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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI JASON P. BOAZ
Per N.V. Vasudevan, Judicial Member
This appeal by the revenue is against the order dated 29.10.2003 of the CIT(Appeals)-III, Bangalore relating to assessment year 2010-11.
The first issue that arises for consideration in this appeal is as to whether the CIT(Appeals) was justified in holding that there was no obligation on the part of assessee to deduct tax at source on a sum of
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Rs.27,65,565. The aforesaid sum was shown in the books of account of assessee as credit card commission.
The assessee is in the business of manufacture and wholesale dealing of pure silk sarees. When the customer purchases sarees using credit card, the bank after retaining their charges, remit the remaining sum to the assessee. The difference between the sale value of the sarees and the amount remitted by the bankers of Rs.27,65,565, according to the Revenue, was nothing but commission and therefore the assessee ought to have deducted tax at source on the said sum u/s. 194H of the Act.
The plea of the assessee before the Assessing Officer was that bankers only facilitate electronic payments for certain purchases and such charges are normal bank charges and not in the nature of commission falling with the ambit of section 194H of the Act. The assessee relied on the decision of the following decisions:-
(1) DCIT v. Vah Magna Retail Pvt. Ltd., 4T(II) ITCL 537 (Hyd). (2) Gems Paradise, ITA No.746 & 841/Jp/2011 dated 2.2.12.
The assessee also submitted that services rendered by the bank are on a principal to principal basis and for characterizing the payment of commission, there should be a relationship of principal and agent between the payer and the recipient.
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The AO did not accept the claim of assessee. He held that the bank was acting as an agent of merchant (assessee) and that the payment in
question is commission.
On appeal by the assessee, the CIT(Appeals), following the decision
of the Jaipur Bench of the Tribunal in the case of Gems Paradise (supra),
held that payment in question is not in the nature of commission and deleted the disallowance of Rs.26,65,565 made by the AO by invoking the
provisions of section 40(a)(ia) of the Act.
Aggrieved by the order of the CIT(Appeals), the Revenue has
preferred appeal before the Tribunal. The learned DR relied on the order of
the AO. The learned counsel for the Assessee relied on the order of the CIT(A).
We have given a careful consideration to the rival submissions. The
provisions of Sec.194-H of the Act, in so far as it relevant for the present appeal, read as follows:
“Section 194H: COMMISSION, BROKERAGE, ETC. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of October, 1991 but before the 1st day of June, 1992, 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.
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(2) The provisions of sub-section (1) shall not apply – (a) To such persons or class or classes of persons as the Central Government may, having regard to the extent of inconvenience caused or likely to be caused to them and being satisfied that it will not be prejudicial to the interests of the revenue, by notification in the Official Gazette , specify in this behalf;
(b) 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 by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed two thousand five hundred rupees.
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; (ii) "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;
The question whether the payments on account of credit card
charges should be treated as commission within the meaning of sec.194H of the Act came up for consideration before the Hon’ble ITAT, Hyderabad,
in the case of DCIT Vs. Van Magna Retain (P) Ltd. (supra) and it was held as follows:-
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“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.”
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Similar view has been expressed by several Bench of ITAT in the following cases:
M/S.TATA Teleservices Ltd. Vs. DCIT ITA No.393-396/Bang/11 order dated 27.11.2012 2. ITO (TDS) Vs. M/S.Jet Airways ITA No.7439-41/Mum/2010 order dated 17.7.2013, 3. M/S.Gems Paradise Vs. ACIT ITA No. 746/JP/2011 order dated 2.2.2012.
In light of the aforesaid decisions, we are of the view that payments to banks on account of utilization of credit card facilities would be in the
nature of bank charge and not in the nature of commission within the meaning of sec.194H of the Act. The same cannot also be said to be in the
nature of professional services as services rendered by Banks is neither a
service specified in the section nor notified. The CBDT by notification u/s.197A of the Act vide notification NO.56/2012 dated 31.12.2012
specified that credit/debit card commission for transaction between the merchant establishment and acquirer bank need not be subject to TDS.
The revenue has argued before us that before the said notification such
charges were subject to TDS. We are of the view that the notification is only recognition of the position as it always prevailed and as interpreted by
several decisions rendered by the different benches of ITAT. The notification therefore cannot be the basis on which it can be said that the
amount retained by the bank was in the nature of commission within the meaning of Sec.194-H of the Act. For the reasons given above, we confirm
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the order of the CIT(Appeals) on this issue and dismiss the appeals of the Revenue.
For the reasons given above, we are of the view that the order of
the CIT(Appeals) does not call for any interference.
The other issue raised by the Revenue is with regard to the action
of the CIT(Appeals) in deleting the addition of Rs.6,96,923 out of commission payments claimed as deduction by the assessee.
The assessee has made a total commission payment of
Rs.2,44,18,648, out of which Rs.6,96,923 was commission paid to auto and taxi drivers. As already seen the Assessee is in the business of selling silk
saree. The assessee’s explanation was that auto & taxi drivers who bring
potential customers/clients are paid commission in cash. The AO wanted the names and addresses of drivers who were paid such commission. The
assessee could not produce the details and also the details of even the taxi and name of drivers was not maintained by them. There were, however,
cash vouchers evidencing payment of commission. According to AO, it was not possible to verify the payments made by the assessee nor was tax
deduction at source done by the assessee on the aforesaid payments, on
the pretext that individual payments were less than the monetary limits for making tax deduction at source. According to the AO, genuineness of these
expenses was not proved and therefore he disallowed the claim of assessee for deduction.
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On appeal by the assessee, the CIT(Appeals) held as under:-
“ I have carefully considered this issue. It is pointed by the AO in the assessment order that the total commission payments made during the year was an amount of Rs. 2,44,80,648/-. Thus the amount of Rs. 6,96,923/- is approximately 3% of the total commission payment. There is no conclusive material brought on record by the AO to consider this amount not genuine. AO has also not led any evidence to show that these are payments above the threshold limit where tax is required to be deducted u/s 194H. Considering the quantum involved and the nature of the business of the appellant , I am of the view that the amounts are admissible. The AO is directed to delete the amount of addition made. These grounds are therefore, allowed.”
Before us, the ld. DR reiterated the stand of the AO as contained in the order of assessment.
We are of the view that the ld. CIT(Appeals) had rightly held that disallowance made by the AO was not warranted. The fact that such commission payments are routine in the line of business of assessee is not disputed by the AO. The genuineness of the payment has also not been doubted by the AO. There is no material on record to show that the amounts paid to individual taxi & auto drivers were above the threshold limit for deduction of tax at source. It is not the case of the AO that individual vouchers evidencing payments in cash, were in excess of the specified limit for deduction of tax at source. In our view, the addition has been made by the AO only on the basis of surmises and was rightly deleted by the CIT(Appeals).
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In the result, the appeal by the Revenue is dismissed.
Pronounced in the open court on this 27th day of March, 2015.
Sd/- Sd/-
( JASON P. BOAZ ) ( N.V. VASUDEVAN ) Accountant Member Judicial Member
Bangalore, Dated, the 27th March, 2015.
/D S/
Copy to:
Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file
By order
Assistant Registrar/ Senior Private Secretary ITAT, Bangalore.