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TMI Blog2023 (12) TMI 806X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 merely because a certificate to this effect in the prescribed form could not be furnished. Ground No 3: Non-grant of adjournment as requested The learned CIT(A) erred in not granting sine die adjournments as requested by the Appellant. Ground No 4: Levy of interest under section 201(1A) of the Act The learned CIT(A) erred on facts and in law in levying interest under section 201(1A) of the Act. 3. The brief facts are that assessee, M/s. Vivriti Cibus 013 2017 is a securitization trust group which was created by M/s. Catalyst Trusteeship Ltd. to secure pool of loan receivables fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee Trust do require deduction of TDS u/s 194LBC of the Act. ) * It is contended that EIS is the residual amount that flows to the originator of the loan without the said EIS income being in relation to the investment made by the originator in the ST. It is also contended that EIS income can flow to the originator irrespective of whether such originator holds any securities in the ST or not and that prior to 2012 amendment, there was no requirement for the originator to have minimum investment in the ST and even in such cases the EIS used to flow to the originator. * Here, it is to submit that EIS is not mentioned in the 2006 guidelines of the RBI. A reference of surplus income found in Para 7.2 of 2006 guidelines, "7.2 The originator should effectively transfer all risks/ rewards and rights/obligations pertaining to the asset and shall not hold any beneficial interest in the asset after its sale to the SPV An agreement entitling the originator to any surplus income on the securitised assets at the end of the life of the securities issued by the SPV would not be deemed as a violation of the true sale criteria. The SPV should obtain the unfettered. right to pledge, sell, tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s) are also interlinked. If the Originator do not keep MRR all the times, the question of EIS do not arise at all. Therefore, EIS is indeed linked with the investment of the Originator in the Securitisation scheme and, hence, the assessee trust must have deducted the TDS u/s 194LBC on the EIS paid to the Originator. * After recording to Section 115TCA and meaning of securitized debt instrument and the investor has given in the said Section he held that from 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 securitised debt instrument which acknowledges the beneficial interest of Originator in respect to receivable in the nature of EIS. Hence, by virtue of above definitions, the Originator can safely be termed as the "investor" holding deed of assignment (securitised debt instrument) which acknowledges the interest of Originator (EIS) in the debt or receivables assigned to the special purpose distinct entity. * He further held that assessee trust that EIS does not equate with the yield committed to the investors. However, in this respect it is submitted that section 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y determined the default with respect to non-deduction of TDS and interest of Rs. 70,57,600/-. 8. The ld. CIT(A) after incorporating the entire order of the AO and relevant portion of the assessee's submission has confirmed the order of the AO in every cryptic manner which is reproduced hereunder:- "4. I have perused the order of the AO, submission of appellant and overall facts of the case 4.1 The appellant has failed to deduct the TDS on the payment of Rs. 1,88,67,795/- under the head Excess Interest Spread (EIS) The Assessing Officer has explained in detail the TDS liability of the assessee The failure on the part of assessee has resulted into the action of treating it as "assessee in default." 4.2 As mentioned by the Assessing Officer in para 10 to 10.6 that assessee has not filed Form No. 26A in the prescribed format under Rule 31ACB. It was the duty of the appellant to make the compliance, if it claimed the shelter of first proviso to section 201 (1). Even till the stage of appeal proceedings, appellant is trying to fill Form No. 26A. The claim that functionality to generate Form 26A was not available on portal is not supported by documentary evidence. This functiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b)Series Al Principal shall be due and payable on the Series A1 Final Maturity Date (b) All Investor Payouts shall follow the priority of payments as set out in the Waterfall Mechanism. 7.6.1 Till such time Series A1 PTCS have not been fully redeemed, the Total Collections, the Clean Up Purchase Consideration, if the same has been received, and any monies recovered pursuant to legal proceedings, shall be utilised by the Trustee in the following order of priority (a) payment of Senior Costs. PROVIDED THAT the Servicing Fee shall only be appropriated from the EIS component of the Total Collections, and if, in any Collection Period the EIS component of the Total Collections is insufficient to make a complete payment of the Servicing Fee, then the deficit portion of the Servicing Fee shall be paid out in the next occurring Collection Period(s); (b) payment of Overdue Series A1 Interest; (c) payment of Series A1 Interest due; (d) payment of expected Series A1 Principal (including any unpaid expected Series A1 Principal pertaining to earlier periods, payable to Series A1 Investors); (e) any Prepayment Proceeds will be utilized for pre-payment of Series A1 Principal; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contracts (Regulation) Act, 1956 (42 of 1956)' 11. 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 define Securitised debt instrument ('SDI") 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 Act issued by a special purpose distinct entity 12. Sub clause (ie) of clause (h) of Section 2 of the Securities Contracts (Regulations) Act, 1956 states the below: '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. 16. From the above definitions it can be inferred that securities debt instrument basically means any certificate or instrument is issued by special purpose vehicle, i.e., the seruritisation trust which possesses any debt or receivable. We have also gone th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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