TMI Blog2015 (6) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... re, no TDS was deductible on such payment. Thus, the finding of the ld. CIT(A) that the payment of "Arranger fees" entails deduction of tax at source u/s 195 is reversed and we hold that assessee was not liable to deduct TDS on payment of Arranger fee to HSBC, Hongkong. - Decided in favour of assessee. - I .T.A. No. 1619/Mum/20116 - - - Dated:- 10-6-2015 - SHRI D. KARUNAKARA RAO AND SHRI AMIT SHUKLA, JJ. For the Appellant : Shri Yogesh A. Thar Shri Deepak Jain For the Respondent : Shri Vivek A. Perampurna ORDER Amit Shukla, Judicial Member The aforesaid appeal has been filed by the assessee against the impugned order dated 14-12-2010 passed by the ld. CIT(A) -10, Mumbai in the appeal filed by the assessee u/s 248 of the Income tax Act, 1961 ( the Act), denying the liability to make deduction of tax u/s 195 in respect of payment towards Arranger's fee payable to HSBC, Hongkong. 2. In the grounds of appeal, the assessee has raised the following grounds:- 1. On the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that the arranger's fee paid to the Hongkong and Shanghai Banking Corporation Ltd., Hongkon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ADIT (International Taxation) I, Mumbai, on written submission filed by the assessee giving detail reasoning as to why such Arranger fee cannot be termed as interest . In the remand report, the ld. ADIT admitted that the amount payable as Arranger fee is not interest and to that extent he accepted the contention of the assessee. However, he was of the opinion that the payment to the Arranger for arranging finance is taxable in India as fees for technical services u/s 9(1)(vii) as the same is in the nature of managerial or consultancy services . He referred to the provisions of section 9(1)(vii) and also the Explanation below sub-section 2 of section 9, which was brought in the statute with retrospective effect from 1-6-1976. Thus, according to the A.O., such payment of Arranger fee is taxable as fees for technical services u/s 9(1)(vii) of the Act. 4. The first limb of the assessee's argument before the ld. CIT(A) was that, the payment of Arranger fee does not fall within the ambit and scope of interest as defined u/s 2(28A). The Arranger fee is a kind of fees payable to a third party which can be said to be akin to brokerage or commission and, hence, it cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds by the Idea Cellular. It is nothing but part of debt or loan taken by the Indian Company and utilised thereof. (ii) After analysing the definition of interest as given in section 2(28A), he held that interest does not only mean interest payable on any money borrowed or debt incurred but also include any service fee or other charges in respect of money borrowed or debt incurred or in respect of any credit facility which has not been utilised. The assessee has paid arranger fee after the disbursement and utilisation of loan facilities, therefore, it can be very much held that it is interest payable in respect of money borrowed or debt incurred as defined in section 2(28A). (iii) The arranger fee has been charged from the borrower @ 0.40% of the amount of loan disbursed to the borrower who has utilised the money borrowed and debt incurred in its investment. Further, there is a direct nexus between the payment of arranger fee and loan advanced to the borrower as it is charged as per the terms of agreement after the first utilisation date and the same is linked with the amount of loan disbursed by percentage of 0.40% of 23 crores USD. Thus, the arranger has a direct nexus w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices being managerial and consultancy in nature u/s.9(1)(vii) and 9(1)(1) of the Act. Accordingly, the withholding of tax is required on the same. Therefore, the appellant is directed to make payment after withholding of tax thereon u/s.195 of the Act. Accordingly, the ground raised by the appellant are treated as dismissed. 6. Before us, the ld. Counsel for the assessee, Shri Yogesh A. Thar after explaining the entire facts of the case, submitted that, the ld. CIT(A) has wrongly treated the payment of arranger fee as 'interest' and also completely misdirected himself by treating the same as 'fees for technical services' u/s 9(1)(vii). Regarding the treatment of interest, he submitted that the duty of the arranger has been contained in clause 25.3 of the agreement which reads as under:- Role of the Arranger Except as specifically provided in the Finance Documents, the Arranger in its capacity as Arranger, under this Agreement has no obligations of any kind to any other Party under or in connection with any Transaction Document. 7. The Arranger has merely arranged the finance from the lender and the payment has been made as fee for arranging loan from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... managerial and technical services. Thus, he submitted that the order of the ld. CIT(A) should be upheld. 9. We have heard the rival contentions, perused the impugned order and the material placed on record. The primary facts qua the issue involved are that, the assessee, who is the borrower had entered into a Term Loan Agreement on 10th Sept. 2009 with the lender, Finnish Export Credit Limited. The Hongkong Banking Corporation Limited, Hongkong (HSBC), who is the Arranger had arranged for the loan and the HSBC Bank PLC has acted as Facility Agent. The role of the Arranger was to liase with the lender and to procure the loan for the borrower as well as to negotiate the terms and conditions of the facility with the lender on behalf of the borrower. The Arranger is a third party who has acted as the middleman between the borrower and the lender to achieve/negotiate the terms and conditions agreeable to both the parties. The Arranger qua the borrower and the lender cannot create any binding obligation of any kind on them. This is evident from Clause 25.3 of the agreement as stated above. Here in this case, the Arranger had facilitated the transaction credit facility between the lend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereby interest encompasses to include service fee or other charge and such fee is in respect of the money borrowed or any debt incurred or, for unutilised credit facility. Here also, such fee or charge is in respect of money borrowed only i.e. given by the lender to the borrower. The service fee or other charge does not bring within its ambit any third party or intermediary who has not given any money. The fundamental proposition permeating between various kinds of payments which has been termed as interest in the section is that, these payments are paid/payable to the lender either for giving loan or for giving the credit facility. Nowhere the definition suggests that payment of interest includes some kind of fee paid to a third party who has not given any loan or any credit facility. The ld. CIT(A) held that Arranger fee paid is nothing but a part of debt or loan taken by the assessee and utilised thereof and, therefore, it is interest payable within the meaning of section 2(28A). In our opinion, such an interpretation cannot be upheld because, it is not a part of debt or loan payable to the lender but it has been paid for facilitating the loan for the borrower from the lende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration before the Tribunal in the case of Credit Lyonnais (supra) wherein SBI was appointed as Arranger for mobilising the deposits from the eligible depositor under India Millennium Deposit Scheme and collecting bank for receiving and handling application forms. The A.O. had held that payment made by the assessee to SBI is for services covered u/s 9(1)(vii). The Tribunal after considering the various kind of services rendered by the SBI and scope of work, held that it is not in the nature of managerial or consultancy services and therefore, the same cannot be brought within the ambit of fees for technical services as per section 9(1)(vii) of the Act. This ratio was again reiterated in the case of Arranger fee paid for mobilising the deposits in the case of Abu Dhabi Commercial Bank Ltd. (supra), wherein it was held that Arranger fee cannot be treated as fees for technical services u/s 9(1)(vii). Otherwise also, the term 'managerial' essentially imply control, administration and guidance for business, day to day functioning. It includes the act of managing by direction or regulation or superintendence. Here, in this case arranging of a loan cannot be equated with lendin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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