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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI G.S. PANNU & SHRI SANJAY GARG
Per Sanjay Garg, Judicial Member:
These appeals by the Revenue have been directed against the orders of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] dated 22.04.2014 and 17.07.2014 relevant to A.Y. 2011- 12 and A.Y. 2012-13 respectively.
The common issue raised by the Revenue in both the appeals is as to whether the Ld. CIT(A) was justified in holding that no TDS was deductible/payable on the commission paid by the assessee to the banks/credit card companies on the amount received from its customers through credit card/debit card u/s 194H of the income tax and therefore no disallowance was attracted u/s Sec.40(a)(ia) of the Act and thus, under the circumstances, assessee can not be held to be as ‘assessee in default’ under section 201 of the Act.
2 M/s. JSM Corporation Pvt. Ltd.
At the outset, the Ld. AR of the assessee has stated that the issue is squarely covered in favour of the assessee and against the Revenue by the decision of the Tribunal in the own case of the assessee in relation to appeals for earlier assessment years AY 2009-10 and AY 2010-11. The Tribunal vide order dated 02/03/2015 in ITA No.5519/MUM/2013(A.Y. 2010-11) has dismissed the appeal of the revenue observing as under: “5. We have carefully gone through the order passed by AO as well as Ld. CIT(A). We find that relief has been granted by Ld. CIT(A) on the basis of aforementioned two decision of the Tribunal. It may be mentioned here that subsequently also, Mumbai Tribunal has followed the aforementioned decisions in the case of ACIT vs. Jet Airways India Ltd., vide decision dated 23/10/2013 reported as 146 ITD 682(Mum) (Mum) and also in the case of ITO vs. Jet Airways India Ltd. reported in 147 ITD 133. In the aforementioned case it has been held that no TDS is required to be deducted on the fees charged by the bank on credit card transactions. It may further be mentioned that recently, Hon’ble Delhi High Court in the case of CIT vs. JDS Apparels (P) Ltd. vide their decision dated 18/11/2014, 53 taxamann.com 139(Del) have upheld such conclusion as per following observations: “15. Applying the above cited case law to the factual matrix of the present case, we feel that Section 194H of the Act would not be attracted. HDFC was not acting as an agent of the respondent- assessee. Once the payment was made by HDFC, it was received and credited to the account of the respondent-assessee. In the process, a small fee was deducted by the acquiring bank, i.e. the bank whose swiping machine was used. 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 realisation of payment. Subsequently, the acquiring bank realized and recovered the payment from the bank which had issued the credit card. HDFC had not undertaken any act on “behalf’ of the respondent-assessee. The relationship between HDFC and the respondent-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. It is noticeable that the bank in question or their employees were not present at the spot and were not associated with buying or selling of goods as such. Upon swiping the card, the bank made payment of the bill amount to the respondent- assessee. Thus, the respondent assessee received the sale consideration. In turn, the bank in question had to collect the amount from the bankers of the credit card holder. The Bank had taken the risk and also remained out of pocket for sometime as there would be a time gap between the date of payment and recovery of the amount paid.
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 3 M/s. JSM Corporation Pvt. Ltd. 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, 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.
Another reason why we feel Section 40(a)(ia) of the Act should not have been invoked in the present case is the principle of doubtful penalization which requires strict construction of penal provisions. The said principle applies not only to criminal statutes but also to provisions which create a deterrence and results in punitive penalty. Section 40(a)(ia) is a deterrent and a penal provision. It has the effect of penalising the assessee, who has failed to deduct tax at source and acts to the detriment of the assessees 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 case, as is noticeable, would include initiation of proceedings for imposition of penalty for concealment, as was directed by the Assessing Officer in the present case. The aforesaid 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. In Maxwell’s The Interpretation of Statutes, 12th edition (1969) it has been observed:- The strict construction of penal statutes seems to manifest itself in four ways: in the requirement of express language for the creation of an offence; in interpreting strictly words setting out the elements of an offence; in requiring the fulfilment to the letter of statutory conditions precedent to the infliction of punishment; and in insisting on the strict observance of technical provisions concerning criminal procedure and jurisdiction.”
The aforesaid principles and interpretations can apply to taxing statutes. In the present case we further feel the said principle should be applied as HDFC would necessarily have acted as per law and it is not the case of the 4 M/s. JSM Corporation Pvt. Ltd. Revenue that the bank had not paid taxes on their income. It is not a case of loss of revenue as such or a case where the recipient did not pay their taxes.
19.In these circumstances, we do not find any merit in the present appeal and the same is dismissed”
The Tribunal has followed the above order in for A.Y. 2009-10 also and accordingly has dismissed the appeal of the Revenue on the identical ground vide order dated 4.3.2015. Respectfully following the decision of the Tribunal on the identical issue in the own case of the assessee for earlier years, we see no infirmity in the relief granted by Ld. CIT(A). The above captioned appeals filed by the Revenue are therefore, dismissed.
Order pronounced in the open court on 29.06.2016.