ELTEK SGS PVT. LTD,NEW DELHI VS. ACIT, CIRCLE-8(1), NEW DELHI, ITA 5531/DEL/2019
In a significant ruling, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) in Eltek SGS Pvt. Ltd. vs. ACIT (ITA No. 5531/Del/2019, A.Y. 2012–13) held that no tax is deductible at source (TDS) on bank guarantee commission. Consequently, the Tribunal directed the deletion of the disallowance made by the Assessing Officer under Section 40(a)(ia) of the Income Tax Act, 1961.
This judgment reinforces a consistent judicial stand that bank guarantee commission is not “commission” or “fees for technical services” under Section 194H or 194J — and hence, not subject to TDS.
Case Snapshot
| Particulars | Details |
| Assessee | Eltek SGS Pvt. Ltd. |
| Assessment Year | 2012–13 |
| Amount in Question | ₹1,37,703 |
| Nature of Expense | Bank Guarantee Commission |
| Disallowance Made Under | Section 40(a)(ia) |
| Relevant TDS Sections | 194H / 194J (as alleged by AO) |
| ITAT Verdict | In favour of Assessee |
Background: What Triggered the Disallowance?
The Assessing Officer (AO) during assessment proceedings noticed that the assessee had paid bank guarantee commission of ₹1,37,703 to a scheduled bank.
- AO’s View: The payment was in the nature of commission or technical service and therefore attracted TDS under Section 194H or 194J.
- As no TDS had been deducted, the AO disallowed the entire amount under Section 40(a)(ia).
This disallowance was later confirmed by the CIT(A), prompting the assessee to approach the ITAT.
ITAT’s Ruling: No TDS Applicable
The Tribunal rejected the Revenue’s argument and relied on a series of judicial precedents to arrive at its conclusion. Here’s how the ITAT broke it down:
1. Nature of the Payment
- The bank guarantee commission is a statutory banking charge levied by banks for issuing guarantees on behalf of customers.
- It does not fall within the ambit of “commission” or “brokerage” under Section 194H.
- Nor is it a “fee for technical or professional services” under Section 194J.
2. Key Judicial Precedents Cited
- CIT vs. Kotak Securities Ltd. [(2016) 67 taxmann.com 356 (SC)]:
The Supreme Court held that no TDS is deductible under Section 194J for services rendered by the stock exchange, which are standard and not personalized. - CIT vs. JDS Apparels (P) Ltd. [(2014) 370 ITR 454 (Delhi)]:
Held that TDS is not applicable on bank guarantee commission as banks do not act as agents. - ICDS Ltd. v. CIT [(2013) 350 ITR 527 (SC)]:
The Apex Court emphasized the narrow scope of “commission” and agency relationship under Section 194H.
These decisions support the principle that banking transactions with statutory charges do not attract TDS provisions.
What Section 40(a)(ia) Says
Section 40(a)(ia) disallows expenditure such as interest, commission, brokerage, rent, royalty, fees for professional or technical services, etc., if TDS is not deducted and paid.
However, for this section to apply:
- The payment must first fall under a TDS provision, and
- The assessee must have defaulted in deduction or deposit.
In this case, the ITAT ruled that since TDS was never applicable in the first place, the disallowance under Section 40(a)(ia) was unsustainable.
Tribunal’s Observations
The issue is no longer res integra and is covered in favour of the assessee by various judicial pronouncements. The disallowance made under Section 40(a)(ia) in respect of bank guarantee commission is hereby directed to be deleted.
Final Verdict
The ITAT allowed the assessee’s appeal on this ground and deleted the disallowance of ₹1,37,703, affirming that no TDS is deductible on bank guarantee commission.
Key Takeaways
- TDS under Section 194H or 194J does not apply to bank guarantee commission paid to banks.
- Section 40(a)(ia) disallowance requires valid TDS obligation, which did not exist in this case.
- Assessees must document the nature of banking payments clearly to avoid unnecessary disallowances.