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The Dy. Commissioner of Income Tax, Circle 1 (1) , Pune Versus Bramha Corp. Hotels & Resorts Ltd.

2015 (11) TMI 583 - ITAT PUNE

TDS under section 194H - whether no TDS is required to be deducted by the assessee company on the impugned payments retained by the banks/credit card agencies in respect of Hotel bookings through credit card - applicability of section 40(a)(ia) - CIT(A) delted the disallowance - Held that:- The issue is no longer res-integra and is squarely covered in favour of the assessee by the decision of the Hon’ble Delhi High Court in the case of JDS Apparels Private Limited (2014 (11) TMI 732 - DELHI HIGH .....

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ing rendered the banking services and cannot be treated as a commission or brokerage paid in the course of use of any services by a person acting on behalf of another for buying or selling of goods. The banking services cannot be covered and treated as services rendered by an agent for the principal during the course of buying or selling of goods as the banker does not render any service in the nature of agency. Accordingly, section 40(a)(ia) of the Act was held to be not applicable on payment o .....

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Respondent : Shri Kishor Phadke ORDER PER PRADIP KUMAR KEDIA, AM : The captioned appeal filed by the Revenue is against the order of CIT(A)-I, Pune dated 31.10.2013 relating to assessment year 2010-11 passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. The assessee has raised the following grounds of appeal :- 1. On the facts and in the circumstances of the case, the Learned Commissioner of Income-tax (Appeals) erred in deleting the disallowance of commission payment .....

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ned payments retained by the banks/credit card agencies in respect of Hotel bookings through credit card. 4. The relevant facts are that the assessee is a company engaged in the hospitality business and is the owner of Hotel Le-Meridien, which is 5-Star rated hotel and majority of the customers of the assessee are from high class society, corporates and foreigners, who prefer to make payment through Credit Cards/Debit Cards for availing services rendered by the assessee. The banks/credit card ag .....

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ssessing Officer noticed that the assessee has paid commission on account of credit card payments to various banks aggregating to ₹ 98,03,623/- but tax was not deducted at source on the payments as required by section 194H of the Act. The Assessing Officer held that these banks etc. have collected payments on behalf of the assessee and banks have rendered services for the assessee. Hence, the assessee ought to have deducted TDS under section 194H of the Act against the payment of impugned .....

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on 194H of the Act, there has to be a principal agent relationship between receiver and payer and in the assessee s case, the banks are not working as an agent, it is just providing infrastructure for facilitating the whole transaction and charging specific fee for providing this infrastructure. The fee paid in lieu thereafter is therefore nothing but are in the nature of bank charges/discounting charges, etc. and certainly not the commission or brokerage. The assessee contended that principal a .....

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the bank. The transaction between the bank and the assessee are based on principal to principal. The agreement between the assessee and the bank is related to services and facilities being offered by the banks for facilitating early or immediate payments to the assessee. Such payment is on behalf of the bank s customers holding credit card. Bank in the normal course of business discharges its functions on behalf of card holders and is making payments of the value of the services to the assessee. .....

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rges can partake the character of discounts which are not subject to tax deduction at source under the prevailing provisions of the Act. Since, the sale is concluded by the assessee on its own behalf and not by the banks on behalf of its credit card holder customers. The amounts retained by the banks are not in the nature of commission payments for rendering services, due to absence of agencies. 7. The CIT(A) agreed with the contentions of the assessee and decided the issue in its favour. The re .....

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rms and conditions. It is common knowledge that banks issue credit card to various customers on certain and terms and conditions and if the credit card holder does not make payment due to the bank within the prescribed time limit, banks charge penal amount. But, Bank cannot refuse the payment to the Merchant Establishment, who sells their goods and services through credit card. Only in certain exceptional circumstances i.e. when the material purchased by him is damaged or defective etc., credit .....

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even the merchant establishment conducts the transaction for the bank. The sale made on the basis of a credit card is clearly a transaction of the Merchants Establishment only and the credit card company only facilitates the electronic payment, for a certain charge. Further, the material placed on record does not indicate that the banks concerned have advised the appellant to sell their goods or provide services to its customers on a commission. Moreover, the appellant receives the payment from .....

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in the nature of normal bank charges and not in the nature commission/brokerage for acting on behalf of the appellant. Thus, there is considerable merit in the contention of the appellant that commission paid by the appellant to the banks/credit card companies cannot be considered as falling within ambit of sec.194H. In this context, reference can be made to the following authorities, wherein the issue is decided in favour of the appellant. 1. DCIT Hyderabad vs. M/s. Vah Magna Retail (P) Ltd., .....

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he nature of normal bank charges and not in the nature of commission/brokerage for acting on behalf of the merchant establishment and such payments, though termed as commission , cannot be considered as falling within ambit of sec. 194H. Thus, as on date, the issue involved is squarely covered in favour of the appellant by catena of decisions of the Co-ordinate Benches of the Tribunal and no contrary decision on this issue has come to my knowledge. It is also important to note that a certificate .....

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rges and the provisions of sec. 194H are not attracted to such payments. Therefore, the Assessing Officer is not legally justified in making the disallowance of commission payments by invoking provisions of sec. 40(a)(ia) for non-deduction of tax at source. Accordingly, the addition of ₹ 98,03,623/- made by the Assessing Officer on this ground is deleted. Ground of appeal No.1 is allowed in favour of appellant. 8. Aggrieved by the order of the CIT(A), the Revenue is in appeal before us. 9. .....

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he Ld. Authorized Representative for the assessee, on the other hand, submitted that the issue is squarely covered in favour of the assessee by long line of cases decided by the various Tribunals. The issue has also received judicial approval by the Hon ble Delhi High Court recently in the case of CIT vs. JDS Apparels Private Limited reported in (2015) 370 ITR 454 (Delhi). The Hon ble High Court drew distinction between a contract of sale and a contract of agency by which an agent is authorized .....

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in the swiping machines. The bank was not associated with buying and selling of goods as such. The amount retained by the bank is a fee charged by them for having rendered the banking services and cannot be treated as a commission or brokerage paid in the course of use of any services by a person acting on behalf of another for buying or selling of goods. The banking services cannot be covered and treated as services rendered by an agent for the principal during the course of buying or selling o .....

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