Case Law Details
DCIT Vs. Delta Constructions Ltd. (ITAT Hyderabad)
Assessee contends that in order to invoke the provisions of section 40(a)(ia) it has to be shown that the payment made by the assessee is attracted by the provisions of section 194H of the Act i.e., there is liability to deduct tax at source on the bank guarantee commission payable whereas on the same issue the CBDT has issued Notification which exempts from deduction of tax. Though the Notification speaks of applicability of the clarification from 4-1-2013 the fact remains that there are number of decisions of various Benches of ITAT in favour of the assessee, even prior to the Notification and thus the Notification merely clarifies the issue and thus applicable retrospectively. At any rate, in the light of the following decisions, the only view possible in this matter is the provisions of section 194H is not applicable to the payments made to bank since it is not in the nature of “commission”, as it is understood in common business parlance and in the context of provisions of section 194H of the Act. In other words, it is not a transaction between ‘principal and agent’ so as to invoke the provisions of section 194H of the Act.
Full Text of the ITAT Order is as follows:-
The appeal filed by the Revenue and the Cross Objection filed by the assessee are directed against the order passed by the learned Commissioner (Appeals)-5, Hyderabad.
2. The facts concerning the only issue in dispute centres around the facts stated below. Assessee is engaged in the civil construction. The assessee incurred certain expenditure under the head ‘bank guarantee charges’ on which tax was not deducted at source. The assessing officer was of the opinion that the TDS has to be made as required under section 194H of the Act. Consequently, provisions of section 40(a)(ia) of the Act are invoked. The case of the case of the assessee, on the other hand, was that section 194H is not applicable since there is no ‘principal and agent’ relationship between the assessee and the bank. Reliance was placed upon the CBDT notification dated 4-1-2013 which grants exemption from TDS on the payments made towards bank guarantee commission. It was also contended that section 40(a)(ia) of the Act is applicable only when the amount is ‘payable’ whereas in the instant case, the amount was already ‘paid’ to the bank and in this regard relied upon the decision of the ITAT, Visakhapatnam Special Bench in the case of Merilyn Shipping and Transport Ltd. v. ACIT (16 ITR 1).
3. The assessing officer did not accept both the contentions and invoked the provisions of section 40(a)(ia) of the Ac for the purpose of making an addition/dis allowance of Rs. 48,33,907.
4. Though both the issues were urged before the learned Commissioner (Appeals), the first contention i.e., with regard to non-applicability of section 194H, was not accepted by the learned Commissioner (Appeals) as in his opinion the payment made to the bank is in the nature of “commission” as it is understood in the business parlance and hence it has to be treated as a transaction between ‘principal and agent’ and the provisions of section 194H were applied. It was further observed that the Notification issued by CBDT were applicable from 4-1-2013 and thus it is not retrospective in operation.
5. As regards the interpretation of the expression “paid” and “payable” the learned Commissioner (Appeals) followed the decision of the ITAT, Visakhapatnam Special Bench decision as well as the decision of the Andhra Pradesh High Court in the case of Janapriya Engineers Syndicate (I.T.T.A No. 352 of 214, dt. 24-6-2014) and observed that the provisions of section 40(a)(ia) are not applicable to the case on hand.
6. Aggrieved by the second finding of the learned Commissioner (Appeals) Revenue is in appeal whereas with regard to the rejection of the contention as to non-applicability of section 194H of the Act, the assessee filed Cross Objection. The only ground urged by the Revenue reads as under :–
“The learned Commissioner (Appeals) erred in holding that provisions of section 40(a)(ia) cannot be invoked in respect of payments which were actually paid during the financial year but it can be invoked only with respect to the amounts which remained payable as on 31-3-without appreciating that in the context of section 40(a)(ia) of the Act the term ‘payable’ would include amounts which are paid during the previous year.”
7. In the Cross Objections, the assessee raised four grounds but at the time of hearing it was submitted that Ground No. 2(b) is not pressed, concerning validity of reopening of the assessment. In fact in the Revised Cross Objections no such ground was raised. We therefore, confine to the issue of applicability of provisions of section 194H of the Act.
8. At the outset, it is noticed that there is a delay about 15 days in filing the Cross Objections. The appeal memo was received by the assessee on 5-4-2016 whereas the Cross Objections were filed on 19-4-2016. Having regard to the reasons given in the application filed for condonation of delay, in filing the Cross Objection, we are of the view that there is a sufficient cause for filing belated Cross Objections and accordingly upon taking to consideration the fact of the case we admit the Cross Objections and proceed to dispose of the Cross Objections on merits.
9. It is not in dispute that the order passed by the ITAT, Visakhapatnam Special Bench (supra) and the decision of the Hon’ble Andhra Pradesh High Court in the case of Janapriya Engineers Syndicate (supra) is overruled by the Hon’ble Supreme Court in the case of Palam Gas Service v. CIT (Civil Appeal No. 5512 of 2017, dt. 3-5-2017). In other words, even in a case where the payment is made to the bank, the provisions of section 40(a)(ia) are applicable. Under these circumstances, the order passed by the learned Commissioner (Appeals), on the aforementioned issue, deserves to be set aside. In other words, the appeal filed by the Revenue is allowed.
10. However in the case of Cross Objections, the assessee contends that in order to invoke the provisions of section 40(a)(ia) it has to be shown that the payment made by the assessee is attracted by the provisions of section 194H of the Act i.e., there is liability to deduct tax at source on the bank guarantee commission payable whereas on the same issue the CBDT has issued Notification which exempts from deduction of tax. Though the Notification speaks of applicability of the clarification from 4-1-2013 the fact remains that there are number of decisions of various Benches of ITAT in favour of the assessee, even prior to the Notification and thus the Notification merely clarifies the issue and thus applicable retrospectively. At any rate, in the light of the following decisions, the only view possible in this matter is the provisions of section 194H is not applicable to the payments made to bank since it is not in the nature of “commission”, as it is understood in common business parlance and in the context of provisions of section 194H of the Act. In other words, it is not a transaction between ‘principal and agent’ so as to invoke the provisions of section 194H of the Act. Learned Counsel for the assessee relied upon the following decisions; viz., (i) decision of the ITAT, ‘SMC’ Bench, Mumbai in the case of DCIT v. M/s. Laqshya Media (P) Ltd. (ITA No. 4390/Mum/2015, dt. 7-7-2016); (ii) Kotak Securities Ltd. (2012) 14 ITR (Trib) 495 (ITAT (Mum)) and (iii) M/s. Efftronics Systems (P) Ltd. v. ACIT (ITA Nos. 188 and 216/Vizag/2015, dt. 21-10-2016).
11. Learned Departmental Representative however could not place any decision in favour of the Revenue. She strongly relied upon the orders passed by the tax authorities.
12. Having regard to the consistent view taken by various Benches of ITAT, we are of the view that the assessing officer as well as the learned Commissioner (Appeals) were not justified in invoking the provisions of section 194H of the Act in the instant case in order to hold that the assessee is a defaulter. In other words, the assessee is not liable to deduct tax at source and consequently the dis allowance in the instant case is not warranted.
13. In the result, the Cross Objection filed by the assessee is allowed.
Author Bio
