TaxTMI 
TaxTMI 
2021 (9) TMI 1595
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....arned Commissioner of Income tax (Appeals)-6, New Delhi erred in law in upholding the order of the learned Assessing Officer and in sustaining the disallowance of Rs. 4,74,531 made in terms of the provisions contained in section 40(a)(ia) of the Act without specifying the section under which tax was required to be deducted at source under Chapter XVII-B of the Income tax Act, 1961. 2.Briefly stated facts of the case are that the assessee was engaged in transport of goods. For the year under consideration, the assessee filed return of income on 19/09/2013, declaring total income of Rs. 9,82,18,720/-. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under Income-tax Act, 1961 (in short 'the Act') were issued and complied with. During scrutiny proceedings, the Assessing Officer observed payment of Rs. 4,74,531/- by the assessee to the bank as bank guarantee fee/commission. According to the Assessing Officer, this payment was liable for deduction of tax at source and assessee did not deduct any tax at source and, therefore, expenses on bank guarantee fee/commission debited in profit and loss account were liable for disallowance in....
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....the definition of the interest under section 2(28A) of the Act and, therefore, exemption provided under section 194A(3)(iii) is not applicable in the case of the assessee. Though the Assessing Officer has not specified the relevant section under which the tax was to be deducted, he held the payment for bank guarantee services is not covered by the CBDT notification (supra) and made disallowance under section 40(a)(ia) for non-deduction of tax at source. The Ld. CIT(A) upheld the disallowance observing as under: "3.1.3. The facts of the case and the submissions of the appellant have been carefully considered. The AO disallowed bank guarantee commission/charges amounting to Rs.4,74,531/- under section 40(a)(ia) of the Act for non deduction of tax from such payment. For disallowing the same, the AO relied upon the Notification no. 56/2012 dated 31.12.2012 issued under section 197A (IF) of the Act. Sub-section (IF) which was inserted in section 197A of the Act vide Finance Act, 2012 with effect from 1st July, 2012 provides as under:- "(1F) Notwithstanding anything contained in this Chapter, no deduction of tax shall be made from such specified payment to such institut....
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.... 2. This notification shall come into force from the 1st day of January, 2013." A plain reading of section 197A(1F) of the Act read with Memorandum explaining the official amendments to the Finance Bill, 2012 indicates that the Central Government under section 197A(1F) of the Act is empowered to provide exemption from deduction of tax to the payments from which tax is deductible under Chapter XVII of the Act. Therefore, under section 197A (IF) of the Act, the Central Government can notify only those payments from which the tax is deductible under Chapter XVII of the Act. Hence, the scheme of notification of payments under section 197A (IF) of the Act presupposes that a payment which has been notified under this sub-section was not exempt from deduction of tax before the date of notification of such payment. As the tax was deductible from such payment, the Central Government notified such payments for reducing the hardship and compliance burden in these cases. Therefore, the power of notification under section 197A (If) is not applicable for those payments from which tax is not deductible under Chapter XVII of the Act. There is no dispute that the Central Government under ....
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.... by the appellant would not be of any assistance to the appellant in the changed circumstances. Further, the Notification has not clarified that tax is not deductible from the payment in the nature of bank guarantee commission, as mentioned by the appellant, rather as discussed earlier, it inter alia provided that the tax is deductible from the payments in the nature of bank guarantee, however, if such payments are made to the banks specified in the Notification on or after 1st January, 2013, the tax is not be deducted in view of the exemption granted in the Notification. Besides, though the appellant has sought relief under the second proviso to section 40(a)(ia), it failed to furnish any evidence of the recipient bank having filed the relevant IT Return. From the discussion in the preceding paragraphs, it is apparent that tax was required to be deducted from the payment of bank guarantee commission/charges amounting to Rs.4,74,531/- during the Previous Year 2011-12 and as the tax was not deducted, the same is not allowable in view of the provisions of section 40(a)(ia) of the Act and hence the disallowance of Rs.4,74,531/- made by the AO is hereby confirmed." 7.1 Howe....
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....the expression 'commission' thus does not extend to a payment 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 Vs 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....
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....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. 10. In view of the above discussions, we quash the impugned demands under section 201(1) and 201(1A) r.w.s. 194H. We, therefore, also see no need to deal with other peripheral legal issues raised by the assessee." 7. So, following the decision rendered by the coordinate Bench of the Tribunal, when the bank has issued bank guarantee on behalf of the assessee there is no principal - agent relationship between the bank and the assessee which is a mandatory condition for invoking the provisions contained u/s 194H and in these circumstances, the assessee was not liable to deduct tax at source u/s 194H from payment of bank guarantee commission to the bank. Moreover, bank guarantee commission also partakes the character of interest u/s 2(28A) of the Act and as such, exemption provided u/s 194A(3)(iii) is available to the assessee qua such payment. So, we are of the considered view that the ld. CIT(A) has erred in not following the decision....