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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’, NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI O.P. KANT
ORDER PER O.P. KANT, AM:
Aggrieved with order dated 16/01/2017 passed by the learned Commissioner of Income Tax (Appeals)-6, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2012-13, the assessee filed this appeal raising following grounds:
1. On the facts and circumstances of the appellant case and in law the Ld. CIT(Appeals) has erred in confirming the additions made by AO u/s 143(3) Act, 1961.
2. The Ld. CIT(Appeals-6) also erred in law in dismissing the appeal in default on the reasons that the submissions made on 06.01.2017 was not considered in full by Ld. CIT(Appeal) while passing the orders.
3. It is further submitted that the order passed by CIT(A) is violative of principle of natural justice as no reasonable and proper opportunity was afforded by CIT (A) prior to upholding the order of additions made, as such the appellate order confirming addition is grossly violative of principles of natural justice. 4. The Ld. CIT (Appeal)-6 has erred in law in not adjudicating on ground of appeal raised by assessee as on merits, the assessee has a good case because the charges paid to bank for issuing bank guarantee is not in the nature of Commission. Further the assessee and bank are working on PRINCIPAL TO PRINCIPAL basis and not on PRINCIPALTO AGENT basis.
5. The Ld. CIT (Appeal)-6 had erred in law in not adjudicating on ground of appeal raised by assessee as on merit, the assessee has a good case because the Bank charge of Rs. 14,43,240/- disallowed and debited to P&L A/c in the Asstt. Year 2012-13 has actuallv been paid in earlier Years. The applicability of section 40 (a)(i) is not in this year(A.Y 2012-13) because the said amount was paid in the books in earlier years and hence the tax if any was required to be deducted in the year of payment or debit whichever is earlier i.e. year of payment which is in 2010-11 and accordingly this disallowance can't be made in A.Y 2012-13.
6. The issue of TDS on charges paid to bank for issue of Bank Guarantee has been settled in the case by Mumbai Branch of ITAT ir the case of Kotak Securities Limited vs. DCIT (2012) 14 ITR (Trib) 495 wherein it has been held that bank guarantee commission is not a transaction between principal and agent so as to attract the TDS u/s 194 H of the Act. As such appellant is not liable to deduct TDS. This finding is further supported by recent Judgment by Hon'ble ITAT Vishakhapatnam Bench in the case of Efftronics systems Pvt. Ltd. Vs. Assistant Commissioner of Income Tax range to Vijaywada.
7. The appellant craves to be allowed to add any fresh grounds of appeal and for delete or amend any of the grounds of appeal.
At the outset, we may like to mention that despite notifying the date of hearing, neither anyone appeared on behalf of the assessee nor any adjournment was sought. On the last date of the hearing, Ld. counsel of the assessee attended and he was duly informed of the hearing dated 08/01/2020 in the open court. In view of the facts and circumstances, we were of the opinion that the assessee is not interested in prosecuting the appeal, accordingly, the appeal was heard ex-parte qua the assessee, after hearing the arguments of the learned Departmental Representative.
In the case, the assessment was completed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’), wherein the Assessing Officer made disallowance under section 40(a)(ia) of the Act for non-deducting tax at source on the bank guarantee commission amounting to Rs.14,43,240/-. The Ld. CIT(A) vide impugned order also upheld the disallowance. According to the assessee, in view of CBDT notification No. D/No. 275/53/2012- IT(B){/SO 3069(E) dated 31/12/2012, the payment of bank guarantee commission by any person to bank listed in the second schedule to the Reserve Bank of India (RBI), no tax was to required to be deducted. This submission of the assessee was rejected both by the Assessing Officer as well as by the ld. CIT(A). The contention of the assessee that bank had already shown the bank guarantee charges as its income in the return of income filed and hence no disallowance under section 40(a)(ia) should be made, was also rejected by the Assessing Officer. 4. The ld. DR relied on the order of the lower authorities and submitted that the CBDT Circular No. 56/2012 relied upon by the assessee is operative from 01/01/2013, whereas the case of the assessee falls in financial year 2011-12 corresponding to the assessment year 2012-13. 5. We have heard the submission of the Ld. DR. We find that the Ld. CIT(A) has mainly upheld the disallowance on the ground that CBDT circular (supra) specifying non-deduction of tax at source on the bank guarantee commission is operating prospectively from 01/01/2013 and not in respect of the period under reference in the case of the assessee. We note that the Coordinate Bench of the Tribunal in the case of DCIT Vs. RRB Energy Ltd, (Assessment Year: 2011-12) has deleted disallowance under section 40(a)(ia) for non- deduction of tax at source on guarantee commission to nationalized bank, observing as under:
“8. Hon Delhi High court in JDS apparel (P0 ltd ( 370 ITR 454 ) has held that bank is not acting as an agent of the assessee. Further on identical issue has been considered by the coordinate benches in DCIT Vs. Laqshya Media Pvt. Ltd 72 Taxmann.com 119 wherein, for AY 2010-11 in para no. 6 the coordinate bench has held that above circular is retrospective in nature as it held for Assessment Year 2010-11 as under :- ―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 brokerage. The recipient of the income must act on behalf of the principal. Here the banker does not act on behalf of the assessee for rendering any kind of service. The contract of guarantee does not give any rise to principal - agent relationship between the assessee and the bank and, therefore, the consideration received by the bank on account of guarantee commission cannot be reckoned as commission as contemplated under section 194H and accordingly, there was no requirement to deduct TDS on this payment. Thus, on this score also, the order of the Ld. CIT(A) is affirmed. Before us, the Ld. Counsel had also brought to our notice a CBDT Circular No.56 of 2012 (sic) wherein it has been clarified that 'guarantee fee' paid to a nationalized bank will not be subject to withholding tax. Thus in view of the CDBT Circular also the ground raised by the revenue cannot be sustained and accordingly, the same is dismissed.‖
Further in Kotak Securities 18 Taxxmann. Com 48 it has been held as under:-
―9. In the light of the above discussions, and when we look at the connotations of expression 'commission or brokerage' in its cognate sense, as in the light of the principle of noscitur a sociis as we are obliged to, in our considered view, scope of expression 'commission', for this purpose, will be confined to 'an allowance, recompense or reward made to agents, factors and brokers and others for effecting sales and carrying out business transactions' and shall not extend to the payments, such as 'bank guarantee commission', which are in the nature of fees for services rendered or product offered by the recipient of such payments on principal to principal basis. Even when an expression is statutorily defined under section 2, it still has to meet the test of contextual relevance as section 2 itself starts with the words "In this Act (i.e. Income Tax Act), unless context otherwise requires...", and, therefore, contextual meaning assumes significance. Every definition in the Income Tax Act must depend on the context in which the expression in set out, and the DCIT Vs. RRB Energy Ltd, (Assessment Year: 2011-12) context in which expression 'commission' appears 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 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 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 194H, 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 v. Asstt. CIT [2011] 16 taxmann.com 343 (Delhi - Trib.), Foster's India (P.) Ltd. v. ITO [2009] 29 SOT 32 (Pune) (URO), and Ajmer ZilaDugdhUtpadak Sangh Ltd. v. ITO [2009] 34 SOT 216, principal agent relationship is a sine qua non for invoking the provisions of Section 194H. 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 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.‖
In view of this respectfully following the decision of the coordinate bench we hold that no tax is required to be deducted on bank guarantee commission paid to a Nationalised Bank and therefore, disallowance of Rs. 3198246/- has been correctly deleted by the CIT(A).”
In view of the decision of the Coordinate Bench (supra), the CBDT Notification No. 56/2012 being clarificatory in nature, operate retrospectively. Accordingly, the assesee was not required to deduct tax at source on the bank guarantee commission of Rs.14,43,240/- paid to Oriental Bank of commerce. The disallowance under section 40(a)(ia) of the Act, sustained by the Ld. CIT(A) is accordingly deleted. The grounds of the appeal of the assessee are accordingly allowed 7. In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 21st January, 2020.