FLOWMORE LTD,NEW DELHI vs. ACIT, CIRCLE-9(1), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘B’ NEW DELHI BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA No.-5372/Del/2018 (Assessment Year: 2013-14) M/s Flowmore Limited, Vs. ACIT Plot No. 14 Block-B/11, Circle-9(1), Mohan Cooperative Estate New Delhi. New Delhi PAN No. AAACF0876E Appellant Respondent Assessee by Sh. Deepak Ostwal, CA Revenue by Sh. Rajesh Kumar, Sr. DR Date of hearing: 09.03.2021 Pronouncement on 09.03.2021

ORDER PER K. NARASIMHA CHARY, JM Aggrieved by the order dated 31.05.2018 in Appeal No. 240/16-17 passed by the Commissioner of Income Tax (Appeals)-34, New Delhi in the case of M/s Flow More Ltd (the assessee) for the assessment year 2013-14, assessee preferred this appeal. 2. Brief facts of the case are that the assessee is a limited company engaged in the business of Manufacturing/Installations/Eriction/Trading of heavy duty pumps. For the assessment year 2013-14 it is has filed its

return of income on 30.09.2013 declaring a total income of Rs. 30,09,06,468/-. Assessment under section 143(3) of the Act was complete by order dated 09.03.2016 at a total loss of Rs. 01,64,38,920/- after making addition of Rs. 1,44,67,551/- under section 40a(ia) of the Act on the ground that though the assessee was required to deduct TDS on the bank charges paid to bank for the period between 01.04.2012 and 31.12.2012, the assessee failed to do so and therefore the same is liable to be disallowed under section 40a(ia) of the Income Tax Act, 1961 (the Act). According to the Assessing Officer, under the new scheme which came into force w.e.f. 01.01.2013 payments made by the assessee are in the nature of those mentioned in Notification No. 56/2012 and are not covered within the definition interest under section 2(28)A of the Act and therefore exemption under section 194(A) (iii) is not available to such payments. 3. Appeal preferred by the assessee was dismissed by the CIT(A) and framed assessment order. Assessee is therefore, before us in this appeal. 4. It is contended before us by the learned AR that bank guarantee commission also partakes the character of interest under section 2(28A) of the Act and, therefore, the impugned addition is not liable to be sustained, in view of the decision of Coordinate Bench of the Tribunal in the case of Kotak Securities Ltd. vs. DCIT, TDS Circle 2(1), Mumbai. Learned AR further submitted that under identical facts in the case of M/S. Navnirman Highway Projects (P) Ltd vs DCIT, New Delhi, a Coordinate Bench of this Tribunal in ITA No. 117/Del/2017 by order dated 03.09.2019 for the assessment year 2012-13 followed the decision in Kotak Securities Ltd.(supra), and held that when there is no principal

agent relationship between the bank and the assessee, deduction of tax at source on commissioner or brokerage is not required and any addition made on that count cannot be sustained. He placed on record a copy of Coordinate Bench in ITA No. 117/Del/2017. Per contra, learned DR based the arguments on the orders of the authorities below, but however, could not controvert any of the facts pleaded by the assessee or the decision relied upon by the assessee.

in section 194H, i.e. alongwith the expression ‘brokerage’, significantly restricts its connotations. The common parlance meaning of 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 194 H 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, 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, in our considered view, even an inclusive definition has to be treated as exhaustive. That is the situation in the case before us as well. Even as definition of expression ‘commission or brokerage’, in Explanation to Section 194 H, is stated to be exclusive, it does not really mean anything other than what has been specifically stated in the said definition. Therefore, as held by the coordinate benches in a number of cases including SRL Ranbaxy Ltd vs ACIT (ITA No. 434/Del/11; order dated 16.12.2011), Fosters India Ltd Vs ITO (117 TTJ 346), and Ajmer Zila Dugdh Utpadak Sangh Ltd Vs ITO (34 SOT 216), principal agent relationship is a sine qua non for invoking the provisions of Section 194 H. In the case before us, there is no

principal agent relationship between the bank issuing the bank guarantee and the assessee. When bank issues the bank guarantee, on behalf of the assessee, all it does is to accept the commitment of making payment of a specified amount to, on demand, the beneficiary, and it is in consideration of this commitment, the bank charges a fees which is customarily termed as ‘bank guarantee commission’. 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 under section 194H. We are, therefore, of the considered view that the CIT(A) indeed erred in holding that the assessee was indeed under an obligation to deduct tax at source under section 194 H 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 194 H, 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. 194 H. We, therefore, also see no need to deal with other peripheral legal issues raised by the assessee.” 6. In view of the consistent view taken by the Tribunal on this aspect, we do not deem it possible to take a different view unless there is any change in the facts or in law. While respectfully following the same, we hold that decision in Kotak Securities Ltd. (supra) and M/S. Navnirman Highway Projects (supra) is applicable to the facts of the case on all force and no TDS is required to be made. On this premise, we direct the Assessing Officer to delete the addition.