DCIT (TDS) 2(1), MUMBAI vs. L & T INFOTECH LTD, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) अनुसार PER Rajendra A.M.- लेखा सद�य सद�य राजे�� राजे�� केकेकेके अनुसार लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order dt 4.7.2014 of the CIT(A)-14,Mumbai the Assessing Officer (AO), has filed the present appeal.The effective ground of appeal is about deleting the short deduction of tax under the head bank guarantee. While passing the order u/s. 201(1)/201(1A) of the Act,on 19.3.2013,the AO mentioned that the assessee had not deducted any tax on bank guarantee charges,amounting to Rs.90.05 lakhs,that it had claimed that the bank guarantee charges were covered by the definition of word interest[Section 2(28)],that the interst had been paid to bank, that no tax was deducted in terms of sec 194A(3) of the Act,that the AO held that the very nature of charges suggested that same were commission/brokerage paid to the banks.Referring to explanation (i) to section 194H,he held that assessee had committee default u/s. 201(1) of the Act.He calculated short deduction at Rs.9.37 lakhs and determined interest payable u/s. 201(1A) of the Act. 2.Aggrieved by the order of the AO the assessee preferred an appeal before the First Appellate Authorirty(FAA).After considering the order u/s. 201 and 201(1A) in assessee’s own case and the order of the Tribunal delivered in the case of Kotak Securities Ltd.(50 SOT 158),he held that no TDS was payable on bank guarantee charges u/s. 194H of the Act, that the question of levy of interest would not arise for such payments. 3.Before us,the Departmental Representative (DR) stated that the matter could be decided on merits.The Authorised Representative (AR) relied on the case of Kotak Securities Ltd.We find that identical issue has been decided by the Tribunal in case of Kotak Securities in following manner: 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 s. 194H. This transaction, is not a transaction between principal and agent so as to attract the tax deduction requirements under s. 194H. CIT(A) indeed erred in holding that the assessee was indeed under an obligation to deduct tax at source under s. 194H from payments made by the assessee to various banks. Assessee was not

5821-L&T Infotech required to deduct tax at source u/s 194H, the question of levy of interest u/s 201(1A) cannot arise.” Respectfully following the above decision,the effective ground of appeal is decided in favour of the assessee.