No TDS is deductible on Bank Guarantee Commission: ITAT [Read Order]

The Delhi bench of the ITAT last week held that bank guarantee commission are not included within the term ‘commission’ for the purpose of section 194H of the Income Tax Act and therefore, no tax is required to be deducted at source in case of such payments.

The assesse in the instant case has filed its return of income declared the total income of Rs. 26,18,310/- under the normal provisions and Rs. 1,46,26,148/- under provisions of section 115JB of the Income Tax Act. During the course of assessment proceedings, the AO has made disallowances of Rs. 1,32,540/- u/s 14A and Rs. 40,19,608/- u/s 40(a)(ia) of the Income Tax Act.

However, the CIT (A) has deleted the additions made by the AO on the appeal filed by the assessee.

The DCIT has challenged against deletion made by the CIT (A) before the Tribunal contending that the said amount was paid as bank guarantee commission paid to two different banks. The notification issued by the CBDT exempted that the  persons from deducting tax at source from bank guarantee commission has to made payment prior to that period was not covered. According to this notification the assessee in this case was required to deduct tax at source on the bank guarantee commission and also uphold the addition made by the AO.

And also submitted that the disallowance u/s 14A read with Rule 8D of the Income Tax Rules is mandatory and has to be calculated at ½ % of the average investment which the A.O. had done.

The Delhi bench of Income Tax Appellate Tribunal comprising of Judicial Member Sudhanshu Srivastava and Accountant Member B.P.Jain has observed that the issue of disallowance of Rs. 40,19,608/- u/s 40(a)(ia) was concerned, the bank guarantee commission was charged by the respective banks by debiting the same to the bank account of the assessee and that the assessee company had not paid these amounts by issuance of any cheque or pay order. Hence it was not liable for deduction of tax at source.

And the bench also held that there is no principal – agent relationship between while the bank issuing guarantee to the assessee. When a bank issues a bank guarantee on behalf of the assessee it has to making payment of the specified amount on demand and also charges a fee for this service which termed as bank guarantee commission and the same is not in the nature of commission hence no TDS was deductible on such bank guarantee commission.

However the revenue could not point out any legal or factual infirmity in this case, there for the appeal filed by the revenue has dismissed by relied up on the decisions taken by the Mumbai bench of ITAT in the similar issue.

To Read the full text of the Order CLICK HERE