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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI ABRAHAM P. GEORGE
Per N.V. Vasudevan, Judicial Member
This appeal by the Revenue is against the order dated 12.1.2015 of the CIT(Appeals)-I, Bangalore relating to assessment year 2011-12.
The only issue for consideration in this appeal is as to whether the CIT(Appeals) was justified in deleting the disallowance made by the AO u/s. 40(a)(ia) of the Act.
The assessee is a company engaged in the business of direct marketing and chain stores of consumables and household articles & electronic goods. While scrutinizing the P&L account of the assessee, the AO noticed that there was an expenditure of Rs.1,18,43,146 claimed on account of card swiping charges. The nature of this charge is that the assessee in the course of its business offers customers the facility of making payments for purchase of its products by the customers through credit cards. For this purpose, the assessee entered into agreement with a bank for the purpose of processing the transaction of realizing the money paid by the customer through credit card. The EDC machine is provided and the credit/debit card is swiped on the EDC machine. On a successful completion of the payment through credit card, the bank realizes the money through customers bankers and pays it over to the assessee. The bank charges commission. According to the Revenue, the assessee was paying commission to the bank and was therefore obliged to deduct tax at source u/s. 194H of the Act.
4. Since the assessee did not deduct the tax at source, it is the case of the Revenue that the amount claimed as deduction under the head ‘credit card swiping charges’ should be disallowed u/s. 40(a)(ia) of the Act. The AO on the above reasoning disallowed the claim of the assessee for deduction on account of card swiping charges.
5. On appeal, the CIT(Appeals), following the decision of the ITAT Bangalore Bench in the case of Tata Tele Services Ltd. v. DCIT (2010) 140 ITD 451, held that the card swiping charges are not in the nature of commission. Aggrieved by the order of CIT(A), the Revenue is in appeal before the Tribunal.
6. At the time of hearing of the appeal, it was brought to our notice by the ld. counsel for the assessee that the Tribunal on identical facts and circumstances where a disallowance of card swiping charges was made in AY 2010-11, the disallowance was deleted by the CIT(A). On further appeal by the Revenue in assessee’s own case for AY 2010-11 in order dated 21.11.14, this Tribunal held that disallowance u/s. 40(a)(ia) of the Act should not be made.
The ld. DR, on the other hand, relied on the order of the AO.
We have considered the rival submissions. This Tribunal in assessee’s own case in the order cited supra by the ld. counsel for the assessee, dealt with an identical issue and held as follows:-
“3. In its appeal before the CIT(A) argument of the assessee was that flow of credit card process was as under; “ a) Customer makes a purchase from us and provides credit card information to a point of sales terminal. b) Point of sales terminal encrypts and relays the information to the payment processors. The payment processor uses a payment gateway to relay the credit card data to the VISA/MASTER card Association. c) Payment gateway verifies credit card information by seeking approval from the credit card association. d) Upon receiving the request from payment gateway, credit card association sends the request to credit card issuing bank for their approval. e) Credit card issuing bank accepts or declines this and relays this message back to the credit card association. Credit card association transmits the message to the payment gateway. If the same is approved, the customer is notified that the transaction is complete and the merchant establishment can release the goods to the customer. f) The card issuing bank sends the payments to the credit card association after deducting a small service fee. The credit card association transfers the payment to the payment processor. The payment processor makes the payment to acquiring bank and in turn acquiring bank transfer the amount directly into the merchant’s bank account”.
According to the assessee merchant establishments like assessee did not effect payment to any of the parties in the chain. Thus, as per assessee, it would not come within the meaning of the phrase “person responsible for paying”, applying Section 194H of the Act.
Learned CIT(A) was appreciative of the above contentions. Relying on the decision of the Co-ordinate Bench in the case of M/s Tata Teleservices Ltd., he held that assessee was not liable to deduct tax at source.
Now before us, learned DR submitted that assessee was liable to deduct tax at source on the commission. Having not done so, AO according to him was justified in disallowing the expenditure claimed by the assessee.
7. Per contra, learned AR supported the order of the CIT(A).
8. We have perused the orders and heard the rival contentions. At para-3.4 of its order, this Tribunal in the case of Tata Teleservices Pvt.Ltd.,(supra) had 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 within 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 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."
8. We find that the fact matrix here is exactly similar to that in M/s Tata Teleservices Pvt. Ltd. We therefore, find no reason to interfere with the order of the CIT(A).”
Respectfully following the decision rendered by the Tribunal in assessee’s own case cited supra, we uphold the order of the CIT(Appeals) and dismiss the appeal of the Revenue.
In the result, the appeal by the Revenue is dismissed.
Pronounced in the open court on this 30th day of July, 2015.