/- (Amarjit Singh) (Rahul Chaudhary) Accountant Member Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 21.02.2024 Alindra, PS

ITA No.341//Mum/2023 (Assessment Year 2017-18) ITA No.342/Mum/2023 (Assessment Year: 2018-19) आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : अपील र्थी / The Appellant 1. 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.

आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai