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TMI Blog2022 (1) TMI 336X X X X Extracts X X X X X X X X Extracts X X X X ..... Act", for short) dated 29.02.2016 for A.Y 2013-14. The assessee has assailed the impugned order on the following grounds of appeal before us: "1. That the impugned order is against facts and bad-in-law. 2. That on the facts and circumstances of the case and in law involved, the learned CIT(A) has erred in confirming the addition of Rs. 57,75,629/- made by the AO u/s 40a(ia) of the IT Act, 1961. 3. That on the facts and circumstances of the case and in law involved, the learned CIT(A) has erred in applying the provisions of section 40a(ia) of the IT Act, 1961 on guarantee fee paid to the bank. 4. The appellant craves leave to add, alter, amend or vary the above grounds of appeal before or at the time of hearing." 2. Briefly stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sec. 197A(1F) of the Act, which, inter alia, provided that no tax was required to be deducted at source on the amount of "bank guarantee commission" paid by an assessee to a bank listed in the second schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign bank; was applicable only w.e.f 01.01.2013, therefore, for the period prior thereto i.e upto 31.12.2012 the assessee was obligated to deduct tax at source on the same. Accordingly, the A.O backed by his aforesaid observations disallowed the assessee's claim for deduction of "bank guarantee fee" of Rs. 57,75,629/- u/s 40(a)(ia) of the Act. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). Observing, that the bank guarantee fee paid by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. Authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncement that have been pressed into service by the Ld. A.R in order to drive home his aforesaid claim. Controversy involved in the present appeal lies in a narrow compass i.e. as to whether or not the bank guarantee fee of Rs. 57.75 lac paid by the assessee till 31.12.2012 was exigible for deduction of tax at source?. Issue as to whether any obligation is cast upon an assessee to deduct tax at source on the fees charged by a bank for rendering banking services had been deliberated upon by the Hon'ble Jurisdictional High Court in the case of CIT vs. JDS Appraisal Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed, that when a bank issues bank guarantee on behalf of the assessee, there is no principal-agent relationship between the bank and the assessee which is a mandatory condition for invoking the provisions contained u/s 194H and, thus, no obligation was cast upon the assessee to have deducted tax at source on the amount of bank guarantee commission paid to the bank. Apart from that, it was therein observed, that as bank guarantee commission partook the character of interest u/s 2(28A) of the Act and as such, exemption provided u/s 194A(3)(iii) qua such payment was available to the assessee, therefore, no obligation on the said count too was cast upon the assessee to deduct tax at source on the said amount. Backed by its aforesaid observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Sec. 194H. 8. In the backdrop of our aforesaid observations, we are of a strong conviction that both the lower authorities had erred in treating the assessee as being in default for not having deducted tax at source on the amount of bank guarantee fee u/s 194H of the Act. Accordingly, de-hors any obligation on the assessee to deduct tax at source on the amount of bank guarantee fees within the meaning of section 194H of Act, no disallowance of the aforesaid amount of Rs. 57,75,629/- could have been made u/s 40(a)(ia) of the Act. We, thus, not being able to persuade ourselves to subscribe to the view taken by the lower authorities, set-aside the order of the Ld. CIT(A) and vacate the disallowance u/s 40(a)(ia) of Rs. 57,75,629/- made by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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