Income Tax Appellate Tribunal - Mumbai
Acit Tds 1(2), Mumbai vs First Source Solutions Ltd, Mumbai on 12 July, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL " F" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM
ITA No.643/Mum/2015
(A.Y:2011-12)
Asst. Commissioner of M/s First Source Solutions
Income Tax TDS-1(2) Ltd.
Room No. 803, K.G. Mittal M/s First Source solutions
Hospital Bldg, charni Road Ltd. 5 t h Floor, Paradigm,
Vs.
(W ), B-W ing, Mindspace, Link
Mumbai-400002 Road, Malad(W ), Mumbai -
400 064
P AN No. AAACI8904N
Appellant .. Respondent
Revenue by .. Shri TA Khan, DR
Assessee by .. Shri Farrokh V Irani, AR
Date of hearing .. 29-06-2017
Date of pronouncement .. 12-07-2017
ORDER
PER MAHAVIR SINGH, JM:
This appeal by the Revenue is arising out of the order of CIT(A)-14, Mumbai, in appeal No. CIT(A)-14/ITO(OSD)(TDS)-1(2)/13-14 dated 03- 11-2014. The treating assessment order by ITO (TDS)-1(2), Mumbai for the A.Y. 2011-12 vide order dated 25-03-2013 under section 201(1) and 201(1A) of the Income Tax Act, 1961 (hereinafter 'the Act').
2. The only issue in this appeal of Revenue is against the order of CIT(A) deleting the short deduction of TDS charged by the AO under section 201(1) and consequent interest under section 201(1A) of the Act on account of payment of bank guarantee commission. For this Revenue has raised following grounds: -
"I) "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the short deduction u/s 201(1) and interest u/s 201(IA) of the I.T. Act, in respect of bank guarantee commission on the basis of reasoning that bank guarantee commission is ITA No . 64 3 / Mu m/ 2 01 5 M/ s Fi r st So ur c e So l ution s Ltd . ( A .Y : 11 - 1 2) not in the nature of "commission" and no TDS was required to be deducted on such charges paid to bank u/s 194H of the I.T. Act, 1961.
ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that no TDS was required to be deducted on bank guarantee commission paid to banks u/s 194H of the I.T. Act, 1961, failing to appreciate that in substance and in fact the relationship between the assesse company and banks was in the nature of principal and agents relationship and the payment made to banks for services rendered falls within the meaning of section 194H of the Act."
3. Briefly stated facts are that the assessee for the relevant FY 2010- 11 relevant to this AY 2011-12 made payment of Rs. 1,11,48,012/- as bank guarantee to ICICI Bank Ltd. and a sum of Rs. 29,811/- to City Bank. According to the AO, the assessee's case falls under the provisions of section 194H of the Act as a banking institution acting as agent for the assessee company for rendering the services of guarantor and for the said certificates the banking institution are charging commission, which falls under section 194H of the Act. Accordingly, the AO charged TDS and also interest under section 201(1) and 201(1A) of the Act. Aggrieved assessee preferred the appeal before CIT(A). The CIT(A) after relying on the decision of co-ordinate Bench of this Tribunal in the case of Kotak Securities Ltd. Vs. DCIT [2012] 14 ITR(T) 495 (Mumbai - Trib.) delete the deduction under section 194H of the Act. Aggrieved, against the deletion of TDS Revenue is in appeal before Tribunal.
4. The issue is squarely covered by Tribunal decision in the case of Kotak Securities Ltd. (supra) and also recent decision of this Tribunal in Page 2 of 7 ITA No . 64 3 / Mu m/ 2 01 5 M/ s Fi r st So ur c e So l ution s Ltd . ( A .Y : 11 - 1 2) the case of ITO vs. M/s Nimbus Communication Ltd. in ITA Nos. 3156 & 2157/ Mum/2014 for the AYs 2010-11 and 2011-12 vide order dated 06- 11-2015, wherein Tribunal is held as under: -
"2.6. 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 194 H, 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 Page 3 of 7 ITA No . 64 3 / Mu m/ 2 01 5 M/ s Fi r st So ur c e So l ution s Ltd . ( A .Y : 11 - 1 2) Explanation to Section 194 H 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 Vs 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 Page 4 of 7 ITA No . 64 3 / Mu m/ 2 01 5 M/ s Fi r st So ur c e So l ution s Ltd . ( A .Y : 11 - 1 2) in the case before us as well. Even as definition of expression 'commission or brokerage', in Explanation to Section 194 H, 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 vs ACIT (ITA No. 434/Del/11; order dated 16.12.2011), Fosters India Ltd Vs ITO (117 TTJ 346), and Ajmer Zila Dugdh Utpadak Sangh Ltd Vs ITO (34 SOT 216), principal agent relationship is a sine qua non for invoking the provisions of Section 194 H. 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 194 H from payments made by the assessee to various banks. As we have held that the assessee was not required to deduct tax at Page 5 of 7 ITA No . 64 3 / Mu m/ 2 01 5 M/ s Fi r st So ur c e So l ution s Ltd . ( A .Y : 11 - 1 2) source under section 194 H, the question of levy of interest under section 201(1A) cannot arise.
2.7. The scope and effect of section 194H (w.e.f. 01/06/2001), section 194H as also amendment of section 197 made by the Finance Act 2001 have been elaborated in departmental circular no.14 of 2001. Further, the scope and effect of the amendment made in opening portion of section 194H by the Finance Act, 2002 have been further elaborated in departmental circular no.8 of 2002 dated 27/08/2002. In view of the above discussions, we quash the impugned demands under section 201(1) and 201(1A) r.w.s. 194H."
The learned Counsel for the assessee stated that the issue is exactly identical. When this was confronted to the learned SR. DR he fairly conceded that the issue is covered.
5. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has cited two precedence in the case of Kotak Mahindra Securities and M/s Nimbus Communication Ltd. (supra) as the issue is identical i.e. whether TDS is to be deducted under 194H of the Act on bank guarantee commission, the Tribunal has answer in favour of assessee. Respectfully following the same, we confirm the order of CIT(A) and this issue of Revenue's appeal is dismissed.
6. In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 12-07-2017.
Sd/- Sd/-
(RAJESH KUMAR) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 12-07-2017
Sudip Sarkar /Sr.PS
Page 6 of 7
ITA No . 64 3 / Mu m/ 2 01 5
M/ s Fi r st So ur c e So l ution s Ltd . ( A .Y : 11 - 1 2) Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. //True Copy// BY ORDER, Assistant Registrar ITAT, MUMBAI Page 7 of 7