2012 (2) TMI 77 - AT - Income Tax

Bank guarantee commission not subject to TDS under Section 194H, interest under Section 201(1A) inapplicable.

Kotak Securities Limited Versus Deputy Commissioner of Income-tax, TDS Circle 2(1), Mumbai

The Tribunal ruled in favor of the appellant, holding that the bank guarantee commission is not subject to TDS under Section 194H as there was no ... Non-deduction of tax at source from bank guarantee commission - stock broking business – bank guarantees furnished in lieu of margin deposits, to various agencies, such as BSE and NSE – Revenue contended that tax to be withhold u/s 194 – interest imposed u/s 201(1A) – Held that:- Principal agent relationship is a sine qua non for invoking the provisions of Section 194 H. While it is termed as 'guarantee commission', it is not in the nature of 'commission' as it is understood in common business parlance and in the context of the section 194H. This transaction, in our considered view, is not a transaction between principal and agent so as to attract the tax deduction requirements u/s 194H. As we have held that the assessee was not required to deduct tax at source u/s 194 H, the question of levy of interest u/s 201(1A) cannot arise – Decided in favor of assessee. Issues Involved:1. Whether the bank guarantee commission is liable to TDS under Section 194H of the Income Tax Act, 1961.2. Whether the interest under Section 201(1A) is applicable on the TDS amount for the bank guarantee commission.Issue-wise Detailed Analysis:Issue 1: TDS Liability on Bank Guarantee Commission under Section 194HThe appellant challenged the correctness of the order by the CIT(A) confirming the Assessing Officer's decision to treat the appellant as in default under Section 201 for not deducting TDS on bank guarantee commission under Section 194H. The appellant argued that the bank guarantee commission is not liable to TDS under any provisions of the Income Tax Act, including Section 194H, asserting that the bank guarantee is provided on a principal-to-principal basis without any agency relationship.The Assessing Officer rejected these arguments, stating that the Explanation to Section 194H is broad and includes any payment for services in relation to any transaction relating to any asset. The CIT(A) upheld this view, emphasizing that the definition of 'commission or brokerage' in Section 194H is inclusive and covers payments for services rendered by an agent of a principal.Upon review, the Tribunal examined the statutory language of Section 194H, highlighting that the tax withholding requirements apply to 'commission or brokerage,' defined in the Explanation. The Tribunal noted that the terms 'commission' and 'brokerage' are used together, implying a restricted scope confined to payments made to agents, factors, and brokers for effecting sales or business transactions. The Tribunal emphasized the principle of noscitur a sociis, which restricts the meaning of general words to the nature of the specific words they accompany.The Tribunal concluded that the bank guarantee commission is a fee for a service rendered on a principal-to-principal basis, not in the nature of a commission as understood in common parlance or in the context of Section 194H. Therefore, the transaction does not attract TDS under Section 194H due to the absence of a principal-agent relationship.Issue 2: Interest under Section 201(1A) on TDS AmountSince the Tribunal held that the appellant was not required to deduct TDS under Section 194H on the bank guarantee commission, the question of interest under Section 201(1A) does not arise. The Tribunal quashed the demands under Section 201(1) and 201(1A) r.w.s. 194H.Conclusion:The Tribunal allowed the appeal, ruling that the bank guarantee commission is not liable to TDS under Section 194H due to the lack of a principal-agent relationship. Consequently, the interest under Section 201(1A) is also not applicable. The Tribunal did not address other peripheral legal issues, deeming them unnecessary in light of the primary findings.