2018 (12) TMI 1637 - HC - Income Tax

TDS u/s 194H - disallowance u/s 40a(ia) - assessee had failed to deduct tax at source from commission paid to Banks for providing credit card services - HELD THAT - The so called bank guarantee commission is not in the nature of commission paid to an agent but it is in the nature of bank charges for providing one of the banking service. The requirement of Section 194H of the Act, therefore, would not arise. No question of law arises

Summary

Issues:
1. Whether the Tribunal was justified in upholding the deletion of disallowance under section 40a(ia) by the Tribunal without appreciating the failure to deduct tax at source from commission paid to Banks for providing credit card services.
2. Whether the payment categorized as "bank guarantee commission" constitutes commission under Section 194H of the Income Tax Act.

Analysis:

Issue 1:
The Appeals arose from a common background where the Revenue challenged the Judgment of the Income Tax Appellate Tribunal regarding the disallowance of ?1,96,68,165 under section 40a(ia) of the Income Tax Act. The Respondent-Assessee, a Company operating Deluxe Hotels, did not deduct tax at source in relation to commission paid to banks for Credit Card Transactions. The Commissioner of Income Tax [Appeals] deleted the disallowance, leading the Revenue to approach the Tribunal. The Tribunal, based on its earlier decision and the Delhi High Court case law, held that the bank did not act as an agent of the Assessee, and thus, the charge collected by the Bank did not amount to commission under Section 194H of the Act.

Issue 2:
In a similar case, the Tribunal discussed the nature of "bank guarantee commission" in relation to Section 194H of the Act. The Tribunal concluded that the payment, though categorized as such, did not constitute commission as there was no principal to agent relationship between the payer and the payee. The Tribunal held that the payment was in the nature of bank charges for a banking service, not falling under the purview of Section 194H. The High Court agreed with the Tribunal's view, dismissing the Income Tax Appeal.

Both Appeals were dismissed based on the interpretation of Section 194H and the absence of an agency relationship in the transactions, as established by the Tribunal's findings and the Delhi High Court case law. The Court upheld the decisions, emphasizing that the bank's role was not that of an agent but of a service provider, thereby not attracting the provisions of Section 194H for tax deduction at the source.