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2016 (1) TMI 678 - AT - Income TaxTDS u/s 194H - non deduction on bank guarantee commission - Held that:- When bank issues the bank guarantee, on behalf of the assessee, all it does is to accept the commitment of making payment of a specified amount to, on demand, the beneficiary, and it is in consideration of this commitment, the bank charges a fees which is customarily termed as ‘bank guarantee commission’. While it is termed as ‘guarantee commission’, it is not in the nature of ‘commission’ as it is understood in common business parlance and in the context of the section 194H. This transaction, in our considered view, is not a transaction between principal and agent so as to attract the tax deduction requirements under section 194H. We are, therefore, of the considered view that the CIT(A) indeed erred in holding that the assessee was indeed under an obligation to deduct tax at source under section 194H from payments made by the assessee to various banks. As we have held that the assessee was not required to deduct tax at source under section 194H, the question of levy of interest under section 201(1A) cannot arise. The scope and effect of section 194H (w.e.f. 01/06/2001), section 194H as also amendment of section 197 made by the Finance Act 2001 have been elaborated in departmental circular no.14 of 2001. Further, the scope and effect of the amendment made in opening portion of section 194H by the Finance Act, 2002 have been further elaborated in departmental circular no.8 of 2002 dated 27/08/2002. In view of the above discussions, we quash the impugned demands under section 201(1) and 201(1A) r.w.s. 194H. - Decided in favour of assessee.
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