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Before: SHRI MAHAVIR SINGH & SHRI ASHWANI TANEJA
Per Ashwani Taneja, AM:- This appeal has been filed by the Revenue against the order passed by the Commissioner of Income-tax (Appeals)-14 [hereinafter called CIT(A)] dated 09.07.2014 passed against the order of the AO u/s 201(1) and 201(1A) of the Act dated 11.03.2013 for assessment year 2012-13 on the following grounds:-
Grounds of Appeal:
2 Mobile stores I.T.A.No.5993/M/2014 i) “On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made u/s 201(1)/201(1A) of the I.T. Act, holding that no TDS was deductable u/s 194H by the assessee company on the amount held by the banks/credit card agencies as service charges in respect of credit card services provided and by further holding that the bank/credit card agencies are not agencies are not agencies of the assessee and thereby clearly ignoring the fact that in the entire process of facilitation of credit card, the bank is nothing but a construction agent for the assessee company and nothing else. ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in failing to appreciate the real and true nature of the relationship between the assessee company and bank/credit card agencies. iii) On the facts and in the circumstances of the case and in law, the Ld.CIT(A ) erred in failing to appreciate that in substance and in fact relationship between the assessee company and bank/credit card agencies was in the nature of principal and agents relationship and therefore, the Ld. CIT(A) erred in not upholding the AO’s conclusion of bringing the charges to the assessee company by the bank/credit card agencies within the purview of section 194H of the I.T. Act,1961.
2. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary at the time of the hearing of the case or thereafter.
3. The order of the CIT(A) being erroneous be set aside and Ld. AO’s order be restored”.
It is noted that solitary issue raised by the appeal by the Revenue is whether assessee was liable to deduct TDS u/s 194H on the credit care collection charges paid to banks/credit card agencies in respect of credit cards service provided by them.
During the course of hearing it was stated at the outset by the Ld. Counsel of the assessee that this issue is covered in favour of the assessee by 3 Mobile stores I.T.A.No.5993/M/2014 order of the Tribunal passed in assessee own case dated 01.09.2016 in I.T.A.Nos. 793 &794/Mum/2014 of assessment years 2010-11 & 2011-12.
Per contra Ld. DR fairly submitted that issue involved is identical, no 4. distinction was made by him on law or on facts.
We have gone through the orders of the lower authorities and order passed by the Tribunal mentioned above. It is noted by us that this identical issue was already decided by the Tribunal in assessee own case in the aforesaid order as under:-
“We have heard the rival contentions and gone through the facts and circumstances of the case. The facts of the case are admitted and there is no dispute about it. None of the parties i.e, Revenue or the assessee has disputed the facts of the case. The only issue remains before us is whether the charges deducted by the bank for use of swiping machines for sales through credit card is commission or not and consequentially the same falls under the provisions of Section 194H of the Act for deduction of TDS. We find from the facts of the case that the transaction charges were withheld by HDFC Bank Ltd., Axis Bank and Punjab National Bank for the assessment year towards credit card collection charges which are in the nature of bank charges from the payments made by them for sale to customers. Thus, we understood that the bank pays the net amount of collection after deducting the bank charges. It is a fact that bank is a financial institution and financial intermediary, who accepts deposits and channel those deposits into lending and other business activities. Over and above this, bank also conducts various banking operations in its ordinary course of business activities i. e. bank guarantee, credit card collection, overdraft facilities etc. towards which the bank imposes charges/fee on principal to principal basis. Before us, in the instant case, the bank charged fee in respect of credit card collection charges on principal to principal basis. According to us, credit card charges are nothing but charges charged on principal to principal basis for the reason that bank accepts the commitment of making all credit card payments after deducting its own charges, which are related to this commitment and does not fall 4 Mobile stores I.T.A.No.5993/M/2014 u/s 194H of the Act in term of 'commission". We are of the view that the provisions of section 194H of the Act are applicable in those cases where element of agency is present. But, in the present case, there is no such element of agency between the assessee and the bank. The above payments represent the charges paid to the bank for facilitating the payments by the customers. This is the modern and easiest way of doing business, which has been internationally accepted all over the world. Since there is no existence of agency, we are of the view that the provisions of section 194H of the Act cannot be applied to the assessee”.
6. Further, from the above discussion, an inference can be drawn that the commission and brokerage is required to be paid directly or indirectly to a person acting on behalf of another person for services rendered or for any service in the course of buying and selling of goods or in relation to any transaction relating to any asset, valuable article or things not being securities. A close look at the provision of section 194H of the Act would clearly indicate that commission or brokerage is required to be paid directly or indirectly to a person who is rendering services in the course of buying or selling of goods or any other assets or valuables. In the present case before us, mobile or allied items are being sold by the assessee to the purchasers at full cost and instead of receiving payments from the buyers towards the bill raised on them; the assessee receives payments from the bank i.e. the intermediary. The bank pays to the assessee as soon as sales take place but the system does not give rise to any agency between the assessee and banks for the reason that the banks are not helping in sale of items or not even acting on behalf of the assessee. It merely acts as a mechanism to facilitate payment to the assessee, which has developed with the paucity of time due to development of business and frequency of purchases by the customers. Accordingly, in our view, the amount retained by the banks cannot be termed as commission so as to attract the provision of section 194H of the Act.
7. The reliance placed by the learned Counsel for the assessee in the case of ITO - TDS Vs. Jet Air Ways (India) Ltd. [2014] 147 lTD 133 (Mumbai Tribunal) wherein similar issue was decided as under:- “4.We have carefully considered the submissions of the id. Representatives of the parties and the orders of the 5 Mobile stores I.T.A.No.5993/M/2014 authorities below. We have also carefully considered the provisions of section 194H of the Act. We observe that the similar issue has been considered by the Jaipur Bench of' the Tribunal in the case of M/s. Gems Paradise (supra) and the Tribunal held vide paragraph 27 of/he said order that the provisions of' section 194H of the Act are not applicable as the banks make payments to the assessee after deducting certain fees as per the terms and conditions in the credit card and it is not a commission but a fee deducted by the banks. The said paragraph 27 of' the order is reproduced below: "27. After considering the orders of the AO and ld. CIT (A), we find that assessee deserves to succeed in this regard. Section 194H is applicable where any commission has been paid by the Principal to the commission agent. This is not a case of commission agent as assessee sold its goods through credit card and on presentation of' bill issued against credit card, the TAXPUNDIT. ORG bank makes payment to the assessee after deducting agreed fees as per terms and conditions in case of credit card. This is not a commission payment but a fees deducted by the bank. If there is an agreement, that is agreement between the credit cardholder and the bank. Bank is a Principal and to spread over its business, a scheme is floated by bank i.e. issuance of credit cards. Bunk issues credit card to the various customers who purchase the various credit cards on the agreed terms and conditions. One of the ma/or condition is that if credit card holder does not make payment within the prescribed time limit then they, charge 2% penal amount of bill which is raised by the shop keeper against sale of its items through credit card. Bank cannot refuse the payment to the shop keeper who sale their goods through credit card. Only in those cases where goods are found damaged and credit card holder inform the hank that the material purchased by them is damaged or defective and request the bank not to make the payment, in such cases only bank can withhold the payment, otherwise the hank has to make the payment to the shop keeper. Therefore, in our considered view, there is no such relation between the hank and the shop keeper which establishes the 6 Mobile stores I.T.A.No.5993/M/2014 relationship of a Principal and Commission Agent. Technically it may be written that bank will charge certain percentage of commission but this is not a commission because assessee sells its goods against credit cards, and on presentation of hills, the bank has to make the payment. It is not the case that bank has advised the assessee to sell their goods to its customers then he will pay the commission. It is reversed in a situation as hank issued credit cards to the credit card holders on certain fees or whatever the case may be and the card holder purchases material from the market through his credit card without making any payment and that shop keeper presents the bill to the hank against whose credit card the goods were sold and on presentation of bill as staled above the hank makes the payment. Therefore, in our considered view, provisions of section 194H are not attracted in this type of transaction. Therefore, we hold that addition made and confirmed by id. CIT (A) was not justified. Accordingly, the addition made and confirmed by Id. CIT (A) is deleted”.
We observe that the said issue was again considered by the Jaipur Bench of the Tribunal in the case of Bhandari Jwellers (supra) and following the above decision of the Tribunal, the Tribunal vide paragraph 7 of the said order again held that the provisions of section 1941-I of the Act are not attracted in this type of transactions. It was held that no TDS is required to the deducted on the fees charged by the bank on credit card transactions. We also observe that the similar issue again come up before the Hyderabad Bench of the Tribunal in the case of M/s Vah Magna Retail P) Ltd (supra) and the Tribunal vide paragraph 4 of the said order dismissed the appeal of the department by holding that the amount retained by the principal contractor from the payments made to the contracting persons and there was no requirement for making TDS on the amount. The said paragraph 4 of the order reads as under: "4. We heard the Learned Departmental Representative and perused the orders of the lower authorities and other material on record. Assessee is a company engaged in the business of direct 7 Mobile stores I.T.A.No.5993/M/2014 retail trading in consumer goods. Assessee claimed deduction of Rs. 16.34.00') on account of commission paid to the credit card companies. which has been disallowed by the assessing officer in terms of S.4O(a)(ia) on account of the failure of the assessee to deduct tax at source in terms of S. 194H of the Act, while making the said commission payments. It was the contention of the assessee before the lower authorities that the assessee only receives the payment form the bank/credit card companies concerned, after deduction of commission thereon, and thus, this is only in the nature of a post facto accounting and does not involve any payment or crediting of the account of the banks or any other account before such payment by the assessee. Considering these submission of the assessee, the CIT(A) accepted the claim of the assessee for deduction of the amount of Rs. 16,34, 000 on the following reasoning . "9.8 On going through the nature of transactions, I find considerable merit in the contention of the appellant that commission paid to the credit card companies cannot he considered as foiling within the purview of S.194H. Even though the definition of the term "commission or brokerage" used in the said sec/ion is an inclusive definition, it is clear that the liability to make TDS under the said section arises only when a person acts on behalf of another person. In the case of commission retained by the credit card companies however, it cannot he said that the hank acts on behalf of the merchant establishment or that even the merchant establishment conducts the transaction for TAXPUNDIT. ORG the bank. The sale made on the basis of a credit card is clearly a transaction of the merchants establishment only and the credit card company only facilitates the electronic payment, for a certain charge. The commission retained by the credit card company is there in the na tu re o f normal bank charges and not i n the n at ur e of commission/brokerage for acting on behalf of the merchant establishment. Accordingly, concluding that there was no requirement for making TDS on the 'Commission retained by the credit card companies, the disallowance of Rs. 16,34, 000 is deleted" We find no infirmity in the above reasoning given by the CIT(A). We accordingly uphold the order of the CIT(4) and reject the grounds of the Revenue which are devoid of merit. We also observe that the Bangalore Bench 8 Mobile stores I.T.A.No.5993/M/2014 of the Tribunal following the said decision of the Hyderabad Bench of the Tribunal has held that the payments made to the banks on account of utilization of credit card facilities would be in the nature of hank charges and not in the nature of commission within the meaning of section 194H of the Act and hence no TDS is required to be deducted u/s 194 H of the Act. In view of/he above we hold that the issue is squarely covered in favour of the assessee. Respectfully following the decisions of the Co-ordinate Benches of the Tribunal we uphold the order of the Id. CIT(A) and reject the grounds No.1 to 3 taken by the department for all the three assessment years under consideration ".
In view of the facts and circumstances of this case, we are of the view that credit card charges are nothing but charges charged on principal to principal basis for the reason that bank accepts the commitment of making all credit card payments after deducting its own charges, which are related to this commitment and does not fall u/s 194H of the Act in term of “Commission”. Accordingly, we are of the view that the provisions of section 194H of the Act are applicable in those cases where elements of agency is present, which is absent in the present case, and in our view, the amount retained by banks cannot be termed as commission so as to attract the provisions of section 194H of the Act. Hence, we confirm the orders of the CIT(A) and dismiss these two appeals of the Revenue.
It is noted by us that Tribunal has gone through the facts of the case and provisions of law and held that the payments made by the assessee represented charges paid to the bank for facilitating the payments made by the customers and there was no existence of element of agency between the asseessee and the bank. Thus these payments were not akin to payment of commission as stipulated u/s 194 H of the Act. Thus assessee was not liable to deduct TDS upon the same u/s 194H of the Act.
9 Mobile stores I.T.A.No.5993/M/2014 7. In these circumstances we find that no interference is called for in the order passed by the CIT(A), therefore, same is upheld.
As a result appeal filed by the Revenue is dismissed.
Order was pronounced in the open court at the conclusion of hearing.