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This appeal has been filed by the revenue against order dated 28/07/2016 passed by the Ld. Commissioner of Income Tax (Appeals)-59, Mumbai, for the assessment year 2012-13, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 201 (1)/201(1A) of the Income Tax Act, 1961 (for short 'the Act').

2. Brief facts of the case are that the assessee engaged in the business of Information Technology enabled transaction processing services having two wholly owned subsidiaries in the USA namely First Source Solution Ind. and First Ring Inc. on 17.09.2007 First Source Solution Ind. took loan of USD 275 million from ICICI Bank Ltd., Singapore Branch for acquisition of 'Med Assist Group' to acquire 100% common stock of the said group on 20.09.2007 First Ring Inc. acquired 100% common stock of 'Med Assist Group' for a consideration of USD 330 million on 03.12.2007 the assessee issued zero Assessment Year: 2012-13 coupon 'foreign currency convertible bonds' (FCCB) of USD 275 million with the tenure of five years redeemable on 04.12.2012. The FCCBs were to be redeemed @ 139.37% of the principal amount. As per the terms the FCCB holders had an option to get the bonds converted into equity shares with full voting rights or to redeem the same on or before 04.12.2012. On 25.11.2009, the assessee incorporated First Source Group USA as its wholly owned subsidiaries and First Source Group USA in turn incorporated First Source Business Process Services as its wholly owned subsidiaries in USA. On 31.12.2009, the assessee merged its wholly owned subsidiaries First Ring Inc. with First Business Process Services and the consideration for the merger was discharged by way of swap of shares of First Source Group equivalent to the value shares of First Ring Inc. The assessee received 29,088 shares of First Source Group as a consideration. On 31.03.2010, First Source Solution Ind. was merged into First Source Group and in consideration of merger First Source Group issued, 1,89,394 equity shares and unsecured debt issuance of Rs. 6,735 million (approximately 150 million USD) to the share holder of company. In the financial year relevant to the assessment year under consideration in the ledger account of share premium, the company had passed entries if interest on FCCB as well as premium payable on FCCB on different dates and acknowledged the liabilities on pro-rata premium payable in redemption of FCCB amounting to Rs. 28.81 crores. Accordingly, the AO held that the assessee has committed default u/s 196C of the Act and hindered itself liable to proceedings u/s 201 (1) along with section 201 (1A) of the Act for the interest applicable thereon.

4. The revenue has preferred this appeal before the Tribunal on the following effective grounds:-

1. "Whether on facts and circumstances of the case and in law, the Ld. CIT (A) erred in holding that no TDS was required to be deducted on interest payable on FCCB u/s 196C of the IT Act 1961, failing to appreciate that the assessee itself had made provision for interest payable in its books of account.

2. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the short deduction u/s 201 (1) and interest u/s 201 (1A) of the I.T. Act, in respect of bank guarantee commission on the basis of reasoning that bank guarantee commission is not in the nature of "commission" and no TDS was required to be deducted on such charges paid to bank u/s 194H of the I.T. Act, 1961.

"7. I have considered the facts of the case, order of the AO, submission of the appellant and the order of the Hon'ble ITAT in the case of appellant for AY 2011-12. The issue in dispute is whether there is liability to TDS u/s 196C r.w.s. 115AC on the interest on FCCB.

7.1 The Hon'ble ITAT vide order dated 27.05.2016 in ITA No. 7727/Mum/2014 has held interalia as under:-

5. We have considered rival contentions and found from the record that the assessee had issued Foreign Currency Convertible Bonds (FCCB) of USD 275 million on 3 December 2007 to be redeemed on 4 December 2012 at 139.37% of the principal amount (implicit interest rate of 6.86% (p.a.). The terms of issue of the FCCBs provides an option to the FCCB holder to get the bonds converted into equity shares or redeem the same.

Assessment Year: 2012-13 In case the same are not converted into equity shares during the period of FCCBs, they shall be redeemed on the date of maturity i.e. 04/12/2012.

6. The crucial question before us is as to whether the assessee can be treated as an assessee in default"for not deducting tax at source u/s 196C of the IT Act in the assessment year 2011-2012 in respect of premium on the Zero percent Foreign Currency Convertible Bonds ("FCCB") issued by it. As per the terms of FCCB, the FCCBs were issued on 3rd December, 2007 redeemable on 4th December, 2012. The FCCBs were convertible at the option of the bondholder into fully paid equity shares at any time between 14th January, 2008 and 23rd November, 2012. The FCCBs could be bought back by the assessee prior to their maturity. This buy back option was, in fact, exercised as is evident from the order dated 5 th March, 2014 passed u/s 143 (3) r.w.s. 144C (3) of the Act for the assessment year 2010-2011. The FCCB's were redeemable at a premium of 39.37% payable on maturity in the event of the bond not being earlier bought back or converted into shares.