TMI Blog2014 (11) TMI 732X X X X Extracts X X X X X X X X Extracts X X X X ..... ies on principal to principal basis - HDFC was also acting and equally protecting the interest of the customer whose credit card was used in the swiping machines - the bank or their employees were not present at the spot and were not associated with buying or selling of goods as such - Upon swiping the card, the bank made payment of the bill amount to the respondent-assessee - assessee received the sale consideration - the bank had to collect the amount from the bankers of the credit card holder - The Bank had taken the risk and also remained out of pocket for sometime as there would be a time gap between the date of payment and recovery of the amount paid. There is another reason as to why Section 40(a)(ia) of the Act should not have been invoked in is the principle of doubtful penalization which requires strict construction of penal provisions - The detriment in the present case would include initiation of proceedings for imposition of penalty for concealment, as was directed by the AO - a person should not be subjected to any sort of detriment unless the obligation is clearly imposed – the principle should be applied as HDFC would necessarily have acted as per law – thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of tax at source @ 10% under Section 194H of the Act. As the commission had not been subjected to tax at source, ₹ 44,65,654/- should be disallowed under Section 40(a)(ia) of the Act, as this amount had been claimed as an expenditure by the assessee. 4. The aforesaid opinion was affirmed by the Commissioner of Income Tax (Appeals), who held that the transaction in question was in the nature of bill discounting by the acquiring bank, who had paid the bill amount after deducting the commission payable to them. The acquiring bank had taken up the entire risk relating to recovery of payment from the issuing bank. Reference was made to the following portion of the Circular No.619 dated 4th December, 1991, issued by the Central Board of Direct Taxes (CBDT):- For the purpose of this Section commission or brokerage includes any payment received or receivable directly by person acting on behalf of another person for services in the course of buying of selling of the goods or in relation to any transaction relating to any assets, value, article or thing. 5. As noticed above, the Tribunal has held that Section 194H of the Act is not applicable. 6. Section 194H of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) ; (iv) where any income is credited to any account, whether called Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. 7. Section 194H of the Act applies to income by way of commission or brokerage excluding insurance commission referred to in Section 194D of the Act. Tax at source is to be deducted at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by way of cheque/draft or any other mode. The explanation clause (i) states that for the purpose of this section, commission or brokerage includes any payment received or receivable directly or indirectly by a person acting on behalf of another person, (i) for services rendered, not being in the nature of professional services; (ii) any service rendered in the course of buying or selling of goods; and, (iii) in relation to any transaction relating to any asset, valuable article or thing, not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of upon the amount of money involved in a transaction. It can be for a variety of services and is of the nature of recompense or reward for such services. Rebate , on the other hand, is a remission or a payment back and of the nature of a deduction from the gross amount. It is sometimes spoken of as a discount or a draw-back. The dictionary meaning of the term includes a refund to the purchaser of a thing or commodity of a portion of the price paid by him. It is not confined to a transaction of sale and includes any deduction or discount from a stipulated payment, charge or rate. It need not necessarily be taken out in advance of payment but may be handed back to the payer after he has paid the stipulated sum. The repayment need not be immediate. It can be made later and in case of persons who have continuous dealings with one another it is nothing unusual to do so. Importantly, the Gujarat High Court held that there should be an element of agency in all the three situations as envisaged in clause (i) of the Explanation to Section 194H of the Act. 9. On appeal before the Supreme Court, the decision was upheld by a short order, which is reported as (2012) 348 ITR 378 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the word includes in the clause can show legislative intent to enlarge the meaning of the words or phrases occurring so as to not only mean and comprehend such things as they signify according to their nature and import, but also things which the interpretation clause declares that they shall include. (see CIT versus Taj Mahal Hotel, (1971) 3 SCC 550). But, this may not always be the case and in certain cases, the expression includes has been construed as equivalent to and, therefore, given a narrower meaning (see South Gujarat Roofing Tiles Manufacturers Association versus State of Gujarat and Others AIR 1977 SC 90). Thus, the word includes can be used in the sense of the word means . The definition clause in such cases is treated as an exhaustive one (see Reserve Bank of India versus Peerless General Finance and Investment Company Ltd. (1987) 1 SCC 424). Thus, in a particular context the word includes when used, may only mean comprise of or consist of . 13. It is apparent from the decision of the Supreme Court in the case of Ahmedabad Stamp Vendors Association (supra) that clause (i) of the Explanation to Section 194H of the Act has been read as exhaustive an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HDFC was not acting as an agent of the respondent-assessee. Once the payment was made by HDFC, it was received and credited to the account of the respondent-assessee. In the process, a small fee was deducted by the acquiring bank, i.e. the bank whose swiping machine was used. On swiping the credit card on the swiping machine, the customer whose credit card was used, got access to the internet gateway of the acquiring bank resulting in the realisation of payment. Subsequently, the acquiring bank realised and recovered the payment from the bank which had issued the credit card. HDFC had not undertaken any act on behalf of the respondent-assessee. The relationship between HDFC and the respondent-assessee was not of an agency but that of two independent parties on principal to principal basis. HDFC was also acting and equally protecting the interest of the customer whose credit card was used in the swiping machines. It is noticeable that the bank in question or their employees were not present at the spot and were not associated with buying or selling of goods as such. Upon swiping the card, the bank made payment of the bill amount to the respondent-assessee. Thus, the respondent as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduct tax at source and acts to the detriment of the assessee s property and other economic interests. It operates and inflicts hardship and deprivation, by disallowing expenditure actually incurred and treating it as disallowed. The Explanation, therefore, requires a strict construction and the principle against doubtful penalization would come into play. The detriment in the present case, as is noticeable, would include initiation of proceedings for imposition of penalty for concealment, as was directed by the Assessing Officer in the present case. The aforesaid principle requires that a person should not be subjected to any sort of detriment unless the obligation is clearly imposed. When the words are equally capable of more than one construction, the one not inflicting the penalty or deterrent may be preferred. In Maxwell s The Interpretation of Statutes, 12th edition (1969) it has been observed:- The strict construction of penal statutes seems to manifest itself in four ways: in the requirement of express language for the creation of an offence; in interpreting strictly words setting out the elements of an offence; in requiring the fulfilment to the letter of statutory co ..... 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