2016 (4) TMI 1165 - AT - Income Tax

TDS u/s 194J - Addition made on account of internet charges for non deduction of tds - whether use of internet charges falls within the ambit of section 9(1)(vi) Explanation -2(iva) and 2(vi) - Held that - Madras High Court in the case of Skycell Communications Ltd.(2001 (2) TMI 57 - MADRAS High Court) supports the stand of the CIT(Appeals) that payments made to obtain internet facility from BSNL would not be covered within the meaning of fee for technical services so as to be liable for deduction of tax at source under section 194J as it is a payment for obtaining a standard facility and not for technical services. - Decided in favour of assessee TDS u/s 194H - Bank guarantee charges paid to the bank - tds liability - Held that - The Mumbai Bench of Tribunal in the case of Kotak Securities Ltd. vs. DCIT (2012 (2) TMI 77 - ITAT MUMBAI ) has held that bank guarantee charges are not liable for deduction of tax under section 194H on the ground that such transactions are on principal to principal basis and the element of agency which is essential to cover it as commission as per Explanation to section 194H is absent.- Decided in favour of assessee

Summary

Issues:
1. Tax deduction on internet charges under section 194J of the Income Tax Act.
2. Tax deduction on bank guarantee charges under section 194H of the Income Tax Act.

Analysis:

Issue 1: Tax deduction on internet charges under section 194J:
The appeal by the Revenue challenged the deletion of an addition made on account of internet charges, arguing that the use of internet charges falls within the scope of section 9(1)(vi) Explanation -2(iva) and 2(vi) of the Income Tax Act. The Revenue contended that tax should have been deducted at source on these payments under section 194J. However, the CIT(A) disagreed with the Revenue's stand, citing the Madras High Court judgment in Skycell Communications Ltd. vs. DCIT, which supported the view that payments for internet charges do not constitute 'fee for technical services' under section 194J. The CIT(A) based its decision on a similar case where the Revenue did not appeal to the Tribunal, indicating acceptance of the CIT(A)'s decision. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Issue 2: Tax deduction on bank guarantee charges under section 194H:
Regarding the bank guarantee charges, the Revenue contended that the CIT(A) wrongly held that such charges were not subject to tax deduction under section 194H. The Mumbai Tribunal's decision in Kotak Securities Ltd. vs. DCIT was cited, which established that bank guarantee charges do not qualify for tax deduction under section 194H due to the absence of an agency element necessary for categorization as 'commission.' The CIT(A) followed this decision along with other Tribunal rulings, leading the Tribunal to conclude that the Revenue's appeal lacked merit. As a result, the Tribunal dismissed the Revenue's appeal on this issue as well.

In summary, the Tribunal upheld the CIT(A)'s decision in both matters, ruling against the Revenue's appeal on tax deduction for internet charges under section 194J and bank guarantee charges under section 194H. The Tribunal emphasized the importance of legal precedents and consistency in interpreting tax laws, ultimately leading to the dismissal of the Revenue's appeal in its entirety.