TDS U/s. 194H not deductible on bank guarantee commission

DCIT Vs. PRL Projects & Infrastructure Lt. (ITAT Delhi)

TDS U/s. 194H not deductible on bank guarantee commission

Regarding the dis allowance of Rs. 40,19,608/- u/s 40(a)(ia) of the Act, it has seen that this issue is covered in favour of the assessee by order of ITAT Mumbai Bench in the case of Kotak Securities Limited vs. DCIT (TDS) (supra) wherein the Mumbai Bench of the ITAT has held that there is no principal – agent relationship between the bank issuing the bank guarantee of the assessee. The Mumbai Bench has noted that when the bank issues a bank guarantee on behalf of the assessee, all it does is to accept the commitment of making payment of a specified amount to the beneficiary on demand and it is in consideration of this commitment that the bank charges of fee which is termed as ‘bank guarantee commission’. The ITAT Mumbai Bench has further noted that while it is termed as ‘guarantee commission’, the same is not in the nature of commission as it is understood in common business parlance and in context of section 194H. The ITAT Mumbai Bench went to hold that no TDS was deductible on such bank guarantee commission. It is seen that the Ld. CIT (A) also has relied on this order of ITAT Mumbai Bench while allowing relief to the assessee and, further, during the course of proceedings before us, the department could not point out any contrary judgement which could give relief to the department on this issue. Accordingly, we refuse to interfere on this issue and uphold the adjudication of the Ld. CIT (A).

If there is no exempt income, no dis allowance u/s 14A can be made

Regarding the dis allowance of Rs. 1,32,540/- u/s 14A, it is undisputed that the assessee had not earned any exempt income during the year and as such no expenditure could be said to have been incurred to earn the exempt income. It is settled law that if there is no exempt income, no dis allowance u/s 14A can be made. This issue is also covered in favour of the assessee by order of Hon’ble Delhi High Court in the case of CIT vs. Holcim India Private Limited in ITA No. 486/2014 and ITA No. 291/2014.

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