2016 (8) TMI 867 - AT - Income Tax

TDS u/s 194A - loan processing fees - non deduction of TDS - Held that - The first payment is on account of loan processing fees paid to the Nationalized Bank. This fee is charged by the bank for, processing the application filed by the borrower and for any inspection of title deeds and documents relating to properties and to verify and creation of charge etc. on the property. The Ld. Counsel s case before us is that, such a payment does not entail deduction of tax, because it is in the nature of service fee on borrowed money and hence it is covered within the meaning and definition of interest as defined under section 2(28) and consequently, falls within the exclusion clause provided under section 194A(3). Further, AO has also treated these charges as payment for managerial services rendered by the bank and therefore, tax was required to be deducted under section 194J r.w. section 9(1)(vii). The Counsel s case before us is that, such a payment of processing fee cannot be treated for rendering of managerial services and in support various decisions have been filed before us. Rather it falls within the ambit of interest as defined under section 2(28A), which provides that, interest includes any service fees or other charge in respect of all monies borrowed. Thus, there was no requirement to deduct the TDS on account of rendering of managerial services. As regards the payment of processing fee paid to Nationalized Bank, we agree with the contention of Ld. Counsel that, loan processing fee is charged by the banks for processing the application when a borrower approached the bank for a loan. Such a service fee or charge it has been included in the definition of interest , as given in section 2(28A). The definition of interest will include any service fee or any other charge in respect of money borrowed. Here, processing fee definitely falls within such definition and, therefore, it cannot be reckoned as payment for rendering of any managerial services by the bank as held by the AO. Thus the assessee is not required to deduct TDS on such payment of income paid to any banking company. Accordingly, the finding of the CIT(A) deciding in favour that the payment of processing fee does not require deducting of TDS is upheld and revenue s ground on this score is dismissed. TDS u/s 194H - guarantee fees paid - Held that - We are unable to accept the contention of the AO, because the assessee has sought its banks like HDFC Bank, Dena Bank and Yes Bank to issue guarantee in its favour for which bank has charged certain amount as guarantee fee . To fall within the ambit and scope of section 194H, the payment has to be in the nature of commission or brokerage .The contract of guarantee does not give any rise to principal - agent relationship between the assessee and the bank and, therefore, the consideration received by the bank on account of guarantee commission cannot be reckoned as commission as contemplated under section 194H and accordingly, there was no requirement to deduct TDS on this payment. Thus, on this score also, the order of the Ld. CIT(A) is affirmed. Before us, the Ld. Counsel had also brought to our notice a CBDT Circular No.56 of 2012 wherein it has been clarified that guarantee fee paid to a nationalized bank will not be subject to withholding tax. Thus in view of the CDBT Circular also the ground raised by the revenue cannot be sustained and accordingly, the same is dismissed. TDS u/s 194I - Payment on hoarding and display expenses - Held that - As from the impugned order it is seen that the Ld. CIT(A) has directed the AO to remove the expenditure which has been capitalized by the assessee in its books of accounts. Once an item of expenditure has been capitalized then there is no requirement for deducting the TDS. Thus, to this extent, there cannot be any infirmity in the order of the CIT(A) and the same is affirmed. For the balance amount he Ld. Counsel submitted that, assessee has filed a breakup of expenditure before the AO and it was explained that these payments were in the nature of Ground level and beatification;Material purchased and installation charges; and Purchase of Wall laminated units. Once that is so, then definitely there is no requirement of deducting TDS under section 194I on such payment, because it does not fall within rent . Since CIT(A) has already directed the AO to verify, therefore, we also reiterate the same direction that AO should look into the nature of expenses and if the contention of the Ld. Counsel is correct that these are in the nature of aforesaid payments, then there would be no requirement of deducting tax under section 194I. With this direction, this ground of the revenue is treated as dismissed.

Summary

Issues:
1. Whether TDS was required to be deducted on processing fees, bank guarantee commission, and advertising hoardings.
2. Whether interest under section 201(1A) was correctly deleted by the CIT(A).
3. Whether the CIT(A) correctly decided in favor of the assessee on the disputed payments.

Analysis:

Issue 1: TDS on Processing Fees, Bank Guarantee Commission, and Advertising Hoardings
The AO treated the assessee as 'assessee-in-default' for not deducting TDS on processing fees, bank guarantee commission, and advertising hoardings. The CIT(A) ruled in favor of the assessee, stating that processing fees were in the nature of upfront interest and not subject to TDS under section 194J. The CIT(A) also held that guarantee fees did not fall under commission or brokerage, thus not requiring TDS under section 194H. Regarding advertising hoardings, the CIT(A) directed the AO to delete expenses capitalized by the assessee, eliminating the need for TDS. The ITAT upheld the CIT(A)'s decisions, dismissing the revenue's appeal.

Issue 2: Deletion of Interest under Section 201(1A)
The CIT(A) deleted interest under section 201(1A) determined by the AO, as the tax determined had already been deleted. The ITAT affirmed this decision, stating that interest deletions were consequential to the quantum deletion recommended by the CIT(A).

Issue 3: Decision on Disputed Payments
The ITAT analyzed each disputed payment individually. For processing fees, it was established that the fee fell under the definition of interest and was excluded from TDS under section 194A(3). Guarantee fees were not considered as commission or brokerage, thus not subject to TDS under section 194H. Regarding advertising hoardings, the ITAT agreed with the CIT(A) that once expenses were capitalized, TDS was not required. The ITAT directed the AO to verify the nature of expenses and recompute the demand accordingly. Ultimately, the ITAT dismissed the revenue's appeal, upholding the CIT(A)'s decisions.

In conclusion, the ITAT upheld the CIT(A)'s rulings on TDS requirements for processing fees, bank guarantee commission, and advertising hoardings, along with the deletion of interest under section 201(1A). The ITAT provided detailed analysis and legal interpretations to support its decision, ensuring a fair judgment in favor of the assessee.