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TMI Blog2025 (5) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... s also not physically delivered to the Appellant. 3. That the Appellant only came to know about this order on. 12 August 2024 when it was browsing through the income-tax portal for some routine work and filed an appeal before the Hon'ble Income Tax Appellate Tribunal (ITAT") in Form 36 on 27 November 2024. 4. That once the Appellant became cognizant of the order being passed. the Appellant made its best effort to look into the other email addresses as specified by CBDT in the Faceless Appeal Scheme. 2021 for valid delivery of order. however, the order could not be traced in those email ids. The Appellant also went through its postal records to check if the order was delivered physically. Further, the trustee of the Appellant manages 300+ securitization trusts which have the same nature of dispute pursuant to the survey that was carried out on IDBI. The trustee of the Appellant is furnishing the details and filing submissions for these trusts ever since in one proceeding or another. The Appellant was verifying its email addresses thoroughly and in the process, it took some time owing to the number of appellate proceedings the Trustee is participating in. The Appellant states t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 ('TTR') under section 139 of the Act and had taken into account such sum for computing income in its I'TR and had also paid the 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 CIT(A) erred on facts and in law in levying interest under section 201(1A) of the Act." 5. The solitary grievance of the assessee is against treating the assessee as assessee-in-default for non-deduction of TDS under section 194LBC of the Act on the amount of Excess Interest Spread ("EIS") paid by the assessee. 6. The brief facts pertaining to this issue, as emanating from the record, are: The assessee is a Securitisation Trust, which is acting and controlling under the Trusteeship of M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om income payable to an investor in respect of investment in the ST. At the same time the appellant also says that the EIS paid by the appellant to the originator is not in respect of investment made in the ST. The stand of the appellant appears to be contradictory. He has not explained that how EIS is not an income in respect of investment made in the ST. The Assessing officer has discussed in detail the process of securitization at page 1 to 3 of the order u/s 201(1)/201(1A). The conclusive portion of the discussion is reproduced below: Originator receives following receipts in whole arrangement- * Principal amount outstanding in respect of pool of assets on selling of same to the SPV. However, in certain cases the amount received by the Originator can be less than the total principal outstanding also. * Servicer fee for providing services for collection of installments, other receipts * As original loans are at higher rates (15-20%) and the divisible securities /PTCs are at lower rates (generally 6-9%) the difference in rate of interest is paid back to the Originator in the name of EIS (Excess interest spread) by the SPV. Here, in the case of assessee Trust, it deducts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant could not be considered as an assessee in default for the amount of tax directly paid by the originator. A letter was given to the appellant (as mentioned above at para 4) to submit evidence that the deductee has directly paid the tax on income so the deductor, the appellant should not be treated as in default for a liability which has already been discharged, But the appellant did not submit the evidence after two requisitions. Last letter was sent on 02.05.2023 for compliance by 10.05.2023. But there has been no compliance. The appellant has filed on 13.10.2022 a copy of acknowledgement of ITR 6 of Sundaram Finance Limited. But this in itself cannot be treated as an evidence that tax has been paid by the originator on EIS. Under these facts and circumstances I am of the opinion that the appellant was liable for deduction of tax at source under section 194LBC and the appellant Securitization Trust has rightly been treated as on assesses in default." Being aggrieved, the assessee is in appeal before us. 8. During the hearing, the learned Authorized Representative ("learned AR") submitted that similar issue has been decided by the Tribunal in favour of the tax payer, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisation Trust or return of investment so made, as the said payment was merely surplus which was shared with the originator as a reward for its effort for creating an assignable pool of loan receivable. Accordingly, the Co-ordinate Bench held that the liability to deduct TDS under section 194LBC of the Act is not applicable on payment of EIS to the originator. The relevant findings of the Co-ordinate Bench, in the aforesaid decision, are reproduced as follows: - "17. Thus applying these observations to the facts of the present case it is observed that in order to fulfil the MRR requirements the originator subscribed to 6,31,09,012 Series A PCs of face value Rs. 1 each issued by the Assessee Trust. Thus the originator is as an 'investor as per the provisions in section 194LBC r/w. section 115TCA of the Act. The aforesaid sections come into play only in situations where the originator has subscribed to the PTs of the securitization trust. Hence, the first condition laid down by Section 194 LBC stands fulfilled. The second condition which is required to be fulfilled under Section 194LBC of the Act is that the income in the hands of the originator should be in respect of investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ator has not subscribed in PTCs, but the MRR is 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 MR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 21. During the course of hearing reliance was placed by the Ld. 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 dtd. 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 staked 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 fulfil MRR by way of an investment in the securities special purpose distinct entity/ ITA No.341//Mum/2023 (Assessment Year 2017-18)securitization trust; or the providing required credit enhancement or by providing cash collaterals, balance sheet sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king a specific investment in the securitized trust in order to get committed returns and the payment made and the Originator, which is entitled to the residual amount collected by the securitization trust after discharging the statutory and contractual obligations towards the investors. There may be a cose where in order to comply with the Minimum Retention Requirement (MRR) as per the applicable guidelines, the Originator may also be a holder of PTCs. There may also be cases where the commitment towards MRR is made vide other permissible modes other than in the capacity as an investor holding the PCs. In the later case, the Originator cannot be treated at par with an investor. The First Appellate Authority has noticed, and in our view rightly so, that two conditions have to be satisfied before the applicability of Section 194LBC of the Act and the consequent obligation for deduction of tax at source, viz. (i) the entity to whom the payment is made is an investor of the securitization trust and (ii) the payment is towards income accruing or arising out of the investment made in securitization trust. In our view neither of these conditions are satisfied in the present case. The Fir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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