2019 (7) TMI 866 - AT - Income Tax

TDS u/s 194H - payments made towards credit card charges - non deduction of TDS - HELD THAT - We decide this issue in favour of the assessee by confirming the appellate order passed by CIT(A) by Respectfully following the decision of the Mumbai-tribunal in assessee s own case 2017 (5) TMI 1558 - ITAT MUMBAI and holds that no income-tax was required to be deducted at source u/s 194H on credit card charges paid by assessee to Banks on payments received from customers on purchases made through credit card. Addition u/s 40(a)(ia) - non deduction of TDS on payments made by assessee to Banks towards cash pick up charges - HELD THAT - We have observed that Central Government has issued notification no. 56/2012 dated 31.12.2012 (F.No. 275/53/2012-IT(B)), wherein cash management services charges are also covered as an exemption from deduction ofTDS under Chapter XVII of the 1961 Act in case such payments are made by a person to a bank listed in Second Schedule to the RBI Act, 1934, excluding a foreign bank. The aforesaid notification issued on 31-12-2012 by Central Government was later superseded by another notification issued on 17.06.2016. We have elaborately discussed these notifications in preceding para s of this order while adjudicating disallowance of credit card charges. We are of the view that charges for cash pick up ( or also called as cash management services) paid by assessee to Banks are analogous to credit card charges so far as requirements of Chapter XVII-B of the 1961 Act is concerned. We have adjudicated in preceding para s of this order issue of allowability of credit card charges on which no income-tax was deducted at source under Chapter XVII-B of the 1961 Act. Our decision while adjudicating disallowance of credit card charges in preceding para s of this order shall apply mutatis mutandis to the disallowance of charges for cash pick up facility( or also called as cash management services) paid by assessee to banks for availing these services. Thus this issue being covered by ground no. ix raised by Revenue in its appeal filed with tribunal is effectively decided in favour of the assessee. The Revenue fails on this ground Disallowance of expenses u/s 14A r.w.r. 8D - HELD THAT - No additions by way of disallowance of expenses incurred in relation to earning of an exempt income are warranted u/s 14A read with Rule 8D(2)(iii) of the 1961 Act as assessee has admittedly not earned any exempt income during the year under consideration and hence we order deletion of additions as were made by the AO u/s. 14A of the 1961 Act read with Rule 8D(2)(iii) of the 1962 Rules and uphold the appellate order passed by learned CIT(A) on this issue for reasons cited by us in this order.

Summary

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D.
2. Disallowance under Section 40(a)(ia) for non-deduction of TDS on credit card commission.
3. Disallowance under Section 40(a)(ia) for non-deduction of TDS on cash pick-up services.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:

The Revenue contested the CIT(A)'s decision to direct the AO to recompute the disallowance under Section 14A read with Rule 8D by considering actual indirect expenses. The AO had initially disallowed ?51,66,864/- under Section 14A, citing that the assessee did not earn any exempt income during the year. The CIT(A) deleted this disallowance, noting that the assessee had sufficient interest-free funds to cover its investments and had not earned any exempt income. The Tribunal upheld the CIT(A)'s decision, referencing the Delhi High Court's ruling in Cheminvest Ltd. v. CIT and the Bombay High Court's ruling in PCIT v. Ballarpur Industries Ltd., which held that no disallowance under Section 14A is warranted if no exempt income is earned.

2. Disallowance under Section 40(a)(ia) for non-deduction of TDS on credit card commission:

The AO disallowed ?34,36,22,786/- under Section 40(a)(ia) for non-deduction of TDS on credit card commission, treating these charges as commission under Section 194H. The CIT(A) deleted this disallowance, relying on the ITAT Mumbai's decision in ITO(TDS) v. Jet Airways (India) Ltd., which held that such charges are in the nature of bank charges and not commission. The Tribunal upheld the CIT(A)'s decision, noting that the issue is covered by the Mumbai Tribunal's decision in the assessee's own case for AY 2011-12 and the Central Government's notification exempting TDS on credit card commission from January 1, 2013.

3. Disallowance under Section 40(a)(ia) for non-deduction of TDS on cash pick-up services:

The AO disallowed ?6,76,46,117/- under Section 40(a)(ia) for non-deduction of TDS on cash pick-up services, treating these charges as subject to TDS. The CIT(A) deleted this disallowance, applying the same rationale as for credit card charges, and referencing the ITAT Mumbai's decision in ITO(TDS) v. Jet Airways (India) Ltd. The Tribunal upheld the CIT(A)'s decision, noting that the Central Government's notification exempting TDS on cash management services also applies, and that these charges are analogous to credit card charges.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all contested issues, including the disallowance under Section 14A read with Rule 8D, and the disallowances under Section 40(a)(ia) for non-deduction of TDS on credit card commission and cash pick-up services.