ACIT, CIR-2, TDS, KOLKATA, KOLKATA vs. ITD CEMENTATION INDIA LTD., KOLKATA

This appeal is preferred by the revenue against the order of Ld. CIT (Appeals) – 24, dated 31.12.2015 2. The assessee in the present case is a company which is engaged in the business of construction of infrastructural projects such as port, tunnels, roads and bridges etc. A survey under section 133A of the Act was carried out in the case of the assessee in order to verify the compliance of TDS provision. It was found that the assessee during the F.Y. 2011-12 had made payment of Rs. 11,46,13,000/- to various banks on account of Bank Guarantee Commission without making deduction tax at source. In this regard, reliance was placed by 2 Assessment Year: 2012-13 M/s. ITD Cementation India Ltd. the assessee on the decision of Mumbai Bench of ITAT in the case of Kotak Securities vs DCIT (TDS) 50 SOT 158 in support of its contention that the Bank Guarantee Commission not being in the nature of “Commission” as envisaged in section 194H, tax at source was not liable to be deducted from the payment of Bank Guarantee Commission under section 194H. This contention of the assessee was not found acceptable by the A.O. in view of CBDT Circular No. 56/2012 issued on 31.12.2012 clarifying that tax at source was not liable to be made from the payment of Bank Guarantee Commission with effect from 1st January, 2013. Relying on the said circular, the A.O. held that the assessee was liable to deduct tax at source from the payment of Bank Guarantee Commission made in the F.Y. 2011-12 i.e. prior to 01.01.2013 and since there was failure on the part of the assessee to do so, he treated the assessee as in default for the tax of Rs. 1,14,61,300/- that was liable to be deducted from the payment of Bank Guarantee Commission @ 10%. He also charged interest of Rs. Rs. 34,38,390/- to the assessee under section 201(1A) of the Act. Accordingly, a demand of Rs. 1,48,99,690/- was raised by the A.O. against the assessee vide an order dated 28.03.2014 passed under section 201(1)/201(1A) of the Act. 3. Against the order passed by the A.O. under section 201(1)/201(1A) of the Act, an appeal was preferred by the assessee before the Ld. CIT(A) and after considering the submission made by the assessee as well as the material available on record, the Ld. CIT (A) directed the A.O. to delete the demand raised vide an order 3 Assessment Year: 2012-13 M/s. ITD Cementation India Ltd. passed under section 201(1)/201(1A) of the Act for the following reasons given in paragraph no. 4 and 5 of his impugned order: “In the course of hearing the AR furnished a copy of the appellate order by CIT(A)-I, Kolkata dated 10.12.2013 for F.Y. 2010-11 in which this question whether the bank guarantee commission is hit by the provision of section 194H has been answered. The nature of payment by way of bank guarantee commission is identical in F.Y. 2011-12 and F.Y. 2010-11. The relevant portion of the CIT(A)-I’s decision in the appellate order for F.Y. 2010-11 is reproduced as under: 5.2.2 Further, even if the reverse interpretation of this notification exempting bank guarantee from TDS provisions u/s 194H is considered, the Hon’ble ITAT, Mumbai in its order in the case of Kotak Securities vs DCIT(TDS), Circle 2(1), Mumbai 50 SOT 158 (Mumbai) (2012) has clearly held that the bank guarantee commission was not covered under the provisions of section 194H, the Hon’ble ITAT has examined the issue of principal and agent for the purpose of applicability of section 194H on bank guarantee commission . The tribunal has held that the bank guarantee commission was not a transaction between principal and agent so as to attract the tax deduction requirements u/s 194H. It has been held by it as under: “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 terms 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 requirement under section 194H”. The order of the Tribunal is therefore very clear that the bank guarantee commission is not in the nature of “commission” as it is understood in common business parlance as well as in the context of section 194H. From the above it is clear that bank guarantee commission is not what has been envisaged under “commission” and “brokerage” as covered u/s 194H.