2015 (11) TMI 583 - AT - Income Tax

TDS under section 194H - whether no TDS is required to be deducted by the assessee company on the impugned payments retained by the banks/credit card agencies in respect of Hotel bookings through credit card - applicability of section 40(a)(ia) - CIT(A) delted the disallowance - Held that - The issue is no longer res-integra and is squarely covered in favour of the assessee by the decision of the Hon ble Delhi High Court in the case of JDS Apparels Private Limited (2014 (11) TMI 732 - DELHI HIGH COURT) and in the case of Jet Airways (India) Ltd. (2013 (8) TMI 586 - ITAT MUMBAI ) wherein held relationship between the bank and the assessee was not of an agency but that of two independent parties on principal to principal basis. The bank was also acting and equally protecting the interest of the customers whose credit card was used in the swiping machines. The bank was not associated with buying and selling of goods as such. The amount retained by the bank is a fee charged by them for having rendered the banking services and cannot be treated as a commission or brokerage paid in the course of use of any services by a person acting on behalf of another for buying or selling of goods. The banking services cannot be covered and treated as services rendered by an agent for the principal during the course of buying or selling of goods as the banker does not render any service in the nature of agency. Accordingly section 40(a)(ia) of the Act was held to be not applicable on payment of commission to the banks on payment received from customers through credit cards. The CIT(A) has succinctly analyzed the facts of the case and has arrived at the conclusion in accordance with law and therefore no interference is called for. Thus the ground of appeal raised by the Revenue is dismissed. - Decided in favour of assessee.

Summary

Issues Involved:
Whether TDS under section 194H is required on commission payments to banks for credit card transactions?

Detailed Analysis:

Issue 1: Applicability of Section 194H and Section 40(a)(ia)
The primary issue in this case revolved around whether the CIT(A) erred in holding that no TDS under section 194H of the Income-tax Act was necessary to be deducted by the assessee company on commission payments to banks for credit card transactions. The Assessing Officer disallowed the commission amount due to the failure of the assessee to deduct TDS as required by law under section 40(a)(ia).

Analysis: The CIT(A) examined the nature of the relationship between the assessee and the banks/credit card agencies. The assessee argued that the banks were not acting as agents but merely providing infrastructure for transaction facilitation, charging specific fees for these services. The CIT(A) agreed with the assessee, stating that the banks were not acting on behalf of the merchant establishment (assessee) and the payments retained were akin to normal bank charges, not commission or brokerage. The CIT(A) cited various cases supporting this interpretation and held in favor of the assessee, leading to the deletion of the disallowed commission amount.

Issue 2: Judicial Precedents and Interpretation
Both parties relied on judicial precedents to support their arguments. The Revenue contended that TDS should have been deducted, invoking section 40(a)(ia), while the assessee presented cases where similar issues were decided in their favor.

Analysis: The Ld. Authorized Representative for the assessee cited the Hon'ble Delhi High Court's decision in CIT vs. JDS Apparels Private Limited and the Mumbai Tribunal's decision in ITO vs. Jet Airways (India) Ltd. to support the contention that the relationship between the assessee and banks was not that of principal-agent, thus not requiring TDS deduction under section 194H. The Tribunal found these precedents and the CIT(A)'s analysis to be persuasive, leading to the dismissal of the Revenue's appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision, emphasizing that the issue was settled in favor of the assessee by legal precedents and the specific nature of the relationship between the assessee and the banks. The appeal of the Revenue was dismissed, affirming that TDS deduction was not mandated under section 194H for the commission payments to banks in this context.