2015 (11) TMI 1880 - AT - Income Tax

Nature of expenditure - claim of expenditure for covering storm water drain - Revenue oe capital expenditure - HELD THAT - There is no dispute that the drain was running on the side of hotel building of the assessee and the other side of the drain was used by the assessee for parking of vehicles. Revenue had also not disputed the finding of the CIT (A) that Asst. Engineer of BBMP while permitting the assessee to lay slabs over the drain restrained the assessee from using it for any business purpose. Drain was owned by BBMP. By virtue of slabs laid by the assessee what assessee gained was improved functioning of its hotel. Assessee, if it had not covered the drain with the slabs would have been consistently pestered by its guests complaining of bad smell and mosquito menace. In our opinion, though it was a one-time outgo, it did not bring into existence any new profit making apparatus. It simply improved the functioning efficiency of the assessee. When the facts are considered in totality we cannot but agree with the view taken by the CIT (A). Ground 2 of the Revenue stands dismissed TDS u/s 194H - credit card commission - assessee had paid to the bank for credit / debit card payment realisation - AO was of the opinion that such payments fell within the ambit of commission and therefore Section 194H of the Act stood attracted - HELD THAT - Grounds raised by the Revenue relies on CBDT notification No.56/2012, dt.31.12.2012 which exempts certain types of payment from deduction of tax at source. Said notification has been issued under powers vested on the central government vide Section 197A(1D) - No doubt one of the type of payments mentioned in the above circular is credit card/ debit card commission on transactions between merchant establishment and acquirer bank. Notification was effective from 01.01.2013. But in our opinion this notification cannot be construed in a manner to say that prior to 01.01.2013 charges deducted by the bank from credit card payments received from customers of the assessee fell within the purview of Section 194H for warranting a deduction of tax at source. As mentioned by CIT (A), coordinate bench in the case of Tata Teleservices 2013 (1) TMI 480 - ITAT BANGALORE had clearly held that such payments were more in the nature of bank charges than in the nature of commission and Section 194H of the Act would not be attracted. In such circumstances, we do not find any reason to interfere with the order of CIT (A). Ground 3 stands dismissed.

Summary

Issues:
1. Allowance of expenditure for covering storm water drain
2. Disallowance of credit card commission

Issue 1: Allowance of expenditure for covering storm water drain
The appeal by the Revenue raised concerns about the CIT (A) allowing a claim of expenditure for covering a storm water drain. The Assessee, engaged in running hotels, had incurred an expenditure of Rs.2,24,70,345 for covering open drainages near its hotel premises. The Assessee argued that the drainage, overflowing with sewage water, caused a bad smell and mosquito menace, affecting the hotel's guests. The Assessee contended that the drainage was on a common area owned by BBMP, and as BBMP did not cover it, the Assessee had to incur the expense. The AO, however, viewed it as resulting in enduring benefit and denied the claim. The CIT (A) disagreed, noting that the expenditure did not create any new profit-making apparatus and improved only the functioning efficiency, thus treating it as a revenue outgo and deleting the disallowance. The Tribunal concurred, emphasizing that the expenditure did not lead to the creation of a new income-earning asset, but rather enhanced the hotel's operational efficiency.

Issue 2: Disallowance of credit card commission
The Revenue contested the CIT (A) decision to delete the disallowance made by the AO on credit card commission. The Assessee had paid Rs.1,46,36,138 to the bank for credit/debit card payment realisation, with the AO treating it as falling under commission attracting Section 194H of the Act. The CIT (A) overturned this, considering the payments as bank charges rather than commission, citing a tribunal decision. The Tribunal upheld the CIT (A)'s decision, stating that the CBDT notification exempting certain payments from tax deduction at source from 01.01.2013 could not retroactively apply to payments made before that date. The Tribunal agreed with the view that such payments were akin to bank charges and not commission, hence Section 194H did not apply. Consequently, the Tribunal dismissed the Revenue's appeal.

In conclusion, the Tribunal upheld the CIT (A)'s decisions on both issues, allowing the expenditure for covering the storm water drain and dismissing the disallowance of credit card commission, thereby dismissing the Revenue's appeal in its entirety.