2017 (10) TMI 1564 - AT - Income Tax

TDS u/s 194H - Failure to deduct tax at source from commission paid to banks for providing credit cards services - addition u/s. 40a(ia) - HELD THAT - As decided in JDS APPARELS PRIVATE LIMITED 2014 (11) TMI 732 - DELHI HIGH COURT payment of commission to banks with regard to the processing of credit card transactions was not liable to be considered as a commission within the meaning of section 194H. The bank does not act as an agent of the assessee while processing the credit card payments and a charge collected by the bank for such service does not amount to commission within the meaning of section 194H. Thus the impugned disallowance made by the AO by invoking section 40(a)(ia) is unsustainable. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 40(a)(ia) for failure to deduct tax at source from commission paid to banks for credit card services.
2. Determination of whether the payment made to banks for credit card services constitutes commission under section 194H or bank charges.

Analysis:
1. The appeal by the Revenue challenged the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2012-13. The primary issue raised was the disallowance of &8377;1,73,45,673 under section 40(a)(ia) due to the failure of the assessee to deduct tax at source from commission paid to banks for credit card services. The Assessing Officer contended that the provisions of section 194H applied to the transactions between the banks and the assessee for charging commission on providing credit card services, leading to the disallowance. The assessee argued that the commission paid to credit card companies should be considered as bank charges and not subject to section 194H, citing relevant case laws. The Commissioner (Appeals) deleted the disallowance based on various tribunal decisions and the judgment of the Delhi High Court in a similar case.

2. The issue of whether the payment made to banks for credit card services constituted commission under section 194H or bank charges was crucial. The Tribunal considered the decision of the Delhi High Court in a related case, emphasizing that the bank's fee for banking services cannot be treated as commission or brokerage under section 194H. The Tribunal highlighted that the relationship between the bank and the assessee was not that of an agency but of two independent parties on a principal-to-principal basis. The Tribunal also discussed the principle of doubtful penalization in invoking section 40(a)(ia), emphasizing strict construction of penal provisions. The Tribunal upheld the Commissioner (Appeals)'s decision to delete the disallowance under section 40(a)(ia) based on the Delhi High Court's judgment and previous rulings in the assessee's favor.

In conclusion, the Tribunal dismissed the Revenue's appeal and upheld the decision of the Commissioner (Appeals) to delete the disallowance made under section 40(a)(ia) regarding the commission paid to banks for credit card services. The judgment provided a detailed analysis of the legal interpretations and precedents supporting the assessee's position, emphasizing the distinction between commission and bank charges in the context of section 194H.