2013 (8) TMI 586 - AT - Income Tax

TDS not required on retained amounts for credit card bookings; Section 195(3) certificates valid for full year.

Income Tax Officer-(TDS) -2(1) Versus M/s Jet Airways (India) Ltd.

The Tribunal dismissed all appeals by the department for the assessment years 2007-08 to 2009-10, upholding the CIT(A)'s decisions. It was held that no ... TDS u/s 194H - Impugned retention by banks/credit card agencies - Held that:- banks make payments to the assessee after deducting certain fees as per the terms and conditions in the credit card and it is not a commission but a fee deducted by the banks - 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 - liability to make TDS under the said section arises only when a 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 credit card company is therefore in the nature of normal bank charges and not in the nature of commission/brokerage for acting on behalf of the merchant establishment - payments made to the banks on account of utilization of credit card facilities would be in the nature of bank charges and not in the nature of commission within the meaning of section 194H of the Act and hence no TDS is required to be deducted u/s 194 H of the Act - Following decision of DCIT V/s M/s Vah Magna Retail (P) Ltd [2013 (8) TMI 299 - ITAT HYDERABAD] - Decided against Revenue. Withhold of tax u/s 195(3) - Held that:- assessee has also filed a copy of certificates issued by the AO u/s 195(3) of the Act dated 27.4.2006, 30.3.2007, 31.3.2008 and 31.3.2008 which are addressed to Citibank N.A. for Financial Years 2006-07 to 2008-09 respectively. On perusal of the said certificates it is specifically mentioned that the said bank is authorized to receive the payments, interests without deduction of income tax u/s 195(1) of the Act in the respective Financial Years. Similarly, the assessee has also placed on record the copy of certificates dated 27.4.2006 and 28.4.2007 which are addressed to American Express Bank Ltd authorizing the said bank to receive interalia any sum without deduction of income tax under sub-section (1) of Section 195 of the Act for Financial Years 2006-07 and 2007-08 respectively - certificates issued u/s 195(3) of the Act are applicable for the concerned Financial Years and will not be effected only from the date of issuance as stated by the AO - Decided against Revenue. Issues Involved:1. Applicability of TDS under Section 194H on amounts retained by banks/credit card agencies as service charges for credit card ticket bookings.2. Date of effect for certificates issued under Section 195(3) of the Income Tax Act.Issue-wise Detailed Analysis:1. Applicability of TDS under Section 194H:The primary issue in these appeals was whether the assessee-company was required to deduct TDS under Section 194H of the Income Tax Act on the amounts retained by banks/credit card agencies as service charges for credit card ticket bookings. The facts reveal that the assessee, engaged in the aviation business, had amounts retained by banks for tickets booked through credit cards. The AO argued that these amounts were in the nature of 'commission or brokerage' and thus subject to TDS under Section 194H.The assessee contended that these amounts were in the nature of discounts for immediate payment and did not involve any agency relationship between the banks and the assessee. The CIT(A) upheld this view, stating that the relationship between the banks and the assessee was one of principal to principal, not principal and agent. The CIT(A) relied on previous Tribunal decisions, including those of the Jaipur and Hyderabad Benches, which held that such transactions did not attract Section 194H as they were not commissions but fees for services.The Tribunal agreed with the CIT(A) and cited multiple precedents, including the Jaipur Bench's decision in M/s. Gems Paradise and the Hyderabad Bench's decision in M/s Vah Magna Retail (P) Ltd. These decisions clarified that the amounts retained by banks were fees for services and not commissions, thus not requiring TDS under Section 194H. The Tribunal rejected the department's appeal on this issue.2. Date of Effect for Certificates Issued under Section 195(3):The second issue involved the date from which certificates issued under Section 195(3) of the Act were to take effect. The AO claimed that these certificates, which allowed payments without TDS, were valid only from the date of issuance. However, the CIT(A) held that these certificates were valid for the entire financial year specified in them.The Tribunal examined Rule 29B(5) of the Income Tax Rules, 1962, which supports the CIT(A)'s view that certificates issued under Section 195(3) are valid for the specified financial year unless canceled earlier. The Tribunal also reviewed the specific certificates issued to American Express Bank Ltd and Citibank N.A., which clearly stated their validity for the respective financial years.The Tribunal upheld the CIT(A)'s decision, confirming that the certificates were applicable for the entire financial year and not just from the date of issuance. Consequently, the Tribunal dismissed the department's appeals on this issue as well.Conclusion:The Tribunal dismissed all three appeals filed by the department for the assessment years 2007-08 to 2009-10, upholding the CIT(A)'s decisions on both issues:1. No TDS under Section 194H on amounts retained by banks/credit card agencies.2. Certificates issued under Section 195(3) are valid for the entire financial year specified.