The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the bank guarantee commission is not subject to tax deduction at source (TDS) under section 194H of the Income Tax Act, 1961.
The assessee, a company, filed its income tax return. The Assessing Officer noted that a payment of rupees 4,74,531/- was made by the assessee to the bank as a bank guarantee fee/commission. According to the Assessing Officer, this payment was liable for deduction of tax at source and assessee did not deduct any tax at source and, therefore, expenses on bank guarantee fee/commission debited in profit and loss account were liable for disallowance in terms of section 40(a)(ia) of the Act. According to him, bank guarantee fee/commission was liable for deduction of tax at source for payments made to both domestic as well as foreign bank, however, by way of the notification with effect from 01/01/2013 bank guarantee commission paid to the bank listed in the second schedule to the reserve bank of India has been exempted from deduction of tax at source. According to him, payments made to a foreign bank or bank guarantee fee/commission is still liable to deduction of tax at source.
After considering arguments from both sides, the Tribunal bench comprising Accountant Member Amarjith Singh and Judicial Member O P Kant observed that though the Assessing Officer has not specified the relevant section under which the tax was to be deducted, he held the payment for bank guarantee services is not covered by the CBDT notification and made disallowance under section 40(a)(ia) for non-deduction of tax at source.
The bench further, relied on the Tribunal decision in Navnirman Highway Project Private Limited Vs DCIT wherein it was held that deduction of tax at source under section 194H is not required for the payment of bank guarantee commission to the bank.
“Respectfully, following a finding of the Tribunal (supra), we hold that the assessee was not liable for deduction of tax at source on the bank guarantee fee/commission during the relevant period in absence of any principal agent relationship between the assessee and the bank. Accordingly, we direct the Assessing Officer to delete the addition,” the Tribunal said.
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