Guarantee commission not 'Levy' for the purposes of disallowance under Section 40(a)(iib) of the IT Act

Last updated: 15 November 2021

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The Income Tax Appellate Tribunal (ITAT) has ruled that guarantee commission paid by a state government undertaking is a contractual payment, not a 'levy' for the purposes of disallowance under Section 40(a)(iib) of the Income Tax Act. The tribunal found that such commission is paid for the state government's potential detriment and is not based on the government's power to impose a levy. Therefore, disallowing the guarantee commission under this section was deemed unsustainable.

Court :
ITAT Bangalore

Brief :
In M/s. Krishna Bhagya Jala Nigam Ltd. v. Assistant Commissioner of Income Tax, Bangalore [ITA 3064 /BANG/2018, decided on November 10, 2021], Hon'ble Income Tax Appellate Tribunal, Bangalore ("ITAT") held that guarantee commission paid in consideration for the state government agreeing to suffer a detriment in the event of non-payment of the bonds on its maturity and is merely a contractual paymentand not levy.

Citation :
ITA 3064 /BANG/2018, decided on November 10, 2021

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Judgement posted by

Bimal Jain

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FCA, FCS LLB with21 Yrs of Experience inTaxation Indirect and Direct: Education Qualification: B.Com (Hons) Chartered Accountants Company Secretary LLB Qualified SAP FI/CO Consultants Professional Membership: Chairmanof Indirect Tax Committee of PHD Chamber of Commerce Member of Indirec ... Read more

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