Case Law Details
Brief Facts:
The assessee (Idea Cellular Limited) had entered into “Term Loan Facility Agreement” dated 10th September, 2009, as borrower, with Finnish Export Credit Ltd., who is the lender. The HSBC, Hongkong had arranged for the loan as “Arranger” and UK based Company, HSBC Bank, PLC acted as a facility agent.
Pursuant to the said agreement dated 10-9-2009, the assessee was liable to pay Arranger’s fees to HSBC, Hongkong (“Arranger”) amounting to Rs. 2,64,75,645/-. The assessee, out of abundant caution remitted the said amount payable as Arranger’s fees after deducting 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 the time of deduction of tax, the assessee considered the amount as “interest” and deducted the tax at the applicable rate of 21.12%. Thereafter, the assessee filed appeal before the ld. CIT(A) u/s 248 denying its liability to deduct tax at source on such “Arranger’s fee”, as the said amount does not come within the definition “interest” u/s 2(28A) of the Act and therefore, such a remittance does not require tax deduction at source. The ld. CIT(A) called for the remand report from ADIT (International Taxation) –I, Mumbai, on written submission filed by the assessee giving detail 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 “Arranger fee” is not interest and to that extent he accepted the contention 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 “managerial” or “consultancy services”. He referred to the provisions of section 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. Thus, according to the A.O., such payment of Arranger fee is taxable as fees for technical services u/s 9(1)(vii) of the Act.
Assessee Contention :
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