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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 consultancy services.
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The assessee also made detailed submission of non-applicability of Clause (i) of section 9(1) which has been dealt with by the ld. Here in this case, the fees were remitted outside India by the assessee, therefore, cannot be held to be taxable in India. The second limb of the assessee’s argument was that the income of non-residents would be chargeable to tax in India if it is either received in India or accrued or deemed to accrue in India. It is not a compensation for use of money and therefore cannot be regarded as interest.
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Further, arrangement fee is not paid to the lender but to the Arranger for the purpose of arranging the finance required by the assessee from the lenders. 13-7-1978 with specifically held that brokerage or manager’s remuneration payable to a broker or a middleman who help in securing the deposits is not includible in the meaning of word “interest”. In support, the assessee relied upon the CBDT Circular No. The Arranger 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 interest. CIT(A) was that, the payment of Arranger fee does not fall within the ambit and scope of “interest” as defined u/s 2(28A). The first limb of the assessee’s argument before the ld. 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. 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. 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”. ADIT admitted that the amount payable as “Arranger fee” is not interest and to that extent he accepted the contention of the assessee. 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”. 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. Thereafter, the assessee filed appeal before the ld. 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%. 55,91,645/- u/s 195 of the Act and deposited the same in the Treasury of Govt. The assessee, out of abundant caution remitted the said amount payable as Arranger’s fees after deducting tax amounting to Rs. 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. The HSBC, Hongkong had arranged for the loan as “Arranger” and UK based Company, HSBC Bank, PLC acted as a facility agent. However, the adverse selection problem arises only when low-reputation arrangers lend to opaque borrowers.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. Both moral hazard and adverse selection problems appear when arrangers have an information advantage over other syndicate participants. The moral hazard problem arising from information asymmetries between borrower and syndicate can be overcome only by the most reputable arrangers. However, the adverse selection problem arises only when low-reputation arrangers lend to opaque borrowers.ĪB - This study explores the effects of information asymmetry and arranger reputations on syndicated loan structures. N2 - This study explores the effects of information asymmetry and arranger reputations on syndicated loan structures. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International T1 - Lead arranger reputation and the structure of loan syndicates