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2017 (9) TMI 567 - AT - Income TaxTDS u/s 194H - Addition u/s 40(a)(ia) - liability to deduct tax at source on the bank guarantee commission payable - transaction between principal and agent - Held that - On the same issue the CBDT has issued Notification which exempts from deduction of tax. Though the Notification speaks of applicability of the clarification from 4.1.2013 the fact remains that there are number of decisions of various Benches of ITAT in favour of the assessee, even prior to the Notification and thus the Notification merely clarifies the issue and thus applicable retrospectively. At any rate, in the light of the following decisions, the only view possible in this matter is the provisions of section 194H is not applicable to the payments made to bank since it is not in the nature of commission , as it is understood in common business parlance and in the context of provisions of section 194H of the Act. In other words, it is not a transaction between principal and agent so as to invoke the provisions of section 194H of the Act. A.O. as well as the Ld. CIT(A) were not justified in invoking the provisions of section 194H of the Act in the instant case in order to hold that the assessee is a defaulter. In other words, the assessee is not liable to deduct tax at source and consequently the disallowance in the instant case is not warranted. - Decided in favour of assessee.
Issues:
1. Applicability of section 194H of the Income Tax Act. 2. Interpretation of the terms "paid" and "payable" under section 40(a)(ia) of the Act. Issue 1: Applicability of section 194H of the Income Tax Act The case involved a dispute regarding the applicability of section 194H of the Income Tax Act to an assessee engaged in civil construction who incurred expenditure under the head "bank guarantee charges" without deducting tax at source. The Assessing Officer contended that TDS should have been made under section 194H, invoking section 40(a)(ia) of the Act. However, the assessee argued that section 194H was not applicable as there was no "principal and agent" relationship with the bank, citing a CBDT notification exempting TDS on bank guarantee commission payments. The Ld. CIT(A) upheld the AO's decision, stating that the payment to the bank constituted "commission" and was subject to TDS under section 194H, not accepting the retrospective operation of the CBDT notification. Issue 2: Interpretation of the terms "paid" and "payable" under section 40(a)(ia) of the Act The dispute also involved the interpretation of the terms "paid" and "payable" under section 40(a)(ia) of the Act. The Ld. CIT(A) followed the decisions of the ITAT, Visakhapatnam Special Bench and the Andhra Pradesh High Court, ruling that section 40(a)(ia) did not apply in the case at hand. The Revenue appealed this decision, arguing that the term "payable" in section 40(a)(ia) includes amounts paid during the previous year. However, the ITAT held that the decisions overruling the applicability of section 40(a)(ia) were no longer valid after the Supreme Court's ruling in the case of Palam Gas Service vs. CIT, where it was clarified that even payments made to the bank fall under section 40(a)(ia). Consequently, the appeal by the Revenue was allowed. In conclusion, the ITAT Hyderabad ruled in favor of the Revenue regarding the applicability of section 194H, setting aside the Ld. CIT(A)'s decision. However, the Cross Objection filed by the assessee was allowed, as the ITAT held that the assessee was not liable to deduct tax at source, and the disallowance was deemed unwarranted based on the interpretations of various decisions and the absence of a "principal and agent" relationship with the bank.
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