DCIT 5(2), MUMBAI vs. KOHINOOR TELEVIDEO P.LTD, MUMBAI

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ITA 6601/MUM/2014Status: DisposedITAT Mumbai21 December 2016AY 2010-114 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to delete the disallowance on credit card payments, following a precedent that such payments are bank charges, not commission. For director incentives, the Tribunal agreed with the CIT(A)'s partial disallowance based on reasonableness.

What were the facts?

The Revenue appealed against the CIT(A)'s order concerning disallowance of TDS on credit card payments and incentives paid to directors. The AO had disallowed payments to HDFC Bank for credit card transactions and incentives to directors.

What were the issues?

Whether payments to HDFC Bank for credit card transactions are liable for TDS under Section 194H, and whether incentives paid to directors were reasonable and not a distribution of dividend.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia),Section 40A(2b)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, MUMBAI BENCHES “A” MUMBAI

Before: SHRI MAHAVIR SINGH & SHRI N.K. PRADHAN

For Respondent: Shri Rajesh Kumar Yadav
Hearing: 21/12/2016Pronounced: 21/12/2016

ORDER

PER N.K. PRADHAN, AM

1.

This is an appeal filed by the Revenue. The relevant assessment year is 2010-11. The appeal is directed against the order of the Commissioner (Appeals)-9, Mumbai and arises out of order u/s 143(3) of the Income Tax Act, 1961 (the ‘Act’). The grounds of appeal filed by the assessee read as under:-

i. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing assessee’s appeal regarding disallowance u/s 40(a)(ia) of Rs. 13,99,370/- paid to HDFC Bank Ltd., towards credit card transaction though the payment was in the nature of commission and was liable to withholding tax? ii. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in partly allowing assessee’s appeal on payment of incentives to directors, amounting to Rs. 32,32,800/- even when work of director was not related to retail sale? He failed to appreciate that such payment amounted to distribution of dividend and was a colourable device.

2.

We begin with 1st ground of appeal. The AO has disallowed Rs. 13,99,370/- u/s 40(a)(ia) on the ground that the assessee-company has not made TDS in respect of credit card commission / discount paid to M/s. HDFC Bank Ltd. In appeal, the learned CIT(A) followed the order of the ITAT Bangalore in Tata Teleservices Ltd. vs DCIT(TDS) (2013) 29 taxman.com 261 and allowed the concerned ground of appeal.

2.1 We find that a similar issue arose Tata Teleservices Ltd.(supra). In that case, the assessee had arrangement with several banks whereby customers of assessee, who also held credit card of such banks, could make payment for communication services utilised by them from the assessee through credit card. The revenue authorities held that fee retained by bank was in nature of commission and, therefore, assessee ought to have deducted tax at source on such payment. The Tribunal held that payments to bank on account of utilisation of credit card facilities would be in the nature of bank charge and not in the nature of commission within meaning of section 194H. In view of the above, the Tribunal set aside the order of the authorities below.

2.2 We follow the above order of the Tribunal and uphold the order learned CIT(A) in deleting the addition of Rs. 13,99,370/- made by the AO.

3.

We now come to 2nd ground of appeal. We find that learned CIT(A) has passed an order with sufficient reasons as can be seen below:

“After considering the rival submission, I partly agree with A.O. as well as the appellant. The payments to directors of the company are governed by the provisions of section 40A(2b) of I.T. Act, therefore, while allowing / disallowing the payments made to the directors one has to primarily see the reasonableness of payments made to the directors. In the instant cases, it is noted that there had been an abnormal increase in the total payments made to the directors by way of salary and incentives, the total payments to the directors )including salary and inventive) has been more than double in ant of one stroke, which cannot be held reasonable, considering the fact that there is no corresponding abrupt increase in the turnover. However, considering the material fact that there had been no increase in remuneration of the directors from A.Y. 2004-05 which remain static at Rs. 12 lacs per annum., therefore, considering the normal rate of inflation / increase in the remuneration F@10% p.a., I consider it reasonable to allow 60% incentives (@10% hike in remuneration during last six years from A.Y. 2004-05). Accordingly, the disallowance of incentive is restricted to 40% of incentive payments. This ground of appeal is, therefore, partly allowed.”

3.1 We agree with the above order of the learned CIT(A) as the same is based on reasons.

4.

In the result, the appeal filed by the revenue is dismissed

Order pronounced in the open court on 21/12/2016

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