2016 (3) TMI 963 - AT - Income Tax

Reimbursement of bank guarantee commission - TDS u/s.194A @10% OR u/s.194C @2% - revision u/s 263 - Held that - In the instant case, there is no money borrowed or debt incurred. Therefore, provisions of sec. 2(28A) and sec. 194A do not apply. Payment made to NCL is not income by way of interest . The impugned receipt would be in the nature of reimbursement of expenses incurred by it. In view of the above discussion, we do not find any merit in the order passed u/s.263 in respect of one of the possible view taken by the AO. Even on merit, we found that bank guarantee commission does not come under the purview of interest so as to make assessee liable for TDS u/s.194A. - Decided in favour of assessee

Summary

Issues:
- Discrepancy in the deduction of tax on reimbursement of bank guarantee commission under sections 194C and 194A.
- Interpretation of whether bank guarantee commission is in the nature of interest.
- Application of Section 263 by the CIT regarding the order passed by the AO.

Analysis:
1. The appeals were filed against the CIT's order regarding the deduction of tax on reimbursement of bank guarantee commission under different sections. The CIT directed to apply section 194A at 10% instead of the AO's application of section 194C at 2%.

2. The main contention was whether the bank guarantee commission should be treated as interest, leading to the application of section 194A for tax deduction. The assessee argued that there was no element of profit in the reimbursement, citing relevant case laws to support their position.

3. The Tribunal examined the agreement between the parties and the nature of the bank guarantee commission. It was established that the reimbursement was for expenses incurred, not interest-bearing, and the bank was the ultimate beneficiary. The Tribunal found that the AO's decision to apply section 194C for tax deduction was appropriate.

4. The Tribunal considered the multiple views on the issue, including sections 194H, 194C, and 194A. Citing Supreme Court judgments, it emphasized that if the AO's view is plausible and sustainable in law, it cannot be deemed erroneous or prejudicial to revenue, preventing revision under section 263.

5. The Tribunal analyzed the definition of "interest" under section 2(28A) and relevant case laws to conclude that the bank guarantee commission did not fall under the purview of interest as per section 194A. It highlighted that CBDT circulars are binding on the Revenue, and in this case, the transaction did not involve borrowing or debt, hence section 194A was not applicable.

6. Ultimately, the Tribunal allowed the appeals of the assessee, ruling that the bank guarantee commission reimbursement did not constitute interest, and therefore, the assessee was not liable for TDS under section 194A. The order under section 263 was deemed unwarranted based on the merits of the case and the applicable legal provisions.

This detailed analysis of the judgment addresses the legal issues involved and the reasoning behind the Tribunal's decision, providing a comprehensive understanding of the case.