2018 (11) TMI 1717 - AT - Income Tax

TDS u/s 194H - disallowance deeming Bank guarantee commission incurred as Commission - addition u/s 40 a ia - HELD THAT - These issues were considered by the co-ordinate bench in 2018 (4) TMI 1664 - ITAT DELHI wherein held that there is no principal and agent relationship between the bank issuing the bank guarantee and the assessee and, further, that when the bank issues the bank guarantee on behalf of the assessee, all it does is to accept the commitment to make the payment of a specified amount to, on demand, to beneficiary and it is in consideration of this commitment that the bank charges a fee termed as bank guarantee commission. It was further held that although it is termed as guarantee commission, it is not in the nature of commission- as is understood in the common business parlance and in context of section 194F of the Act. Respectfully following the order of the Coordinate Benches, we hold that since principal-agent relationship is a sine qua non for invoking provisions of section 194H, the Ld. Commissioner of Income Tax (A) was not justified in upholding the disallowance u/s 40(a)(ia) in respect of bank guarantee commission. - Appeal of the assessee is allowed.

Summary

Issues:
1. Disallowance of bank guarantee commission as commission u/s 194H and non-deduction of TDS.
2. Disallowance of Corporate Social Responsibility (CSR) expenses under section 37(1).

Analysis:
1. The first issue pertains to the disallowance of bank guarantee commission as commission u/s 194H and non-deduction of TDS. The appellant contended that the bank guarantee commission should not be considered as commission under Section 194H. The Tribunal referred to a similar case and held that there is no principal-agent relationship between the bank issuing the guarantee and the assessee. The Tribunal concluded that since there is no principal-agent relationship, the disallowance under section 40(a)(ia) for bank guarantee commission was not justified. Therefore, the Tribunal directed the deletion of this disallowance in favor of the assessee.

2. The second issue involves the disallowance of Corporate Social Responsibility (CSR) expenses under section 37(1). The appellant argued that the CSR expenses were incurred as per government directions and should be allowed as revenue expenditure. The Tribunal referred to a case where CSR expenses were allowed for a previous assessment year and held that prior to a specific date, CSR expenses are revenue in nature and allowable. The Tribunal reviewed the details of the CSR expenditure incurred by the assessee and found that the expenses were legitimate and incurred for various social causes. The Tribunal disagreed with the lower authorities' view that the expenses were not wholly or exclusively for business purposes. Therefore, the Tribunal set aside the disallowance of CSR expenses and directed the Assessing Officer to allow these expenses as revenue expenditure.

In conclusion, the Tribunal ruled in favor of the assessee on both issues, directing the deletion of the disallowances of bank guarantee commission and CSR expenses. The appeal by the assessee was allowed, and the impugned additions were ordered to be deleted.