Kotak Securities Limited vs. DCIT (ITAT Mumbai)

s. 194H TDS: In absence of principal-agent relationship, payment, though called “commission”, not covered

The assessee obtained a bank guarantee and paid ‘bank guarantee commission’. The AO & CIT (A) took the view that since the payment was characterized as “commission” it fell within the ambit of s. 194H and the assessee ought to have deducted TDS. The assessee was held liable as assessee-in-default u/s 201. On appeal by the assessee, HELD reversing the AO & CIT (A):

S. 194H defines the expression “commission or brokerage” to include any payment received by a person acting on behalf of another person for services rendered or for any services in the course of buying or selling of goods …. Applying the principle of noscitur a sociis & ejusdem generis, the expression “commission” has to take its colour from the expression “brokerage”. As the expression “brokerage”, in common parlance and in law, means ‘fees or commission given to or charged by a broker’, the expression ‘commission’ must be confined to a payment made to agents etc for effecting sales and carrying out business transactions and cannot extend to payments which are for services rendered or products offered on a principal to principal basis. A principal-agent relationship is a sine qua non for invoking the provisions of s. 194 H. As there is no principal agent relationship between a bank issuing the bank guarantee and the assessee, the payment, though termed “commission”, is not covered by s. 194H (SRL Ranbaxy Ltd vs ACIT referred).