2017 (5) TMI 1558 - AT - Income Tax

ITAT: Bank charges not 'commission,' interest not linked to tax-free investments.

The DCIT-9 (3) (2), Versus M/s. Future Value Retail Ltd.,

The ITAT affirmed that charges retained by banks/credit card agencies from credit card transactions do not constitute 'commission or brokerage' under ... TDS u/s 194H - commission or brokerage - tds liability on amount retained by a bank/credit card agency out of the sale consideration of the tickets booked through credit cards - Held that:- In the case of Jet Airways(India) Ltd. (2013 (8) TMI 586 - ITAT MUMBAI) has concluded that credit card charges paid to the collecting banks would not fall within the meaning of the expressions ‘commission or brokerage’ as understood for the purposes of section 194H of the Act, therefore, no amount of tax is deductible at source on such payments under section 194H of the Act. We hereby affirm the decision of the CIT(A) in deleting the impugned addition. - Decided against revenue Disallowance made u/s 14A worked out by the Assessing Officer by applying Rule 8D(2) for the interest expenses - Held that:- The rationale explained in the case of Reliance Utilities & Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT) by the Hon'ble Bombay High Court is attracted and it is to be presumed that the interest expenditure is not relatable to such investments. Such presumption has also been held to be applicable in the context of section 14A of the Act by the Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd.,(2014 (8) TMI 119 - BOMBAY HIGH COURT) and in the case of HDFC Bank Ltd. vs. DCIT(2016 (3) TMI 755 - BOMBAY HIGH COURT). Therefore, we affirm the order of the CIT(A) deleting the disallowance made by the Assessing Officer under section 14A of the Act out of the interest expenditure. - Decided in favour of assessee. Issues:1. Interpretation of section 194H regarding tax deduction on amounts retained by banks/credit card agencies.2. Determination of agency relationship between bank/credit card agency and assessee.3. Disallowance of interest expenses under section 14A.4. Application of Rule 8D(2) to compute disallowance under section 14A.Issue 1 - Interpretation of Section 194H:The appeal questioned whether the amount retained by a bank/credit card agency from the sale consideration of tickets booked through credit cards falls under the definition of 'commission or brokerage' in Section 194H. The Assessing Officer disallowed the expenditure under section 40(a)(ia) for not deducting tax at source. The CIT(A) overturned this, citing precedents where similar charges were not considered as commission. The ITAT affirmed this decision, stating that credit card charges to banks do not constitute commission or brokerage under section 194H.Issue 2 - Agency Relationship Determination:The dispute revolved around whether a bank/credit card agency acts as an agent for the assessee. The CIT(A) held that the agency relationship does not exist, contrary to the Revenue's contention. The ITAT upheld this decision, emphasizing that credit card companies facilitate electronic payments and do not act as agents for merchants. Therefore, no TDS is required under section 194H.Issue 3 - Disallowance of Interest Expenses under Section 14A:The Assessing Officer disallowed interest expenses under section 14A, applying Rule 8D(2) to compute the disallowance. The CIT(A) deleted the disallowance, noting that the assessee's non-interest bearing funds were adequate to cover investments in tax-free securities. Citing relevant judgments, the ITAT affirmed the CIT(A)'s decision, stating that interest expenditure was not attributable to the investments, leading to the disallowance deletion.Issue 4 - Application of Rule 8D for Section 14A Disallowance:The application of Rule 8D to compute the disallowance under section 14A was challenged. The CIT(A) accepted the assessee's argument regarding interest expenditure and deleted the disallowance partially. The ITAT upheld this decision, emphasizing that the non-interest bearing funds covered the tax-free investments, aligning with judicial precedents. Consequently, the Revenue's appeal was dismissed on both aspects, affirming the CIT(A)'s orders.