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2019 (12) TMI 673
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....nk Guarantee Charges by the Assessing Officer ("AO", for short) under Section 40a(ia) of Income Tax Act, 1961 ("I.T. Act", for short) is correct. Vide Assessment Order dated 22.03.2016 under Section 143(3) of I.T. Act, AO had disallowed the amount of Rs. 10,58,963/- under Section 40a(ia) of I.T. Act holding that the assessee, although required to deduct TDS, had failed to deduct tax at source. Aggrieved, the assessee filed an appeal before the learned Commissioner of Income Tax (Appeals)-37, New Delhi. Vide order dated 25.05.2017, the Ld. CIT(A) upheld this addition, holding as under: (B.1) Aggrieved again, the assessee has filed this present appeal in Income Tax Appellate Tribunal ("ITAT", for short). At the time of hearing before us, the Learned Authorized Representative ("AR", for short) of the assessee submitted that the dispute regarding applicability of Section 40a(ia) of I.T. Act in respect of Bank Guarantee Fees came up before ITAT, in assessee's own case, for Assessment Year 2011-12 in ITA No.- 4193/Del/2014, and vide order dated 31.05.2017 of Co-ordinate Bench of ITAT, Delhi, the issue was decided in favour of the assessee. The relevant portion of the aforesa....
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....y income or interest in any manner. But it was charges paid to bank for obtaining bank guarantee, which cannot be made exigible to TDS provisions. Ld. AR submitted that expenses incurred by assessee by way of guarantee fee is an allowable expenditure under section 37 (1) of the Act. 7. We have perused to rival contentions advanced by both sides in the light of records placed before us. 8. This is a case where assessee had obtained term loan from Canara Bank on. condition that assessee would provide bank guarantee of equal amount. Ld. Sr. DR contends that as notification 56/2012 has been inserted w.e.f. 01.01.2013, assessee should have deducted TDS on guarantee fees paid to bank. Whereas Ld. AR Jias, contended that this notification is clarificatory in nature as even prior to release of this notification guarantee fees paid could not have been liable to TDS provisions as it doesn't fit into any of the provisions under section 194 and-do not fall within definition of "interest" . under section 2(28A) of the Act. It has been submitted that sub clause (IF) was inserted to section 197A by Finance Act, 2012 w.e.f. 07.01.2012 which'" granted power to central gove....
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....re will be allowed as deduction in the year of remittance of the tax. The followinq payments are covered under Section 40(a)(ia): a) Interest U/s 194A b) Commission or brokerage U/s 194H c) Professional or Technical Fee U/s 194J and d) Contractors & Sub Contractors U/s 194C The provisions of the above mentioned TDS sections require that tax has to be deducted at source when amount is paid or credited to the account of the Payee, whichever is earlier. When the amount is creditedto suspense account or any account, by whatever name called, then it is treated as amount credited to the account of the payee and tax has to be deducted at source. Hence, tax has to be deducted at source even on provisions made in the books of account to which TDS provisions are applicable. 10. To our understanding guarantee. fees paid will not fall within ambit of "interest",, under section 2(28 A) of the Act. There also does not arise any kind of principal-agent relationship between assessee and bank and therefore, guarantee fees received by bank cannot even be reckoned as commission or brokerage for that matter. The bank is also not acti....
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.... ... "In the case of CIT v. Cargill Global Trading (I.) Co.. (P.) Ltd. [2011] 335 ITR 94/199 Taxman 320 (Delhi), Hon'ble Delhi High Court held as under:- "It is clear from the provisions of section 2(28A) that before any amount paid is construed as interest, it has to be established that the same is payable in respect of any money borrowed or debt incurred. In the instant case, on the aforesaid facts appearing On record, the Tribunal rightly held that the discounting charges paid were not in respect of any debt incurred or money borrowed, instead, the assessee had merely discounted the sale consideration respectively on sale of goods." In the instant case, there is no money borrowed or debt incurred. Therefore, provisions of sec. 2(28A) and sec. 194A do not apply. Payment made to NCL is not "income by way of interest". The impugned receipt would be in the nature of reimbursement of expenses incurred by it In view of the above discussion, we do not find any merit in the order passed u/ s.263 in respect of one of the possible view taken by the AO. Even on merit, we found that bank guarantee commission does not come under the purview of interest so as to make ass....
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..... 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 ' arid 'brokerage'. The Law Lexicon (Edited by Justice Y.V. Chandrachud; 1997. Edn.) observes that "in commercial law, commission is a compensation to a factor. or other agent for services to be rendered in making a sale or otherwise; a sum allowed as compensation to a servant; factor or agent who manages the affairs of others, in recompense for his services." According to -- the given definition, "It is an allowance, recompense or reward made to agents, factors and brokers and others for effecting sales and carrying out business transactions. It is generally calculated as a certain percentage on the amount of the transactions on the profits to the principal." The expression 'brokerage' is defined as fees or commission given to or charged by a broker'. In turn a....
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....'. Therefore, what the inclusive definition really contains is nothing but normal meaning of the expression 1 commission or brokerage1. 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 what is stated as included in that expression" and that "Though include' is generally used in interpretation clause as a word of enlargement, in some cases context might suggest a different .intention'. Their Lordships then concluded that though, the expression used in the definition clause is includes', "it seems to us that the word includes' has been used here in the same sense of 'means'; this' is the only construction that the word can, bear in this context". In other words, an inclusive definition, as Their Lordships noted, does not necessarily always extend the meaning of an expression. When inclusive definition contains ordinary normal connotations of an expression,....
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....eted. The Ld. Departmental Representative ("Ld. DR", for short) however, drew our attention to paragraphs 5.1 and 5.2 of the aforesaid impugned appellate order dated 25.05.2017 of the Ld. CIT(A) and supported the order of the Ld. CIT(A). In rejoinder, the Ld. AR of the assessee submitted that the contents of the paragraphs 5.1 and 5.2 of the impugned appellate order dated 25.05.2017 of the Ld. CIT(A) have no basis. He further submitted that the facts stated in these paragraphs of the order of the Ld. CIT(A) have no relevance or application in the case of the assessee. He further submitted that the assessee had never sought any technical services from the Bank and further that the Bank had never provided any technical services to the assessee by way of any record etc. He also submitted that applicability of Section 194J of I.T. Act was not even alleged by the AO and the Ld. CIT(A) has invoked Section 194J of I.T. Act without any consideration of the facts and circumstances of assessee's case. (C) We have heard both sides. We have also perused the materials available on record. We find that nowhere, it is the case of the AO that Section 194J of I.T. Act is applicable in the case o....
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....said expenditure on the ground that no TDS has been deducted on the same and further the CBDT notification No. 56/2012 clarifying the non- deductibility of TDS on bank guarantee commission is applicable only from 1st January 2013 and therefore, was not available for the assessment year under consideration. 5.1 The matter has been examined. The appellant case is rightly been treated as to be subjected to TDS as regards bank guarantee fees as its susceptible to TDS as per section 194) of the Act as being in nature of fees (by whatever name called) for consultancy,managerial and technical services rendered by bank wrt bank guarantee etc which requires indepth analysis of risk, credit analysis, collateral hypothecation/mortgage details analysis, credit risk analysis, fees etc charged thereon after keen technical cum financial -risk analysis of financial parameters of each account holders (seeking loan/ consortium loan/Wcapital loan/LC/ Bank guarantee etc as the applicant may be requesting or if acting as a guarantor then in such instance, the amount for which it stands as guarantor etc and nature of assets put under charge / period therefor/ amount e....
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....ion 2 to clause (vii) of sub-section (1) of section 9; Explanation 2 to section 9(1)(vii) states- Explanation 2.-For the purposes of this clause, 'fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of ervices of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salaries"." 5.4 Reference is invited to case of [2009] 117-ITD 207 (AHD.) in case of Canara Bank Vs ITO in this regard. Reference is invited to [2013] 35 taxmann.com 403 (Hyderabad-Trib.) in case of Karvy nature of receipt received by bank is subject to TDS and section 197A(1F), which hased by Finance Act, 2012 with effect from 01.07.2012 has granted power to Central erament tot notify that TDS shall not be deducted in the case of certain classes of persons/ itinstitutions/bodies on specified payments made to them. The purpose of providing this clause has been 1stated fiction in h....