2018 (12) TMI 991 - HC - Income Tax

TDS u/s 194H - Payments of bank guarantee made to the bank - TDS liability - Held that - The so called bank guarantee commission is not in the nature of commission paid to an agent but it is in the nature of bank charges for providing one of the banking service. The requirement of Section 194H of the Act, therefore, would not arise. No question of law arises.

Summary

Issues:
Interpretation of Section 194H of the Income Tax Act regarding deduction of tax at source from bank guarantee commission payments.

Analysis:
1. The appeal was filed by the Revenue challenging the Judgment of the Income Tax Appellate Tribunal regarding the deduction of tax at source from bank guarantee commission payments. The key question presented for consideration was whether the Tribunal was justified in allowing the appeal of the assessee based on the reasoning that no TDS was required to be deducted under Section 194H of the Income Tax Act from the payments of bank guarantee made to the bank.

2. For the Assessment Year 2010-11, the return filed by the respondent-assessee was taken in scrutiny, and it was observed that the assessee had made payment of "bank guarantee commission" without deducting tax at source. The Assessing Officer believed that this payment fell under the requirement of deducting tax at source as per Section 194H of the Act and passed an assessment order accordingly. The matter eventually reached the Tribunal, which dismissed the Revenue's appeal, citing its own judgment in the case of Kotak Securities Limited.

3. The Revenue's counsel mentioned that an appeal was filed against the Tribunal's judgment in the Kotak Securities Ltd case but was later withdrawn due to low tax effect. However, a detailed discussion on the issue was available in the Tribunal's judgment in that case. The Tribunal in the Kotak Securities case interpreted Section 194H, emphasizing that the words "commission or brokerage" must be understood in conjunction. It concluded that the payment labeled as "bank guarantee commission" did not qualify as commission due to the absence of a principal-agent relationship between the payer and the payee. Therefore, the Tribunal held that the requirement of deducting tax at source under Section 194H did not apply in the present scenario.

4. The High Court concurred with the Tribunal's view, noting that the bank guarantee commission was not akin to commission paid to an agent but rather represented bank charges for a banking service. Consequently, the court found that the provisions of Section 194H were not applicable in this case, leading to the dismissal of the Income Tax Appeal. The court determined that no question of law arose from the circumstances presented.

This comprehensive analysis of the judgment delves into the interpretation of Section 194H of the Income Tax Act concerning the deduction of tax at source from bank guarantee commission payments, highlighting the key arguments, decisions, and reasoning put forth by the Tribunal and the High Court.