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2016 (2) TMI 786 - ITAT MUMBAI

2016 (2) TMI 786 - ITAT MUMBAI - TMI - TDS u/s 194H - non deduction of the tax at source on payment of discount/commission charges - Held that:- We find that the issue is squarely covered in favour of the assessee by the decision of co-ordinate Bench of this Tribunal in the case of Jet Airways India Ltd. (2013 (8) TMI 586 - ITAT MUMBAI) whereby it was held that the credit card commission to the banks are in the nature of normal bank charges and are not in the nature of commission within the mean .....

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") dated 16-01-2014 pertaining to the assessment years 2010-11 and 2011-12. Since, similar grounds are raised in both these 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 cas .....

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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 charges charged to the assessee company by the bank/ credit card agencies within the purview of section 194H of the I.T. Act, 1961." iv) On the facts and in the circumstances of the case .....

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of the case are that a survey u/s 133A of the Income Tax Act, 1961(Hereinafter called "the Act") was conducted by the Revenue in the case of HDFC Bank Limited. It was revealed during the course of the aforestated survey proceedings that during the previous year under consideration, HDFC Bank Limited has withheld an amount of ₹ 2,78,90,471/- as discount/commission charges while making payment of the bill/invoice amount of the sales carried out through the credit cards to the asses .....

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rties involved in credit card transactions and functions, which is elaborated in his orders u/s 201(1) and 201(1A) of the Act dated 30-03-2012 as under:- "3.2 An issuing bank issues credit card to a customer. An acquiring bank provides swiping machine to retail merchant. Bill Settling Agency i.e. BSA which is VISA/Master Card in this facilities transfer of bill amount. 3.3. When a retail merchant swipes a credit card for receiving payment from customer then bill details and amount are forwa .....

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o 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 acquiri .....

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ting the payment by the customer through credit cards. The acquiring bank further facilitates the recovery of bill amount from the issuing bank by coordinating between the issuing bank and the bill settling agency. Thus in the whole process of sale through credit cards, the acquiring bank is instrumental not only in providing necessary equipment for carrying out sale transactions through credit cards but also in realizing the bill amount from the issuing bank. For rendering above services, the a .....

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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 another mode. Thus the payment received by acquiring bank for rendering services of facilitating payment of sales made through credit cards by the customers of retail merchant and collection of bill amount on behalf of retail merchant from the issuing bank is squarely covered under the definition of commission as per explanation to section 194H of the Act. 3.5 .....

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mitting the sale consideration. It may be clarified that since the retention of commission by the consignee/agent amounts to constructing payment of the same to him by the consignor/principal, deduction of tax at source is required to be made from the amount of commission. Therefore, the consignor/principal will have 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 .....

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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 bank of the assessee gives credit in respect of the sale values after deducting discount there-from and in turn the assessee s bank collects the money from various banks and financial institutions whose credit card were used in payment .....

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96 (Bang.) and stated as under:- "We are also enclosing herewith Notification No. 56/2012 [F.No. 275/53/2012 IT (B)] Date 31/12/2012 which classifies in item VII. SECTION 197A OF THE INCOME TAX ACT, 1961 - DEDUCTION OF TAX AT SOURCE - NO DEDUCTION IN CERTAIN CASES - SPECIFIED PAYMENT UNDER SECTION 197A (IF). NOTIFICATION NO. 56/2012 [F. NO. 275/53/2012 - IT (B)] DATED 31- 12-2012. In exercise of the powers conferred by sub-section (IF) of section 197A of the Income Tax Act, 1961 (43 of 1961 .....

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modities (v) Underwriting service charges (vi) Clearing charges (MICR charges) (vii) Credit card or debit card commission for transaction between the merchant establishment and acquire bank. 2. This notification shall come into force the Ist day of January,2013." The CIT(A) accepted the contentions of the assessee by relying upon the decision of Mumbai Bench of the Tribunal in the case of ITO v. Jet Airways India Ltd. (2013) 37 taxmann.com 379 (Mumbai - Tribunal) wherein the Tribunal held a .....

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duction 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 Tribu .....

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al. 6. The ld. D.R. submitted before us that the assessee has made payments of ₹ 2,78,90,471/- towards the credit card commission which is recovered by the HDFC Bank Limited from the assessee by deducting from the payments made for the invoices raised by the assessee. The ld. D.R. fairly conceded that this issue is squarely covered in favour of the assessee by the decision of the Mumbai Bench of the Tribunal in the case of Jet Airways India Ltd. (supra). 7. We have heard the ld. D.R. and p .....

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me u/s 194H of the Act. The finding of the Tribunal in Jet Airways India Limited(supra) are reproduced hereunder: "9. We have carefully considered the submissions of the ld. Representatives of the parties and the orders of the authorities below. We have also carefully considered the provisions of section 194H of the Act. We observe that the similar issue has been considered by the Jaipur Bench of the Tribunal in the case of Gems Paradise (supra) and the Tribunal held vide paragraph 27 of th .....

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paid by the Principal to the commission agent. This is not a case of commission agent as assessee sold its goods through credit card and on presentation of bill issued against credit card, the bank makes 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 .....

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ds 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 the bank and the shop keeper which establishes the relationship of a Principal and Commission Agent .....

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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, in our considered view, 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. Accordingly, the addition made and confirm .....

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e that the similar issue again come up before the Hyderabad Bench of the Tribunal in the case of Vah Magna Retail (P.) Ltd. (supra) and the Tribunal vide paragraph 4 of the said order dismissed the appeal of the department by holding that the amount retained by the principal contractor from the payments made to the contracting persons and there was no requirement for making TDS on the amount. The said paragraph 4 of the order reads as under : '4. We heard the Learned Departmental Representat .....

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s 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 .....

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person acts on behalf of another person. In the case of commission retained by the credit card companies however, it cannot be said that the bank acts on behalf of the merchant establishment or that 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. The commission retained by the cre .....

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