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Income Tax Appellate Tribunal, BENCH “SMC” MUMBAI
Before: SHRI A.D.JAIN
स्थधमी रेखध सं./जीआइआय सं./PAN/GIR No. :AAACL5004C अऩीरधथी ओय से / Appellant by Shri Ajay प्रत्मथी की ओय से/Respondent by None सुनवधई की तधयीख / Date of Hearing : 07. 07.2016 घोषणध की तधयीख /Date of Pronouncement :07.07.2016 आदेश / O R D E R PER A D JAIN (JM) This is department‟s appeal for assessment year 2010-11 challenging the order of ld.CIT(A) dated 18.5.2015.
None appeared on behalf of the assessee despite service of notice. However, finding that the matter can be proceeded with in the absence of the assessee, I am doing so.
In this appeal, the department has raised the following issues : a) Deletion of processing fees; b) Deletion of deduction of Bank Guarantee Commission and Miscellaneous Bank charges u/s 194H of the Income Tax Act, 1961; and c) Deletion of interest u/s 201(1A) of the Act.
The facts of the case are that the assessee filed e-return on 14.10.2010. The assessee is engaged in the business of providing outdoor Media Advertising Services. During the course of assessment proceedings, the AO observed that the assessee has debited an amount of Rs.40,18,998/- towards “Processing Fees” and Rs.8,92,665/- towards “Bank Guarantee Commission” and did not deduct TDS thereon. The AO called for an explanation from the assessee. The explanation tendered by the assessee did not find favour by the AO and by invoking the provisions of section 194 of the Act, the AO rejected the claim of the assessee. Aggrieved by the order of AO, the assessee preferred an appeal before the First Appellate Authority („FAA‟, for short) 5. In the appellate proceedings before the FAA, the assessee submitted that the processing fees paid to the banks are governed by The Banking Regulation Act, 1949. The processing fees are in the nature of upfront interest. The banks charge processing fees to reduce interest rate and to show income in the year of sanction. In support of the submissions raised, the assessee placed strong reliance on the decision of Tribunal in the case of Aban Investments V/s DCIT (52 SOT 36) (Chennai (URO) and the decision of Delhi Bench of the Tribunal in the case of Bilt Power V/s ACIT (34 CCH 334) in which the Tribunal held since „processing fees‟ fall within the definition of interest provided in section 2(28A) of the Income Tax Act, 1961, these fall in the exclusion provided in section 194A(3) of the Act hence and hence, tax is not liable to be deducted at source in the case of processing fees. The assessee, before the ld.CIT(A), stressed that in view of the above mentioned provisions „processing fees‟ paid to banks are not liable to be subjected to TDS u/s 194J of the Act, that on the contrary, the AO placed strong reliance on the decision of „Kotak Securities‟ to hold that bank guarantee charges fall within ambit of section 194H; and this decision has been reversed by the Tribunal reported in (2012) 50 SOT 148 (Mum).
The ld. CIT (A), after considering the facts and case laws relied on by both the parties, deleted the addition made by the AO on this issue by observing and holding as under: “A. PROCESSING FEES: The processing fee is paid to Scheduled Bank. I agree with the submission of the appellant that processing fees are in the nature of upfront interest. This view is affirmed by the decision of Hon'ble Tribunal in the case of M/s. Aban Investments vs. DCIT 52 SOT 36 (Chennai)(URO) and Bilt Power vs. A(IT 34 (CH 334- Delhi Tribunal wherein it has been held that processing fees falls within the definition of interest provided in section 2(28A) of the IT. Act, 1961 which falls in the exclusion provided in section 194A(3) of the Act and hence, tax is not liable to be deducted at source in case of processing fees. In view of the aforesaid decision, I am of the considered opinion that no interest is liable to be deducted u/s.194J on processing charges.
The demand raised u/s. 201 (1) 8: 201 (1A) of Rs.24,545/-accordingly, stands deleted. B. BANK GUARANTEE COMMISSION & MISC BANK CHARGES :.: On this ground reliance is placed on the order of the Hon'ble ITAT in the case of M/s. Kotak Securities Ltd. in dated 03.02.2012 for A.Y. 2004-05 wherein tile Hón'ble ITÁT has held inter- alia as under :- "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. 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 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 u/s.194H. We are, therefore, of the considered view that the CIT(A) indeed erred in holding that the assessee was indeed under obligation to deduct tax at source u/s.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 u/s.194H, the question of levy of interest u/s.201 (1A) cannot arise. In view of the above discussion, we quash the impugned demands u/s 201 (1) and 201(1A) r.w.s.194H. We, therefore, also see no need to deal with other peripheral legal issues raised by the assessee.” 3.4 The facts remaining the same, respectfully following the decision of the Hon'ble ITAT, cited supra, in my considered opinion the demand raised by A.O. u/s 201 (1) on non-deduction of tax at source on Bank Guarantee Commission & Miscellaneous Bank Charges of Rs. 1,00,058/ - u/s.194H stands deleted. Ground is Allowed.”
Aggrieved by the order of ld.CIT(A), the revenue is in appeal before this Bench. 7. The ld.DR reiterated the facts of the case and strongly relied on the order of AO and submitted that the order of the ld.CIT(A) be set aside and that of the AO be restored.
I have considered the submissions of the ld.DR and have perused the material before me. The ld. DR did not bring any material on record to reverse the well reasoned findings of the ld.CIT(A) on the issues involved. The ld. CIT(A), for his decision, has relied on ITAT orders, which have not been shown to be upset. Therefore, I find that the order of ld.CIT(A) is justified and no interference is called for. Accordingly, the same is confirmed. The grounds raised by the department apropos processing fees and bank guarantee commission and miscellaneous bank charges, are rejected.