2017 (11) TMI 120 - AT - Income Tax

Deduction of TDS from bank guarantee commission paid on or before 31st. December 2012 - Held that - Notification issued by the CBDT prescribed that no tax is required to be deducted in case of payments of bank guarantee commission to the banks - Hon Delhi High court in JDS apparel P. ltd (2014 (11) TMI 732 - DELHI HIGH COURT) has held that bank is not acting as an agent of the assessee. No tax is required to be deducted on bank guarantee commission paid to a Nationalised Bank and therefore, disallowance has been correctly deleted by the ld CIT(A). In the result solitary ground of appeal is dismissed.

Summary

Issues:
- Disallowance of bank guarantee commission for non-deduction of tax at source.

Analysis:
1. The appeal was filed by the revenue against the order of the Ld. CIT (A) for the assessment year 2011-12, where the disallowance of a specific amount made by the assessing officer was deleted.
2. The revenue raised the ground of appeal questioning the deletion of the addition made by the AO due to non-deduction of tax on bank guarantee commission, citing a CBDT notification.
3. The assessee, a wind electric generators manufacturer, had filed its return declaring nil income. The dispute arose over the non-deduction of tax on a bank guarantee commission payment.
4. The assessing officer contended that the tax was not deductible on bank guarantee commission as per a CBDT notification, but the CIT (A) allowed the claim of the assessee, citing clarificatory nature of the notification and relevant case laws.
5. The departmental representative argued that tax should have been deducted before the notification date, but the assessee's stance was that the notification was effective from 01.01.2013.
6. Despite the absence of the assessee during proceedings, the issue was decided based on available information.
7. The core issue revolved around the applicability of a CBDT notification regarding tax deduction on bank guarantee commission to the assessment year 2011-12, with the CIT (A) deeming it clarificatory.
8. Previous judgments, including one by the Delhi High Court, were referenced to establish that bank guarantee commission does not fall under the purview of section 194H, requiring a principal-agent relationship for tax deduction.
9. Further judicial precedents were cited to support the view that bank guarantee commission is not akin to commission or brokerage, thus not mandating tax deduction under section 194H.
10. Ultimately, the Tribunal upheld the CIT (A)'s decision, stating that no tax was required to be deducted on bank guarantee commission paid to a Nationalised Bank, leading to the dismissal of the revenue's appeal.
11. Consequently, the appeal of the Revenue was dismissed, affirming the deletion of the disallowance of the bank guarantee commission amount.

This detailed analysis highlights the legal intricacies surrounding the non-deduction of tax on bank guarantee commission and the Tribunal's decision based on relevant notifications and judicial interpretations.