2019 (7) TMI 2000 - AT - Income Tax

TDS u/s 194H - amount retained by the banks/credit card agencies for rendering credit card processing service - HELD THAT - It s not the case of the Revenue that the decision of JDS Apparels 2014 (11) TMI 732 - DELHI HIGH COURT wherein held Section 194H would not be attracted has no obligation to the facts of the case. When there is no relationship of principal between the assessee and the banks and the bank has no obligation to deduct TDS in respect of the amounts retained by the banks towards the service charges. We therefore while accepting the contention of the assessee upheld the order passed by the ld. CIT(A) and dismiss the appeal of the Revenue.

Summary

Issues Involved:
Interpretation of section 194H of the Income Tax Act, 1961 regarding withholding tax on credit card service charges.

Analysis:

1. Issue: Applicability of section 194H
The primary issue in this case was the applicability of section 194H of the Income Tax Act, 1961, which deals with the deduction of tax at source on commission or brokerage. The Assessing Officer held that the charges withheld by the credit card payment collecting bank were akin to commission under section 194H, making the assessee liable for withholding tax. The dispute arose as the assessee argued that there was no principal-agent relationship between them and the banks, thus the provisions of section 194H were not applicable.

2. Judicial Interpretation
The Commissioner of Income Tax (Appeals) considered the contentions and referred to relevant judicial precedents. The decision of the Hon'ble jurisdictional High Court in the case of CIT vs. JDS Apparels P. Ltd. was pivotal. It was established that the credit card provider bank merely extended a facility to its customers without providing any service to the assessee. This lack of a service provider-service receiver relationship between the assessee and the banks led to the conclusion that section 194H did not apply in this scenario.

3. CBDT Notification
The Commissioner also took into account a notification by the Central Board of Direct Taxes (CBDT) clarifying that TDS provisions did not apply to debit/credit commissions on transactions between merchant establishments and acquirer banks. This notification further supported the assessee's position that withholding tax was not required on the charges retained by the banks.

4. Consistency in Tribunal Decisions
The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) based on consistent rulings in the assessee's own case for previous assessment years. The Tribunal emphasized the importance of following binding judicial precedents and maintaining consistency in interpreting the law. Since there was no change in the fundamental facts and the Tribunal had previously ruled in favor of the assessee, the present decision aligned with past judgments and the binding precedent of the High Court.

5. Final Judgment
Ultimately, the Tribunal dismissed the appeal of the Revenue, affirming that there was no principal-agent relationship between the assessee and the banks, and therefore, the banks were not obligated to deduct TDS on the service charges retained. By upholding the order of the Commissioner of Income Tax (Appeals), the Tribunal concluded that the provisions of section 194H did not apply in this case, and the assessee was not in default for withholding tax on the credit card service charges.

In conclusion, the judgment clarified the interpretation of section 194H in the context of credit card service charges, emphasizing the importance of judicial precedents, relevant notifications, and consistency in tribunal decisions to determine the tax liability of the assessee.