2022 (11) TMI 1414 - HC - Income Tax

Banks retaining charges from credit card ticket sales not subject to TDS under Section 194H as no agency relationship exists

The Delhi HC upheld ITAT's decision that TDS under Section 194H was not applicable on charges retained by banks/credit card agencies from sale proceeds of ... TDS u/s 194H - amount retained by the banks/credit card agencies for rendering credit card processing service - ITAT held that assessee was not required to deduct TDS on charges retained by the Banks/credit card agencies out of sale consideration of tickets booked through credit /debit cards - HELD THAT:- ITAT in the present case has correctly held that the issues involved in the present appeals are covered by the judgment of JDS Apparels (P.) Ltd [2014 (11) TMI 732 - DELHI HIGH COURT] wherein held Section 194H would not be attracted. HDFC was not acting as an agent of the respondent-assessee. Once the payment was made by HDFC, it was received and credited to the account of the respondent-assessee. In the process, a small fee was deducted by the acquiring bank, i.e. the bank whose swiping machine was used. On swiping the credit card on the swiping machine, the customer whose credit card was used, got access to the internet gateway of the acquiring bank resulting in the realisation of payment. Subsequently, the acquiring bank realised and recovered the payment from the bank which had issued the credit card. HDFC had not undertaken any act on 'behalf' of the respondent-assessee. 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 course of use of any services by a person acting on behalf of another for buying or selling of goods. Decided against revenue. Issues:1. Condonation of delay in refiling appeals.2. Interpretation of Section 194H of the Income Tax Act, 1961 regarding TDS on credit card processing service charges.3. Applicability of CBDT Notification No.561/2010.4. Comparison of present case with the judgment in CIT vs. JDS Apparels (P.) Ltd.5. Analysis of Section 40(a)(ia) as a penal provision.6. Application of the principle of doubtful penalization in tax laws.Analysis:1. The High Court of Delhi condoned the delay in refiling the appeals after considering the averments in the applications, thereby disposing of the applications.2. The appellant challenged the ITAT's decision regarding the applicability of Section 194H of the Income Tax Act to charges retained by banks for credit card processing services. The appellant argued that TDS should have been deducted on such charges, especially before the CBDT Notification exempting such deductions from January 1, 2013.3. The ITAT held that the issues in the appeals were covered by the judgment in CIT vs. JDS Apparels (P.) Ltd., emphasizing that the relationship between the bank and the assessee was not that of an agent but of two independent parties on a principal-to-principal basis. The bank's role was providing banking services, not acting as an agent in buying or selling goods.4. Consequently, the High Court dismissed the appeals, stating that no substantial question of law arose as the issues were already covered by the judgment in JDS Apparels (P.) Ltd., highlighting the nature of the relationship between the bank and the assessee in credit card transactions.5. The judgment also discussed Section 40(a)(ia) as a penal provision, emphasizing the principle of doubtful penalization that requires strict construction of penal provisions, especially in tax laws, to avoid undue hardship and deprivation to the assessee.6. The court applied the principle against doubtful penalization to the present case, noting that HDFC, as the bank involved, had acted in accordance with the law, and there was no loss of revenue or non-payment of taxes, leading to the dismissal of the appeals based on the existing legal precedent and interpretation of relevant tax provisions.