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2016 (1) TMI 678 - ITAT MUMBAI

2016 (1) TMI 678 - ITAT MUMBAI - TMI - TDS 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 ‘commissi .....

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he 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 departmen .....

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d by the impugned orders dated 14/02/2014 of the ld. First Appellate Authority, Mumbai. The only ground raised in this appeal pertains to allowing bank guarantee commission and thus non-deduction of tax at source on such charges paid to Bank u/s 194H of the Act and further deleting the addition u/s 201 (1)/201(1A) of the Act. 2. During hearing of these appeals, at the outset, the ld. counsel for the assessee, Shri Alok Bairagra claimed that the impugned issue is covered by the decision of the Tr .....

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position and analyzed, first, we are expected to look at section 194H, which is reproduced hereunder:- Commission or brokerage 194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such inco .....

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idual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section: Provided also that no deduction shall be made under this section on any commission or brokerage payabl .....

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thing, not being securities; (ii) the expression professional services means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA; (iii) the expression securities shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) .....

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, in turn, is defined by Explanation to Section 194 H. No doubt, this definition is inclusive but the fundamental question that we really need to consider in the first place is as to what are the connotations of expression commission or brokerage in common parlance, and then proceed to deal with the inclusions thereto by the virtue of specific provision of law. 2.3. We find that the expression commission and brokerage have been used together in the statute. It is well settled, as noted by Maxwel .....

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ion of Taxing Statutes (AIFTP Journal : Vol. 4, No. 7, July, 2002, at p. 7), in his inimitable words observed: Law is not a brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism. Similarly, the rules relating to interpretation are also based on common-sense approach. Suppose a man tells his wife to go out and buy bread, milk or anything else she needs, he will not normally be understood to include in the terms anyt .....

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ng words. Words derive colour from the surrounding words. 2.4. Broom s Legal Maxims (10th Edn.) observes that "It is a rule laid down by Lord Bacon, that copulatio verborum indicat acceptationem in eodem sensu the coupling of words together shows that they are to be understood in the same sense." 2.5. Let us now deal with legal connotations of these two expressions, namely commission and brokerage . The Law Lexicon (Edited by Justice Y.V. Chandrachud; 1997 Edn.) observes that "in .....

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age on the amount of the transactions on the profits to the principal." The expression brokerage is defined as fees or commission given to or charged by a broker . In turn a broker is defined as "a middleman or agent who, for a commission on the value of transaction, negotiates for others the purchase or sale of books, bonds or commodities, or property of any kind, or who attends to the doing of something for another. 2.6. In the light of the above discussions, and when we look at the .....

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ces rendered or product offered by the recipient of such payments on principal to principal basis. Even when an expression is statutorily defined under section 2, it still has to meet the test of contextual relevance as section 2 itself starts with the words In this Act ( i.e. Income Tax Act), unless context otherwise requires… , and, therefore, contextual meaning assumes significance. Every definition in the Income Tax Act must depend on the context in which the expression in set out, an .....

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n or brokerage in Explanation to Section 194 H is quite in harmony with this approach as it only provides that any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities is includible in the scope of meaning of commission or br .....

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ded in that expression and that Though include is generally used in interpretation clause as a word of enlargement, in some cases context might suggest a different intention . Their Lordships then concluded that though the expression used in the definition clause is includes , it seems to us that the word includes has been used here in the same sense of means ; this is the only construction that the word can bear in this context . In other words, an inclusive definition, as Their Lordships noted .....

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inition. Therefore, as held by the coordinate benches in a number of cases including SRL Ranbaxy Ltd vs ACIT (ITA No. 434/Del/11; order dated 16.12.2011), Fosters India Ltd Vs ITO (117 TTJ 346), and Ajmer Zila Dugdh Utpadak Sangh Ltd Vs ITO (34 SOT 216), principal agent relationship is a sine qua non for invoking the provisions of Section 194 H. In the case before us, there is no principal agent relationship between the bank issuing the bank guarantee and the assessee. When bank issues the bank .....

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