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2016 (1) TMI 860 - AT - Income TaxTDS u/s 194H - commission expenditure incurred by the assessee company - non deduction of tds - whether the impugned expenditure towards Authority to Guarantee charges falls within the ambit of section 194H or not?- demand raised by the A.O. u/s 201 and 201(1A) - Held that - It is noticeable from the definition of expression commission or brokerage as appearing in section 194H of the Act that (a) a payment should be received by a person for services rendered only and (b) such person should be acting on behalf of the other person to whom the services have been rendered in respect of buying and selling of goods, etc.. It is clear from the factual matrix of the case that there is no component of service rendered by the finance company to the assessee against recovery of portion of losses, if any. In our view, it is a simple business proposition whereby an arrangement has been entered into by the assessee to assist its customers to enable them ready finance of their products and simultaneously assured the finance company for recovery of losses, if any due to default in repayment by the customers. The requirement of an agent and principal relationship is found absent in this case. Also, no nexus is found between the amount of sales made by the assessee and the expenditure towards authority to guarantee charges . We find that the ratio of both the judgements below are squarely applicable to the present fact-situation also, wherein finance company is not acting on behalf of the assessee. The finance company is merely providing financial services in the form of loan and subsequently collecting the payment against the assurance for sharing a part of losses. Respectfully following the ratio laid down by the Hon ble Jurisdictional High Court in Intervet India P. Ltd. (2014 (4) TMI 353 - BOMBAY HIGH COURT ) and also by the Hon ble Delhi High Court in JDS Apparels Pvt. Ltd. (2014 (11) TMI 732 - DELHI HIGH COURT), we are of the considered view that section 194H is not applicable in the facts of the case - Decided in favour of assessee
Issues Involved:
1. Whether the expenditure under "Authority to Guarantee" is in the nature of commission expenditure requiring TDS deduction under Section 194H of the Income-tax Act, 1961. 2. Imposition of penalty under Section 201(1) and levy of interest under Section 201(1A) for failure to deduct TDS. Issue-wise Detailed Analysis: 1. Nature of "Authority to Guarantee" Expenditure and Applicability of Section 194H: The primary issue in this appeal is whether the expenditure incurred under the head "Authority to Guarantee" falls within the ambit of "commission" as defined under Section 194H of the Income-tax Act, 1961, thereby necessitating the deduction of TDS. The assessee, engaged in the business of selling tractors, had entered into an agreement with Sundaram Finance Ltd. to provide credit facilities to its customers. The agreement stipulated that the assessee would bear a certain percentage of losses incurred by Sundaram Finance Ltd. due to non-payment of loans by the customers. The assessee contended that this expenditure was not in the nature of commission but was a contractual liability to share losses, which did not involve any service rendered by Sundaram Finance Ltd. to the assessee. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the expenditure was incurred as part of a sales promotion activity, and the services rendered by Sundaram Finance Ltd. in providing loans to the customers indirectly promoted the sales of the assessee. They concluded that this expenditure was akin to commission or brokerage and thus attracted the provisions of Section 194H, requiring TDS deduction. However, the Tribunal found that the arrangement between the assessee and Sundaram Finance Ltd. was on a principal-to-principal basis and did not involve any direct service rendered to the assessee. The Tribunal referred to judicial precedents, including the cases of CIT vs. JDS Apparels Pvt. Ltd. and CIT vs. Intervet India P. Ltd., where similar arrangements were held not to attract Section 194H as they did not constitute commission or brokerage. The Tribunal concluded that the expenditure under "Authority to Guarantee" did not fall within the definition of commission under Section 194H, as there was no service rendered by Sundaram Finance Ltd. to the assessee, and the relationship was not that of an agent and principal. 2. Imposition of Penalty and Levy of Interest under Sections 201(1) and 201(1A): Given the Tribunal's finding that the expenditure did not attract Section 194H, the consequential imposition of penalty under Section 201(1) and levy of interest under Section 201(1A) for failure to deduct TDS were also not applicable. The Tribunal allowed the appeals of the assessee for all three assessment years (2010-11, 2011-12, and 2012-13), holding that the assessee was not liable to deduct TDS on the "Authority to Guarantee" expenditure and, therefore, the provisions of Sections 201(1) and 201(1A) were not triggered. Conclusion: The Tribunal's consolidated order allowed the appeals of the assessee, concluding that the "Authority to Guarantee" expenditure did not constitute commission under Section 194H, and thus, the assessee was not liable to deduct TDS. Consequently, the penalties and interest levied under Sections 201(1) and 201(1A) were also set aside.
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