In the case of Idea Cellular Limited vs. ADIT: ITA No.
1619/Mum/2011, order dated June 10, 2012 (Mum), the
assessee had entered into a term loan agreement with the lender,
Finnish Export Credit Limited. The Hong Kong Banking Corporation
Limited, Hong Kong (HSBC) had arranged for the loan and the HSBC
Bank PLC had acted as facility agent. The role of the arranger
(HSBC) was to liaise with the lender and to procure the loan for
the borrower as well as to negotiate the terms and conditions of
the facility with the lender on behalf of the borrower. For the
said service, HSBC was paid arranger fee by the assessee. The issue
arose with respect to the nature of the said arranger fee, viz.,
whether such payment would be regarded as "interest"
within the meaning of section 2(28A) of the Act or "fees for
technical services for service" within the meaning of section
9(1) (vii) of the Act and would accordingly be subject to tax
withholding or not. The Tribunal, after examining the facts of the
case, position of law and judicial precedents, held that the
assessee was not liable to deduct tax on such arranger fee as the
same neither fell within the ambit of the definition of
"interest" nor "fee for technical services",
specifically considering the following–
The arranger was not the lender of
money and in absence of any debt being incurred by the assessee in
favour of the arranger vis-a-vis the money borrowed, any fee paid
to the arranger cannot be said to be in respect of the money
The arranger was merely a facilitator
bringing the lender and borrower together for facilitating
the loan/credit facility, therefore, the said fee would not
fall under the second limb of the definition of
"interest" provided under section 2(28) of the Act,
whereby interest encompasses service fee or other charge and such
fee in respect of the money borrowed or any debt incurred or, for
utilisation of credit facility. Such service fee or other charge
does not bring within its ambit any payment made to third party or
intermediary who has not given any money/ loan or credit facility
but merely acted as a middleman.
The element of relationship between
the borrower and lender, which is a key factor to bring the payment
within the ambit of definition of "interest" under
section 2(28A) was absent between the borrower and arranger,
notwithstanding that the arranger fee was inextricably linked with
the loan utilisation or loan facility.
The arranging of loan cannot be
equated with lending of "managerial service", since the
arranger was not involved in providing control, guidance or
administration of the credit facility nor was involved in
day-to-day functioning of the assessee in overseeing the
utilisation or administration of the credit facility.
The arranger did not provide any
advisory or counselling services, and accordingly, the transaction
of arranging of loan cannot be regarded as rendering of
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