2017 (11) TMI 1618 - AT - Income Tax

Non-deduction of tax at source on guarantee commission paid to bank TDS u/s 194H principal and agent relation - Held that - As decided in the case of Kotak Securities Limited v. DCIT 2012 (2) TMI 77 - ITAT MUMBAI Principal agent relationship is a sine qua non for invoking the provisions of Section 194H. 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 section 194H. This transaction in our considered view is not a transaction between principal and agent so as to attract the tax deduction requirements u/s 194H. - Decided in favour of assessee. Disallowance u/s 14A - Held that - The assessee had not earned any exempt income during the year and as such no expenditure could be said to have been incurred to earn the exempt income. It is settled law that if there is no exempt income no disallowance u/s 14A can be made. See CIT vs. Holcim India Pvt. Ltd 2014 (9) TMI 434 - DELHI HIGH COURT - Decided in favour of assessee.

Summary

Issues:
Disallowance of bank guarantee commission under sections 40(a)(ia) and disallowance under section 14A of the Income Tax Act 1961.

Issue 1: Disallowance under sections 40(a)(ia):
The department challenged the deletion of disallowance made by the Assessing Officer (AO) of bank guarantee commission under sections 40(a)(ia). The Senior DR argued that the assessee should have deducted tax at source on the bank guarantee commission paid to banks before the notification exempting such deductions came into force. However, the Authorized Representative contended that since the bank guarantee commission was debited by the banks directly and not paid by the assessee, no tax deduction was required. The Authorized Representative cited precedents and judgments to support this argument. The ITAT upheld the decision of the Ld. CIT (A) based on the ITAT Mumbai Bench's ruling, which clarified that no TDS was necessary on bank guarantee commission, as it did not constitute a principal-agent relationship. The ITAT found no contrary judgment to support the department's position and dismissed the appeal.

Issue 2: Disallowance under section 14A:
The department challenged the deletion of disallowance made under section 14A by the Ld. CIT (A). The Senior DR argued that the disallowance under section 14A, calculated using Rule 8D, was mandatory and should not have been deleted. However, the Authorized Representative demonstrated that no exempt income was earned during the year, and therefore, no expenditure could be attributed to earning exempt income. Citing the judgment of the Hon'ble Delhi High Court, the Authorized Representative emphasized that if no exempt income was earned, no disallowance under section 14A could be made. The ITAT concurred with the Ld. CIT (A) and the legal position, upholding the decision and dismissing the department's appeal.

In conclusion, the ITAT Delhi upheld the decisions of the Ld. CIT (A) in both issues, dismissing the department's appeal and providing detailed legal reasoning and precedents to support their findings.