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TMI Blog2019 (12) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... ("AO", for short) under Section 40a(ia) of Income Tax Act, 1961 ("I.T. Act", for short) is correct. Vide Assessment Order dated 22.03.2016 under Section 143(3) of I.T. Act, AO had disallowed the amount of Rs. 10,58,963/- under Section 40a(ia) of I.T. Act holding that the assessee, although required to deduct TDS, had failed to deduct tax at source. Aggrieved, the assessee filed an appeal before the learned Commissioner of Income Tax (Appeals)-37, New Delhi. Vide order dated 25.05.2017, the Ld. CIT(A) upheld this addition, holding as under: (B.1) Aggrieved again, the assessee has filed this present appeal in Income Tax Appellate Tribunal ("ITAT", for short). At the time of hearing before us, the Learned Authorized Representative ("AR", for short) of the assessee submitted that the dispute regarding applicability of Section 40a(ia) of I.T. Act in respect of Bank Guarantee Fees came up before ITAT, in assessee's own case, for Assessment Year 2011-12 in ITA No.- 4193/Del/2014, and vide order dated 31.05.2017 of Co-ordinate Bench of ITAT, Delhi, the issue was decided in favour of the assessee. The relevant portion of the aforesaid order dated 31.05.2017 of Co-ordinate Bench o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtaining bank guarantee, which cannot be made exigible to TDS provisions. Ld. AR submitted that expenses incurred by assessee by way of guarantee fee is an allowable expenditure under section 37 (1) of the Act. 7. We have perused to rival contentions advanced by both sides in the light of records placed before us. 8. This is a case where assessee had obtained term loan from Canara Bank on. condition that assessee would provide bank guarantee of equal amount. Ld. Sr. DR contends that as notification 56/2012 has been inserted w.e.f. 01.01.2013, assessee should have deducted TDS on guarantee fees paid to bank. Whereas Ld. AR Jias, contended that this notification is clarificatory in nature as even prior to release of this notification guarantee fees paid could not have been liable to TDS provisions as it doesn't fit into any of the provisions under section 194 and-do not fall within definition of "interest" . under section 2(28A) of the Act. It has been submitted that sub clause (IF) was inserted to section 197A by Finance Act, 2012 w.e.f. 07.01.2012 which'" granted power to central government to notify that TDS shall not be deducted on certain classes of persons/instit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or brokerage U/s 194H c) Professional or Technical Fee U/s 194J and d) Contractors & Sub Contractors U/s 194C The provisions of the above mentioned TDS sections require that tax has to be deducted at source when amount is paid or credited to the account of the Payee, whichever is earlier. When the amount is creditedto suspense account or any account, by whatever name called, then it is treated as amount credited to the account of the payee and tax has to be deducted at source. Hence, tax has to be deducted at source even on provisions made in the books of account to which TDS provisions are applicable. 10. To our understanding guarantee. fees paid will not fall within ambit of "interest",, under section 2(28 A) of the Act. There also does not arise any kind of principal-agent relationship between assessee and bank and therefore, guarantee fees received by bank cannot even be reckoned as commission or brokerage for that matter. The bank is also not acting on behalf of assessee for rendering any kind Of service. We agree with submissions advanced by Ld. AR that " guarantee, fee paid by assessee to bank do not fit into any of taxing provisions or under section 2(28A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is construed as interest, it has to be established that the same is payable in respect of any money borrowed or debt incurred. In the instant case, on the aforesaid facts appearing On record, the Tribunal rightly held that the discounting charges paid were not in respect of any debt incurred or money borrowed, instead, the assessee had merely discounted the sale consideration respectively on sale of goods." In the instant case, there is no money borrowed or debt incurred. Therefore, provisions of sec. 2(28A) and sec. 194A do not apply. Payment made to NCL is not "income by way of interest". The impugned receipt would be in the nature of reimbursement of expenses incurred by it In view of the above discussion, we do not find any merit in the order passed u/ s.263 in respect of one of the possible view taken by the AO. Even on merit, we found that bank guarantee commission does not come under the purview of interest so as to make assessee liable for TDS u/ s. 194A." Ld. AR had placed reliance upon decision of Mumbai Bench in case of Kotak Securities Ltd Vs. DCIT, reported in 147 TTJ 443 has held as under: "5. A plain reading of the above provision indicates that tax withhold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the'same sense." 8. Let us now deal with legal connotations of these two expressions, namely ' commission ' arid 'brokerage'. The Law Lexicon (Edited by Justice Y.V. Chandrachud; 1997. Edn.) observes that "in commercial law, commission is a compensation to a factor. or other agent for services to be rendered in making a sale or otherwise; a sum allowed as compensation to a servant; factor or agent who manages the affairs of others, in recompense for his services." According to -- the given definition, "It is an allowance, recompense or reward made to agents, factors and brokers and others for effecting sales and carrying out business transactions. It is generally calculated as a certain percentage 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". 9. In the light of the above dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situation in which an expression, namely 'processing', was given an inclusive definition, but their Lordships were of the view that "there could be no other meaning of 'processing' besides what is stated as included 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, does not necessarily always extend the meaning of an expression. When inclusive definition contains ordinary normal connotations of an expression, in our considered view, even an inclusive definition has to be treated as exhaustive. That is the situation in the case before us as well Even as definition of expression ' commission' or brokerage% in Explanation to Section 194H, is stated to be exclusive, it does not really mean any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tents of the paragraphs 5.1 and 5.2 of the impugned appellate order dated 25.05.2017 of the Ld. CIT(A) have no basis. He further submitted that the facts stated in these paragraphs of the order of the Ld. CIT(A) have no relevance or application in the case of the assessee. He further submitted that the assessee had never sought any technical services from the Bank and further that the Bank had never provided any technical services to the assessee by way of any record etc. He also submitted that applicability of Section 194J of I.T. Act was not even alleged by the AO and the Ld. CIT(A) has invoked Section 194J of I.T. Act without any consideration of the facts and circumstances of assessee's case. (C) We have heard both sides. We have also perused the materials available on record. We find that nowhere, it is the case of the AO that Section 194J of I.T. Act is applicable in the case of the assessee. We also find that there is nothing on record to show that the assessee actually sought any technical services from Bank or that the Bank actually provided any technical services to the assessee or that the aforesaid payment of Rs. 10,58,963/- was made by the assessee to the Bank as fee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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