2019 (4) TMI 1317 - HC - Income Tax

TDS u/s 194 H - amount withheld by the banks/credit card agency as service charges in respect of credit card services provided - Whether the Respondent, while making payment to the bank of credit card charges, was required to deduct tax at source? - relationship between assessee and bank - HELD THAT - The amount retained by the bank for the fees charged for having rendered banking services, which cannot be treated as a commission or a brokerage paid in course of use of banking service by a person acting on behalf of another for buying or selling goods. See Commissioner of Income Tax Vs. JDS Apparels P. Ltd. 2014 (11) TMI 732 - DELHI HIGH COURT The bank in question is not concerned with buying or selling of goods or even with the reason and cause as to why the card was swiped. It is not bothered or concerned with the quality, price, nature, quantum etc., of goods bought/ sold. The bank merely provides banking services in the form of payment and, subsequently, collects the payment. The amount punched in the swiping machine is credited to the account of the retailer by the acquiring bank, after retaining a small portion of the same as their charges. 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. - decided against revenue.

Summary

Issues:
- Whether TDS was deductible under section 194-H of the Income Tax Act by the assessee company on the amount withheld by banks/credit card agency as service charges for credit card services provided.

Analysis:
1. The Revenue filed an appeal challenging the judgment of the Income Tax Appellate Tribunal regarding the deduction of TDS under section 194-H of the Act by the assessee company on service charges withheld by banks/credit card agencies for credit card services provided. The High Court considered the question of law presented and the arguments put forth by both parties.

2. The Revenue contended that the issue had been admitted by the High Court in several appeals, while the Assessee's counsel referred to a previous order rejecting a similar question. The court noted the conflicting arguments and the history of similar cases admitted by the High Court for consideration.

3. The main issue was whether the assessee, while making payments to banks for credit card charges, was required to deduct tax at source under section 194-H. The High Court referred to a recent judgment where a similar question was considered and rejected, citing the Delhi High Court's decision in a related case.

4. The Court upheld the decision of the Tribunal, dismissing the Revenue's appeal. It relied on the Delhi High Court's decision in the case of Commissioner of Income-Tax vs. JDS Apparels P. Ltd., where it was held that the bank's fee for banking services did not constitute commission or brokerage under section 194-H. The court analyzed the relationship between the bank and the assessee, concluding that no agency relationship existed.

5. The High Court, based on its previous judgment and in agreement with the Delhi High Court's decision, dismissed the Revenue's appeal. It emphasized that the bank's charges for banking services were not akin to commission or brokerage paid for buying or selling goods, as there was no agency relationship involved.

6. Ultimately, the High Court found no question of law arising and dismissed the Income Tax Appeal, aligning its decision with the Delhi High Court's interpretation of section 194-H in the context of banking services provided by the bank for credit card transactions.