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TMI Blog2016 (2) TMI 786X X X X Extracts X X X X X X X X Extracts X X X X ..... se appeals, we have disposed of both these appeals by this common order for the sake of convenience and brevity. 2. We are first taking up the appeal for the assessment year 2010-11 vide ITA No. 2470/Mum/2014 . The following grounds of appeal have been raised by the Revenue in the memo of appeal filed with the Tribunal :- i) On the facts and circumstances of the case and in law, the CIT(A) erred in holding that no TDS was deductible u/s.194 H by the assessee company on the amount held by the banks/ credit card agencies as service charges in respect of credit card services provided by it. ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in failing to appreciate the real and true nature of the relationship between the assessee company and bank/ credit card agencies. iii) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in failing to appreciate that in substance and in fact relationship between the assessee company and bank/ credit card agencies was in the nature of principal and agents relationship and therefore, the Ld. CIT(A) erred in not upholding the AO's conclusion of bringing the charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Agency recovers the bill amount from the issuing bank. Thus the acquiring bank facilitates recovery of bill amount on behalf of retail merchant for which it charges discount in nature of commission. The acquiring bank renders services for recovery of the bill amount to the retail merchant and hence acts as agent of the retail merchant. Therefore, the discount in nature of commission withheld by the acquiring bank while making payment to the retail merchant should be subjected to TDS u/s 194H@10%. 3.4 it is clear from section 194H that payment includes credit of such sum to the account of the payee or at the time of payment of such income in cash or by the issue of cheque or draft or by any other mode. From the arrangement between the assessee and the acquiring bank, it is clear that their relationship is of Principal and Agent. It is seen that the Swiping machine which is the primary equipment to carry out transactions through credit card, is owned by the acquiring bank. The arrangement between the acquiring bank and the assessee is that of providing swiping machine to the assessee and collecting bill amounts of its sales transacted through credit cards. The acquiring bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to deposit the tax deductible on the amount of commission income to the credit of the Central Government, within the prescribed time. and the assessee was treated as in default u/s 201(1)/201(1A) of the Act by the AO vide orders dated 30-03-2012, for not deducting the tax at source u/s 194H of the Act on payment of discount/commission charges of ₹ 2,78,90,471/- . The default was worked as under by the AO :- Amount(Rs) Commission paid on account of credit card transaction ₹ 2,78,90,471/- Tax on the above @ 10.33% 28,81,085/- Interest u/s 201(1A) for the period from 1.4.2009 to March 2012 (36 months) @1% 10,37,191/- Total liability of tax 39,18,276/- Rounded off to 39,18,280/- 4. Aggrieved by the orders of the AO dated 30-03-2012, the assessee preferred an appeal before the first appellate authority i.e. the CIT(A) and submitted that the assessee is a small retailer selling goods to customers through credit cards and the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Credit card charges) Assessment year 2007-08 to 2009-10 Whether, payments to banks on account of utilization of credit card facilities are in nature of bank charges, and not in nature of commission within meaning of section 194H, and therefore, no tax is required to be deducted on same Held, yes (para 10)[in favour of assessee]. II. Section 195 of the Income Tax Act, 1961 Deduction of tax at source payment to nonresident [Certificate for non-deduction]- assessment year 2007-08 to 2009-10 Whether, where certificate under section 195(3) was issued to bank for receiving payments without deduction of tax at source for specific financial years mentioned therein, it could not be held that it was effective only from date of issuance Held, yeas [para 15] [in favour of assessee]. The CIT(A) by following the decision of the afore-stated decision of the Mumbai Tribunal in the case of Jet Airways India Limited(supra), allowed the appeal of the assessee and the addition made u/s 201/201(IA) of the Act was held to be not sustainable by the CIT(A) vide orders dated 16-01-2014. Hence, the CIT(A) vide orders dated 16-01-2014 ordered the deletion of the demand of ₹ 39,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es payment to the assessee after deducting agreed fees as per terms and conditions in case of credit card. This is not a commission payment but a fees deducted by the bank. If there is an agreement, that is agreement between the credit cardholder and the bank. Bank is a Principal and to spread over its business, a scheme is floated by bank i.e. issuance of credit cards. Bank issues credit card to the various customers who purchase the various credit cards on the agreed terms and conditions. One of the major condition is that if credit card holder does not make payment within the prescribed time limit then they charge 2% penal amount of bill which is raised by the shop keeper against sale of its items through credit card. Bank cannot refuse the payment to the shop keeper who sale their goods through credit card. Only in those cases where goods are found damaged and credit card holder inform the bank that the material purchased by them is damaged or defective and request the bank not to make the payment, in such cases only bank can withhold the payment, otherwise the bank has to make the payment to the shop keeper. Therefore, in our considered view, there is no such relation between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowed by the assessing officer in terms of S.40(a)(ia) on account of the failure of the assessee to deduct tax at source in terms of S.194H of the Act, while making the said commission payments. It was the contention of the assessee before the lower authorities that the assessee only receives the payment form the bank/credit card companies concerned, after deduction of commission thereon, and thus, this is only in the nature of a post facto accounting and does not involve any payment or crediting of the account of the banks or any other account before such payment by the assessee. Considering these submission of the assessee, the CIT(A) accepted the claim of the assessee for deduction of the amount of ₹ 16,34,000 on the following reasoning : 9.8 On going through the nature of transactions, I find considerable merit in the contention of the appellant that commission paid to the credit card companies cannot be considered as falling with in the purview of S.194H. Even though the definition of the term commission or brokerage used in the said section is an inclusive definition, it is clear that the liability to make TDS under the said section arises only when a person ..... 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