2012 (2) TMI 543 - AT - Income Tax

TDS u/s 194H - Disallowance under section 40(a)(ia) - non deducting the TDS on the service fees charged by bank on credit card transactions - Held that - There is no such relation between the bank and the shop keeper which establishes the relationship of a Principal and Commission Agent. Technically it may be written that bank will charge certain percentage of commission but this is not a commission because assessee sells its goods against credit cards and on presentation of bills the bank has to make the payment. It is not the case that bank has advised the assessee to sell their goods to its customers then he will pay the commission. It is reversed in a situation as bank issued credit cards to the credit card holders on certain fees or whatever the case may be and the card holder purchases material from the market through his credit card without making any payment and that shop keeper presents the bill to the bank against whose credit card the goods were sold and on presentation of bill as stated above the bank makes the payment. Therefore provisions of section 194H are not attracted in this type of transaction. Therefore we hold that addition made and confirmed by ld. CIT (A) was not justified. See case of M/s. Gem Paradise 2012 (2) TMI 521 - ITAT JAIPUR - Decided in favour of assessee.

Summary

Issues Involved:
Cross appeals by assessee and department against the order of ld. CIT (A) relating to assessment year 2008-09. Appeal of the assessee against disallowance under section 40(a)(ia) for non-deducting TDS on service fees charged by banks on credit card transactions. Department's objection regarding trading addition made by AO by disallowing unverifiable purchases.

Analysis:
1. Disallowance of TDS on Service Fees:
The dispute revolved around the disallowance of &8377; 30,97,998/- under section 40(a)(ia) for not deducting TDS on service fees charged by banks on credit card transactions. The AO contended that the assessee should have deducted TDS under section 194H or 194J. The ld. CIT (A) upheld the disallowance, citing the contract terms with banks, where banks acted as agents of the assessee. However, she deleted the addition for certain banks due to a no-deduction certificate. The Tribunal, considering a similar case, held that the bank's fees were not commission but a deduction, hence not attracting section 194H. Therefore, the Tribunal allowed the appeal in favor of the assessee.

2. Department's Objection on Trading Addition:
The department objected to the deletion of trading addition made by the AO, disallowing 25% of unverifiable purchases. Despite detailed submissions by the ld. D/R, the Tribunal dismissed the department's appeal due to the tax effect being less than &8377; 2,00,000, in accordance with section 268A. Consequently, the appeal of the assessee was allowed, and the department's appeal was dismissed.

In conclusion, the Tribunal ruled in favor of the assessee regarding the TDS disallowance on service fees, citing that the bank's charges were not commission but deductions. The department's objection on trading addition was dismissed due to the tax effect falling below the threshold. The judgment highlighted the importance of distinguishing between commission and fees in transactions involving credit card payments, ultimately leading to a favorable outcome for the assessee.