Case Law Details
Addl CIT Vs Jaypee Agra Vikas Ltd (ITAT Delhi)
“‘Commission or brokerage’ includes 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”.
Thus, it is sine qua non that there has to be a principal – agent relationship for a payment to be treated as commission or brokerage. The recipient of the income must act on behalf of the principal. Here the banker does not act on behalf of the assessee for rendering any kind of service. The contract of guarantee does not give any rise to principal – agent relationship between the assessee and the bank and, therefore, the consideration received by the bank on account of guarantee commission cannot be reckoned as commission as contemplated under section 194H and accordingly, there was no requirement to deduct TDS on this payment. Thus, on this score also, the order of the Ld. CIT(A) is affirmed. Before us, the Ld. Counsel had also brought to our notice a CBDT Circular No. 56 of 2012 (sic) wherein it has been clarified that ‘guarantee fee’ paid to a nationalized bank will not be subject to withholding tax.
Full Text of the ITAT Order is as follows:-
1. These are the appeals filed by the Assessing Officer against the order of the ld CIT(A)-I, Noida dated 14.05.2015 for the Assessment Year 2011-12, 2012-13 and 2013-14 cancelling the penalty u/s 271C of the Act levied for non deduction of tax/ short deduction of tax on account of bank guarantee commission to various banks as per provisions of section 194H of the Act.
2. The Revenue has raised the following grounds of appeal in Assessment Year 2011-12, 201213 and 2013-14:-
“Ld CIT(A)-I, Noida has erred in law and all facts in deleting the demand on account of payment of Bank guarantee commission ignoring the fact that Notification No. 56/2012/ ( F No. 275/53/2012-IT(B) dated 31.12.2012 which provides that no TDS shall be done on payment like Bank Guarantee commission is effect from 01.01.2013 while in the case of the assessee the payment of Bank Guarantee commission was done before 01.01.2013 and penalties are correctly imposed u/s 271C.
3. Brief facts of the case is that assessee has paid bank guarantee commission to various Indian banks without deduction of tax at source and therefore, the ld Assessing Officer passed orders u/s 201(1A) / 201(1) of the Act for all these three years holding the assesse to be in default and levying interest. Subsequent to the same penalty u/s 271C was also levied for all these three years vide order dated 31.10.2014. The assessee contested the appeal before the ld CIT(A) who deleted the penalty holding that in the case of the group company he has held that provisions of section 194H do not apply to payment of bank guarantee commission to the bankers. The ld AO aggrieved by the order of the ld CIT(A), has preferred appeal before us.
4. The ld DR vehemently supported the orders of the ld Assessing Officer and whereas the ld AR relied upon the order of the ld CIT(A).
5. We have carefully considered the rival contentions and also perused the orders of the lower authorities. The simple issue involved in these appeals is whether the tax should be deducted at source or not on payments made to Indian banks for payment of bank guarantee commission. The identical issue has been considered by the CBDT and issued a notification No. 56/2012 as under:-
“NOTIFICATION NO. SO 3069(E) [NO.56/2012 (F. NO. 27 – SECTION 197A OF THE INCOME-TAX …
SECTION 197A OF THE INCOME-TAX ACT, 1961 – DEDUCTION OF TAX AT SOURCE – NO DEDUCTION IN CERTAIN CASES – SPECIFIED PAYMENT UNDER SECTION 197A(1F)
NOTIFICATION NO. SO 3069(E) [NO.56/2012 (F. NO. 275/53/2012-
IT(B)], DATED 31-12-2012
[SUPERSEDED BY NOTIFICATION NO. SO 2143(E) (NO.47/2016
(F.NO.275/53/2012-IT(B), DATED 17-6-2016]
In exercise of the powers conferred by sub-section (1F) of section 197A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that no deduction of tax under Chapter XVII of the said Act shall be made on the payments of the nature specified below, in case such payment is made by a person to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign bank, namely:—
(i) bank guarantee commission;
(ii) cash management service charges;
(iii) depository charges on maintenance of DEMAT accounts;
(iv) charges for warehousing services for commodities;
(v) underwriting service charges;
(vi) clearing charges (MICR charges);
(vii) credit card or debit card commission for transaction between the merchant establishment and acquirer bank.
2. This notification shall come into force from the Ist day of January, 2013.”
6. The above circular has been considered in the following two decisions of the Coordinate Bench which has stated that above circular is clarificatory in nature and therefore, though issued w.e.f. 01.01.2013 applies retrospectively and hence no deduction of tax is required on payment of bank guarantee commission to the banks.
7. Coordinate Benche in DCIT Vs. Laqshya Media Pvt. Ltd 72 com 119 wherein, for AY 2010-11 in para no. 6 the coordinate bench has held that above circular being clarificatory, is retrospective in nature:-
“6. As regards “guarantee fees” paid which has been held to be liable for TDS under section 194H by the AO, we are unable to accept the contention of the AO, because the assessee has sought its banks like HDFC Bank, Dena Bank and Yes Bank to issue guarantee in its favour for which bank has charged certain amount as ‘guarantee fee’. To fall within the ambit and scope of section 194H, the payment has to be in the nature of “commission or brokerage”. The Explanation to section 194H defines the phrase ‘commission and brokerage’ in the following manner:—
“‘Commission or brokerage’ includes 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”.
Thus, it is sine qua non that there has to be a principal – agent relationship for a payment to be treated as commission or brokerage. The recipient of the income must act on behalf of the principal. Here the banker does not act on behalf of the assessee for rendering any kind of service. The contract of guarantee does not give any rise to principal – agent relationship between the assessee and the bank and, therefore, the consideration received by the bank on account of guarantee commission cannot be reckoned as commission as contemplated under section 194H and accordingly, there was no requirement to deduct TDS on this payment. Thus, on this score also, the order of the Ld. CIT(A) is affirmed. Before us, the Ld. Counsel had also brought to our notice a CBDT Circular No. 56 of 2012 (sic) wherein it has been clarified that ‘guarantee fee’ paid to a nationalized bank will not be subject to withholding tax. Thus in view of the CDBT Circular also the ground raised by the revenue cannot be sustained and accordingly, the same is dismissed.”
8. Further in Kotak Securities 18 Taxxmann. Com 48 coordinate bench has held as under:-
“9. In the light of the above discussions, and when we look at the connotations of expression ‘commission or brokerage’ in its cognate sense, as in the light of the principle of noscitur a sociis as we are obliged to, in our considered view, scope of expression ‘commission’, for this purpose, will be confined to ‘an allowance, recompense or reward made to agents, factors and brokers and others for effecting sales and carrying out business transactions’ and shall not extend to the payments, such as ‘bank guarantee commission’, which are in the nature of fees for services 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, and the context in which expression ‘commission’ appears in section 194H, i.e. alongwith the expression ‘brokerage’, significantly restricts its connotations. The common parlance meaning of the expression ‘commission’ thus does not extend to a payment which is in the nature of fees for a product or service; it must remain restricted to, as has been elaborated above, a payment in the nature of reward for effecting sales or business transactions etc. The inclusive definition of the expression ‘commission or brokerage’ in Explanation to Section 194H 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 brokerage’. Therefore, what the inclusive definition really contains is nothing but normal meaning of the expression ‘commission or brokerage’. In the case of South Gujarat Roofing Tiles Manufacturers Association v. State of Gujarat [1976] 4 SCC 601, Hon’ble Supreme Court were in seisin of a 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 anything other than what has been specifically stated in the said definition. Therefore, as held by the coordinate benches in a number of cases including SRL Ranbaxy Ltd v. Asstt. CIT [2011] 16 taxmann.com 343 (Delhi – Trib.), Foster’s India (P.) Ltd. v. ITO [2009] 29 SOT 32 (Pune) (URO), and Ajmer Zila Dugdh Utpadak Sangh Ltd. v. ITO [2009] 34 SOT 216, principal agent relationship is a sine qua non for invoking the provisions of Section 194H. 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 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.”
9. Hon Delhi High court in JDS apparel (P) ltd ( 370 ITR 454) has also held that bank is not acting as an agent of the assessee.
10. The provision of section 273B of the Act provides that penalty u/s 271C of the Act cannot be levied if the assessee shows reasonable cause for the failure referred to in that provision. In the present case non-deduction tax at source on bank guarantee commission is supported by many decisions of the coordinate benches as well as the notification issued by the CBDT. Therefore, even if assuming that there is a default of non-deduction of tax at source it cannot be said that it is without a reasonable cause.
11. The Hon’ble Supreme Court has also held in case of CIT Vs. Bank of Nova Scotia in 380 ITR 550 confirming the decision of a coordinate bench, where Hon’ble Delhi High Court rejected appeal of the revenue , that for the purpose of levy of penalty it is necessary to establish that there was contumacious conduct on the part of the assessee. The coordinate bench also followed several decisions of the Hon’ble Delhi High Court for deleting the penalty u/s 271C of the Act. There was no such contumacious conduct shown by the revenue in the present appeals.
12. In view of this we do not find that ld CIT(A) has committed any error in deleting the penalty levied u/s 271C for all the above three years.
13. In the result appeal of the revenue for all these three years are dismissed.
14. Now to we come to appeal of the revenue in ITA No. 5452 and 5453/Del/2015 for the Assessment Year: 2011-12 to 2012-13 respectively, wherein the ld CIT(A)-I, Noida has deleted the penalty u/s 271C of the Act of Rs. 606038/- for both the years. Therefore, parties before us submitted that the issue involved in these appeals is identical to the appeals of Jaypee Agra Vikas Ltd.
15. As similar issues are involved in these appeals of the revenue therefore, we do not find the ld CIT(A) has committed any error in deleting the penalty u/s 271C of the Act for both the above assessment years and in the result these appeals of the revenue are dismissed.
16. Now we come to the appeal of the revenue in ITA No. 5451/Del/2015 for the Assessment Year: 2013-14, in this appeal also similar issue is involved regarding levy of penalty u/s271C of the Act on non deduction of tax on bank guarantee commission. For the reasons given in the appeal of Jaypee Agra Vikas Ltd by us we also do not find any infirmity in the order of the ld CIT(A) in deleing the penalty u/s 271C of the Act and therefore, similarly we dismiss the appeal of the revenue.
17. In the result all the appeals of the Revenue are dismissed.
Order pronounced in the open court on 31/10/2017.
