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Income Tax Appellate Tribunal, MUMBAI BENCHES, ‘B’ MUMBAI
Before: Shri Joginder Singh, & Shri D. Karunakar Rao
Per Joginder Singh(Judicial Member) The Revenue is aggrieved by the impugned order dated 06/06/2014 of the ld. First Appellate Authority, Mumbai. The only ground raised in the present appeal pertains to deleting the addition made u/s 201(1)/201(1A) of the Income Tax Act, 1961 (hereinafter the Act), holding that no TDS was deductible u/s 194H by the assessee on the amount held by the banks/credit card agencies 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.
During hearing, the ld. DR, Shri Aarsi Prasad, advanced arguments which is identical to the ground raised by defending the assessment order. On the other hand, Shri Tanmay Phadke, ld. counsel for the assessee defended the conclusion arrived at in the impugned order. Reliance was placed upon the decision in the case of DCIT vs M/s Vah Magna Retail Pvt. Ltd. (ITA No.905/Hyd/2011/Trib.), Income Tax Officer vs Jet Airways (India) Ltd. 28 ITR 582 (Mum.), CIT vs JDS Apparels Pvt. Ltd. 370 ITR 454 (Del.)(HC). The ld. DR did not controvert the cases relied upon by the assessee.
2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief,
3 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd. are that the ld. Assessing Officer while completing the assessee company held that the assessee committed default u/s 201(1)/201(1A) of the Act, by holding that the assessee company should have deducted tax of Rs.11,63,622/- (10.03% of Rs.1,12,97,299/-). The ld. Assessing Officer did not appreciate the fact that the said sum withheld by acquiring bank is not in the nature of commission and thus cannot be subjected to TDS u/s 194H as there do not exist any principle-agent relationship between the company and the bank. Mere providing of swipe machine does not entail a bank to be an agent of the assessee company.
2.2. In the light of the foregoing discussion, if the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that the impugned issue squarely covered by the decision of the Mumbai Bench of the Tribunal, in the case of Kotak Securities Ltd. (ITA No.6657/Mum/2011. The Tribunal in the case of Kotak Securities Ltd. vs DCIT, identically vide order dated 03/02/2012 held as under:-
“2. To adjudicate on this appeal, only a few material facts need to be taken note of. The assesse is a company engaged in stock broking business and is a Member of the Bombay Stock Exchange and National Stock Exchange. During the course of business carried on by the assessee, assessee furnishes bank
4 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd. guarantees, mainly in lieu of margin deposits, to various agencies, such as BSE and NSE. In consideration for issuance of such bank guarantees, banks charge the fees, which is termed as, ‘bank guarantee commission’. On 16th November 2006, the assessee was subjected to a survey under section 133A. During the course of this survey, it was noticed that the assessee was not deducting any tax at source from the payments made by the assessee to the banks in respect of ‘bank guarantee commission’. In response to the Assessing Officer’s requisition to show cause as to why action not be taken against the assessee for non- deduction of tax at source from bank guarantee commission payments, it was inter alia submitted by the assessee that a plain reading of Explanation to Section 194 H, which deals with deduction of tax source from commission or brokerage payments, indicates that the element of agency is essential in case of all the services or the transactions contemplated by Explanation to Section 194 H, and that the transactions or services, which are on principal to principal basis, would not be governed by the said provision requiring tax deduction at source. The assessee also referred to various judicial precedents, including by Hon’ble Gujarat High Court in the case of Ahmedabad Stamp Vendors Association Vs Union of India (257 ITR 202), and by co ordinate benches of this Tribunal in the cases of Baidynath Ayurved Bhawan Ltd Vs JCIT (83 TTJ 409) and ACIT Vs The Samaj (71 TTJ783). None of these submissions, however, impressed the Assessing Officer. He was of the view that, in terms of the provision of Explanation to Section 194 H, ‘commission or brokerage” covers any payment, received or receivable – directly or indirectly, for any services in relation to any transaction relating to any asset, valuable or thing. He rejected the assessee’s submission regarding principal agent relationship being sine qua non for invoking the tax deduction at source requirements as “totally incorrect and devoid of any merits” and observed that “the Explanation to Section 194 H is very wide and covers any payments in the nature of any commission or brokerage for any services in relation to any transaction relating to any asset”. He further noted that the assessee has taken bank guarantees from various banks and
5 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd. these bank guarantees protect the stock exchanges from any default by the assessee and acts as security for due performance and fulfillment of obligations by the assessee. The bank guarantee commission paid by the assessee for these bank guarantees, according to the Assessing Officer, was liable for deduction at source under section 194 H. The assessee’s failure to deduct the tax source was, accordingly, visited with demands raised under section 201(1) r.w.s. 194H, to make good the shortfall in tax deduction at source, and under section 201(1A) r.w.s. 194 H, to compensate interest for delay in realizing the tax deduction at source revenues. Aggrieved by the stand so taken by the Assessing Officer, assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A) held that the definition of ‘commission or brokerage’, as given in Explanation to Section 194 H, is not exhaustive but only inclusive, which, in effect, implies that any payment for commission or brokerage, as understood in common parlance, will also be covered by the said provision. He inter alia observed that “it is evident that the Explanation seeks to include even those payments (besides normal commission or brokerage) which otherwise may not be called ‘commission or brokerage’ and which are in the nature of payment for services rendered (except for professional services which are covered u/s 194J) by an agent of a principal”. “This”, learned CIT(A) reasoned, “obviously does not mean that normal commission or brokerage payments are excluded from the purview of Section 194 H”. Learned CIT(A) thus upheld , and infact fortified, the stand of the Assessing Officer, and thus confirmed the impugned demands raised under section 201(1)r.w.s. 194 H and under section 201(1A) r.w.s. 194 H. The assessee is aggrieved and is in further appeal before us.
We have heard the rival contentions, perused the material on record and duly considered factual matrix of this case as also the applicable legal position.
Let us first take a look at Section 194 H, which is reproduced as follows:
6 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd. Commission or brokerage
194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent :
Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed five thousand rupees :
Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section: Provided also that no deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees.
Explanation.—For the purposes of this section,—
(i) “commission or brokerage” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities;
7 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd. (ii) the expression “professional services” means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA;
(iii) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) ;
(iv) where any income is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
A plain reading of the above provision indicates that tax withholding requirements under section 194H apply in respect of ‘commission or brokerage’, which, in turn, is defined by Explanation to Section 194 H. No doubt, this definition is inclusive but the fundamental question that we really need to consider in the first place is as to what are the connotations of expression ‘commission or brokerage’ in common parlance, and then proceed to deal with the inclusions thereto by the virtue of specific provision of law.
We find that the expression ‘commission’ and ‘brokerage’ have been used together in the statute. It is well settled, as noted by Maxwell in Interpretation of Statutes and while elaborating on the principle of noscitur a sociis, that when two or more words which are susceptible to analogous meaning are used together they are deemed to be used in their cognate sense. They take, as it were, their colours from each other, the meaning of more general being restricted to a sense analogous to that of less general. Explaining this principle in general terms, Hon’ble Shri M.K. Chaturvedi, the then Vice President (MZ) has, in Interpretation of Taxing Statutes (AIFTP Journal : Vol. 4, No. 7, July, 2002, at p. 7), in his inimitable words observed:
8 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd. Law is not a brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism. Similarly, the rules relating to interpretation are also based on common-sense approach. Suppose a man tells his wife to go out and buy bread, milk or anything else she needs, he will not normally be understood to include in the terms ‘anything else she needs’ a new car or an item of jewellery. The dictum of ejusdem generis refers to similar situation. It means of the same kind, class or nature. The rule is that when general words follow particular and specific words of the same nature, the general words must be confined to the things of same kind as specified. Noscitur a sociis is a broader version of the maxim ejusdem generis. A man may be known by the company he keeps and a word may be interpreted with reference to be accompanying words. Words derive colour from the surrounding words.
Broom’s Legal Maxims (10th Edn.) observes that "It is a rule laid down by Lord Bacon, that copulatio verborum indicat acceptationem in eodem sensu the coupling of words together shows that they are to be understood in the same sense."
Let us now deal with legal connotations of these two expressions, namely ‘commission’ and ‘brokerage’. The Law Lexicon (Edited by Justice Y.V. Chandrachud; 1997 Edn.) observes that "in commercial law, commission is a compensation to a factor or other agent for services to be rendered in making a sale or otherwise; a sum allowed as compensation to a servant, factor or agent who manages the affairs of others, in recompense for his services." According to the given definition, "It is an allowance, recompense or reward made to agents, factors and brokers and others for effecting sales and carrying out business transactions. It is generally calculated as a certain percentage on the amount of the transactions on the profits to the principal." The expression ‘brokerage’ is defined as ‘fees or commission given to or charged by a broker’. In turn a broker is defined as "a middleman or agent who, for a commission on the value of transaction, negotiates for others the purchase or sale of books, bonds or
9 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd. commodities, or property of any kind, or who attends to the doing of something for another".
In the light of the above discussions, and when we look at the connotations of expression ‘commission or brokerage’ in its cognate sense, as in the light of the principle of noscitur a sociis as we are obliged to, in our considered view, scope of expression ‘commission’, for this purpose, will be confined to ‘an allowance, recompense or reward made to agents, factors and brokers and others for effecting sales and carrying out business transactions’ and shall not extend to the payments, such as ‘bank guarantee commission’, which are in the nature of fees for services rendered or product offered by the recipient of such payments on principal to principal basis. Even when an expression is statutorily defined under section 2, it still has to meet the test of contextual relevance as section 2 itself starts with the words “In this Act ( i.e. Income Tax Act), unless context otherwise requires…”, and, therefore, contextual meaning assumes significance. Every definition in the Income Tax Act must depend on the context in which the expression in set out, and the context in which expression ‘commission’ appears in section 194 H, i.e. alongwith the expression ‘brokerage’, significantly restricts its connotations. The common parlance meaning of the expression ‘commission’ thus does not extend to a payment which is in the nature of fees for a product or service; it must remain restricted to , as has been elaborated above, a payment in the nature of reward for effecting sales or business transactions etc. The inclusive definition of the expression ‘commission or brokerage’ in Explanation to Section 194 H is quite in harmony with this approach as it only provides that “any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities” is includible in the scope of meaning of ‘commission or brokerage’. Therefore, what the inclusive definition really contains is nothing but normal meaning of the expression ‘commission or brokerage’. In the
10 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd. case of South Gujarat Roofing Tiles Manufacturers Association Vs State of Gujarat [(1976) 4 SCC 601], Hon’ble Supreme Court were in seisin of a situation in which an expression, namely ‘processing’, was given an inclusive definition, but Their Lordships were of the view that “there could be no other meaning of ‘processing’ besides what is stated as included in that expression” and that “Though ‘include’ is generally used in interpretation clause as a word of enlargement, in some cases context might suggest a different intention’. Their Lordships then concluded that though the expression used in the definition clause is ‘includes’, “it seems to us that the word ‘includes’ has been used here in the same sense of ‘means’; this is the only construction that the word can bear in this context”. In other words, an inclusive definition, as Their Lordships noted, does not necessarily always extend the meaning of an expression. When inclusive definition contains ordinary normal connotations of an expression, in our considered view, even an inclusive definition has to be treated as exhaustive. That is the situation in the case before us as well. Even as definition of expression ‘commission or brokerage’, in Explanation to Section 194 H, is stated to be exclusive, it does not really mean anything other than what has been specifically stated in the said definition. Therefore, as held by the coordinate benches in a number of cases including SRL Ranbaxy Ltd vs ACIT (ITA No. 434/Del/11; order dated 16.12.2011), Fosters India Ltd Vs ITO (117 TTJ 346), and Ajmer Zila Dugdh Utpadak Sangh Ltd Vs ITO (34 SOT 216), principal agent relationship is a sine qua non for invoking the provisions of Section 194 H. In the case before us, there is no principal agent relationship between the bank issuing the bank guarantee and the assessee. When bank issues the bank guarantee, on behalf of the assessee, all it does is to accept the commitment of making payment of a specified amount to, on demand, the beneficiary, and it is in consideration of this commitment, the bank charges a fees which is customarily termed as ‘bank guarantee commission’ . While it is termed as ‘guarantee commission’, it is not in the nature of ‘commission’ as it is understood in common business parlance and in the context of the section 194H. This transaction, in our considered view, is not
11 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd. a transaction between principal and agent so as to attract the tax deduction requirements under section 194H. We are, therefore, of the considered view that the CIT(A) indeed erred in holding that the assessee was indeed under an obligation to deduct tax at source under section 194 H from payments made by the assessee to various banks. As we have held that the assessee was not required to deduct tax at source under section 194 H, the question of levy of interest under section 201(1A) cannot arise. 10. In view of the above discussions, we quash the impugned demands under section 201(1) and 201(1A) r.w.s. 194 H . We, therefore, also see no need to deal with other peripheral legal issues raised by the assessee. 11. In the result, the appeal is allowed.” 2.3. In the aforesaid decision, the Tribunal has made an elaborate discussion by holding that there is no principal agent relationship between the bank issuing the bank guarantee and the assessee. In another case, in JDS Apparels Pvt. Ltd. vs CIT (ITA No.608 of 2014) order dated 18/11/2014 after having a discussion from the decision from Hon’ble Apex Court in Ahmadabad Stamp Vendor Association, CIT vs Idea Cellular Ltd (2010) 325 ITR 148 (Del.) held that the amount retained by the bank is a fee charged by them for rendering bank services and cannot be treated as commission or brokerage paid in the course of use of any services by a person acting on behalf of another for buying and selling the goods and thus, the banking services cannot be covered and treated as services rendered by an agent for the principle. It was held that the Assessing Officer was not justified in invoking section 40(a)(ia) of the
12 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd. Act and consequent addition i.e. the charges deducted by HDFC Bank on payment made through credit card. Thus, it is held that no TDS is payable on credit card charges u/s 194H of the Act as the assessee is not required to deduct TDS, consequently, cannot be said to be assessee in default u/s 201(1)/201(1A) of the Act. Identically, the Hyderabad Tribunal in the case of DCIT vs M/s VAH Magna Retail Pvt. Ltd. (ITA No.905/Hyd/2011), order dated 10/04/2012 held 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 retail trading in consumer goods. Assessee claimed deduction of Rs.16,34,000 on account of commission paid to the credit card companies, which has been disallowed by the assessing officer in terms of S.40(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 be considered as falling with in the purview of S.194H. Even though the definition of the term “commission or brokerage” used in the said section 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 be said that the bank acts on behalf of the merchant
13 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd. establishment or that even the merchant establishment conducts the transaction for 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 therefore in thenature of normal bank charges and not in the nature 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(A) and reject the grounds of the Revenue which are devoid of merit.
In the result, appeal of the Revenue is dismissed.”
2.4. Likewise, the Mumbai Bench of the Tribunal in
Income Tax Officer vs Jet Airways(I) Ltd. (2012) 147 ITD
0133 (Mum); (2013) 28 ITR (Tib.) 0582 (Mum.), on identical
issue held that no TDS is required to be deducted on the
fees charged by the bank on the credit card transactions.
The relevant portion of the order is reproduced hereunder:-
“4. The relevant facts are that the assessee is a company engaged in the business of aviation i.e. transportation of passengers and cargo by air. A survey action u/s 133A of the Act was carried out on 5.01.2009. After survey, proceedings were initialed u/s 201(1)/201(1A) of the Act in connection with the applicability of TDS on amounts retained by the banks in respect of air tickets booked through credit cards.
The AO has stated break up of the amounts retained by the various banks from the air tickets sold through the credit cards in respect of Financial Years relevant to the assessment years under consideration as under :
14 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd. S.No. Name of the Bank F.Y.2006-07 F.Y.2007-08 F.Y.2008-09 1 HDFC Bank 11,27,300 16,72,326 94,71,911 2 ICICI Bank 5,70,110 1,38,30,524 11,04,52,674 3 American Express Bank Ltd 66,60,679 2,21,63,275 Nil 4 American Express Banking Corp. Nil Nil 5,06,25,928
5 Citibank N.A. 38,03,002 46,65,085 1,19,07,358 Total 1,21,61,091 4,23,31,210 18,24,57,871
On behalf of the assessee it was stated during the course of proceedings that provisions of section 194H of the Act are not applicable on the above mentioned amounts retained by the banks as the amounts retained by the banks is in the nature of discounting in consideration of immediate payment made by the banks to the assessee. That such charges partakes the character of discounts which are not subject to tax deduction at source under the prevailing provisions of the Act. That in case of discounting charges retained by the banks there would be no case where one person would be acting on behalf of another, since the sale is concluded by the assessee on his own behalf and not by the banks on behalf of the assessee.
However, the AO did not accept the submissions of the assessee. The AO has stated that as per the agreement between the banks and the assessee, the banks suppose to provide the assessee the facility of their credit card internet payment gateway to enable the assessee to collect the payment made by the customer to it for orders placed through such facility by the such customer i.e the person holding credit card. That as per the agreement, there is no talk of any discount to be given by the assessee to the banks and such payments are the transactions charges. Therefore, such a payments made for use of the credit card, internet payment gateway to enable the assessee to collect the payments made by the customers to it for orders placed through facility by the said customers is squarely covered by the definition of "commission or brokerage" given in Explanation (i) below the third proviso to section 194H of the Act. Therefore, the AO has considered the following amounts subject to section 194H of the Act in the assessment years 2007-08 to 2009-10; and computed the default u/s 201(1) of the Act as under : F.Y.2007-08 F.Y.2008-09 F.Y.2009-10 Amount subject to sec.194H 1,59,66,891 1,61,52,907 13,16,30,392 Applicable rate u/s 194H 5.66% 11.33% 5.66% up to May 2007 11.33% Tax u/s 194H 9,03,723 17,78,004 1,49,13,718 Interest u/s 201(1A) 3,91,874 4,10,334 21,93,510
In view of the above, the AO directed to pay above amounts u/s 201(1) and interest levied u/s 201(1A) of the Act for the assessment years under consideration. Being aggrieved, the assessee filed appeals before the First Appellate Authority.
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On behalf of the assessee it was contended that the provisions of section 194H are applicable only in those cases where an element of agency is in existence. That since there was no element of agency between the assessee and the banks who are making the payment of tickets purchased by the bank's clients, are being made by the banks during the normal course of bank's business. That there is nothing on record to prove that an element of agency exists between the banks and the airlines. That the transactions between the banks and the assessee are based on principal to principal. It was contended that though an agreement exists between the assessee and banks, as discussed by the AO in the orders passed u/s 201(1)/201(1A) of the Act, but that agreement is only related to the services and facilities being offered by the banks for facilitating early payments to the assessee. Since there is no existence of agency between the banks and the assessee, it was contended that the provisions of section 194H cannot be applied. The assessee also filed detailed written submissions before the ld CIT(A), which has been reproduced by the ld. CIT(A) in the impugned order (at pages 5 to 11 of the order for AY-2007-08). The ld. CIT(A) after considering the submissions of the assessee has held that the action of the AO in invoking the provisions of section 194H of the Act cannot be upheld. He has stated that since the customers buy the tickets through credit card it became obligatory on the part of the banks whose credit card is being held by the customers to make the payment of the value of the ticket to the airlines immediately. That this payment is on behalf of the bank's customers holding credit card. While making the payment to the airlines the bank deducts a small percentage from the value of the tickets and retains the same as its service/discount charges etc. The ld. CIT(A) has stated that the bank in the normal discharge of its functions is making payments of the value of the tickets to the airline on behalf of its clients who are holding cards. While remitting the amount to the assessee, the bank deducts a small percentage out of it which can be said a service charge or discount or by any other name. The ld. CIT(A) has stated that the provisions of section 194H will not be applicable to the transactions between principal to principal. Section 194H can be attracted only in those cases where there is an existence of agency between the two parties. He has stated that an extract of the agreement stated by the AO in the orders passed u/s 201(1)/201(1A) of the Act do not lead to a conclusion that there is an existence of agency between the bank and the airline. The bank is merely granting use of the facility of its credit card internet gateway to the assessee to enable it to receive payments for services sold by it to the customer who are credit card holders. He has stated that termination clause in the agreement between the bank and the airline does not give rise to the agency. It is merely clause whereby the bank has safeguarded its interest only. The ld. CIT(A) after considering the decisions relied upon by the assessee in the case of Mother Dairy India Ltd V/s ITO (2009) 28 SOT 42 (Delhi-T rib) and the decision of Pune Bench of the Tribunal in the case of Government Milk Scheme V/s ACIT, 281 ITR 88(ITAT) has held that the conclusion of the AO is based on the agreement between the bank and airline that alleged commission retained by the banks out of value of the tickets is covered by the provisions of section 194H of the Act is not correct. The bank is merely making the payment to the airline on behalf of the customers who are holding credit cards. The bank is in no way helping the assessee to sell the tickets and the
16 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd.
banks' responsibility is only to the extent of paying to the assessee the value of the tickets which have been purchased by its clients through credit cards, which is normal function of the bank. In view of the above the department is in appeals before the Tribunal.
At the time of hearing, the ld. DR submitted that the amount retained by the bank out of the air tickets booked through the credit cards is covered by the Explanation (i) to section 194H of the Act as the said amount is a payment in respect of service charge. The ld. DR referred the decision of the Hon'ble Kerala High Court in the case of Vodafone Essar Cellular Ltd. V/s ACIT (2010) 194 TAXMAN 518 (KER.). However, the ld. AR supported the order of the ld. CIT(A) and submitted that the issue is covered squarely in favour of the assessee by the decision of the Jaipur Bench of the Tribunal, in the case of M/s. Gems Paradise V/s ACIT in ITA No. 746/JP/2011 (AY- 2008-09) dated 2.2.2012 and followed by the same Bench of the Jaipur Tribunal in Shri Bhandari Jewellers vs. The ACIT in ITA NO. 745/JP/2011(AY- 2008-09) dated 02.02.2012. The ld. AR further submitted that the similar issue was also considered by Bengalore Bench of the Tribunal in the case of Tata Teleservices Ltd V/s DCIT (2013)140 ITD 451(Bangalore) which has been decided by following the decision of Hyderabad Bench of the Tribunal in the case of DCIT V/s M/s Vah Magna Retail (P) Ltd in ITA No.905/Hyd/2011(AY-2007-08) dated 10.4.2012. The ld. AR filed the copies of the aforesaid orders to substantiate his above submissions. He further submitted that the reliance placed by the ld. DR on the decision of the Hon'ble Kerala High Court in the case of Vodafone Essar Celluar Ltd (supra) is not applicable to the facts of the case of the assessee as in that case, the assessee was carrying on the business of rendering a mobile telephone services to the customers through appointment of the distributors in the State. Under the Telecom Regulations, connection can be given only to customers producing identity, proof of address, etc. There was a distribution agreement, and under a distribution agreement, the distributor got customers for the assessee and all work in relation to collection of documents of identity of the customers, delivery of sim cards for giving connection to the customers, collection of charges, etc., was done by the distributor. That the assessee paid service charges to the distributor for the services rendered in regard to that service called 'post-paid services'. In that context the Hon'ble High Court held that the discount was given by the assessee, a Mobile cellular operator, to distributor for the services to be rendered by the distributor to the assessee and, so much so, it fall within the definition of commission or brokerage under the Explanation (i) to section 194H of the Act. The ld. AR submitted that in assessee's case there was no element of agency existing between the bank and the airline and the transactions between the banks and the assessee was based on principal to principal Hence the above case of Hon'ble Kerala High Court (supra) does not apply to the facts of the case of the assessee. On the contrary, he submitted that the issue is covered in favour of the assessee by the earlier decisions of the various Benches of the Tribunal.
We have carefully considered the submissions of the ld. Representatives of the 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
17 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd.
Jaipur Bench of the Tribunal in the case of M/s. 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 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. 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 establishes the 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 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 holder 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 made and confirmed by ld.CIT (A) was not justified. Accordingly, the addition made and confirmed by ld. 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 194H of the Act are not attracted in this type of transactions. It was held that no TDS is required to be deducted on the fees charged by the
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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 retail trading in consumer goods. Assessee claimed deduction of Rs.16,34,000 on account of commission paid to the credit card companies, which has been disallowed by the assessing officer in terms of S.40(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 be considered as falling with in the purview of S.194H. Even though the definition of the term "commission or brokerage" used in the said section 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 be said that the bank acts on behalf of the merchant establishment or that even the merchant establishment conducts the transaction for 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 therefore in the nature of normal bank charges and not in the nature 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(A) and reject the grounds of the Revenue which are devoid of merit. "
We also observe that the Bangalore Bench of the Tribunal by 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
19 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd. facilities would be in the nature of bank 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 the 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 ld. CIT(A) and reject the grounds No.1 to 3 taken by the department for all the three assessment years under consideration.”
2.5. We have considered the facts of the present appeal, in the light of the aforesaid judicial pronouncements and held that payments made to the bank on account of utilization of credit card facilities would be in the nature of bank charges and not in the nature of commission within the meaning of section 194H of the Act, therefore, no TDS is required to be deducted u/s 194H of the Act. Thus, the issue under hand is squarely covered by the aforesaid decisions of the Co-ordinate Benches of the Tribunal, therefore, we affirm the stand of the Ld. Commissioner of Income Tax (Appeal), resulting into dismissal of appeal of the Revenues.
Finally, the appeal of the Revenue is dismissed.
This order was pronounced in the open court in the presence of the ld. representative from both sides at the conclusion of the hearing on 14/09/2016. Sd/- Sd/- (D. Karunakar Rao) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य /JUDICIAL MEMBER
मुंबई Mumbai; �दनांक Dated : 05/10/2016
20 ITA No.5232/Mum/2014 M/s Maharashtra Tourism Development Corporation Ltd. f{x~{tÜ? P.S/.�न.स.
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant (Respective assessee) 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai, 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file.
आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai