DCIT-1(3)(1), MUMBAI vs. M/S FUTURE ENTERPRISES LIMITED, MUMBAI

The present appeal has been filed by the Revenue challenging the impugned order dated 23/12/2022, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2013-14.

M/s. Future Enterprises Limited ITA no.512/Mum./2023 ex–parte, qua the assessee after hearing the learned Departmental Representative (“learned DR”) and on the basis of material available on record.

“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to delete the disallowance made u/s 40(a)(ia) amounting to Rs. 37,36,72,805/- on account of non deduction of tax on service fees retained by the bank on credit card charges whereas the AO has in the order passed held that commission paid to credit card charges be considered as failing within the preview of section 194H and 194] of the Act.

2. The Appellant prays that the order of the CIT(A) on the above ground be set aside and that of the DCIT 1(3)(1), Mumbai be restored.

3. The Appellant craves leave to amend or alter any grounds or add a new ground which may necessary.”

M/s. Future Enterprises Limited ITA no.512/Mum./2023 merchant establishment in dealing with 3rd parties. It was further submitted that the payments made by credit/debit cards are more convenient means of payment, to which end, the bank and the merchant establishment have agreed to certain terms and conditions facilitating such credit card payments. The assessee relied on various judicial pronouncements in support of its plea that TDS is not deductible under section 194H of the Act on such payments. The Assessing Officer (“AO”) vide order dated 31/03/2016, passed under section 143(3) of the Act did not agree with the submissions of the assessee and held that mode of payment between the assessee and the banks is clearly covered by the provisions of section 194H, as the banks provide credit card facilities to the assessee and for that commission is charged by them, but there is no reason why the assessee should not deduct TDS on such payment/expenses debited in the profit and loss account. Accordingly, the AO held that the provisions of section 194H of the Act are clearly attracted to the transactions between the banks and the assessee for charging commission on providing credit card facilities. As a result, the AO disallowed commission on credit cards of Rs.37,36,72,805 under section 40(a)(ia) of the Act, on which no TDS was deducted by the assessee.

M/s. Future Enterprises Limited ITA no.512/Mum./2023 The Indian Hotels Company Ltd. (ITA No. 4935/Del./2015 dated 13/02/2019). Being aggrieved, the Revenue is in appeal before us.

“Ground No. 2 to 9. Since all the above grounds raised by the revenue are inter-connected and inter related and pertains to the disallowance under section 40(a)(ia) of the Act in respect of commission on credit card companies paid to various banks for non- deduction of tax at source which was reversed by the CIT(A). As per the facts of the case, during the course of the assessment proceedings, the Assessing Officer disallowed the commission on credit card paid to various banks under Section 40(a)(i) of the Act by holding that the credit card transaction was in nature of commission for providing complex services by using sophisticated professional skill and technology and consequently the provisions of section 194H of the Act were attracted. The Assessing Officer also held on a without prejudice basis that the commission was paid for technical services subject to deduction of tax under section 1943 of the Act. The Ld.DR appearing on behalf of the revenue relied upon the order of the A.O. whereas the Ld.AR relying on the decision of the CIT(Appeals) as well as decisions of the co-ordinate bench of the Tribunal in the case of ACIT v. Jet Airways India Ltd (146 ITD 682) and Delhi Tribunal in the case of JDS Apparels (P.) Ltd. (370 ITR 454), contended that the aforesaid commission was not subject to deduction of tax under section 194H/section 194J. We have heard the counsels for both the parties on this ground and we have also perused the material placed on record as well as the orders passed by the revenue authorities. At the outset, we find that the Assessee has correctly placed reliance on the decision of the co-ordinate bench in the case of ACIT v. Jet Airways India Ltd (146 ITD 682) wherein it was held that "Payments to banks for utilization of credit card facilities are in nature of bank charges, and not commission, and therefore, no tax is deductible at source under section 194H".

M/s. Future Enterprises Limited ITA no.512/Mum./2023

The Delhi High Court in the case of JDS Apparels (P.) Ltd (370 ITR 454) has held that Commission' to bank on payments received from customers who had made purchases through credit cards is not liable to TDS under section 194H of the Act. This issue has also been decided in favour of the assessee by various Tribunals in the following cases:  Gems Paradise v. ACIT [IT Appeal No. 746 (JP) of 2011, dated 2.2.2012  Bhandari Jewellers v. ACIT [IT Appeal No. 745 (JP) of 2011, dated 2-2- 2012]  Tata Teleservices Ltd. v. Dy. CIT [2013] 140 ITD 451/29 taxmann.com 261 (Bang.) (para 8) and  Dy. CIT v. Vah Magna Retail (P.) Ltd [IT Appeal No.905 (Hyd.) of 2011, dated 10- 4-2012] Respectfully following the decisions cited above, it is held that the commission paid to the credit card companies is not subject to the TDS provisions of the Act. Accordingly the disallowance made by the Assessing Officer cannot be sustained and the Order of the CIT(Appeals) deleting the aforesaid disallowance, is upheld. Therefore, these grounds raised by the revenue are dismissed.”