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Income Tax Appellate Tribunal, DELHI BENCH “F”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI O.P. KANT
143(3) of the I.T. Act, 1961 vide his order dated 15.2.2013.
Aggrieved with the aforesaid order, assessee preferred an appeal before the Ld. CIT(A), who vide his impugned order dated 7.1.2014 has deleted the addition in dispute by partly allowing the appeal of the assessee.
Now the Revenue is aggrieved against the impugned order and filed the present appeal before the Tribunal.
At the time of hearing Ld. DR relied upon the order of the AO and reiterated the contentions raised by the Revenue in the grounds and requested that Appeal of the Revenue may be allowed.
On the contrary, Ld. Counsel of the Assessee has relied upon the order of the Ld. CIT(A) and stated that he has passed a well reasoned order and deleted the addition on the basis of the Ld. CIT(A)-VII, Delhi decision for the assessment years 2006-07 to 2008-09. He further stated that in the earlier years i.e. AYrs.
2006-07 to 2008-09 against the order of the Ld. CIT(A), Department went in Appeal before the Tribunal and the Tribunal vide order dated 5.2.2016 has dismissed the appeals of the Revenue by upholding the order of the Ld. CIT(A) on the issue in dispute.
In this behalf, he filed the copy of the tribunal’s order dated 5.2.2016 for the assessment years 2006-07 to 2008-09 in assessee’s own case.
We have heard both the parties and perused the records. We find that Ld. CIT(A) in his impugned order has held as under:-
“6.7 It is noted that the facts and circumstances of the case, during this year are similar to A.Y. 2006-07, 2007-08 and 2008-09. The Ld. CIT(A)-VII, Delhi has decided the issue in favour of the appellant after giving a detailed finding. Since there are no new facts and there is no change in the circumstances of the case during this year, I do not find any scope to deviate from the findings of the Ld. CIT(A)-VII, Delhi for AY 2006-07, 2007-08 and 2008-09. Therefore, with a view to maintain consistency, the issue decided in favour of the appellant. The addition on account of disallowance of Rs. 4,85,24,202/- made u/s. 40(a)(i) is deleted. This ground of appeal is ruled in favour of the appellant.”
7.1 We also find that ITAT vide its order dated 5.2.2016 in Revenue’s Appeals being (AY 2006-07); ITA No. 53/Del/2011 (AY 2007-08) and ITA No. 1815/Del/2011 (AY 2008-09) has adjudicated the issue in dispute vide para no. 8 to 8.6 vide page no. 10 to 13 and decided the similar issue in against the Revenue by upholding the order of the Ld. CIT(A). The relevant portion of the ITAT order is reproduced as under:-
“8. Ground No.3 of I.T.A.No. 3834/Del/2009 (A.Y. 2006- 07) and Ground No.1 of and 1815/Del/2011 (A.Yrs. 2007-08 & 2008-09):
Undisputedly, assessee company claimed Rs.5,20,56,831/-, Rs.5,52,49,559/- and s.4,77,71,123/- on account of bank guarantee commission having been paid to a foreign bank on behalf of holding company of the assessee qua Assessment Years 2006-07, 2007-08 & 2008-09 respectively and the same have been disallowed by the Assessing Officers u/s 40(a)(1) of the Act because of non deduction of tax at source (TDS) paid in India.
8.1 The Assessing Officer after declaring the bank guarantee commission paid by the assessee company in India to a foreign bank as interest u/s 2(28A) of the Act, disallowed the same u/s 40(a)(1) of the Act but his decision has been reversed by Ld. CIT(A) vide impugned order, which is now under challenge before the Tribunal.
8.2 Undisputedly, VTB bank is a foreign bank situated outside the territorial jurisdiction of India having no PE in India nor having any business connections in India VTB bank makes the Canara Bank to issue bank guarantee by tendering its own counter guarantee meaning thereby the contract for providing bank guarantee has been entered into between the appellant company and VTB
Bank Russia; that VTB Bank has rendered all the services from outside India; that he assessee company has paid bank guarantee commission to a non resident bank i.e.
VTB Bank, Russia having no PE in India.
8.3 Now, the first question arises for determination is, ‘as to whether the assessee company was liable to deduct the tax at source (TDS) on bank guarantee commission paid in India to VTB Bank, a foreign bank. Since, the Assessing Officer by invoking provisions contained u/s 40(a)(1) of the Act, disallowed the amount paid by the assessee company as bank guarantee commission to a foreign bank treating the same as interest, we would have to decide first, “as to whether the bank guarantee commission paid by the assessee company to a foreign bank can be treated as interest under the Act making it obligatory for the assessee company to deduct the tax at source (TDS)?’ For finding out the answer to the aforesaid question, we are required to decide first, ‘as to whether the assessee company was liable to deduct the tax at source (TDS) on bank guarantee commission paid in India to VTB Bank, a foreign bank’.
8.4 When the assessee company has placed on record for perusal of the revenue authorities cogent material that it has paid bank guarantee commission to a foreign bank, the Assessing Officer could not lay hands on any material to treat the bank guarantee commission as interest or deemed interest alleged to be paid by the assessee company to the foreign bank. Moreover, there is no dispute that the assessee company has not borrowed any funds form VTB Bank, Russia on which, it was required to pay the interest. Section 2(28A) of the Act defines the ‘interest’ paid in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized. On the other hand, ‘commission’ is a specified sum in terms of percentage to be paid to an agent or salesman for services rendered. Since in this case, VTB Bank, Russia got bank guarantee issued by Canara Bank by tendering its own counter guarantee and charged the commission thereon irrespective of the fact that the bank guarantee has been utilized or not, we are of the considered view that by any stretch of imagination even the bank guarantee commission cannot be treated as interest as decided by the Assessing Officer.
8.5 Now, the next question arises for determination is, ‘as to whether assessee company was liable to deduct the tax at source on the bank guarantee commission paid to VTB bank u/s 195 of the Act’.
8.6 In order to find out the answer to the aforesaid question, first of all, it is required to be decided, ‘as to whether sum payable on account of bank guarantee commission by the assessee company to VTB bank is chargeable to tax under the Act?’ When the Revenue authorities have failed to lay hands on any cogent material that the bank guarantee commission paid by the assessee company paid on account of business transaction between assessee company and VTB bank particularly in the face of the fact that VTB bank has no PE in India, the question of attracting provision contained u/s 195 of the Act does not arise. In other words, when the assessee company has directly made the payments to VTB bank, Russia through its banker in India, no income can be said to have accrued or arisen in India to the VTB bank u/s 4, 5 and 9 of the Act. So, in the given circumstances, Assessee Company was not liable to deduct the tax at source on the bank guarantee commission paid to a foreign bank. Finding no illegality or perversity in the findings returned by the Ld. CIT(A) on this issue, Ground No.3 of (Assessment Year 2006-07) and Ground No.1 of I.T.A. Nos. 53 and 1815/Del/2011 (Assessment Years 2007-08 & 2008-09) are determined against the Revenue.”
In the background of the aforesaid discussions and respectfully following the Coordinate Bench decision, as aforesaid in assessee’s own case for the assessment years 2006-07 to 2008-09, we are of the considered view that the Ld. CIT(A) has passed a well reasoned order on the issue in dispute and hence, we uphold the same and reject the grounds raised by the Revenue.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 05/09/2016.