2015 (7) TMI 406 - AT - Income Tax

Non deduction of TDS - ME Commission - 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 - According to the AO as per said agreement that the amount retained by HDFC Bank was in the nature of commission and therefore the Assessee ought to have deducted tax at source on the amount retained by HDFC Bank as per the provisions of Sec.194-H - CIT(A) deleted disallowance. Held 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 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. - Decided in favour of assessee.

Summary

Issues:
1. Whether the Assessee was liable to deduct tax at source on the amount retained by HDFC Bank.
2. Whether the payments on account of credit card charges should be treated as commission under Sec.194H of the Income Tax Act.

Analysis:
1. The appeals by the revenue and cross-objection by the Assessee arose from an order treating the Assessee as an Assessee in default for not deducting tax at source. The Assessee, a dealer in purchase and sale of cars, had a credit card/debit card accepting facility with HDFC Bank. The Revenue contended that the amount retained by HDFC Bank was commission paid by the Assessee, thus requiring tax deduction at source under Sec.194-H of the Act. The Assessee argued that HDFC Bank was not acting on its behalf but rendering services to customers using credit/debit cards.

2. The key issue was whether payments on account of credit card charges should be considered as commission under Sec.194H of the Act. The CIT(A), following a decision of the ITAT Hyderabad Bench, held that the payment in question was akin to bank charges, not attracting the provisions of Sec.194-H. The Tribunal upheld this view, citing various cases where similar conclusions were reached. It emphasized that the nature of payments to banks for credit card facilities was more aligned with bank charges rather than commission. The Tribunal also noted a CBDT notification specifying that credit/debit card commission need not be subject to TDS, further supporting the position that such charges were not to be treated as commission under Sec.194-H.

In conclusion, the Tribunal confirmed the order of the CIT(A) and dismissed the appeals of the Revenue. The cross-objections of the Assessee were also dismissed as not maintainable. The judgment clarified the distinction between bank charges and commission, providing a comprehensive analysis of the applicable provisions under the Income Tax Act and relevant precedents to resolve the issues at hand.