TaxTMI 
TaxTMI 
2017 (11) TMI 185
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....has erred in law and all facts in deleting the demand on account of payment of Bank guarantee commission ignoring the fact that Notification No. 56/ 2012/ ( F No. 275/53/2012-IT(B) dated 31.12.2012 which provides that no TDS shall be done on payment like Bank Guarantee commission is effect from 01.01.2013 while in the case of the assessee the payment of Bank Guarantee commission was done before 01.01.2013 and penalties are correctly imposed u/s 271C. 3. Brief facts of the case is that assessee has paid bank guarantee commission to various Indian banks without deduction of tax at source and therefore, the ld Assessing Officer passed orders u/s 201(1A) / 201(1) of the Act for all these three years holding the assesse to be in default and levying interest. Subsequent to the same penalty u/s 271C was also levied for all these three years vide order dated 31.10.2014. The assessee contested the appeal before the ld CIT(A) who deleted the penalty holding that in the case of the group company he has held that provisions of section 194H do not apply to payment of bank guarantee commission to the bankers. The ld AO aggrieved by the order of the ld CIT(A), has preferred appeal before us. ....
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....dinate bench has held that above circular being clarificatory, is retrospective in nature:- "6. As regards "guarantee fees" paid which has been held to be liable for TDS under section 194H by the AO, we are unable to accept the contention of the AO, because the assessee has sought its banks like HDFC Bank, Dena Bank and Yes Bank to issue guarantee in its favour for which bank has charged certain amount as 'guarantee fee'. To fall within the ambit and scope of section 194H, the payment has to be in the nature of "commission or brokerage". The Explanation to section 194H defines the phrase 'commission and brokerage' in the following manner:- "'Commission or brokerage' includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities". Thus, it is sine qua non that there has to be a principal - agent relationship for a payment to be treated as commission or brokera....
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....t which is in the nature of fees for a product or service; it must remain restricted to, as has been elaborated above, a payment in the nature of reward for effecting sales or business transactions etc. The inclusive definition of the expression 'commission or brokerage' in Explanation to Section 194H is quite in harmony with this approach as it only provides that "any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities" is includible in the scope of meaning of 'commission or brokerage'. Therefore, what the inclusive definition really contains is nothing but normal meaning of the expression 'commission or brokerage'. In the case of South Gujarat Roofing Tiles Manufacturers Association v. State of Gujarat [1976] 4 SCC 601, Hon'ble Supreme Court were in seisin of a situation in which an expression, namely 'processing', was given an inclusive definition, but Their Lordships were....
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....ed in holding that the assessee was indeed under an obligation to deduct tax at source under section 194H from payments made by the assessee to various banks. As we have held that the assessee was not required to deduct tax at source under section 194H, the question of levy of interest under section 201(1A) cannot arise." 9. Hon Delhi High court in JDS apparel (P) ltd ( 370 ITR 454) has also held that bank is not acting as an agent of the assessee. 10. The provision of section 273B of the Act provides that penalty u/s 271C of the Act cannot be levied if the assessee shows reasonable cause for the failure referred to in that provision. In the present case non-deduction tax at source on bank guarantee commission is supported by many decisions of the coordinate benches as well as the notification issued by the CBDT. Therefore, even if assuming that there is a default of non-deduction of tax at source it cannot be said that it is without a reasonable cause. 11. The Hon'ble Supreme Court has also held in case of CIT Vs. Bank of Nova Scotia in 380 ITR 550 confirming the decision of a coordinate bench, where Hon'ble Delhi High Court rejected appeal of the revenue , that f....