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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI S.RIFAUR RAHMAN
O R D E R Per Saktijit Dey (JM): This is an appeal by the revenue against order dated 20-06-2019 of learned Commissioner of Income-tax (Appeals)-17, Mumbai for the assessment year 2013- 14. 2. The grievance of the revenue in the present appeal is with regard to deletion of disallowance of Rs.1,85,38,431/- made under section 40(a)(ia) of the Income-tax Act, 1961.
Briefly the facts are, the assessee is a resident company. As stated by the assessing officer, assessee is in the business of running five star deluxe hotels. For the assessment year under dispute, assessee filed its return of income on 27-11- 2013 declaring loss of Rs.3,42,86,88,928/-. In course of assessment proceedings, the assessing officer, on verifying the materials on record found that during the year under consideration the assessee, allegedly, has paid commission on credit cards to various banks without deducting tax at source in terms of section 194H of the Act. After calling for explanation from the assessee as to why disallowance of the commission paid should not be made under section 40(a)(ia) of the Act for non deduction of tax at source and rejecting assessee’s submissions, the assessing officer disallowed the amount ofRs.1,85,38,431/- under section 40(a)(ia) of the Act on the reasoning that the amount paid being in the nature of commission, is liable for deduction of tax at source as per section 194H of the Act. Assessee contested the aforesaid disallowance before learned Commissioner (Appeals). After considering the submissions of the assessee and having found that identical disallowance made in Assessment Year 2012-13 in assessee’s own case was deleted by his predecessor, followed and the same and deleted the disallowance made by the assessing officer.
We have considered rival submissions and perused materials on record. It is a common point between the learned departmental representative and the learned Authorized Representative of the assessee that the disputed issue is squarely covered by the decisions of the Tribunal in assessee’s own case for Assessment Years 2011-12 & 2012-13. Copies of the aforesaid orders of the Tribunal have also been submitted before us. As could be seen from the order passed in assessment year 2011-12 vide dated 16-02- 2016 on the identical issue of disallowance made under section 40(a)(ia) towards alleged non deduction of tax on credit card commission charged by banks, the Tribunal, following its earlier decision has upheld the decision of learned Commissioner (Appeals) in deleting the disallowance. The same view was reiterated by the Tribunal while deciding revenue’s appeal in assessee’s case for Assessment Year 2012-13 vide ITA No.5825/Mum/2016 dated 25-10-2017. The relevant observations of the Tribunal in this regard in Assessment Year 2012-13 is reproduced hereunder for better clarity:-
“7. We have perused the orders of the authorities below and the decisions relied on by the Ld.CIT(A) and find that the issue in appeal is squarely covered by the decision of the various Benches of the Tribunal referred to by the Ld.CIT(A) and the decision of the Hon'ble Delhi High Court in the case of CIT v. JDS Apparels P. Ltd (supra). The Hon'ble Delhi High Court considered on similar situation where the assessee made commission to the banks on the credit card transactions and it was held by the Hon'ble High Court as under: - "The amount retained by the bank is a fee charged by them for having rendered the banking services and cannot be treated as a commission or brokerage paid in course of use of any services by a person acting on behalf of another for buying or selling of goods. The intention of the legislature is to include and treat commission or brokerage paid when a third person interacts between the seller and the buyer as an agent and thereby renders services in the course of buying and/or selling of goods. This happens when there is a middleman or an agent who interacts on behalf of one of the parties, helps the buyer/seller to meet, or participates in the negotiations or transactions resulting in the contract for buying and selling of goods. Thus, the requirement of an agent and principal relationship. This is the exact purport and the rationale behind the provision. The bank in question is not concerned with buying or selling of goods or even with the reason and cause as to why the card was swiped. It is not bothered or concerned with the quality, price, nature, ITA.No.5825/MUM/2015 (A.Y: 2012-13) M/s. Hotel Leela Venture Ltd. quantum, etc. of the goods bought/sold. The bank merely provides banking services in the form of payment and subsequently collects the payment. The amount punched in the swiping machine is credited to the account of the retailer by the acquiring bank, i.e. HDFC in this case, after retaining a small portion of the same as their charges. The banking services cannot be covered and treated as services rendered by an agent for the principal during the course of buying or selling of goods as the banker does not render any service in the nature of agency."
The head note of the decision reads as under: - "The expressions 'Commission" and brokerage" are words of general and common parlance used both commercially and by the common man on the street. Clause (i) of the Explanation to section 194H of the Income-tax Act, 1961, expressly seeks to define the expression "Commission" or "brokerage" but states that it will include payments received or receivable, directly or indirectly by a person acting on behalf of another if they fall in the three categories. Clause (i) of the explanation to section 194H has been read as exhaustive and not as expansive. The assessee, for the Assessment Year 2009-10, was engaged in the business of trading in readymade garments. HDFC provided card swiping machines to the assessee. The assessee paid commission to HDFC on payments received from customers who had made purchases through credit cards. The details of the bill amount, etc., were thereupon forwarded to HDFC, which then made payment to the assessee after withholding or deducting the fee payable to HDFC. Thereafter, Revenue HDFC recovered the bill amount from the issuing bank of the customer. The Assessing Officer held that the amount earned by HDFC was in the nature of commission and should have been subjected to deduction of tax at source at 10 Per cent Under section 194H. As the commission had not been subjected to tax at source, ₹.44,65,654/- ITA.No.5825/MUM/2015 (A.Y: 2012-13) M/s. Hotel Leela Venture Ltd. should be disallowed under section 40a(ia) as this amount had been claimed as an expenditure by the assessee. The Commissioner (Appeals) held that the transaction was in the nature of bill discounting by HDFC, which had paid the bill amount after deducting the commission payable to the assessee. HDFC had taken up the entire risk relating to recovery of payment from the issuing bank. The Tribunal, however, held that the assessee had not violated section 194H. As a consequence, it held that the Assessing Officer was wrong in invoking section 40(a)(ia) and, accordingly, had erred in making the addition of ₹.44,65,654/- i.e. the charges deducted by HDFC on the payments made through credit cards. On appeal:
Held, dismissing the appeal, (i) that HDFC was not acting as an agent of the assessee. Once the payment was made by HDFC, it was received and credited to the account of the assessee. In the process, a small fee was deducted by HDFC. On swiping the credit card on the swiping machine, the customer whose credit card was used, got access to the internet gateway of the acquiring bank resulting in the realization of payment. Subsequently, HDFC realized and recovered the payment from the bank which had issued the credit card. HDFC had not undertaken any Act on "behalf" of the assessee. The relationship between HDFC and the assessee was not of an agency but that of two independent parties on principal to principal basis. HDFC was also acting and equally protecting the interest of the customer whose credit card was used in the swiping machines. HDFC or its employees were not present at the spot and were not associated with buying or selling of goods as such. Upon swiping the card, HDFC made payment of the bill amount to the assessee. Thus, the assessee received the sale consideration. In turn, HDFC had to collect the amount from the bankers of the credit card holder. HDFC had taken the risk and also remained out of pocket for some time as there would be a time gap ITA.No.5825/MUM/2015 (A.Y: 2012-13) M/s. Hotel Leela Venture Ltd. between the date of payment and recovery of the amount paid. Therefore, the amount retained by the HDFC was a fee charged for having rendered the banking services and could not be treated as a commission or brokerage paid in course of use any services by a person acting on behalf of another for buying or selling of goods. Therefore, section 194H would not be attracted.
(ii) That another reason why section 40(a)(ia) should not have been invoked in the present assessee was the principle of doubtful penalization which required strict construction of penal provisions. The principle applies not only to criminal statutes but also to provisions which create a deterrence and result in punitive penalty. Section 40(a)(ia) is a deterrent and a penal provision. It has the effect of penalizing the assessee, who has failed to deduct tax at source and acts to the detriment of the assessee's property and other economic interests. It operates and inflicts hardship and deprivation, by disallowing expenditure actually incurred and treating it as disallowed. The Explanation, therefore, requires a strict construction and the principle against doubtful penalization would come into play. The detriment in the present assessee would include initiation of proceedings for imposition of penalty for concealment, as was directed by the Assessing Officer. The principle requires that a person should not be subjected to any sort of detriment unless the obligation is clearly imposed. When the words are equally capable of more than one construction, the one not inflicting the penalty or deterrent may be preferred. The principles and interpretations can apply to the taxing statues.
HDFC would necessarily have acted as per law and it was not the case of the Revenue that HDFC had not paid taxes on its income. It was not a case of loss of revenue as such or a case where the recipient did not pay its taxes." ITA.No.5825/MUM/2015 (A.Y: 2012-13) M/s. Hotel Leela Venture Ltd.
Following this decision and the decision in assessee's own case in the earlier years Ld.CIT(A) deleted the disallowance made u/s. 40(a)(ia) r.w.s. 194H of the Act. We do not see any good reason to interfere with the decision of the Ld.CIT(A) in deleting the disallowance made u/s.40(a)(ia) of the Act. Thus we uphold the order of the Ld.CIT(A) and reject the grounds of appeal
of the Revenue.”
5. Facts being identical, respectfully following the decisions of the Tribunal in assessee’s own case as referred to above, we uphold the decision of learned Commissioner (Appeals) on the issue by dismissing the ground raised.