Case Law Details
Krishna Bhagya Jala Nigam Limited Vs ACIT (ITAT Bangalore)
Guarantee commission not ‘Levy’ for the purposes of disallowance under Section 40(a)(iib) of the IT Act
ITAT held that guarantee commission paid in consideration for the state government agreeing to suffer a detriment in the event of non-payment of the bonds on its maturity and is merely a contractual payment and not levy.
M/s. Krishna Bhagya Jala Nigam Ltd (Appellant) challenged an Assessment Order dated September 29, 2018 (Assessment Order) passed by the Assessing Officer (AO), disallowing the guarantee commission under Section 40(a)(iib) of the Income Tax Act, 1961 (IT Act).
The Hon’ble ITAT observed that, for a transaction to qualify as a levy for the purpose of Section 40(a)(iib) of IT Act, the payment to the state government by a state government undertaking should be based on a power on the part of the state government to impose a levy, whereas guarantee commission is paid in consideration for the state government agreeing to suffer a detriment in the event of the assessee not repaying the value of the bonds on its maturity and is merely a contractual payment.
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