ITO(TDS) 3(4), MUMBAI vs. TRIBHOVANDAS BHIMJI ZAVERI LTD, MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

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 deductible u/s.194H by the assessee company on the amount held by the banks/credit card agencies as transaction charges in respect of credit card services provided ignoring the fact that in the entire process of facilitation of credit card, the bank is nothing but a constructive agent for the assessee company. 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 charged to the assessee company by the bank/credit card agencies within the purview of section 194H of the I.T.Act, 1961.”

3. The brief facts of the case are that the assessee is a retail merchant engaged in the business of Internet Service Provider. A survey u/s.133A of the Income Tax Act, 1961 ( in short “the Act”) was conducted in the case of M/s.HDFC Bank Limited. Credit card transaction was found. Assessing Officer discussed the transaction that in credit card transactions there are five players involved in the transactions. These are:-

ITA No.5418/M/2014 A.Y. 2012-13 i. Credit card holder (customer), ii. Credit card issuing bank iii. Credit card acquiring Bank, (HDFC Bank) iv. Retail merchant (Assessee company) v. Bill settling agency (BSA) An issuing bank issues credit card to the customer. An acquiring bank provides swiping machine to retail merchant. Bill Settling Agency (BSA) which is Visa / Master Card in this case facilitates transfer of bill amount. When a retail merchant swipes a credit card for receiving payment from customers the bill details and amount are forwarded to the acquiring bank which makes payment of the bill amount to the retail merchant and withholds its discount in nature of commission for providing services to the retails merchant. The acquiring bank then through BSA recovers the bill amount from the issuing bank. Thus, the acquiring bank facilitates recovery of bill amount on behalf of retail merchant for which it charges discount in nature of commission. The acquiring bank renders services for recovery of the bill amount to the retail merchant and hence acts as agent of the retail merchant. Therefore, the discount in nature of commission withheld by the acquiring bank while making payment to the retail merchant should be subjected to TDS as stipulated under the provisions of Chapter XVII- B @ 10% u/s.194H of the Act. The acquiring bank withheld an 3 A.Y. 2012-13 amount of Rs.1,21,96,575/- and the assessee did not deduct the TDS, therefore, the Assessing Officer applied the provision u/s.201(1) and 201(1A) of the Act in view of the default u/s.194H of the Act and assessed the tax TDS @ 10% i.e.Rs.12,19,657/- and interest thereon. Feeling aggrieved the assessee filed an appeal before the CIT(A) and the CIT(A) by relying upon the decision of ITAT in case titled as M/s.Jet Airways (India) Ltd. in ITA Nos.7439, 7440 & 7441/M/2010 dated 17.07.2013 for A.Y.2007-08 to 2009-10 deleted the said addition, therefore, the revenue has filed the present appeal before us.

ITA No.5418/M/2014 A.Y. 2012-13 “9. We have carefully considered the submissions of the ld. Representatives of the (1A) (1A) is bad in parties and the orders of the 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 Gems Paradise (supra) and the Tribunal held vide paragraph 27 of the 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 bank makes payment to the assessee after deducting agreed fees as per terms and conditions in case of credit A.Y. 2012-13 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 Le. issuance of credit cards. Bank issues credit card to the various customers who purchase the various credit cards on the agreed terms and conditions. One of the major 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 bank 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 bank has to make the payment to the shop keeper. Therefore, in our considered view, there is no such relation between the bank and the shop keeper which established the relationship of a 6 A.Y. 2012-13 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 bills, 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 bank issued credit cards to the credit card holders on certain fees or whatever the case may be and the card purchases material from the market through his credit card without making any payment and that shop keeper presents the bill to the bank against whose credit card the goods were sold and on presentation of bill as stated above the bank 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 and confirmed by ld. CIT(A) was not justified. Accordingly, the addition made and confirmed by ld. CIT(A) is deleted.”