Is bank guarantee commission liable to TDS u/s 194H? SC keeps the Question of Law open

Is bank guarantee commission liable to TDS u/s 194H-SC dismisses SLP of the Department but keeps the Question of Law open

ABCAUS Case Law Citation:
ABCAUS 3073 (2019) (07) SC

Important Case Laws Cited/relied upon by the parties:
Commissioner of Income Tax (TDS)­1 Vs. Larsen & Toubro Ltd. (2019)101 taxmann.com 83(Bombay)

In the instant case, the Income Tax Department (Revenue) had challenged the order of the ITAT in holding that the payment  of Guarantee Commission paid by the assessee to the Banks was not covered under “Commission or brokerage’ as defined u/s 194H of the Income Tax Act, 1961 (the Act) and the assessee was not liable to deduct Tax at source u/s  194H of the Act.

Is bank guarantee commission liable to TDS u/s 194H?

The Tribunal had set aside the order of the Assessing Officer (AO) which treated the assessee as assessee in default u/s   201(1) of the Act and levy of interest u/s  201(1A) of the Act in respect of amount of tax which  was not deducted u/s 194H of the Act in respect of the payment of bank guarantee commission.

The ITAT had also held that the relationship of Principal  and Agent did not exit between the assessee and the Banks.

However, the Hon’ble High Court observed that in another case, similar questions were considered by the Court wherein the appeal of the Revenue was dismissed. In the said case, the Tribunal referred to Section 194H of the Act which requires an assessee responsible for paying any income by way of commission or brokerage to deduct tax at  source. The Tribunal was of the opinion that the words “commission or brokerage” must take colour from each other. The Tribunal was of the opinion that the payment in question, though categorized as “bank guarantee commission” was not strictly payment of commission since there was no principal to agent relationship between the payer and the payee. The   Tribunal, therefore, held that the requirement of deducting tax at source u/s 194H of the Act did not arise.

The Hon’ble High Court observed that in the said case, their Lordships had dismissed the appeal of the Revenue and had expressed agreement with the view of the Tribunal that so called bank guarantee commission was not in the nature of commission paid to an agent but it was in the nature of bank charges for providing one of the banking service.

In the case in hand too, the Hon’ble High Court following its earlier judgment, dismissed the appeal of the Revenue.

However, not satisfied, this time the Revenue had approached the Hon’ble Supreme Court by way of filing a Special Leave Petition (SLP) challenging the order of the High Court.

The Hon’ble Supreme Court however decline to interfere and dismissed the appeal. However, while doing so, their Lordships have kept all the questions of law open.

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