2022 (6) TMI 885 - AT - Income Tax

TDS u/s 194H - Non deduction of tds on Credit card commission under section 40(a)(ia) - as argued by assessee commission is unilaterally retained by the credit card company. It cannot be said that bank acts on behalf of the merchant establishment or that merchant establishment conducts the transaction for the bank - HELD THAT - .In view of the judgment in the case JDS Apparels Pvt. Ltd. 2014 (11) TMI 732 - DELHI HIGH COURT the artificial distinction between charges attributable to foreign banks (American Express Bank herein) vis- -vis. bank situated in India, in our view, is not justified. Such differentiation made in the press release dated 04.01.2013 is not borne out by judicial pronouncements. In consonance with the judicial precedents, the Ground No. 1 is allowed. Disallowance on account of staff recruitment expenses - AO disallowed the recruitment expenses on the ground that no TDS was deducted for such payments - It is the case of the assessee that the aforesaid payments is an aggregate sum incurred during the year and individual payments to different persons are very small generally ranging between Rs. 1500 to Rs. 7500/- per person - HELD THAT - On perusal thereof, we find merit in the plea of the assessee for non deduction of TDS on such payments below threshold limit provided under Section 194C of the Act. - Decided in favour of assessee. TDS u/s 194J - Disallowance on account of legal charges - as contended on behalf of the assessee that such payments are made primarily towards stamp duty and registration charges of various lease deeds of stores during the Financial Year 2012-13 - As stated, the assessee has shared 50% of such expenses - HELD THAT - The expenses incurred not being in the nature of professional services but towards payment of government duty/fee/documentation charges, we see merit in the plea of the assessee for non deduction of TDS under Section 194J. Ground No. 3 is thus allowed.

Summary

Issues:
1. Disallowance of credit card commission under Section 40(a)(ia) of the Income Tax Act.
2. Disallowance of staff recruitment expenses for non-deduction of TDS.
3. Disallowance of legal charges under Section 40(a)(ia) of the Income Tax Act.

Issue 1: Disallowance of Credit Card Commission:
The assessee challenged the disallowance of Rs. 20,83,340/- on credit card commission under Section 40(a)(ia) of the Income Tax Act. The contention was that the commission retained by the credit card company did not fall under the purview of Section 194H as it was not in the nature of commission contemplated under the Act. Citing the judgment in CIT vs. JDS Apparels Pvt. Ltd., it was argued that the commission to the bank on credit card transactions was not liable to TDS under Section 194H. The Tribunal agreed with the assessee, stating that no obligation arose for charges incurred for facilitating payments through credit/debit cards under Section 194H. The Tribunal also rejected the Revenue's argument regarding TDS on charges attributable to foreign banks, emphasizing that such differentiation was not justified by judicial precedents.

Issue 2: Disallowance of Staff Recruitment Expenses:
The Assessing Officer disallowed Rs. 83,387/- on staff recruitment expenses due to non-deduction of TDS. The assessee argued that individual payments were small and fell below the threshold limit specified under Section 194C of the Act. Supporting details were provided to substantiate this claim. The Tribunal found merit in the assessee's plea for non-deduction of TDS on such payments below the threshold limit, thereby allowing Ground No. 2 of the appeal.

Issue 3: Disallowance of Legal Charges:
Regarding the disallowance of Rs. 1,53,750/- on legal charges, the assessee contended that the payments were primarily for stamp duty and registration charges of lease deeds, not professional services. The Tribunal agreed, stating that the expenses were towards government duties and documentation charges, not professional services, and thus found merit in the assessee's argument for non-deduction of TDS under Section 194J. Consequently, Ground No. 3 was allowed.

In conclusion, the Tribunal allowed both appeals of the assessee concerning the disallowances of credit card commission, staff recruitment expenses, and legal charges. The judgments were pronounced on 07/06/2022 by the Appellate Tribunal ITAT Delhi, with detailed reasoning provided for each issue addressed.