ACIT, BANGALORE vs. M/S TRIDENT AUTOMOBILES (P) LTD.,, BANGALORE

ITA Nos.1508 to 1510/Bang/2013 & C.O.Nos.22 to 24/Bang/2015

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE

BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER

ITA Nos. 1508 to 1510/Bang/2013 Assessment years : 2009-10, 2010-11 & 2011-12

Asst.Commissioner of Income Vs. M/S.Trident Automobiles (P)Ltd., Tax (TDS), Circle-18(2), No.403, No.1, Sankey Road, Lower Palace 4th Floor, HMT Bhavan, Orchards, Bangalore-560 03. PAN : AAACT9391C Bangalore-32

APPELLANT RESPONDENT

C.O.Nos. 22 to 24/Bang/2015 in ITA Nos. 1508 to 1510/Bang/2013 Assessment years : 2009-10, 2010-11 & 2011-12

M/S.Trident Automobiles (P)Ltd., Vs. Asst.Commissioner of Income Tax (TDS), Circle-18(2), No.403, 4th No.1, Sankey Road, Lower Palace Orchards, Bangalore-560 Floor, HMT Bhavan, Bangalore-32 03. PAN : AAACT9391C

Cross-Objector Respondent

Assessee by : Shri Pingal Khan & Prashanth B.K. Advocates Revenue by : Dr.P.K.Srihari, Addl CIT

Date of hearing : 18.03.2015 Date of Pronouncement : 20.03.2015

O R D E R PER BENCH:

ITA Nos. 1508 to 1510/Bang/2013 are appeals by the Revenue against the order dated 14.08.2013 of CIT(A)-V, Bangalore, relating to AY 09-10 to 11-12. The Assessee has filed C.O.Nos. 22 to 24/Bang/2015 against the very same orders of

ITA Nos.1508 to 1510/Bang/2013 & C.O.Nos.22 to 24/Bang/2015

the CIT(A). The Cross-objections filed by the Assessee are only supportive of the

order of the CIT(A).

order of the ACIT (TDS), Circle 18(2), Bangalore, (AO) passed u/s.201(1) and

201(1A) of the Income Tax Act, 1961 (Act) treating the Assessee as an Assessee in

default for not deducting tax at source. The Assessee is a dealer in purchase and

sale of cars. The Assessee has credit card/debit card accepting facility with HDFC

Bank, who has provided credit card swiping machine/instrument to the Assessee.

Customers of the Assessee when they make payment to the Assessee for availing

services or effecting purchases from the Assessee when they pay by credit card, the

card swiping machine is used. HDFC Bank collects money from paying bank of the

customers who use the credit card and gives credit to the Account of the assessee

after deducting service charges (discount charge) thereon.

commission paid by the Assessee to HDFC Bank and therefore the Assessee ought

to have deducted tax at source on such amount retained by HDFC Bank. The AO

referred to the agreement between the Assessee and HDFC Bank in which it has

been provided that in consideration of HDFC Bank rendering the service of

processing payment for the Assessee, the Assessee shall pay HDFC Bank, a certain

sum which is referred to as “ME Commission” in the said agreement. According to

the AO it was clear from the said agreement that the amount retained by HDFC Bank

was in the nature of commission and therefore the Assessee ought to have deducted

ITA Nos.1508 to 1510/Bang/2013 & C.O.Nos.22 to 24/Bang/2015

tax at source on the amount retained by HDFC Bank as per the provisions of

Sec.194-H of the Act.

brokerage as per the provisions of Sec.194H of the Act, the HDFC Bank was not

acting on behalf of the Assessee when it collected payments from the Bankers of the

customers of the Assessee who use credit cards and that HDFC Bank does not

render any service to the Assessee but services are rendered to the customers of

the Assessee who use credit/debit cards to make payments.

an agreement with HDFC Bank for installation of swiping machine at its premises

and the agreement provides that the consideration to be paid by the Assessee to

HDFC Bank was commission and therefore the provisions of Sec.194-H of the Act

were attracted.

Hyderabad Bench in the case of DCIT Vs. Van Magna Retain (P) Ltd. ITA

No.905/Hyd/2011 order dated 10.4.2012 held that the payment in question was in

the nature of bank charges and hence the provisions of Sec.194-H of the Act were

not attracted. The order u/s.201(1) & 201(1A) of the Act was cancelled by the

CIT(A). Aggrieved by the order of the CIT(A) the revenue has filed the present

appeals before the Tribunal.

ITA Nos.1508 to 1510/Bang/2013 & C.O.Nos.22 to 24/Bang/2015

the revenue as reflected in the grounds of appeal filed before the Tribunal. The

learned counsel for the Assessee relied on the order of the CIT(A).

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.

(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;

ITA Nos.1508 to 1510/Bang/2013 & C.O.Nos.22 to 24/Bang/2015

(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;

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:

“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

ITA Nos.1508 to 1510/Bang/2013 & C.O.Nos.22 to 24/Bang/2015

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.”

cases:

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 HDFC Bank was in the nature of

commission within the meaning of Sec.194-H of the Act. For the reasons given

above, we confirm the order of the CIT(Appeals) on this issue and dismiss the

appeals of the Revenue.

ITA Nos.1508 to 1510/Bang/2013 & C.O.Nos.22 to 24/Bang/2015

Pronounced in the open court on this 20th day of March, 2015.

Sd/- Sd/-

( JASON P. BOAZ ) ( N.V. VASUDEVAN ) Accountant Member Judicial Member Bangalore, Dated, the 20th March, 2015. /D S/ Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file

By order

Assistant Registrar / Senior Private Secretary ITAT, Bangalore.