No TDS liability in the Absence of Principal-Agent Relationship between Bank and Contractor during issue of Bank Guarantee: ITAT [Read Order]

The  Income Tax  Appellate  Tribunal (ITAT) held that when there is no principal-agent relationship between the bank issuing bank guarantee and the assessee, the transaction between them is not the transaction between principal and agent so as to attract tax deduction under section 194H of the Act.

The order was rendered by a tribunal bench consisting of R. K Panda, Accountant Member, and K. Narasimha Chary, Judicial Member in the case M/s. NKC Projects (P) Ltd Vs Dy. Commissioner of Income Tax.

The appellant is a contractor and is engaged in the business of constructing highways, roads and commercial buildings for the corporate sector etc. For the assessment year 2013-14, they have filed their return of income on 30/9/2013 declaring a total income of Rs. 10,51,41,070/-. During the course of assessment proceedings, learned Assessing Officer noticed that the assessee paid a bank guarantee commission amounting to Rs.1,50,59,660/- till 31/12/2012, such payments were in the nature of those mentioned in Notification No. 56/2012 dated. 31/12/2012, not covered within the definition of interest under section 2 (28 A) of the Income Tax Act, 1961 (for short “the Act”) and therefore exemption provided under section 194A (3 (iii) (a) of the Act is not applicable to such payments since payment for such services can be made without deduction of TDS to scheduled banks.

In the light of the orders of the Mumbai, Pune and Visakhapatnam benches of the Tribunal, a conclusion was reached by the Tribunal that in the absence of any principal-agent relationship between the bank issuing bank guarantee and the assessee, the transaction between them is not transaction between the principal and agent so as to attract the tax deduction under section 194H of the Act.

The Tribunal also point out that the facts submitted by the appellant, involved in both the years are identical, as observed by the learned Assessing Officer in the assessment order itself, is not contradicted by the Ld. DR. Since the issue is no longer res Integra and has squarely been covered in assessee’s own case for the earlier year by the orders of the Tribunal, while respectfully following the same and The Tribunal accordingly allowed the grounds of appeal, and direct the assessing officer to delete the addition of Rs. 1,50,59,663/-.