2019 (2) TMI 803 - AT - Income Tax

TDS u/s 194H - merchant discount/collection charges paid on account of credit card transactions - Held that - We agree with the averment of the AR that the issue is squarely covered in favour of the assessee by the judgment in the case of C.I.T. vs. JDS Apparels Pvt. Ltd. 2014 (11) TMI 732 - DELHI HIGH COURT wherein it has been held that since the bank was making the payment to the assessee after deduction of bank charges, there was no occasion for the assessee to deduct tax at source and further the bank was not acting on behalf of the assessee but on the other hand was acting on behalf of the customers while processing payment through debit cards and credit cards. - Decided against revenue

Summary

Issues:
1. Whether the assessee was liable to deduct tax at source on merchant discount/collection charges paid on account of credit card transactions.
2. Whether there was a principal-agent relationship between the assessee and the banks in credit card transactions.
3. Whether credit card commission fell under the purview of section 194H of the Income Tax Act, 1961.
4. Whether the assessee was liable to pay interest under section 201(1A) of the Act.
5. Whether the banks provided a gateway for payments to the assessee.

Issue 1:
The department challenged the action of the Ld. Commissioner of Income Tax (Appeals) in holding that the assessee was not liable to deduct tax at source on merchant discount/collection charges paid on account of credit card transactions. The assessee argued that credit card commission was exempt from TDS based on a CBDT notification. The Assessing Officer held the assessee liable for TDS, resulting in a demand of ?28,31,225. The Ld. Commissioner of Income Tax (Appeals) ruled in favor of the assessee, stating that there was no requirement to deduct tax in cases of credit card payments.

Issue 2:
The department raised concerns about the principal-agent relationship between the assessee and the banks in credit card transactions. The Ld. AR cited judgments by the Delhi High Court and ITAT Mumbai Bench, supporting the assessee's position that there was no such relationship. The Hon'ble Delhi High Court's judgment in C.I.T. vs. JDS Apparels Pvt. Ltd. was particularly relevant in establishing that the banks were not acting on behalf of the assessee but rather on behalf of the customers during credit card transactions.

Issue 3:
The question arose whether credit card commission fell within the scope of section 194H of the Income Tax Act, 1961. The Ld. Commissioner of Income Tax (Appeals) held that the sum retained by the banks as credit commission did not fall under section 194H, especially considering the CBDT notification. The ITAT agreed with this interpretation, citing the judgment of the Hon'ble Delhi High Court and dismissing the department's grounds of appeal.

Issue 4:
Regarding the liability to pay interest under section 201(1A) of the Act, the Ld. Commissioner of Income Tax (Appeals) ruled that in cases where there was a bona fide belief that no tax deduction was required, the assessee should not be burdened with interest payment. The ITAT upheld this decision, emphasizing the lack of a principal-agent relationship between the banks and the assessee in credit card transactions.

Issue 5:
The contention about whether the banks provided a gateway for payments to the assessee was addressed by referencing the judgments of the Delhi High Court and ITAT Mumbai Bench. The ITAT, following the Delhi High Court's ruling, concluded that the banks were not acting on behalf of the assessee but on behalf of the customers during credit card transactions, thereby dismissing the department's appeal.

In conclusion, the ITAT upheld the Ld. Commissioner of Income Tax (Appeals)'s decision, dismissing the department's appeal and ruling in favor of the assessee in all issues raised.