While deleting the demands raised under Sections 201(1) and 201(1A) of the Income Tax Act, the Mumbai ITAT has held that the payment to transferors being a lump-sum purchase consideration for acquiring the right to receive principal and interest from debtors, and not ‘interest’ under Section 2(28A), there existed no borrower-lender relation between the respondent and transferors to trigger TDS provisions under Sections 193/194A of the Income Tax Act.
The Division Bench comprising Sandeep Singh Karhail (Judicial Member) and Narendra Kumar Billaiya (Accountant Member) observed that the TDS provisions under sections 193/194A trigger on credit or payment of interest, whichever is earlier. So, when the original borrowers had already deducted TDS while crediting interest to transferors’ accounts, then re-triggering on payment by the respondent would lead to impermissible double deduction on the same income.
The Bench explained that post-acquisition, a lender-borrower relation exists between the respondent and borrowers, not with transferors. Therefore, without a statutory/contractual obligation to discharge borrowers’ interest liability to transferors, the respondent is not a “person responsible” for paying “interest” under sections 193/194A.
Briefly, in this case, the respondent, a non-deposit-taking NBFC primarily engaged in lending/investing, had purchased loans, including NCDs, ICDs, and term loans, from Piramal Enterprises Ltd and Piramal Capital and Housing Finance Limited at carrying value, comprising principal and accrued interest till the transfer date. A survey under section 133A(2A) of the Income Tax Act revealed that interest had accrued to the respondent based on its holding period, but the respondent defaulted in deducting Tax Deducted at Source (TDS) on accrued interest and excess interest due to rate revisions.
The AO therefore issued a show-cause notice under section 201(1)/201(1A), holding the respondent as ‘assessee-in-default’ for non-deduction of TDS at 10% under section 194A (on ICDs/term loans) and section 193 (on NCDs) on the accrued interest portion. Even though the respondent objected to the SCN, the AO rejected the claim that the lump-sum payment was purchase consideration for the ‘right to receive’ ‘principal and interest’, not ‘interest’, and raised a demand of TDS of Rs. 33.73 crores plus interest of Rs. 4.17 crores. When the respondent approached the CIT(A), he held that there was no ‘interest’ payment and no borrower-lender relation. Challenging the same, the Revenue Department approached the ITAT.
Cases Relied On:
Piramal Capital and Housing Finance Ltd v. ACIT – (2024) 169 Taxmann.com 512 (Mumbai-Trib.)
State Bank of India v. DCIT – (2024) 163 taxmann.com 266 (Mumbai-Trib.)
Idea Cellular Ltd. v. ADIT – (2015) 58 taxmann.com 101 (Mumbai-Trib.)
Appearances:
CIT R.A. Dhyani, for the Appellant/ Revenue
Advocate Ronak Doshi, for the Respondent/ Taxpayer
