IDEA CELLULAR LIMITED, MUMBAI V. A.D.I.T. (I.T.)-3(1), MUMBAI

ITA 1619/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92837 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 31-03-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 25-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK A PERAMPURNA
• Assessee Lawyers: YOGESH A THAR
• Keywords: Business income; Double taxation relief; Retrospective amendment
• Section: 2

Judgement Text

L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI AMIT SHU KLA, JM . / I.T.A. NO. 1619/MUM/2011 ( / ASSESSMENT YEAR : 2010-11 IDEA CELLULAR LIMITED, 5 TH FLOOR, WINDSOR, OFF. CST ROAD, NEAR VIDYANAGARI, KALINA, SANTACRUZ (EAST), MUMBAI 400 098. VS. ASST. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) 3(1), MUMBAI- 400 001 PAN : AAACB2100P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI YOGESH A. THAR & SHRI DEEPAK JAIN REVENUE BY : SHRI VIVEK A. PERAMPURNA DATE OF HEARING 31-03-2015 DATE OF PRONOUNCEMENT 10-06-2015 O R D E R PER AMIT SHUKLA, J.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 14-12-2010 PASSED BY THE LD. C IT(A) -10, MUMBAI IN THE APPEAL FILED BY THE ASSESSEE U/S 248 OF THE INCOME TAX ACT, 1961 (THE ACT), DENYING THE LIABILITY TO MAKE DEDUCTION OF TAX U/S 195 IN RESPECT OF PAYMENT TOWARDS ARRANGERS FEE PAYABLE TO HSBC, HONGKONG. 2. IN THE GROUNDS OF APPEAL, THE ASSESSEE HAS RAISE D THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ARRANGER'S FEE PAID TO THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD.,HONG KONG FOR ARRANGING LOAN FACILITY IS TAXABLE AS INTEREST INCO ME WITHIN THE ITA 1619/MUM/2011 2 MEANING OF SECTION 2(28A) OF THE ACT AND WITHHOLDIN G OF TAX IS REQUIRED ON THE SAME. 2. THE APPELLANT PRAYS THAT IT BE HELD THAT THE ARR ANGER'S FEE IS NOT INTEREST INCOME WITHIN THE MEANING OF SECTION 2(28A ) OF THE ACT. GROUND 2: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT HOLDING THAT T HE ARRANGER'S FEE PAID TO THE HONGKONG AND SHANGHAI BANKING CORPORATI ON LTD., HONG KONG FOR ARRANGING LOAN FACILITY IS FEES FOR T ECHNICAL SERVICES AS PER SECTION 9 (1) (VII) OF THE ACT AND WITHHOLDI NG OF TAX IS REQUIRED ON THE SAME. 3. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE ( IDEA CELLULAR LIMITED) HAD ENTERED INTO TERM LOAN FACILITY AGREEMENT DAT ED 10 TH SEPTEMBER, 2009, AS BORROWER, WITH FINNISH EXPORT CREDIT LTD., WHO IS THE LENDER. THE HSBC, HONGKONG HAD ARRANGED FOR THE LOAN AS AR RANGER AND UK BASED COMPANY, HSBC BANK, PLC ACTED AS A FACILITY A GENT. THE DRAW- DOWN AMOUNT OF THE FACILITY FOR THE RELEVANT PREVIO US YEAR WAS AS UNDER:- DATE OF DRAWDOWN DRAWDOWN AMOUNT (USD) 1-FEBRUARY 2010 24,749,935 2-MARCH 2010 21,661,799 2-MARCH 2010 10,072,293 30-MARCH 2010 3,005,851 TOTAL 59,489,878 3.1 PURSUANT TO THE SAID AGREEMENT DATED 10-9-2009, THE ASSESSEE WAS LIABLE TO PAY ARRANGERS FEES TO HSBC, HONGKONG (A RRANGER) AMOUNTING TO RS. 2,64,75,645/-. THE ASSESSEE, OUT OF ABUNDAN T CAUTION REMITTED THE SAID AMOUNT PAYABLE AS ARRANGERS FEES AFTER DE DUCTING TAX @21.12% AMOUNTING TO RS. 55,91,645/- U/S 195 OF THE ACT AND DEPOSITED THE SAME IN THE TREASURY OF GOVT. OF INDIA ON 5-2-2010. AT T HE TIME OF DEDUCTION OF TAX, THE ASSESSEE CONSIDERED THE AMOUNT AS INTERES T AND DEDUCTED THE TAX AT THE APPLICABLE RATE OF 21.12%. THEREAFTER, T HE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) U/S 248 DENYING ITS LIABILITY TO DEDUCT TAX AT SOURCE ON SUCH ARRANGERS FEE, AS THE SAID AMOUNT DOES N OT COME WITHIN THE ITA 1619/MUM/2011 3 DEFINITION INTEREST U/S 2(28A) OF THE ACT AND THE REFORE, SUCH A REMITTANCE DOES NOT REQUIRE TAX DEDUCTION AT SOURCE . THE LD. CIT(A) CALLED FOR THE REMAND REPORT FROM ADIT (INTERNATIONAL TAXA TION) I, MUMBAI, ON WRITTEN SUBMISSION FILED BY THE ASSESSEE GIVING DET AIL REASONING AS TO WHY SUCH ARRANGER FEE CANNOT BE TERMED AS INTEREST. IN THE REMAND REPORT, THE LD. ADIT ADMITTED THAT THE AMOUNT PAYABLE AS A RRANGER FEE IS NOT INTEREST AND TO THAT EXTENT HE ACCEPTED THE CONTENT ION OF THE ASSESSEE. HOWEVER, HE WAS OF THE OPINION THAT THE PAYMENT TO THE ARRANGER FOR ARRANGING FINANCE IS TAXABLE IN INDIA AS FEES FOR TECHNICAL SERVICES U/S 9(1)(VII) AS THE SAME IS IN THE NATURE OF MANAGERI AL OR CONSULTANCY SERVICES. HE REFERRED TO THE PROVISIONS OF SECTIO N 9(1)(VII) AND ALSO THE EXPLANATION BELOW SUB-SECTION 2 OF SECTION 9, WHICH WAS BROUGHT IN THE STATUTE WITH RETROSPECTIVE EFFECT FROM 1-6-1976. TH US, ACCORDING TO THE A.O., SUCH PAYMENT OF ARRANGER FEE IS TAXABLE AS FE ES FOR TECHNICAL SERVICES U/S 9(1)(VII) OF THE ACT. 4. THE FIRST LIMB OF THE ASSESSEES ARGUMENT BEFORE THE LD. CIT(A) WAS THAT, THE PAYMENT OF ARRANGER FEE DOES NOT FALL WIT HIN THE AMBIT AND SCOPE OF INTEREST AS DEFINED U/S 2(28A). THE ARRA NGER FEE IS A KIND OF FEES PAYABLE TO A THIRD PARTY WHICH CAN BE SAID TO BE AKIN TO BROKERAGE OR COMMISSION AND, HENCE, IT CANNOT BE REGARDED AS INT EREST. IN SUPPORT, THE ASSESSEE RELIED UPON THE CBDT CIRCULAR NO. F.16 4/18/770IT (A-I) DTD. 13-7-1978 WITH SPECIFICALLY HELD THAT BROKERAG E OR MANAGERS REMUNERATION PAYABLE TO A BROKER OR A MIDDLEMAN WHO HELP IN SECURING THE DEPOSITS IS NOT INCLUDIBLE IN THE MEANING OF WO RD INTEREST. FURTHER, ARRANGEMENT FEE IS NOT PAID TO THE LENDER BUT TO TH E ARRANGER FOR THE PURPOSE OF ARRANGING THE FINANCE REQUIRED BY THE AS SESSEE FROM THE LENDERS. IT IS NOT A COMPENSATION FOR USE OF MONEY AND THEREFORE CANNOT BE REGARDED AS INTEREST. THE SECOND LIMB OF THE ASS ESSEES ARGUMENT WAS THAT THE INCOME OF NON-RESIDENTS WOULD BE CHARGEABL E TO TAX IN INDIA IF IT IS EITHER RECEIVED IN INDIA OR ACCRUED OR DEEMED TO ACCRUE IN INDIA. HERE ITA 1619/MUM/2011 4 IN THIS CASE, THE FEES WERE REMITTED OUTSIDE INDIA BY THE ASSESSEE, THEREFORE, CANNOT BE HELD TO BE TAXABLE IN INDIA. T HE ASSESSEE ALSO MADE DETAILED SUBMISSION OF NON-APPLICABILITY OF CLAUSE (I) OF SECTION 9(1) WHICH HAS BEEN DEALT WITH BY THE LD. CIT(A) IN HIS APPELL ATE ORDER. LASTLY, IT WAS SUBMITTED THAT SUCH A PAYMENT CANNOT BE TERMED AS FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF SECTION 9(1)(VII), BECAUSE THE SERVICES OF THE ARRANGER DO NOT CONSTITUTE MANAGERIAL OR CONSUL TANCY SERVICES. IN SUPPORT OF HIS PROPOSITION ALSO DETAILED SUBMISSION S WERE MADE. 5. THE LD. CIT(A) HELD THAT THE PAYMENT OF ARRANGE R FEE IS NOT ONLY IN THE NATURE OF INTEREST BUT ALSO IT IS IN THE NATU RE OF FOR TECHNICAL SERVICES WITHIN THE MEANING OF SECTION 9(1)(VII). THE SUM AND SUBSTANCE OF HIS REASONING ARE AS UNDER:- (I) ARRANGER FEE HAVE BEEN PAID FOR ARRANGING THE L OAN WHICH HAS BEEN CALLED AS STRUCTURING FEE AS PER IN CLAUSE 11.2 O F THE TERM LOAN FACILITY AGREEMENT DATED 10-09-2009 WHICH READS AS UNDER:- BORROWER SHALL PAY TO THE ARRANGER (FOR ITS OWN AC COUNT) A STRUCTURING FEE IN THE AMOUNT AND AT THE TIMES AGRE ED IN A FEE LETTER. FROM THIS, HE CONCLUDED THAT, ARRANGER FEE ARE WITH IN THE NATURE OF INTEREST INCOME AS THE SAID FEES HAD BEEN PAID IN T ERMS OF AGREEMENT ENTERED INTO AMONG THE LENDER, BORROWER, ARRANGER A ND THE AGENT. ARRANGER FEE HAS BEEN CHARGED AS A CONSIDERATION FO R ACTING AS AN ARRANGER IN RELATION TO THE FACILITIES FOR STRUCTUR ING FEES AS PER THE TERMS OF STRUCTURING FEE LETTER DATED 11-09-2009. THE FEE HAS BEEN CHARGED ON ACCOUNT OF UTILISATION OF LOAN AND FUNDS BY THE IDE A CELLULAR. IT IS NOTHING BUT PART OF DEBT OR LOAN TAKEN BY THE INDIAN COMPAN Y AND UTILISED THEREOF. (II) AFTER ANALYSING THE DEFINITION OF INTEREST AS GIVEN IN SECTION 2(28A), HE HELD THAT INTEREST DOES NOT ONLY MEAN INTEREST P AYABLE ON ANY MONEY ITA 1619/MUM/2011 5 BORROWED OR DEBT INCURRED BUT ALSO INCLUDE ANY SERV ICE FEE OR OTHER CHARGES IN RESPECT OF MONEY BORROWED OR DEBT INCURR ED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN UTILISED. T HE ASSESSEE HAS PAID ARRANGER FEE AFTER THE DISBURSEMENT AND UTILISATION OF LOAN FACILITIES, THEREFORE, IT CAN BE VERY MUCH HELD THAT IT IS INTE REST PAYABLE IN RESPECT OF MONEY BORROWED OR DEBT INCURRED AS DEFINED IN SECTI ON 2(28A). (III) THE ARRANGER FEE HAS BEEN CHARGED FROM THE BO RROWER @ 0.40% OF THE AMOUNT OF LOAN DISBURSED TO THE BORROWER WHO HA S UTILISED THE MONEY BORROWED AND DEBT INCURRED IN ITS INVESTMENT. FURTHER, THERE IS A DIRECT NEXUS BETWEEN THE PAYMENT OF ARRANGER FEE AN D LOAN ADVANCED TO THE BORROWER AS IT IS CHARGED AS PER THE TERMS OF A GREEMENT AFTER THE FIRST UTILISATION DATE AND THE SAME IS LINKED WITH THE AM OUNT OF LOAN DISBURSED BY PERCENTAGE OF 0.40% OF 23 CRORES USD. THUS, THE ARRANGER HAS A DIRECT NEXUS WITH THE INDIAN BORROWER AND, TH EREFORE, IT IS IN THE NATURE OF INTEREST INCOME ARISING IN INDIA WITHIN T HE MEANING OF SECTION 9(1)(V) AND SECTION 115A OF THE ACT. (IV) IN SUPPORT OF HIS OBSERVATION AND CONCLUSION, HE STRONGLY RELIED UPON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF JDIT VS. M/S COMMONWEALTH DEVELOPMENT CORPORATION IN ITA NO. 198 7 & 1988/MUM/2001 FOR ASSESSMENT YEARS 1998-99 & 1999-2 000 ORDER DATED 20-02-2010, WHEREIN WITH REGARD TO FRONT-END FEES, IT WAS HELD THAT IT IS IN RESPECT OF DEBT INVESTMENT AT A CERTA IN PERCENTAGE OF PROPOSED INVESTMENT AND THUS IT HAS A DIRECT NEXUS WITH THE DEBT CLAIMED, THEREFORE, IT IS COVERED WITHIN THE DEFINI TION OF THE TERM INTEREST UNDER THE ACT. (V) REGARDING SUCH A PAYMENT FALLING WITHIN THE MEA NING OF FEES FOR TECHNICAL SERVICES U/S 9(1)(VII) AS CONTENDED BY TH E A.O., HE HELD THAT THE ARRANGER FEE IS IN THE NATURE OF SERVICE FEE FOR MA NAGING AND ARRANGING THE FINANCE FOR THE ASSESSEE BORROWER FROM THE VARI OUS LENDERS. THE ITA 1619/MUM/2011 6 ARRANGER HAD RENDERED SERVICES BY WAY OF ARRANGING THE LOAN WHICH IS NOTHING BUT IN THE NATURE OF FEES FOR TECHNICAL SER VICES AS ANY FEES WHICH HAS BEEN PAID FOR RENDERING ANY MANAGERIAL OR CONSU LTANCY SERVICES IS TO BE RECKONED AS FOR TECHNICAL SERVICES. ACCORDINGLY , HE HELD THAT SUCH PAYMENT ALSO FALL WITHIN THE PURVIEW OF FEES FOR TE CHNICAL SERVICES U/S 9(1)(VII). IN SUPPORT, HE STRONGLY RELIED UPON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF ASHAPURA MINECHEM VS. A DIT IN ITA NO. 2500/M/2008 FOR A.Y. 2008-09 ORDER DATED 21-05-2010 . 5.1 HIS FINAL CONCLUSION ARE AS UNDER:- IN VIEW OF THE ABOVE, I AM OF THE CONSIDERED VIEW THAT THE REMITTANCE MADE BY THE INDIAN COMPANY BY WAY OF STR UCTURE FEES FALLS UNDER FEES FOR TECHNICAL SERVICES IS DEEMED T O ACCRUE OR ARISE IN INDIA U/S. 9( L)(VII) OF THE ACT. THE TAX WITHHO LDING LIABILITY OF THE APPELLANT U/S.95 BEING IN THE NATURE OF VICARIOUS L IABILITY, THEREFORE, DID EXTEND TO THE DEDUCTION OF TAX AT SO URCE FROM THE PAYMENTS BEING MADE TO HSBC HONGKONG, THE ARRNAGER. THEREFORE, REMITTANCES ARE TO BE MADE BY THE APPELL ANT AFTER MAKING TDS U/S.194 OF THE ACT AS PER PRESCRIBED TAX RATE. 1.5.11 IN VIEW OF THE AFORESAID DISCUSSION I HOLD T HAT THE ARRANGER FEE AMOUNT IS TAXABLE AS INTEREST INCOME WITHIN THE MEANING OF SECTION 2(28A) R.W.S. 9( 1)(V) OF THE ACT AS PER SE CTION 115A OF THE ACT AND AS WELL AS FEES FOR TECHNICAL SERVICES BEIN G MANAGERIAL AND CONSULTANCY IN NATURE U/S.9(1)(VII) AND 9(1)(1) OF THE ACT. ACCORDINGLY, THE WITHHOLDING OF TAX IS REQUIRED ON THE SAME. THEREFORE, THE APPELLANT IS DIRECTED TO MAKE PAYMEN T AFTER WITHHOLDING OF TAX THEREON U/S.195 OF THE ACT. ACCO RDINGLY, THE GROUND RAISED BY THE APPELLANT ARE TREATED AS DISMI SSED. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, SHR I YOGESH A. THAR AFTER EXPLAINING THE ENTIRE FACTS OF THE CASE, SUBM ITTED THAT, THE LD. CIT(A) HAS WRONGLY TREATED THE PAYMENT OF ARRANGER FEE AS INTEREST AND ALSO COMPLETELY MISDIRECTED HIMSELF BY TREATING THE SAME AS FEES FOR TECHNICAL SERVICES U/S 9(1)(VII). REGARDING THE TREATMENT O F INTEREST, HE SUBMITTED THAT THE DUTY OF THE ARRANGER HAS BEEN CONTAINED IN CLAUSE 25.3 OF THE AGREEMENT WHICH READS AS UNDER:- ROLE OF THE ARRANGER ITA 1619/MUM/2011 7 EXCEPT AS SPECIFICALLY PROVIDED IN THE FINANCE DOCU MENTS, THE ARRANGER IN ITS CAPACITY AS ARRANGER, UNDER THIS AG REEMENT HAS NO OBLIGATIONS OF ANY KIND TO ANY OTHER PARTY UNDER OR IN CONNECTION WITH ANY TRANSACTION DOCUMENT. THE ARRANGER HAS MERELY ARRANGED THE FINANCE FROM T HE LENDER AND THE PAYMENT HAS BEEN MADE AS FEE FOR ARRANGING LOAN FRO M THE BORROWER. IT IS A KIND OF BROKERAGE GIVEN TO THE THIRD PARTY. IT IS NOT THE CASE OF DEPARTMENT THAT ARRANGER FEE HAS BEEN PAID TO THE L ENDER IF, THAT IS SO, THEN IT CANNOT BE SAID THAT IT FALLS WITHIN THE AMB IT OF INTEREST AS DEFINED IN SECTION 2(28A). THE SECOND LIMB OF DEFINITION O F INTEREST AS GIVEN IN THE ACT, HE SUBMITTED THAT SERVICE FEES OR OTHER CHARGE LEVIED BY THE PERSON FROM WHOM THE MONEY HAVE BEEN BORROWED OR THE PERSO N IN WHOSE FAVOUR THE DEBT HAS BEEN CREDITED/INCURRED IS ALSO NOT APP LICABLE AS ARRANGER IS NOT LENDER. MERELY BECAUSE THE ARRANGER FEE HAVE BE EN PAID IN RELATION TO BORROWING, THAT ITSELF DOES NOT MEAN THAT THE SAID FEES ARE PAID IN RESPECT OF THE SAID BORROWING. ARRANGER FEE IS IN THE NATU RE OF NORMAL BUSINESS RECEIPT IN THE HANDS OF THE HSBC, HONGKONG AND IN T HE ABSENCE OF ANY ESTABLISHMENT IN INDIA TAXING OF THE BUSINESS RECEI PT IN THE HANDS OF THE ARRANGER DOES NOT ARISE IN INDIA. REGARDING TREATM ENT OF ARRANGER AS FEES FOR TECHNICAL SERVICES, HE SUBMITTED THAT ITAT, MUM BAI BENCH IN THE CASE OF CREDIT LYONNAIS VS. ADIT (INTERNATIONAL TAXATION ) REPORTED IN [2013] 35 TAXMANN.COM 583 (MUMBAI TRIB) HELD THAT ARRANGER S FEE FOR ARRANGING THE FUNDS DOES NOT AMOUNT TO FEES FOR MANAGERIAL OR CONSULTANCY SERVICES WITHIN THE AMBIT OF FEES FOR TECHNICAL SERVICES A S DEFINED IN EXPLANATION TO SECTION 9(1)(VII). THIS PROPOSITION HAS BEEN REI TERATED AND FOLLOWED IN THE CASE OF DDIT (IT) VS. ABU DHABI COMMERCIAL BANK LTD. REPORTED IN [2013] 37 TAXMANN.COM 15 (MUMBAI-TRIB). THUS, THE ISSUE THAT ARRANGER FEE CANNOT BE HELD AS FEES FOR TECHNICAL SERVICES, IS SQUARELY COVERED BY THE AFORESAID DECISIONS. 8. ON THE OTHER HAND, THE LD. D.R. SUBMITTED THAT T HE DEFINITION OF INTEREST AS GIVEN IN THE ACT IS WIDE ENOUGH TO COVE R THE SERVICE FEE OR ITA 1619/MUM/2011 8 OTHER CHARGES IN RESPECT OF MONEY BORROWED. THIS W ILL INCLUDE ARRANGER FEE, BECAUSE IT IS IN RELATION TO BORROWING OF THE FUNDS BY THE ASSESSEE. HE STRONGLY RELIED UPON THE REASONING AND CONCLUSIO N GIVEN BY THE LD. CIT(A) FROM PAGES 10 TO 14 OF THE APPELLATE ORDER. REGARDING TREATMENT OF FEES FOR TECHNICAL SERVICES, HE AGAIN REITERATED TH E FINDING AND CONCLUSION GIVEN BY THE LD. CIT(A) AND SUBMITTED THAT THE ARRA NGER FEE HAD BEEN PAID FOR RENDING THE SERVICES FOR OBTAINING THE LOAN AND HOST OF OTHER SERVICES FOR GETTING THE CREDIT FACILITY, WHICH ARE NOTHING BUT IN THE NATURE OF MANAGERIAL AND TECHNICAL SERVICES. THUS, HE SUBMITT ED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE UPHELD. 9. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE IMPUGNED ORDER AND THE MATERIAL PLACED ON RECORD. THE PRIMARY FACT S QUA THE ISSUE INVOLVED ARE THAT, THE ASSESSEE, WHO IS THE BORROWE R HAD ENTERED INTO A TERM LOAN AGREEMENT ON 10 TH SEPT. 2009 WITH THE LENDER, FINNISH EXPORT CREDIT LIMITED. THE HONGKONG BANKING CORPORATION LI MITED, HONGKONG (HSBC), WHO IS THE ARRANGER HAD ARRANGED FOR THE LO AN AND THE HSBC BANK PLC HAS ACTED AS FACILITY AGENT. THE ROLE OF THE ARRANGER WAS TO LIASE WITH THE LENDER AND TO PROCURE THE LOAN FOR T HE BORROWER AS WELL AS TO NEGOTIATE THE TERMS AND CONDITIONS OF THE FACILI TY WITH THE LENDER ON BEHALF OF THE BORROWER. THE ARRANGER IS A THIRD PAR TY WHO HAS ACTED AS THE MIDDLEMAN BETWEEN THE BORROWER AND THE LENDER T O ACHIEVE/NEGOTIATE THE TERMS AND CONDITIONS AGREEABLE TO BOTH THE PART IES. THE ARRANGER QUA THE BORROWER AND THE LENDER CANNOT CREATE ANY BINDI NG OBLIGATION OF ANY KIND ON THEM. THIS IS EVIDENT FROM CLAUSE 25.3 OF T HE AGREEMENT AS STATED ABOVE. HERE IN THIS CASE, THE ARRANGER HAD F ACILITATED THE TRANSACTION CREDIT FACILITY BETWEEN THE LENDER AND THE ASSESSEE WHICH ARE AGREEABLE TO BOTH THE PARTIES. ITS ACTIVITY HAD BEE N; FIRSTLY, TO OBTAIN THE REQUIRED INFORMATION/DETAIL FROM THE BORROWER AND T HE LENDER, SECONDLY, FORWARDING THE DULY FILLED UP LOAN APPLICATION DOCU MENT AND SUBMIT THE SAME TO THE LENDER, THIRDLY, NEGOTIATING THE TERMS AND CONDITIONS OF THE ITA 1619/MUM/2011 9 FACILITY ACHIEVEMENT AGREEABLE TO BOTH THE PARTIES AND LASTLY, ASSESSING AND EXCHANGE OF INFORMATION BETWEEN THE PARTIES ON TERMS AND CONDITIONS OF THE AGREEMENT. FOR THIS SERVICE, THE ARRANGER FEE HAS BEEN PAID BY THE ASSESSEE TO THE ARRANGER, HSBC. THUS, T HE ARRANGER HAD ACTED SOME KIND OF THE BROKER OR A MIDDLEMAN FOR AR RANGING THE LOAN FOR THE ASSESSEE. 10. NOW, THE ISSUE BEFORE US IS, WHETHER SUCH A FEE S PAID TO THE ARRANGER CAN BE TERMED AS INTEREST WITHIN THE MEA NING OF SECTION 2(28A) OR FEES FOR TECHNICAL SERVICES FOR SERVICE WITHIN THE MEANING OF SECTION 9(1)(VII). 11. THE DEFINITION OF INTEREST U/S 2(28A) READS AS UNDER:- INTEREST MEANS INTEREST PAYABLE IN ANY MANNER IN RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED (INCLUDING A DEPOS IT, CLAIM OR OTHER SIMILAR RIGHT OR OBLIGATION) AND INCLUDES ANY SERVICE FEE OR OTHER CHARGE IN RESPECT OF THE MONEYS BORROWED OR D EBT INCURRED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEE N UTILISED; FROM THE ABOVE DEFINITION, IT CAN BE INFERRED THAT THE TERM INTEREST COVERES, FIRSTLY, THE INTEREST PAYABLE IN ANY MANNE R IN RESPECT OF ANY MONEY BORROWED OR DEBT INCURRED AND, SECONDLY, SUCH INTEREST PAYABLE INCLUDES ANY SERVICE FEE OR OTHER CHARGE IN RESPECT OF THE MONEY BORROWED OR DEBT INCURRED OR IN RESPECT OF ANY CREDIT FACILI TY WHICH HAS NOT BEEN UTILISED. IN THE MAIN LIMB OF THE DEFINITION, IT IS AMPLY CLEAR THAT INTEREST SHOULD BE IN RESPECT OF THE MONEY BORROWED OR DEBT INCURRED. IN OTHER WORDS, THE INTEREST IS PAYABLE BY THE BORROWER WHO HAD BORROWED THE MONEY FROM THE LENDER OR THE DEBT HAS BEEN INCURRED BY HIM IN FAVOUR OF THE LENDER WHO HAS GIVEN THE MONEY. THE ARRANGER I S NOT THE LENDER AS THE PERSON WHO HAS PROVIDED THE MONEY AND ANY FEE P AID TO HIM IS NOT IN RESPECT OF THE BORROWING, BECAUSE NO DEBT HAS BEEN INCURRED BY THE ASSESSEE IN FAVOUR OF THE ARRANGER VIS-A-VIS THE MO NEY BORROWED. HE IS MERELY A FACILITATOR WHO BRINGS LENDER AND BORROWER TOGETHER FOR FACILITATING THE LOAN/CREDIT FACILITY. THE SECOND L IMB OF THE DEFINITION IS AN ITA 1619/MUM/2011 10 INCLUSIVE DEFINITION WHEREBY INTEREST ENCOMPASSES T O INCLUDE SERVICE FEE OR OTHER CHARGE AND SUCH FEE IS IN RESPECT OF THE M ONEY BORROWED OR ANY DEBT INCURRED OR, FOR UNUTILISED CREDIT FACILITY. H ERE ALSO, SUCH FEE OR CHARGE IS IN RESPECT OF MONEY BORROWED ONLY I.E. GI VEN BY THE LENDER TO THE BORROWER. THE SERVICE FEE OR OTHER CHARGE DOES NOT BRING WITHIN ITS AMBIT ANY THIRD PARTY OR INTERMEDIARY WHO HAS NOT G IVEN ANY MONEY. THE FUNDAMENTAL PROPOSITION PERMEATING BETWEEN VARIOUS KINDS OF PAYMENTS WHICH HAS BEEN TERMED AS INTEREST IN THE SECTION IS THAT, THESE PAYMENTS ARE PAID/PAYABLE TO THE LENDER EITHER FOR GIVING LOAN OR FOR GIVING THE CREDIT FACILITY. NOWHERE THE DEFINITION SUGGESTS THAT PAYMENT OF INTEREST INCLUDES SOME KIND OF FEE PAID TO A THIRD PARTY WHO HAS NOT GIVEN ANY LOAN OR ANY CREDIT FACILITY. THE LD. CIT(A) HEL D THAT ARRANGER FEE PAID IS NOTHING BUT A PART OF DEBT OR LOAN TAKEN BY THE ASSESSEE AND UTILISED THEREOF AND, THEREFORE, IT IS INTEREST PAYABLE WITH IN THE MEANING OF SECTION 2(28A). IN OUR OPINION, SUCH AN INTERPRETATION CANN OT BE UPHELD BECAUSE, IT IS NOT A PART OF DEBT OR LOAN PAYABLE TO THE LEN DER BUT IT HAS BEEN PAID FOR FACILITATING THE LOAN FOR THE BORROWER FROM THE LENDER. THE ELEMENT OF RELATIONSHIP BETWEEN THE BORROWER AND LENDER IS A K EY FACTOR TO BRING THE PAYMENT WITHIN THE AMBIT OF DEFINITION OF INTEREST U/S 2(28A). THE ARRANGER FEE MAY BE INEXTRICABLY LINKED WITH THE LO AN OR UTILISATION OR LOAN FACILITY BUT IT IS NOT A PART OF INTEREST PAYA BLE IN RESPECT OF MONEY BORROWED OR DEBT INCURRED, BECAUSE THE RELATIONSHIP OF A BORROWER OR A LENDER IS MISSING. THOUGH, THE FEES OF AN ARRANGER MAY DEPEND UPON THE QUANTUM OF LOAN OR LOAN FACILITY ARRANGED BUT TO BE INCLUDED WITHIN THE MEANING OF TERM INTEREST, IT HAS TO BE DIRECTLY I N RESPECT OF MONEY BORROWED, I.E. DIRECTLY FLOWING FROM THE CONSIDERAT ION PAID FOR THE USE OF MONEY BORROWED. IT IS A KIND OF A COMPENSATION PAID BY THE BORROWER TO THE LENDER. THUS, ARRANGER IS ONLY A INTERMEDIARY/T HIRD PARTY AND ACCORDINGLY, ANY FEE PAID AS ARRANGER FEE CANNOT BE TERMED AS INTEREST UNDER BOTH THE LIMBS OF THE DEFINITION; GIVEN IN SE CTION 2(28A). THEREFORE, ITA 1619/MUM/2011 11 THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX FOR SUCH PAYMENT, AS IT DOES NOT FALL WITHIN THE AMBIT OF INTEREST. 12. NOW, COMING TO THE DECISION OF M/S COMMONWEALTH DEVELOPMENT (SUPRA) AS RELIED UPON BY THE LD. CIT(A), WE FIND T HAT IN THIS CASE, THE ISSUE WAS, WHETHER THE UPFRONT APPRAISAL FEE COLLEC TED BY THE ASSESSEE COMPANY IS IN THE NATURE OF INTEREST. APPRAISAL FEE COLLECTED WAS ONLY FOR THE PURPOSE OF VERIFYING THE DEBT EVEN IT IS NOT UT ILISED. THE TRIBUNAL HELD THAT SUCH APPRAISAL FEE PAID CANNOT BE SAID TO BE I NTEREST PAYABLE IN RESPECT OF MONEY BORROWED OR DEBT INCURRED AND ALSO NOT IN THE NATURE OF SERVICE FEE OR OTHER CHARGE. FURTHER, THE TRIBUNAL HAS GIVEN RELIEF TO THE ASSESSEE ON THE GROUND THAT UNDER ARTICLE 12(5) OF THE INDIA-UK DTAA SUCH A PAYMENT DOES NOT FALL WITHIN THE MEANING OF INTEREST INCOME. THE RELIANCE PLACED BY THE LD. CIT(A) ON THIS DECISION PERHAPS IS BASED ON MISUNDERSTANDING OF THE RATIO LAID DOWN BY THE TRIB UNAL. THIS DECISION HAD TRAVELLED UP TO THE HONBLE HIGH COURT, WHEREIN THE HONBLE HIGH COURT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE U NDER THE DTAA. 13. REGARDING THE TREATMENT OF ARRANGER FEES AS FEE S FOR TECHNICAL SERVICES, WE FIND THAT THE LD. CIT(A) HAD TREATED I T TO BE IN THE NATURE OF SERVICE FEE FOR MANAGING AND ARRANGING THE FINANCE AND, HENCE, IT IS THE CONSIDERATION FOR RENDERING MANAGERIAL AND CONSULTA NCY SERVICES. THIS PRECISE ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE CASE OF CREDIT LYONNAIS (SUPRA) WHEREIN SBI WAS APP OINTED AS ARRANGER FOR MOBILISING THE DEPOSITS FROM THE ELIGIBLE DEPOS ITOR UNDER INDIA MILLENNIUM DEPOSIT SCHEME AND COLLECTING BANK FOR RECEIVING AND HANDLING APPLICATION FORMS. THE A.O. HAD HELD THAT PAYMENT MADE BY THE ASSESSEE TOSBI IS FOR SERVICES COVERED U/S 9(1)(VII ). THE TRIBUNAL AFTER CONSIDERING THE VARIOUS KIND OF SERVICES RENDERED B Y THE SBI AND SCOPE OF WORK, HELD THAT IT IS NOT IN THE NATURE OF MANAGERI AL OR CONSULTANCY SERVICES AND THEREFORE, THE SAME CANNOT BE BROUGHT WITHIN THE AMBIT OF FEES FOR TECHNICAL SERVICES AS PER SECTION 9(1)(VII ) OF THE ACT. THIS RATIO ITA 1619/MUM/2011 12 WAS AGAIN REITERATED IN THE CASE OF ARRANGER FEE PA ID FOR MOBILISING THE DEPOSITS IN THE CASE OF ABU DHABI COMMERCIAL BANK L TD. (SUPRA), WHEREIN IT WAS HELD THAT ARRANGER FEE CANNOT BE TRE ATED AS FEES FOR TECHNICAL SERVICES U/S 9(1)(VII). OTHERWISE ALSO, T HE TERM MANAGERIAL ESSENTIALLY IMPLY CONTROL, ADMINISTRATION AND GUIDA NCE FOR BUSINESS, DAY TO DAY FUNCTIONING. IT INCLUDES THE ACT OF MANAGING BY DIRECTION OR REGULATION OR SUPERINTENDENCE. HERE, IN THIS CASE ARRANGING OF A LOAN CANNOT BE EQUATED WITH LENDING OF MANAGERIAL SERVIC ES AT ALL. IT IS ALSO NOT IN THE NATURE OF CONSULTANCY SERVICES BECAUSE , ARRANGER DID NOT PROVIDE ANY ADVISORY OR COUNSELLING SERVICES. THE A RRANGER WAS NOT INVOLVED IN PROVIDING CONTROL, GUIDANCE OR ADMINIST RATION OF THE CREDIT FACILITY NOR IT WAS INVOLVED IN DAY-TODAY FUNCTIONI NG OF THE ASSESSEE IN OVERSEEING THE UTILISATION OR ADMINISTRATION OF THE CREDIT FACILITY. IT WAS NOT IN CHARGE OF ENTIRE OR PART OF THE TRANSACTION OF ARRANGING SERVICES, HENCE, IT CANNOT BE TERMED AS MANAGERIAL OR CONSULT ANCY SERVICES WITHIN THE MEANING OF SECTION 9(1)(VII). ACCORDINGLY, THE ARRANGER FEE CANNOT BE HELD TO BE TAXABLE U/S 9(1)(VII) ALSO AND THEREFORE , NO TDS WAS DEDUCTIBLE ON SUCH PAYMENT. THUS, THE FINDING OF THE LD. CIT(A ) THAT THE PAYMENT OF ARRANGER FEES ENTAILS DEDUCTION OF TAX AT SOURCE U/S 195 IS REVERSED AND WE HOLD THAT ASSESSEE WAS NOT LIABLE TO DEDUCT TDS ON PAYMENT OF ARRANGER FEE TO HSBC, HONGKONG. THE GROUNDS RAISED BY THE ASSESSEE ARE THUS ALLOWED. 14. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JUNE, 2015. SD/- (D. KARUNAKARA RAO) ACCOUNTANT MEMBER SD/- (AMIT SHUKLA) JUDICAL MEMBER MUMBAI, DATED 10-06-2015 ITA 1619/MUM/2011 13 RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- 4, MUMBAI 4. COMMISSIONER OF INCOME TAX II, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH L, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI