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TMI Blog2024 (2) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... 2019, passed under Section 201/201(1A) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). 3. We note that the present appeal has been accompanied by application seeking condonation of delay of 50 days. In the application seeking condonation of delay it was averred by the Appellant that the copy of the order impugned was received by the consultant of the Appellant over the registered email. However, the matter remained unattended as the associate/employee of the consultant who was involved for tracking all the income-tax notices of the Appellant quit the organization on 07/10/2022. When the duties were assigned to another associate/employee by the consultant it came to the knowledge of the consultant that the order impugned, which had been received over email, had been inadvertently left unattended. Vide order dated 07/09/2023, the Appellant was directed to furnish documentary evidence in support of the contention that the aforesaid delay of 50 days in filing the appeal had arisen on account of the resignation of the associate/employee of the tax consultant. In compliance with the aforesaid order, the Appellant had placed on record affidavit of both the associates/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was established as a securitization trust engaged, inter alia, in acquisition of loan portfolio from the financial institutions (hereinafter referred to as the 'Originator'). Generally, Originators maintain a portfolio of financial assets. As part of securitization process Special Purpose Vehicle (such as the Appellant) acquire the portfolio of financial assets from the Originators. Thus, under securitization process portfolio of financial assets is sold by the Originators to Special Purpose Vehicle (SPV) in return for immediate payments. The SPV acquiring the portfolio of financial assets gets the right to receive payments/income connected thereto. The SPV issues divisible securities/PTCs against the underlying pool of financial assets acquired from the Originator and cash flow arising therefrom is used by the SPV to service such securities/PTCs. Generally, the interest/income earned from the financial assets portfolio is more than the interest/income required to service the divisible securities/PTCs. Therefore, the excess income from the portfolio of financial assets acquired by the SPV from the Originator is paid to the Originator by the SPV as Excess Interest Spread (EIS). 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e if the following two conditions are satisfied, (a) The income is payable to an investor, and (b) such income is in respect of investment in the securitisation trust. Both the aforesaid conditions are not satisfied in the present case. 9.1. In the Revised Guidelines on Securitisation Transactions formulated by the Reserve Bank of India in the year 2012 prescribed the requirement for the Originators to have certain minimum financial commitment whenever any loans are securitised. Therefore, the Originator was required to retain certain interest in the loan portfolio by having a commitment in the securitization trust. Such commitment could be in the form of subscription to Pass Through Certificates (PTCs), provision of cash collateral, evercollateralisation (i.e. collateralising of excess receivables), etc. In the present case, the Originator has not subscribed to any PTCs and has fulfilled minimum retention requirement by way of credit collateralisation. In the present case, the Originator is not holding any PTC/Certificate/Securitised Debt Instrument and, hence, cannot be regarded as an 'Investor'. Therefore, the first condition Specified in Section 194LBC of the Act is not satisf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of M/s Vivriti Cibus 013 2017 vs. ITO (TDS)- 2(3)(3) Mumbai [ITA No. 3171/Mum/2022, dated 30/11/2023]. 10. Per contra, the Ld. Departmental Representative supported the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay 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 receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred 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); (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 receipt or 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stor' as a person who is a holder of the 'securitisation instrument having its rights and 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 inconsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord 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]. 12. The issue that arises for consideration in the present appeal is 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. 13. On perusal of the order of the Tribunal in the case of Vivriti Cibus (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 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 Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 20. The case of the Revenue is that Assignment Deed is a Securitised Debt Instrument recognizing beneficial interest of the Originator in 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant. 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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