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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI B.R.BASKARAN & SHRI PAWAN SINGH
O R D E R PER PAWAN SINGH, JM: 1. These two appeals are filed by the assessee against the order of CIT(A) dated 15.07.2011 were heard together and are being disposed off by the common order in respect of Assessment Years (AYs) 2009-10 and 2010-11 respectively. In both the appeals the assessee has raised the common grounds of appeal:
First we shall take up the Appeal No. 7494/Mum/2011 wherein the assessee has raised the following grounds of appeal:
1. On facts and circumstances of the case, the Ld. CIT(A) erred in law and on merit in holding that Rs 24,50,637 deducted by Credit Card issuing Bank out of Credit Card payments made to the appellant as commissions and liable to TDS provisions u/s 194H of ITA, 1961 . That the Learned CIT(A) has failed to appreciate: 1.1 That in order for a payment to qualify as commission there ought to be Principal - Agency relationship which has not been established by the AO. 1.2 That the bank deducts agreed charges on the Credit Card proceeds for use of payment gateways and payment processing and not for doing any activity for, and behalf of the appellant. The Appellant prays that it be held that amounts 'deducted by bank on account of Credit Card be held to be not liable to TDS u/s 194H of ITA, 1961.
3. Brief facts of the case are that the assessee is a company and carrying out business of Hotels. A survey was conducted at the premises of the assessee on 2611.2009. During the course of survey, it was found that a division of assessee i.e. Four Seasons Hotel maintain separate books of account and are finally clubbed with Magus Estates & Hotels Ltd. After post survey while making the assessment, the Assessing Officer (AO) found that assessee has not deducted tax at source in respect of various payments as per different section of Chapter XVII of the Act and thus an order u/s. 201(1)/201A was passed against the assessee holding that assessee in default in respect of such tax.
4. Aggrieved by the order of AO, assessee filed an appeal before the CIT(A). CIT(A) confirmed the order of AO holding that the amount paid to assessee as a commission and assessee is liable to TDS provision u/s. 194H of the Act, against which the present appeal is filed before us.
5. We have heard ld. AR for assessee and DR for revenue and perused the material available on record. AR of assessee argued that CIT(A) erred in law considering that payment deducted by HDFC Bank out of credit card receipt is a commission u/s. 194H are applicable only in case where element of agency exist. There is no element of agency between the assessee and the bank, who was making the payments of Ticket purchased by the Bank’s client and are being made by the Bank during the normal course of banking business. There is no record of element of agency between the bank and the assessee and the same are based on principle to principle basis. Though, the arrangement exists between the Bank and assessee has observed by the AO in his order but the same is only to the services and facility being offered by the Bank for facilitating early payment. As there is no existence of principle and agent between the bank and the assessee, the provision of section 194H cannot be applied.
AR of assessee relied upon the judgment of Co-ordinate Bench in Jet Airways India Ltd. vs. DIT vide 7440 & 7441/Mum/2010. On the other hand, DR for revenue supported the order of authorities below.
We have considered the rival contentions of the parties and perused the material available on record. During the assessment proceeding, the AO observed that during the AY-2008-09 and 2009-10, the assessee has given commission on credit card totalling of Rs. 1,92,34,152/- and concluded that TDS on credit card commission amounting to Rs. 51,52,955/- have been paid to HDFC. And the assessee has not deducted TDS on these payments. The assessee was asked to explain as to why the assessee should not be treated in default u/s. 201 and an addition on account of non- deduction of TDS should be made and interest thereon u/s. 201(1A) of the Act should be charged. The assessee submitted its reply and contended that assessee received various payments from its guest through credit cards. The assessee in tern claims these payments from Banks issuing credit cards to its customer. The Banks generally deduct an amount of Rs. 1.3% of the total payments by way of discounting charge. Since the Bank received payment from their customers after 45 days, therefore, these are in the nature of interest and are exempt u/s. 194A(3) and further submitted that in any event discounting charges have been paid to American Express Bank, who has furnished them a copy of this order u/s. 195(3) authorizing receipt of payment of without deduction of tax at sources. The contention of assessee was not accepted and concluded that such a payment mode for use of credit card internet payment gateway to unable the assessee to collect the payment made by the customer to it for orders placed through such facility by the said customers is squarely covered by the definition of “commission or brokerage” given in Explanation 1st below the 3rd proviso of section 194H of the Act.
The CIT(A) after discussing the fact of the case observed that section 194C does not apply to the case of assessee and that the case of assessee is covered u/s. 194H of the Act and concluded that since the assessee is acting on behalf of the Bank so far as, providing credit card facility at its establishment and receiving payment of service charges (of sale and of the Bank) are concerned and thus the assessee is fully covered by section 194H of the Act.
The Co-ordinate bench of this Tribunal while dealing with the almost identical grounds in 7440 & 7441/M/2010 in case titled as ITO vs. Jet Airways vide order dated 17.07.2013 held as under: 9. 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 194Hof the Act. We observe that the similar issue has been considered by the 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 I.T.A. No. 7439, 7440 7 and 7441/Mum/2010 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."
10. 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 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 7440 8 and 7441/Mum/2010 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 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 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.”
Now coming to the case in hand, the contention of the assessee is that section 194H is applicable only in case where there is any element of agency. If there is no element of agency between the assessee and the Bank, the assessee is not liable for deduction of TDS. In fact, the transactions are in between the Banks and the assessee which is based on principle to principle basis. The services and facility being offered by the Bank for facilitating the early payments to the assessee, since no existence of agency between the Bank and the assessee, thus the provision of section 194H cannot be applied against the assessee, as the customer of the assessee availed the services through credit card is being held by the customer in every payment of value of the services to assessee immediately. This payment is on behalf of the Bank customer holding credit card.
The CIT(A) has also discussed in its order that bank deduct 1.3% of the payments for its services and balance 98.7% is remitted to the assessee, who provide the services of lodging and boarding etc. to its customer. As referred above, the decision of the Co-ordinate Bench in Jet Airways is squarely applicable on the facts of the present case, hence, keeping in view the principle of consistency, the appeal of the assessee is allowed.
In Appeal the identical grounds of appeal is raised by the assessee. The authorities below passed the common order for AY 2009-2010 and 2010-11 as we already allowed the appeal of assessee in respect of AY 2009-10. Hence, the appeal of assessee in respect of AY 2010-11 is also allowed. 13. In the result, both the appeals of the assessee are allowed.
Order pronounced in the open court on this 3rd May, 2016.