TaxTMI 
TaxTMI 
2019 (11) TMI 80
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....the Appellant failed to deduct tax at source therefrom. 1.2 The Appellant humbly prays that it be held that no tax is deductible on the bank guarantee charges under the provisions of the Act and accordingly, the disallowance of the same u/s. 40(a)(ia) be deleted. Without prejudice to the above, GROUND II: NO DISALLOWANCE U/S. 40(a)(ia), WHERE THE PAYEE HAS OFFERED THE SUM TO TAX 2.1 If it is held that tax was deductible on the bank guarantee charges, the Appellant humbly prays that it be held that since the payee has included the said charges in its return of income for relevant assessment year, filed u/s. 139 and has paid the tax due on the income declared in such return, no disallowance u/s. 40(a)(ia) of the Act can be made in respect thereof. Ground III; GENERAL The Appellant craves leave to add, amend, alter and/or delete any/ all f the above grounds of appeal." (B) The central issue in dispute in this appeal, is regarding allowability of assessee's claim for expenses on account of bank guarantee charges amounting to Rs. 3,90,289/-. The AO had disallowed the aforesaid claim U/s 40(a)(ia) of Income Tax Act, 1961 ("I.T. Act....
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....ind the provision. The bank in question is not concerned with buying or gelling of goods or even with the reason and cause as to why the card was swiped. It is not bothered or concerned with the quality, price, nature, quantum etc. of the goods bought/sold. The bank merely provides banking services in the form of payment and subsequently collects the payment. The amount punched in the swiping machine is credited to the account of the retailer by the acquiring bank, i.e. HDFC in this case, after retaining a small portion of the same as their charges. The banking services cannot be covered and treated as services rendered by an agent for the principal during the course of buying or selling of goods as the banker does not render any service in the nature of agency. 17. Another reason why we feel Section 40(a)(ia) of the Act should not have been invoked in the present case is the principle of doubtful penalization which requires strict construction of penal provisions. The said principle applies not only to criminal statutes but also to provisions which create a deterrence am results in punitive penalty. Section 40(a)(ia) is a deterrent and a penal provision. It has the effect....
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....aid during the financial year to the account of, or to, the payee, does not exceed five thousand rupees : Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section: Provided also that no deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees. Explanation.-For the purposes of this section,- (i) "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 securiti....
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....ommonsense approach. Suppose a man tells his wife to go out and buy bread, milk or anything else she needs, he will not normally be understood to include in the terms 'anything else she needs' a new car or an item of jewellery. The dictum of ejusdem generis refers to similar situation. It means of the same kind, class or nature. The rule is that when general words follow particular and specific words of the same nature, the general words must be confined to the things of same kind as specified. Noscitur a sociis is a broader version of the maxim ejusdem generis. A man may be known by the company he keeps and a word may be interpreted with reference to be accompanying words. Words derive colour from the surrounding words. 7. Broom's Legal Maxims (10th Edn.) observes that "It is a rule laid down by Lord Bacon, that copulatio verborum indicat acceptationem in eodem sensu the coupling of words together shows that they are to be understood in the same sense." 8. Let us now deal with legal connotations of these two expressions, namely 'commission' and 'brokerage'. The Law Lexicon (Edited by Justice Y.V. Chandrachud; 1997 Edn.) observes that "....
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....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 of the view that "there could be no other meaning of 'processing' besides wh....
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....e 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." (B.1.1.3) Taking cognizance of the aforesaid order in the case of Kotak Securities Ltd. vs. DCIT (Supra), co-ordinate Bench of ITAT, Delhi has held as under in the case of DCIT vs. PRL Projects & Infrastructure Ltd. Vide order dated 31/08/2017 in ITA No. 5010/Del/2015 for Assessment Year 2011-12: "5. We have heard the rival submission and have perused the material on record. Regarding the disallowance of Rs. 40,19,608/- u/s 40(a)(ia) of the Act, it has seen that this issue is covered in favour of /'' the assessee by order of ITAT Mumbai Bench in the case of Kotak Securities Limited vs. DGIT (TDS) (supra) wherein the Mumbai Bench of the ITAT has held that there is no principal - agent relationship between the bank issuing the bank guarantee of the assessee. The Mumbai Bench has noted that when the bank issues a bank guarantee on behalf of the assessee, all it does is to accept the commitment of making payment of a specified amou....