2019 (2) TMI 650 - HC - Income Tax

TDS u/s 194H - payment of Guarantee Commission paid by the Assessee to the Banks - 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. See Commissioner of Income Tax (TDS)-1 Vs. Larsen & Toubro Ltd. 2018 (12) TMI 991 - BOMBAY HIGH COURT .

Summary

Issues:
1. Interpretation of Section 194H of the Income Tax Act regarding the payment of Guarantee Commission to Banks.
2. Liability of the Assessee to deduct Tax at source under Section 194H.
3. Existence of Principal Agent relationship between the Assessee and Banks.
4. Coverage of Section 194H in relation to the payment of Guarantee Commission.

Issue 1: Interpretation of Section 194H - Guarantee Commission to Banks
The Revenue appealed against the ITAT judgment questioning the classification of Guarantee Commission paid to Banks under "Commission or brokerage" as per Section 194H of the Act. The ITAT held that the payment did not fall under this category due to the absence of a principal-agent relationship. The High Court concurred, stating that the payment was for banking services, not agent commission, hence Section 194H did not apply.

Issue 2: Liability to Deduct Tax at Source
The appeal also raised concerns about the Assessee's liability under Section 194H to deduct Tax at source. The ITAT's decision not to treat the Assessee as defaulting under Section 201(1) for not deducting tax was upheld by the High Court. The Court emphasized that the nature of the payment as bank charges, not commission, exempted the Assessee from tax deduction obligations under Section 194H.

Issue 3: Principal Agent Relationship
The ITAT's ruling that there was no Principal Agent relationship between the Assessee and Banks was challenged in the appeal. The High Court, in alignment with the ITAT, found that the payment for bank guarantee was not akin to commission to an agent, but rather a fee for banking services. Consequently, the Court rejected the argument of a Principal Agent relationship.

Issue 4: Coverage of Section 194H
The appeal contested the ITAT's interpretation of Section 194H, arguing that the payment of Guarantee Commission should fall within its scope. However, the High Court upheld the ITAT's decision, emphasizing that the nature of the payment as bank charges precluded its classification as commission or brokerage under Section 194H. As a result, the appeal was dismissed, affirming the ITAT's judgment.

In conclusion, the High Court dismissed the tax appeals, upholding the ITAT's decision regarding the non-applicability of Section 194H to the payment of Guarantee Commission to Banks due to the absence of a principal-agent relationship and the nature of the payment as bank charges rather than commission.