2013 (8) TMI 299 - AT - Income Tax

TDS u/s 194H - TDS on amount retained by banks/credit card agencies - online transactions / credit card transactions - Held that - 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 - 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. 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 - 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 - Decided against Revenue.

Summary

Issues:
Interpretation of section 194H for commission paid to credit card companies.

Analysis:
The appeal by the Revenue was against the CIT(A)-V Hyderabad's order for the assessment year 2007-08. Despite the absence of the Respondent-assessee during the hearing and no application for adjournment, the appeal was disposed of ex-parte. The effective grounds of the Revenue included errors in facts and law by the CIT(A) regarding the commission paid to credit card companies not falling under section 194H, which led to the disallowance of a deduction claimed by the assessee. The assessing officer disallowed the deduction due to the failure of the assessee to deduct tax at source under section 194H while making commission payments to credit card companies.

The CIT(A) accepted the claim of the assessee for deduction based on the argument that the commission paid to credit card companies does not fall within the purview of section 194H. The CIT(A) reasoned that the liability to make TDS under section 194H arises only when a person acts on behalf of another person, which was not the case with commission retained by credit card companies. The CIT(A) highlighted that the credit card company merely facilitates electronic payments for a charge and does not act on behalf of the merchant establishment. Therefore, the commission retained by credit card companies is akin to normal bank charges and not commission or brokerage for acting on behalf of the merchant establishment.

The ITAT Hyderabad upheld the order of the CIT(A) and rejected the grounds of the Revenue. The ITAT found no infirmity in the reasoning provided by the CIT(A) and dismissed the appeal of the Revenue. The order was pronounced on 10.4.2012.