Brief of the Case
The Subsidiary Co. had mere reimbursed the Bank Gurantee Commission to its holding Co. & there is no money borrowed or debt incurred. Therefore, provisions of sec. 2(28A) and sec. 194A do not apply. Payment made to holding Co. is not “income by way of interest”. The impugned receipt would be in the nature of reimbursement of expenses incurred by it & therefore does not attract TDS provision of Section 194A.
As regards applicability of TDS provisions, not two but three views exist on the impugned issue – (i) TDS u/s 194H – which was discussed by AO in the assessment order dt. 18/3/2012; TDS u/s 194C – which was discussed and upheld by AO in the assessment order dt. 18/3/2012; TDS u/s.194A – (which the assessee does not agree with) and not sought to be taken by CIT. Revision of order u/s 263 cannot be done if two views are possible on the issue.
Facts of the Case
Facts in brief are that the assessee company is engaged in the business of broadcasting. It has two channels namely Neo Cricket and Neo Sports. The assessee(NEO) is a step-down subsidiary of Zenith Sports Pvt. Ltd., a subsidiary of Nimbus Communication Ud.(NCL), the main company of the Nimbus Group. The group is engaged in the business of acquiring telecast rights of BCCl’s Cricket matches, apart from IPL, being organized in India and broadcasting the same through two of its sports channels namely Neo Sports(exclusively within Indian territory) and Neo Cricket (lndia as well as its neighbouring countries). The NCL has acquired the telecast rights from BCCI in respect of cricket matches played in India for which as per terms of agreement between BCCI and NCL, NCL was under obligation to provide for the Bank Guarantee to BCCI for Rs.2000 Crore. To secure this, NCL has been paying Bank Guarantee Commission (BGC) to various banks year after year as per agreed terms. NCL has entered into another agreement with the assessee (NEO) for telecast of the cricket matches for which NCL has set a condition that 80% of the BGC has to be reimbursed to it by the assessee. Accordingly during the F.Y.2009-10 relevant to A.Y.2010-2011 the assessee reimbursed Rs.21,31,28,582/- to Nibus Communication Limited(NCL). No tax has been deducted at source on these payments by the assessee. In order passed u/s.201(1)/201(1A) dt.18.03.2012, ITO(TDS)-2(4) treated that these payments are subject to TDS u/s.194C and passed order accordingly. However, the CIT did not accept the provisions of Section 194C invoked by the AO and held that payment of bank guarantee commission was in the nature of interest, therefore, assessee was liable for deduction of tax at source @10% u/s.194A. As per CIT, the order passed by AO was erroneous as well as prejudicial to the interest of revenue. Against this order of CIT u/s.263, the assessee is in further appeal before us.
Contentions of the Assessee
It was argued by ld. AR Dr. K.Shivram that the AO after analyzing the nature of payment had applied the relevant provisions of law and made the assessee liable for payment of TDS u/s.194C. As per ld. AR if two views are possible revision cannot be done and for this purpose he placed reliance on the decision of Hon‟ble Supreme Court reported at 295 ITR 282, 243 ITR 83 & 372 ITR 303. He further contended that provisions of Section 194 is not applicable because there was no element of profit for the reimbursement so made. For this purpose he placed reliance on the decision of Hon‟ble Bombay High Court reported at 375 ITR 364In support of the proposition that bank guarantee commission is not in the nature of interest, he placed reliance on the decision of Hon‟ble De hi High court in the case reported at 355 ITR 94.
AR further placed reliance on the decision of the Mumbai Tribunal in the case of Kotak Securities Ltd. in support of the proposition that no TDS is required to be deducted in case of payment of bank guarantee commission to the bank, since the payment of commission was not principal to agent but was on principal to principal basis. Reliance was also placed on the decision of Mumbai Tribunal in the case of Holding Company M/s Nimbus Communications Ltd. in ITA No.3156&3157/Mum/2014, order dated 6-11-2015, wherein the Tribunal held that no TDS is required to deduct tax on such bank guaranteecommission and the AO was wrong in applying provisions of Section 201(1)&201(1)A of the Act.
Contentions of the Revenue
CIT DR contended that incorrect interpretation of law and facts by the AO renders the order of AO erroneous as well as prejudicial to the interest of revenue, therefore, the CIT was justified in invoking his power u/s.263. He placed reliance on the order of Hon‟ble Madras High Court in the case of Viswapriya Financial Services, 258 ITR 496 in support of the proposition that any charges paid for services rendered is coming under the definition of the interest u/s.2(28A), accordingly CIT has correctly held that assessee was required to deduct tax on such bank guarantee commission u/s.194A.
Held by ITAT
With regard to CITs contention that bank guarantee commssion is in the nature of interest, therefore, the AO was required to deduct tax u/s.194A, we found that as per CBDT Notification No.56, no tax is required to be deducted on various commission paid to the bank including bank guarantee under any provisions of Income Tax Act. It is a matter of record that Neo has not obtained any services from NCL and in no circumstances it can be treated as interest within the definition of section 2(28A) of the Income Tax Act, 1961. Furthermore, the ultimate beneficiary of bank guarantee commission (name itself suggests guarantee commission paid to the banks) is Bank and it cannot be treated as BGC paid to NCL since NCL has not provided any guarantee for and on behalf of Neo to any third party or BCCI. The provisions of Section 194A are not applicable on any payment made to any baking company to which the Banking Regulation Act, 1949 applies as in the case of assessee, the payment reimbursed to NCL towards BGC is what is paid by NCL to Banks. The case law relied on by the ld. DR is not applicable to the facts of the instant case, insofar as the assessee has not taken any loan or deposit from the investors. In case decided by Hon‟ble Madras High Court in the case of Viswapriya Financial Services(supra), the assessee was required to pay 1.5% to the investors, which was held by the Hon‟ble H gh Court as subject to deduction of tax u/s.1 94A.
Section 194A(1) is applicable only to “ ncome by way of interes ”. However, the impugned transaction is that of reimbursement of bank guarantee commission and does not involve payment of interest. There is no borrowing whatsoever. “Interest” as per sec. 2(28A) means “interest payable … in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred … ” In the case of CIT v. Car gill Global Trading Co. (P.) Ltd. [2011J 335 ITR 94, Hon‟ble Delhi High Court hed as under :-
“It is clear from the provisions of section 2(28A) that before any amount paid 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.”
CBDT Circular No. 202 dt. 5/7/1976 – [1976J 105 ITR (St.) 17, pg. 24 para 12.1, provides that :-
Definition of interest u/s 2(28A) covers “interest payable in any manner in respect of loans, debts, deposits, claims and other similar rights or obligations. This definition will be applicable for all purposes of the Income-tax Act.”
CBDT circulars are binding on the Revenue. Therefore, Department cannot invoke provisions of sec. 194A r.w.s. 2(28A) to the impugned transaction which does not relate to loans, deposit, money etc. as held by Hon‟ble Supreme Court in the case of UCO Bank v. CIT [1 999J 237 ITR 889 (SC).
In the instant case, there is no money borrowed or debt incurred. Therefore, provisions of sec. 2(28A) and sec. 1 94A 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.