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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI D.KARUNAKARA RAO (AM) & SHRI RAM LAL NEGI (JM)
The present appeal filed by the revenue is directed against the order of CIT (Appeals)-14, Mumbai dated 25/06/2014 pertaining to the assessment year 2011-12.
Brief facts of the case are that on receiving information from HDFC Bank Ltd., Mumbai, that the assessee has not deducted TDS under section 194H of the Income Tax Act, 1961(in short ‘the Act’) on payments made on account of Merchant discount given on credit card transaction carried out during the financial year 2010-11, Income Tax Officer (TDS) OSD-1(3), Mumbai issued show-cause notice dated 14/01/2013 to explain, as to why the assessee should not be treated as ‘assessee in default’ u/s 201(1) of the Act. The AO after receiving explanation and submissions from the assessee in response to the said notice, assessed the total default/ tax liability (including interest) of the assessee to the tune of Rs. 11,65,306/-treating the assessee as “an assessee in default” u/s 201(1)/201(1A) of the Act for not deducting tax at source u/s 194H of the Act, @ 10% on payment of credit card collection charges/commission charges.
The assessee assailed the impugned order passed by the AO under section 201(1)/201(1A) of the Act before the Ld. CIT(A) inter alia on the ground that the Ld. AO erred in passing the impugned order raising the demand of Rs. 11,65,306/-comprising of TDS and interest thereon. The Ld. CIT(A) relying on the decision rendered by the in ITAT, Mumbai in the case of M/s Jet Airways (India) Ltd. in 7440 & 7441/Mum/2010 dated 17/07/2013 for A.Y. 2007-08 to 2009-10.
Dissatisfied with the impugned order passed by the Ld. CIT(A), the revenue has filed the present appeal on the following effective grounds:-
“1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting addition made u/s. 201(1)/201(1A) of the I.T.Act,1961 holding that no TDS was deductible u/s. 194H by the assessee company on the amount held by the banks/credit card agencies as processing 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.
2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in failing to appreciate the real and true nature of the relationship between the assessee company and bank/credit card agencies.
3. On the facts and in the circumstances of the case and in law, the 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.”
Before us the Ld. DR relying upon the assessment order submitted that the AO has rightly held that the assessee was required to deduct TDS @10% on payment of credit card collection charges/commission charges under section 194H of the Act and the findings of the Ld. CIT(A) are contrary to the expressed provisions of the law therefore, liable to be set aside. On the other hand the Ld. AR reiterated the submissions made by the assessee before the authorities below and further submitted that the assessee’s case is squarely covered by the decision rendered by Hon’ble ITAT, Mumbai in the case of M/s Jet Airways (India) Ltd. (supra). Accordingly, the Ld. CIT(A) has rightly allowed the appeal.
We have heard the rival submissions and also gone through the material placed before us including the relevant provisions of law and the cases relied upon by the parties. The only grievance of the revenue is that the CIT(A) has 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. The co-ordinate Bench of Mumbai Tribunal has decided the identical issue in favour of the assessee in the case of M/s Jet Airways (India) Ltd. (supra) holding 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 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 wide paragraph 27 of the said order that the provisions of 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 if he directed 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 we are any commission has been paid by the principal to the commission agent. This is not a case of common 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, the disagreement between the credit card holder 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 shopkeeper against sale of its items through credit card. Bank cannot refuse the payment to the shopkeeper who sale their goods through credit card. Only in those cases where goods are found damaged and credit card holder in farm 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 and withhold the payment, otherwise the bank has to make the payment to the shopkeeper. Therefore, in our considered view, there is no such relation between the bank and the shopkeeper which establishes the relationship of a principal and commission agent. Technically it may be return 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 this situation as bank issued credit cards to the credit card holders on certain fees or whatever the case may be and the cardholder purchases material from the market through his credit card without making any payment and that shopkeeper 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 the learned CIT (A) was not justified. Accordingly, the addition made and confirmed by ld. CIT (A) is deleted.”
The co-ordinate Bench has also discussed the decision of Jaipur Bench of the ITAT in case of Bhandari jewelers vs. ACIT (AY 2008- 09) dated 2.2.2012 in which the identical issue had been decided in favour of the assessee. Recently the “F” Bench of Mumbai Tribunal, in the case of DCIT vs. M/s. Future Value Retail Ltd. in ITA 2612/Mum/2014 dt. 29/01/2016, relying upon the decision rendered by the co-ordinate bench in Jet Airways (supra), decided the identical issue in favour of the assessee.
In view of the fact that the identical issue has already been decided by the co-ordinate benches of the Mumbai Tribunal in favour of the assessee, we do not find any infirmity in the order passed by the Ld. CIT(A). We therefore, respectfully following decision of in DCIT vs. M/s. Future Value Retail Ltd. in ITA 2612/Mum/2014 dt. 29/01/2016, co-ordinate Benchs in Jet Airways (India) Ltd. (supra) and M/s. Future Value Retail Ltd.(supra) uphold the order passed by the Ld. CIT(A) and dismiss the appeal filed by the revenue .
In the result, appeal of the revenue for the A.Y. 2010-11 is dismissed.