Credit card merchant discount charges are not commission when banks act for customers, so TDS and interest do not apply.

Merchant discount or collection charges retained by banks on credit card transactions were held not to constitute commission under section 194H where the bank processed the payment on behalf of the customer and not as agent of the merchant. On that basis, no tax deduction at source arose on such charges, and the consequential interest liability under section 201(1A) also did not survive. The assessee was therefore not liable to deduct tax at source, and the related demand and interest were unsustainable.

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Issues: Whether merchant discount or collection charges retained by banks on credit card transactions attracted tax deduction at source under section 194H of the Income-tax Act, 1961, and whether interest could be levied under section 201(1A) of the Income-tax Act, 1961.

Analysis: The dispute turned on whether the bank acted as an agent of the merchant establishment while processing credit card payments. The settled view applied in the case was that the bank processed the transaction on behalf of the customer and not on behalf of the assessee, and therefore the retained charges did not represent commission within the meaning of section 194H. Following the binding precedent relied upon, no occasion arose for deduction of tax at source on such charges. Since the assessee was not liable to deduct tax, consequential liability to pay interest under section 201(1A) also did not survive.

Conclusion: The assessee was not liable to deduct tax at source on credit card merchant discount or collection charges, and the consequential demand and interest liability were not sustainable.

Ratio Decidendi: Where banks process credit card payments on behalf of customers and not as agents of the merchant, the charges retained by the banks do not constitute commission liable for deduction of tax at source under section 194H of the Income-tax Act, 1961.

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