2015 (8) TMI 111 - AT - Income Tax

TDS provisions u/s 194H - credit card charges recovered by HDFC Bank from the assessee as commission - Disallowance u/s 40(a)(ia) - Held that - The matter stands squarely covered by Jet Airways (India) Ltd. (2013 (8) TMI 586 - ITAT MUMBAI ), wherein it has been held, under similar circumstances that payments to banks for utilization of credit card facilities are in the nature of bank charges and not commission and, therefore, no tax is deductible at source u/s 194H. No decision to the contrary has been brought to our notice by the department. Now, once no tax is deductible at source u/s 194H of the Act on the payment made to bank for utilization of credit card facility and such payment is in the nature of bank charges, obviously, the provisions of Section 40(a)(ia) of the Act do not get attracted. That being so, the addition, being unsustainable in law, is hereby deleted. - Decided in favour of assessee.

Summary

Issues involved:
1. Treatment of credit card charges as commission subject to TDS provisions u/s 194H of the Act.
2. Disallowance of payment made to HDFC Bank towards credit card commission/discount under section 40(a)(ia) of the Act.

Analysis:

Issue 1: Treatment of credit card charges as commission subject to TDS provisions u/s 194H of the Act
The assessee appealed against the order of the Ld. CIT (A) for Assessment Year 2009-10, challenging the treatment of credit card charges recovered by HDFC Bank as commission subject to TDS provisions u/s 194H of the Act. The Assessing Officer disallowed a payment of Rs. 44,65,654 made by the assessee to HDFC Bank for credit card commission/discount, citing non-deduction of TDS as per Section 194H. The Ld. CIT (A) upheld this disallowance. The assessee argued that the acquiring bank, like HDFC Bank, does not provide services for bill recovery to the retail merchant, i.e., the assessee. Instead, the transaction is akin to 'bill purchase' by the bank, and the risk associated with credit card payments lies with the bank. Citing precedents, the assessee contended that the transaction is on a principal-to-principal basis. On the contrary, the Ld. DR asserted that the bank acted as an agent for bill recovery, justifying the commission deduction and TDS liability. The Tribunal examined whether the payment constituted commission for services and if TDS non-compliance warranted the addition under section 40(a)(ia) of the Act.

Issue 2: Disallowance of payment made to HDFC Bank under section 40(a)(ia) of the Act
The Tribunal referred to the 'Jet Airways (India) Ltd.' case, where it was established that payments to banks for credit card facilities are bank charges, not commission, hence not subject to TDS under section 194H. Given the nature of the payment and absence of contrary decisions, the Tribunal ruled that no tax deduction was applicable on payments for credit card facility utilization. Consequently, the provisions of Section 40(a)(ia) of the Act did not apply. Consequently, the addition made by the Assessing Officer was deemed unsustainable in law and was deleted. The appeal by the assessee was allowed, overturning the earlier decision.

In conclusion, the Tribunal's judgment clarified the nature of credit card charges, emphasizing that such payments are not commission subject to TDS provisions. The decision provided clarity on the tax treatment of credit card transactions and highlighted the importance of distinguishing between bank charges and commission in such scenarios.