2014 (11) TMI 732 - DELHI HIGH COURT

TDS under section 194H – assessee had paid commission to HDFC on payments received from customers who had made purchases through credit cards - Whether the Tribunal was right in holding that the AO was wrong in invoking Section 40(a)(ia) of the Act – Held that:- Section 194H of the Act would not be attracted - 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 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 - 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 - 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 order of the Tribunal is upheld – Decided against revenue.