2016 (3) TMI 315 - AT - Income Tax

Tribunal rules credit card charges as bank charges, no TDS needed

Dy. Commissioner of Income tax (OSD), Mumbai Versus M/s Future Value Retail Ltd

The Tribunal upheld the CIT(A)'s decision, ruling in favor of the assessee that credit card charges are bank charges, not commission, thus no TDS is ... TDS u/s.194-H - disallowance u/s 40(a)(ia) of Credit Card Charges - whether the said charges are in the nature of 'Commission or brokerage' and payment/credit thereof is liable for TDS? - Held that:- Respectfully following the decision of the co-ordinate Bench of the Mumbai Tribunal in the case of Jet Airways India Ltd. (2014 (9) TMI 650 - ITAT MUMBAI) which is later on again followed by Mumbai Tribunal in the case of Jet Airways India Limited for succeeding assessment year i.e. 2010-11 [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 meaning of Section 194H of the Act, and therefore no tax is required to be deducted at source on the same u/s 194H. We hereby uphold and sustain the orders of the CIT(A) ordering deletion of the addition made by the AO u/s 40(a)(ia) for non-deduction of tax at source u/s 194H - Decided in favour of assessee Issues Involved:1. Disallowance under Section 40(a)(ia) of the Income Tax Act for non-deduction of TDS on credit card charges under Section 194H.Issue-wise Detailed Analysis:1. Disallowance under Section 40(a)(ia) of the Income Tax Act for non-deduction of TDS on credit card charges under Section 194H:Facts of the Case:The assessee company, engaged in the business of readymade garments, claimed credit card charges of Rs. 5,30,13,348 under 'other expenses' without deducting TDS as per Section 194H of the Income Tax Act. The Assessing Officer (AO) observed that these charges should be considered as 'commission or brokerage' and thus liable for TDS under Section 194H. The AO disallowed the expenses under Section 40(a)(ia) for non-deduction of TDS.Assessee's Contentions:The assessee argued that the bank is not acting as an agent of the merchant under the Merchant Establishment (ME) agreement. The ME commission is received by the bank as processing or discounting charges, not as commission. The assessee relied on various case laws to support its contention that no TDS is applicable on credit card charges paid.Assessing Officer's Findings:The AO rejected the assessee's contention, stating that the credit card transaction is in the nature of commission for providing complex services using sophisticated skills and technology under an agreement. Thus, provisions of Section 194H are attracted, making the assessee liable to deduct TDS. Consequently, the AO disallowed the credit card charges under Section 40(a)(ia).CIT(A)'s Decision:The CIT(A) accepted the assessee's contentions, relying on the decision of the ITAT Mumbai Bench in the case of Jet Airways India Ltd., which held that payments to banks for credit card facilities are in the nature of bank charges, not commission. Therefore, no TDS is required under Section 194H. The CIT(A) also referred to similar decisions by the Jaipur and Hyderabad Benches of the Tribunal, concluding that the payments made to banks are bank charges, not commission.Tribunal's Analysis:The Tribunal observed that the issue is covered in favor of the assessee by the decision of the ITAT Mumbai Bench in Jet Airways India Ltd., which held that credit card commissions to banks are normal bank charges, not commission under Section 194H. The Tribunal noted that the Revenue has not accepted the decision in Jet Airways India Ltd. and has appealed to the Bombay High Court. However, the Tribunal upheld the CIT(A)'s decision, stating that the payments made to banks are bank charges and not commission, thus no TDS is required under Section 194H.Conclusion:The Tribunal upheld the CIT(A)'s order, deleting the addition of Rs. 5,30,13,348 made by the AO under Section 40(a)(ia) for non-deduction of TDS on credit card charges, affirming that these charges are bank charges and not commission. The appeal filed by the Revenue was dismissed.Order Pronounced:The appeal filed by the Revenue in ITA No. 2612/Mum/2014 for the assessment year 2010-11 was dismissed, and the order was pronounced in the open court on 29th January 2016.