ACIT TDS 1(2), MUMBAI vs. IL & FS TRANSPORTATION NETWORKS LTD, MUMBAI

The facts of the case, briefly, are as under: - 2.1 The assessee company is principally engaged in the business of provision of services for surface transportation. Pursuant to survey action under section 133A of the Income Tax Act, 1961 (in short 'the Act') on 06.08.2013 the Assessing Officer (AO) required the assessee to explain (i) as to why tax was not deducted at source on expenses/payments incurred on account of bank guarantee commission and (ii) as to why it failed to deduct tax at source on payments on account of technical/professional services as per the provisions of section 194J of the Act. The AO, after considering the assessee’s explanation that TDS is not required to be made on such payments, was of the opinion that (i) bank guarantee charges are in the nature of commission payments and IL&FS Transporation Networks Ltd. therefore tax ought to be deducted thereon in accordance with the provisions of section 194H of the Act and (ii) tax was required to be deducted under section 194J of the Act in respect of payments made on account of technical/professional services. In view of the failure on the part of the assessee to do so, the AO treated the assessee as ‘an assessee in default’ under section 201(1) of the Act and charged interest under section 201(1A) of the Act raising the total demand of `43,96,79,920/- (i.e. default under section 201(1) – `32,32,94,059/- and interest under section 201(1A) – `11,63,85,861/-) in the order under section 201(1)/201(1A) of the Act dated 25.03.2014. 2.2 Aggrieved by the order under section 201(1)/201(1A) of the Act dated 25.03.2014 for A.Y. 2012-13 the assessee preferred an appeal before the CIT(A)-59, Mumbai. The learned CIT(A) disposed off the appeal vide the impugned order dated 13.04.2015. In doing so, following the decision of a Coordinate Bench of this Tribunal in the case of Kotak Securities Ltd. vs. DCIT in dated 03.02.2012 the learned CIT(A) held that the assessee is not liable to deduct tax at source under section 194H of the Act on ‘bank guarantee commission’. 3.1 Revenue, being aggrieved by the order of the CIT(A)-59, Mumbai dated 13.04.2015 for A.Y. 2012-13, has preferred this appeal raising the following grounds: - “1. Grounds of Appeal: - i) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the short deduction u/s 201(1) and interest u/s 201(IA) of the I.T. Act, in respect of bank guarantee commission on the basis of reasoning that bank guarantee commission is not in the nature of 'Commission' and no TDS was required to be deducted on such charges paid to bank u/s 194H of the I.T. Act, 1961." ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that no TDS was required to be deducted on bank guarantee commission paid to banks u/s 194H of the I.T. Act, 1961, failing to appreciate that in substance and in fact the relationship between the assessee company and banks was in the nature of principal and agents relationship and the payment made to banks for services rendered falls within the meaning of section 194H of the Act."

We have heard the arguments advanced by the learned representative of the parties and have gone through the record carefully. The Assessing Officer is of the view that TDS is required to be deducted upon the interest/commission payable on bank guarantee and accordingly the interest is also required to be payable u/s.201(1A) of the Act. In appeal the learned CIT(A) has deleted the addition in view of the case of M/s. Kotak Securities Ltd. (Supra). It is specifically held that no TDS is payable on bank guarantee charges u/s. 194H of the Act. Therefore, the same is not liable to be deducted. Accordingly, the learned CIT(A) deleted the said addition. This issue has further came into existence in the assessee’s own case for the A.Y.2010-11. The Hon’ble Income Tax Appellate Tribunal, while deciding the matter in the assessee’s own case in ITA No.3920/Mum/2014 has also decided the issue in favour of the assessee on relying the case decided by the Hon’ble Tribunal M/s. Kotak Securities Ltd. (Supra). This issue has been squarely covered by the above said judgement, therefore honoring the judgement of the Hon’ble Tribunal mentioned above and finding nothing contrary material against the finding of the said judgement, we are of the view that learned CIT(A) has decided the matter judiciously and correctly which does not required to interfere with at this appellate stage.

Accordingly, appeal of the revenue is hereby dismissed.” Following the aforesaid order of the Coordinate Bench in the assessee’s own case for A.Y. 2011-12 in ITA No. 5241/Mum/2014 dated 20.07.2016, we hold that the assessee in the case on hand is not required to deduct tax at source under section 194H of the Act in respect of bank guarantee commission/charges paid to banks. In this view of the matter,