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TMI Blog2018 (6) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) ['the CIT(A)1] erred in not accepting the contention of the appellant that the order under section 201 (1)/201(1 A) of the Act has been passed without jurisdiction and hence is bad in law. 2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that the ITO Noida had, vide letter dated 27 November 2012, itself transferred the records pertaining to the impugned proceedings to the Income-tax Officer in Mumbai ('ITO Mumbai'). 3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that the records were transferred to ITO Mumbai since the foreign remittance related to the impugned transaction pertained to the Mumbai office of the appellant. Deductibilitv of tax at source under section 195 in respect of payments made to the Singapore branch of ICICI Bank Limited, which is a tax resident of India: 4. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating that there is no failure on part of the appellant to dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it has borrowed external commercial borrowings from ICICI Bank Ltd. which has a branch in Singapore. Therefore, any interest payment made to ICICI Bank Ltd., Singapore branch is payment made to a resident, which is covered u/s. 194A(3)(iii) of the Income Tax Act, 1961 and, hence, the question of deduction of tax at source does not arise. The assessee further submitted that the ICICI Bank Ltd is a banking company to which Banking Regulation Act, 1949 applies and since the provisions of section 194A(3)(iii) of the Income Tax Act, 1961 exempts such entities from deduction of tax at source, there was no default on the part of the assessee in deduction of tax on interest payment to ICICI Bank Ltd., Singapore branch. 4. The Assessing Officer after considering the submissions of the assessee held that the assessee has failed to deduct tax at source as per section 195(1) on interest payment made to ICICI Bank Ltd., Singapore branch for the assessment years 2009-10 to 2011-12, aggregating to Rs. 11,69,45,505/- and, hence, held the assessee deemed to be in default u/s. 201(1) and 201(1A) and computed short deduction of tax u/s. 201(1) for Rs. 11,69,45,505/- and interest u/s. 201(1A) for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 195(1):- "Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act, (not being income chargeable under the head 'Salaries' shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force." Section 195(2):- "Where the person responsible for paying any such cum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine (by general or special order) the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (I) only on that proportion of the sum which is so chargeable." First of all, the assessee has failed to deduct TDS which it was obliged to do so as per section 195(1), secondly while taking the decision of not deducting TDS, it has not applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur years from the end of the financial year in which payment is made or credit is given, in A Y other case: Provided that such order for a financial year commencing on or before the lsl day of April, 2007 may be passed at any time on or before 31st day of March, 2011. 8. A plain reading of the above provision clarifies that the limitation is imposed only for payments made to residents and there is absolutely no limitation for payments made to non-residents. The Hon'ble Finance Minister while explaining the intent has clarified as under:- "f. Providing time limits for passing of order u/s 201(1) holding a person to be an assessee in default- Currently, the Income Tax Act does not provide for any limitation of time for passing an order u/s 201(1) holding a person to be an assessee in default. In the absence of such a limit, dispute arises where these proceedings are taken up or completed after substantial time as elapsed. . In order to bring certainty on this issue, it is proposed to provide for express time limits in this Act within which specified order u/s 201(1) will be passed. It is proposed that an order u/s 201(1) for failure to deduct the whole or any part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has taken a legal plea challenging the jurisdiction of Assessing Officer in passing the order u/s. 201(1)/201(1A) of the Income Tax Act, 1961. The assessee also filed elaborate written submissions on the issue of applicability of provisions of section 195 of the Act, towards interest payment to ICICI Bank Ltd., Singapore branch and reiterated its submissions made before the Assessing Officer. The assessee further submitted that the Assessing Officer was incorrect in applying the provision of section 195 of the Act, without appreciating the fact that the interest paid to ICICI Bank Ltd., Singapore branch is payment made to a resident which is very clear from the fact that the office of Jt. CIT (OSD)-3(1), Mumbai has issued a letter dated 27.04.2011 clarifying the status of ICICI Bank Ltd., Singapore branch, as per which the ICICI Bank Ltd. branch is an Indian resident company in terms of section 6(3) of the Act, and the global income of the ICICI Bank Ltd., including the offshore branches is chargeable to tax in India. The assessee further submitted that since it has made payment to a resident assessee, in terms of the provision of section 194A(3)(iii) any interest paid t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overning the borrowing of ECB funds by the assessee and the letter dated 31/1/2007 of ICICI Bank Limited Singapore branch regarding the Syndicated Term Loan of US $ 20 million are very relevant and throw light on the exact relationship between the assessee, ICIC] BANK Ltd. and the lenders and the nature of transactions and are as follows: Letter dated 31/1/2007 of IC1C1 Bank Limited Singapore branch:- "January 31,2007 CAL-1BG-SGP-QU1 Bajaj Eco-Tec Products Ltd. Bajaj Bhawan, 2nd Floor, jamnalal Bajaj Marg, 226, Nariman Point, Mumbai-400021 KindAttn : Mr. Himanshu Shah Dear Sir, Subject: Syndicated term loan of USD 20.0 million We refer to our discussions on the proposed syndicated term loan of USD 20.0 million to Bajaj Eco Tec Products Ltd. (the 'company'} in relation to capital expenditure for setting up plants for manufacturing of Medium Density Fibreboard (MDF) and Particleboard (PB). ICCI Bank Ltd, Singapore Branch (the 'Arranger') is pleased provide you herewith the proposal for a USD 20.00 million syndicated term loan/facility ('the facility') for your consideration as more particularly outlined in the summary of terms and conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s bankers which acted merely as an arranger and facility agent for the loans from various lenders located in Singapore for syndicated loan of US Dollars 20 Millions for which it received arranger fees of 1.40% upfront and facility agent fees of US Dollars 10,000 per annum whereas the interest payments were made to veracious lenders located in Singapore through ICICI Bank in India and Singapore branch from time to time. Moreover, various clauses of the terms and conditions clearly stipulate and indicate that a distinction has been drawn between ICICI Bank Ltd acting as arranger/ Facility agent and the lenders who were not identified in the terms and conditions. Moreover, it has been called a Facility Arrangement between assessee and ICJC! Bank Ltd Singapore branch and it has been stipulated that these loans were subject to the jurisdiction of Courts of England. It also becomes very clear from the perusal of these terms and conditions and the letter dated 31/1/2007 of ICICI Bank Ltd, Singapore branch that ICICI Bank Ltd Singapore Branch acted merely as arranger and it was not the lendcronunds but merely an arranger, facilitator and conduit through which the fundspassed through ultima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est was not made to ICICI Bank Ltd. either in India and/or Singapore but the payment of interest was made to various lenders located in Singapore and/or UK and/or anywhere else in the world through the medium and conduit of ICICI Bank Ltd. India and Singapore, that is all. This is the essential difference between payments made to XYZ and payments made through XYZ and if this submission is put forward by the assessee were applied in respect of all the payments made through banking channels in India, whether payments are made to residents and/or non-residents, all banks will become liable for the defaults committed by various assessees all over India and the entire burden of deducting tax at source will fall on the banks only because the payments are made through banks and to the banks because banks in India will be acting as agents of the assessees who will make payments through banking channels. But that is not the case, banks act only as agents for making payments through which payments of various types can be made and it is the assessee having the bank account which makes payments to various parties liable for deducting tax at source and not the banks/And if the argument of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of certain clauses in agreement came to a wrong conclusion that the ICICI Bank Ltd. is acting as an arranger cum agent to facilitate external commercial borrowing to the assessee. The ld. Authorized Representative further submitted that the assessee has filed necessary evidence including certificate from Jt. CIT(OSD), Central Circle-31, Mumbai to the fact that the global income of the ICICI Bank Ltd., including offshore branches is taxable in India in terms of section 6(3) of the act and, hence, any payment made to Singapore branch of ICICI Bank Ltd. does not come within the provision of section 195 and the assessee does not require to deduct tax at source. The ld. Authorized Representative further submitted that as per the provision of section 194A(3)(iii) of the Act, there is no requirement to deduct tax at source on interest payment made to ICICI Bank Ltd., being a banking company under the Banking Regulation Act, 1949. The ld. Commissioner of Income Tax (Appeals) grossly erred in not appreciating the fact in right prospective. Therefore, requested to delete the addition made by the Assessing Officer towards short deduction of tax and interest u/s. 201(1)/201(1A) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer further observed that as per the clauses of agreement dated 15.03.2017, the assessee is a borrower and ICICI Bank Ltd, Singapore branch is an arranger cum facility agent which arranged external commercial borrowings from a group of financial institutions to be assembled by the arranger. The Assessing Officer has referred a letter dated 31.01.2007 of ICICI Bank Ltd., Singapore branch addressed to the assessee. As per which, the assessee is a borrower, ICICI Bank Ltd is an arranger cum facility agent and the lender of the loan are a group of financial institutions assembled to by the arranger. According to the Assessing Officer, although the assessee claims to have made payment to a resident entity, he failed to file any evidences to justify its arguments other than the agreement dated 15.03.2007. The Assessing Officer further observed that as per the said agreement, the various clauses in agreement as well as the letter addressed by the ICICI Bank Ltd., categorically states that ICICI Bank Ltd., Singapore branch is only the agent for arranging external commercial borrowings. 13. It is the contention of the assessee that the ICICI Bank Ltd., Singapore branch is a main lend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Similarly, any payment made to a non-resident including a banking company is coming within the provision of section 195 of the Act. The primary dispute is with regard to the residential status of payee in Singapore and the lender of external commercial borrowings. As per the letter of Jt. CIT(OSD)-3(1), Mumbai, the residential status of the ICICI Bank Ltd., has been clarified. To that extent there is no dispute. The remaining dispute is with regard to the lender of external commercial borrowings. Although the assessee claims that the ICICI Bank Ltd. is the main lender for USD 20 million external commercial borrowings, the facts available on record states otherwise. The agreement between the assessee and the bank dated 15.03.2007 states that ICICI Bank Ltd is acting as an arranger cum facility agent. The said agreement further states in Schedule 1 at pg. 59 states that ICICI Bank Ltd, Singapore branch is original lender. But the letter written by the ICICI Bank Ltd., Singapore branch dated 31.01.2007 states that ICICI Bank Ltd., Singapore branch is an arranger and facility agent and the lender of the loan is a group of financial institutions to be assembled by the arranger. The fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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