TaxTMI 
TaxTMI 
2019 (7) TMI 866
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.... and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to recompute the disallowance u/s.14A read with Rule 8D by taking into consideration the actual indirect expenses, without appreciating the fact that the AO has properly recorded his satisfaction for invoking the provisions of rule 8D and therefore since Rule 8D is invoked, the disallowance has to be worked out as per the formula prescribed therein and there is no scope for any deviation thereform?" ii) "Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of Rs. 34,62,22,786/- under section 40(a)(ia) of the IT Act on account of not deducting the TDS on credit card commission charged by bank on credit card transactions?" iii) "Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that there is no relationship of a Principal and Commission Agent between the assessee and the acquired bank, without appreciating the fact that the acquirer bank, without appreciating the fact that the acquirer bank acts as a conduit or middleman between the asse....
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.... holding that if any technology or machine is developed by human beings and put to operation on out-mode without involving much human intervention, then it cannot be treated as a technical service u/s. 194J of the Act, without appreciating that such systems necessarily involve human intervention?" ix) "Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of Rs. 6,76,46,117/- under section 40(a)(ia) of the IT Act on account of not deducting the TDS on cash pick up services?" The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the ACIT 9(3)(2) be restored. The appellate craves leave to amend or alter any grounds or add a new ground which may be necessary." 3. The brief facts of the case are that the assessee is engaged in the business of readymade garments and other products. 3.2 During the course of assessment proceeding conducted by the AO u/s 143(3) read with Section 143(2) of the 1961 Act, on perusal of P&L account of the assessee for the year under consideration, it was observed by the AO that the assessee had claimed credit card charg....
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.... to create and maintain accounts that allow the business to accept credit and debit cards, (i.e. merchant accounts). Acquiring banks provide merchants with equipment and software to accept cards, promotional materials, customer service and other necessary aspects involved in card acceptance. The acquiring bank also deposits funds from credit card sales into a merchant's account. Interestingly enough, many merchants don't recognize their acquiring bank as the primary provider of their merchant account. Acquiring banks are playing an increasingly hands-off role as the bankcard system evolves. Acquiring banks often enlist the help of third-party independent sales organizations (ISO) and membership service providers (MSP) to conduct and monitor the day-to-day activities of their merchant accounts. * Issuing Bank (Cardholder Bank) - An issuing bank issues credit cards to consumers. The issuing bank is also a member of the card associations (Visa and MasterCard). Issuing banks pay acquiring banks for purchases that their cardholders make. It is then the cardholder's responsibility to repay their issuing bank under the terms of their credit ....
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....ortion of a credit card transaction. Additional front-end platform interconnections may be required to support AO1 and debit transactions. * Back-End Network:- The platform that takes captured transactions from the Front-End Network and settles them through the interchange system. The backend generates daily ACH files for merchant settlement. Other functions typically handed on the back-end include chargeback handling, retrieval request and monthly statements. 4.2.1 The online fund transfer is a Two-Part Process and can be briefly explained as under:- Processing a payment card transaction involves two stages; > Authorization, where an electronic request is sent through various parties to either approve or decline the transaction; and Clearing and Settlement, where all parties settle their accounts and get paid. > Authorization: 1. Cardholder presents payment card as payment at Merchant Point-of-Sale 2. Merchant enters card into a physical Point-of-Sale Terminal or submits a credit card transaction to a Payment Gateway on behalf of a customer via secure connection from a web site, retail location, MOTO center or a wirele....
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....n section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income In cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent," 4.2.3 In the case of the assessee, the abovementioned Key Players gets full amount from the customer through credit cards and remit the amount to the assessee's account after deducting their commission. This is a different mode of payment in which the assessee is not making any payment but the service provider itself deduct the commission from the amount payable. This mode of payment between the assessee and the Banks is clearly covered by the provisions of section 194H which says that payment "by any other mode". There is no doubt that the Banks provide credit card facilities to the assessee company and for that commission Is charged by them, but there was no bar on the assessee to deduct TDS on such payments / expenses debited in the Profit & Loss Account Therefore, provisions of section 194H of the Act is clearly attracted to the transactions between the Banks and the assessee for ch....
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....;ble ITAT Mumbai in the case of ITO(TDS) v jet Airways (India) Ltd. [IT Appeal Nos. 7439,7440 & 7441 (Mum) 2010] dated 17/07/2013 where proceedings were initiated u/s 201(1)/201(1A) of the Act in connection with the applicability of TDS on the amounts retained by the banks in respect of the air tickets booked through credit cards. The appellant during the course of proceedings stated that the provisions of section 194H of the Act are not applicable on the above mentioned amounts retained by the banks as it was in the nature of discounting in consideration of immediate payment made by the banks to the assessee. However, the AO held that such a payment made for the use of the credit card, internet payment gateway to enable the assessee to collect the payments made by the customers to it for orders placed through facility by the said customers is squarely covered by the definition of "commission or brokerage" given in explanation (i) below the third proviso to section 194H of the Act. 6.2.3 Further, it is also pertinent to mention that identical issue in Appellant's own case under appeal no. CIT(A)-16-Addl.CIT-8(1)/IT-207/2013-14 was there in the previous year pertaining to A....
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....he facts in appellant's own case for A.Y.2011-12 which had been decided by my ld. predecessor. In view of the foregoing discussion, I have no reason to deviate from the findings given by my ld. Predecessor. Therefore, ground No.2 raised by the appellant is allowed." 5. Aggrieved by appellate order dated 23.08.2016 passed by learned CIT(A), the Revenue has filed an appeal before the tribunal and this issue of disallowance u/s 40(a)(ia) read with Section 194H of the 1961 Act is raised by Revenue in memo of appeal filed with tribunal vide ground number (ii) to (viii). The Ld. CIT-DR opened the argument and fairly submitted before the Bench that this issue is squarely covered by decision of Mumbai-tribunal in the case of Jet Airways India Ltd.(supra). The Ld. Counsel for the assessee also submitted that the issue is covered by decision of coordinate benches of the tribunal in the case of Jet Airways India Ltd.(supra). Further, it is also brought to our notices by learned counsel for the assessee that Mumbai-tribunal in assessee's own case for AY 2011-12 in ITA no. 3968/Mum/2015 AY 2011-12 vide appellate order dated 31.05.2017 has now adjudicated this issue in favour of the asses....
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.... charges u/s 194H of the 1961 Act and additions as were made by AO by invoking provisions of Section 40(a)(ia) read with Section 194H stood deleted and the appellate order passed by Ld. CIT(A) stood confirmed/upheld by Mumbai-tribunal in assessee's own case in ITA no. 3968/Mum/2015 vide orders dated 31.05.2017 for AY 2011-12, by holding as under:- " 4. In so far as the first issue is concerned, the Assessing Officer noted that assessee had debited an expenditure of Rs. 24,64,25,637/- in the P&L Account on account of credit card charges. On being asked to explain, assessee explained that it is engaged in the business of sale of readymade garments and other products and it receives payments from customers through credit cards. The aforesaid expenditure reflects the charges paid to the banks for collecting payments and is on account of service fees/ discount/ merchant discount rate/ commission, etc. The Assessing Officer was of the view that such charges are in the nature of 'commission', for which the requisite tax is required to be deducted at source under section 194H of the Act. Since the assessee company has not deducted the requisite tax at source, the expendit....
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....that 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. Accordingly, 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 194H of the Act. Respectfully following the jurisdictional Mumbai ITAT decision as above, the addition made u/s 40(a)(ia) is deleted." 5. Before us, it was a common point between the parties that ....
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....commodities; (v) underwriting service charges; (vi) clearing charges (MICR charges); (vii) credit card or debit card commission for transaction between the merchant establishment and acquirer bank. 2. This notification shall come into force from the 1st day of January, 2013. [F. NO. 275/53/2012-IT(B)] 6.2.1. The aforesaid notification issued on 31-12-2012 by Central Government was later superseded by another notification issued on 17.06.2016, which is reproduced hereunder: "MINISTRY OF FINANCE (Department of Revenue) (CENTRAL BOARD OF DIRECT TAXES) NOTIFICATION New Delhi, the Dated: 17th June, 2016 Notification No. 47/2016 INCOME TAX S.O. 2143(E).-In exercise of the powers conferred by sub-section (1F) of section 197A of the Income-tax Act, 1961 (43 of 1961) and in supersession of the notification of the Government of India, Ministry of Finance (Department of Revenue) number S.O. 3069 (E) dated 31st December, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii), the Central Government hereby notifies that no deduction of tax under Chapter XVII of the said Act shall ....
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....e time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent : Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed five thousand rupees : Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section: Provided also that no deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to t....
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....on and whether it would be applicable to persons carrying on the business of stamp vendors who purchase stamps from the government treasury and sell them to the public. The Gujarat High Court drew a distinction between a contract of sale and a contract of agency by which an agent is authorized to buy or sell on behalf of the principal. In a case of agency, the agent is not the owner of the property and does not sell the same of his own accord but as per the directions and instructions of the principal, who is the owner of the property. The profit and loss is that of the principal, and what is paid to the agent is the commission or brokerage. The expressions "commission" and "discount" were distinguished after making reference to the definitions in the Black's Law Dictionary. The expression "discount", it was observed, is an allowance or deduction made from the gross sale on any account whatsoever. A "deduction" normally represents a reduction in the original price or a debt such as in case of securities (e.g. treasury bills), which are issued below the face value and are redeemed at the face value. Commission, it was held, is a reward paid to an agent as well as to a s....
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....tion was of sale and Section 194H of the Act had no application. Thus, holding that a contract of agency did not exist. 10. Similar view has been expressed by the Kerala High Court in Kerala State Stamp Vendors Association v. Office of the Accountant General [2006] 282 ITR 7/150 Taxman 30 wherein it held:- "No doubt, payment of commission or brokerage in relation to sale or purchase of goods also would attract deduction of tax at source under section 194H of the Act. However, such situation arises only when there is involvement of services of a third party on payment other than the seller and the purchaser of goods or when the recipient of the benefit markets goods as "agent" of the owner and not as independent dealer." 11. Allahabad High Court in Chief Treasury Officer v. Union of India [2013] 355 ITR 484/[2014] 220 Taxman 403/[2013] 37 taxmann.com 391 has held that the words "by a person acting on behalf of another person" imply element of agency and must be present in all such services or transactions in order to fall within the expression "commission" and "brokerage". Reference was made to definition of the term "agent" in the Indian Contract Act and ....
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....gency and also between discount and commission/brokerage. Otherwise, the expression "any service rendered in the course of buying or selling of goods" possibly would have encompassed and included the "discount" given to the stamp vendors, who render service during the course of buying and selling of goods, i.e. the stamp papers. 14. Contention could be raised that payment received or receivable directly or indirectly for any services in course of buying or selling of goods need not arise out of a contract of agency or from a relationship of a principal and an agent. The said contention has to be rejected in view of the aforesaid judgments, which positively hold that the three separate conditions when tax at source is required to be deducted would only apply provided the recipient is acting on behalf of another, i.e. relationship of a principal and an agent exists and not otherwise. This interpretation has been consistent and uniformly applied while interpreting clause (i) of the Explanation to Section 194H of the Act. Appropriate in this regard would be to refer to the decision of the High Court of Delhi in CIT v. Idea Cellular Ltd. [2010] 325 ITR 148/189 Taxman 118 wherei....
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.... the risk and also remained out of pocket for sometime as there would be a time gap between the date of payment and recovery of the amount paid. 16. 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. The intention of the legislature is to include and treat commission or brokerage paid when a third person interacts between the seller and the buyer as an agent and thereby renders services in the course of buying and/or selling of goods. This happens when there is a middleman or an agent who interacts on behalf of one of the parties, helps the buyer/seller to meet, or participates in the negotiations or transactions resulting in the contract for buying and selling of goods. Thus, the requirement of an agent and principal relationship. This is the exact purport and the rationale behind the provision. The bank in question is not concerned with buying or selling of goods or even with the reason and cause as to why the card was swiped. It is not bothered or concerned....
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....ons concerning criminal procedure and jurisdiction." 18. The aforesaid principles and interpretations can apply to taxing statutes. In the present case we further feel the said principle should be applied as HDFC would necessarily have acted as per law and it is not the case of the Revenue that the bank had not paid taxes on their income. It is not a case of loss of revenue as such or a case where the recipient did not pay their taxes. 19. In these circumstances, we do not find any merit in the present appeal and the same is dismissed." 6.5 We did not find any reason or justification to deviate from decision taken by co-ordinate Bench of the tribunal vide appellate order dated 31.05.2017 passed by Mumbai-tribunal in assessee's own case for immediately preceding year viz. AY 2011-12 vide ITA no. 3968/Mum/2015, on this issue as the factual matrix remains the same in this year also. No distinguishing features are brought to our notice by learned CIT-Dr in this year under consideration before us vis-a-vis immediately preceding year. Thus, we decide this issue in favour of the assessee by confirming the appellate order passed by Ld. CIT(A) by Respectfully following ....
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....de assessment order dated 29.03.2015 passed u/s 143(3) of the 1961 Act, filed first appeal before learned CIT(A). The assessee has claimed before learned CIT(A) that cash pick up facility or cash management services is an standard as well ancillary services offered by Banks to all its customers. It is up-to customers to avail these facilities at certain cost or not. There is no separate contract or agreement with the customers for such facilities. The assessee also submitted before learned CIT(A) that very nature of both these charges viz. charges for cash pick up ( or also called as cash management services) and credit card charges are similar and only difference being the manner in which bank have made these facilities available to the customers. The learned CIT(A) after considering the submissions of the assessee was pleased to grant relief to the assessee by following the ratio of decision of Mumbai-tribunal in the case of ITO(TDS) v. Jet Airways(supra), vide appellate order dated 23.08.2016 by holding as under:- " 6.45 I have perused the submissions made by the Appellant in response to Ground No.2 wherein the applicability of TDS on credit card charges has been thorou....
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....t 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. Accordingly, 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 194H of the Act." 6.4.6 Further, the Hon'ble ITAT "B" Bench in the matter of M.P. No.07/Bang/2012 (in ITA No.94/Bang/2011) noted that: "24. The National Litigation Policy expressly stated that the Government must cease to be a compulsive litigant. The philosophy, that the matters should be left to the Courts for ultimate decision is to be discarded and the easy approach that ....
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....a right to claim the enforcement of the same prospectively. It is further submitted that for the period in question, trade notices had been issued classifying the circuit breakers under Heading No. 85.35 or 85.36. When the approved classification was proposed to be revised to reclassify the Single Panel Circuit Breakers under Heading No. 85.37 of the tariff, such re-classification can take effect only prospectively from the date of communication of the show cause notice proposing re-classification. 26. Following this judgement, the Apex Court in the case of SUCHITRA COMPONENTS LTD. V. COMMISSIONER OF CENTRAL EXCISE, GUNTUR (2007) 208 ELT 321 (SC), held as under: " The point raised by the learned Counsel for the appellant is covered by the recent judgment of this court in Civil Appeal no. 4488 of 2005, Commissioner of Central Excise. Bangalore v. M/s. Mysore Electricals Industries Ltd. reported in 2006 M.P. No.7 /Bang/12 (204) E.L.T. 517 (S.C.). In the said judgment, this Court held that a beneficial circular has to be applied retrospectively while oppressive circular has to be applied prospectively. Thus, when the circular is against, the assessee, they have right....
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....charges. 10. We have heard both the rival parties and perused the material on record including cited case laws. We have observed that Central Government has issued notification no. 56/2012 dated 31.12.2012 (F.No. 275/53/2012-IT(B)), wherein cash management services charges are also covered as an exemption from deduction of income-tax at source under Chapter XVII of the 1961 Act in case such payments are made by a person to a bank listed in Second Schedule to the RBI Act, 1934, excluding a foreign bank. The aforesaid notification issued on 31-12-2012 by Central Government was later superseded by another notification issued on 17.06.2016. We have elaborately discussed these notifications in preceding para's of this order while adjudicating disallowance of credit card charges. We are of the view that charges for cash pick up ( or also called as cash management services) paid by assessee to Banks are analogous to credit card charges so far as requirements of Chapter XVII-B of the 1961 Act is concerned. We have adjudicated in preceding para's of this order issue of allowability of credit card charges on which no income-tax was deducted at source under Chapter XVII-B of the 1961 Act. ....
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.... Average value of investment [B = (Bl+B2)/2] 9,99,00,000 C1 Assets as on 01-04-11 46,95,77,00,000 C2 Assets as on 31-03-12 60,08,77,00,000 C Average of total assets [C=(C1+C2)/2] 53,52,27,00,000 2 Attributable indirect interest expenses [A*B/C] 46,47,364 3 1/2% of the average value of investment 499,500 Disallowance under section 14a(1+2+3) 51,66,864 5.9 Thus, as per the above computation, the disallowance us/ 14A read with Rule 8D is determined at Rs. 51,66,864/-. The amount of Rs. 51,66,864/- is also added to the book profit as per clause (f) to Explanation 1 below section 115JB (2) of the Act." 12. Aggrieved by an assessment framed by AO u/s 143(3) vide assessment order dated 29.03.2015, the assessee filed first appeal with Ld. CIT(A), who was pleased to grant relief to the assessee after noting, firstly that the assessee has not received/earned any exempt income during previous year relevant to impugned assessment year, secondly because the assessee had made investments out of it is own interest free funds available with it and thirdl....
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....R 640(SC). 13.3 The Ld. counsel for assessee submitted in rejoinder that Mumbai-tribunal in assessee's own case in DCIT v. Future Value Retail Limited in ITA no. 3968/Mum/2015 for immediately preceding year viz. AY 2011-12 vide order dated 31.05.2017 had deleted disallowance of interest expenditure u/s 14A read with Rule 8D(2)(ii) of the I962 Rules as the assessee had its own interest free funds available with it which far exceeded investments and presumption will apply that assessee made investments in securities capable of yielding exempt income out of own interest free funds available with it, by holding as under:- " 6. In so far as the second issue is concerned, the same relates to disallowance made under section 14A of the Act, which has been worked out by the Assessing Officer by applying Rule 8D(2) of the Income Tax Rules,1962 ( in short 'the Rules'). In terms of the said formula, the Assessing Officer worked out a disallowance out of interest expenditure of Rs. 23,31,350/- under Rule 8D(2)(ii) of the Rules and out of overhead expenses at Rs. 2,55,750/- under Rule 8D(2)(iii) of the Rules, thus totalling Rs. 25,87,100/-. 7. Before the CIT(A), assessee con....
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....td., 366 ITR 505(Bom) and in the case of HDFC Bank Ltd. vs. DCIT,383 ITR 529 (Bom). Therefore, under these circumstances, 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. Thus, on this aspect also, Revenue fails." 14. We have considered rival contentions and perused the material on record including cited case laws. We have observed that assessee has investments of Rs. 9.99 crores as at 31.03.2011 and also investments as at 31.03.2012 were at Rs. 9.99 crores. The assessee has placed its audited financial statements on record. The factum of aforesaid investments held by assessee is emerging from orders of authorities below as well financial statements which are placed on records by assessee. The assessee has not suo moto made any disallowance of expenditure incurred in relation to earning of an exempt income u/s 14A of the 1961 Act. Out of investments of Rs. 9.99 crores held by assessee as at 31.03.2012, the assessee has made strategic investments of Rs. 9.74 crores in its 100% subsidiary company namely M/s Future Freshfoods Limited. The assessee has rightly not pressed its conte....
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....ecurities capable of yielding an exempt income. Revenue is not able to rebut the said presumption. Under similar factual matrix prevailing in AY 2011-12, the tribunal in assessee's own case for immediately preceding year i.e. AY 2011-12 has deleted the additions made u/s 14A read with Rule 8D(2)(ii) of the 1962 Rules, by holding as under: " 6. In so far as the second issue is concerned, the same relates to disallowance made under section 14A of the Act, which has been worked out by the Assessing Officer by applying Rule 8D(2) of the Income Tax Rules,1962 ( in short 'the Rules'). In terms of the said formula, the Assessing Officer worked out a disallowance out of interest expenditure of Rs. 23,31,350/- under Rule 8D(2)(ii) of the Rules and out of overhead expenses at Rs. 2,55,750/- under Rule 8D(2)(iii) of the Rules, thus totalling Rs. 25,87,100/-. 7. Before the CIT(A), assessee contended that though it had not received any dividend income in this year, yet a suo-motu disallowance of Rs. 2,55,750/- was offered towards section 14A of the Act. With regard to the disallowance out of interest expenditure, assessee made varied submissions, which, inter-alia, included an....
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....aspect also, Revenue fails." 14.3 The decision of Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Limited (2009) 313 ITR 340(Bom.) and CIT v. HDFC Bank Limited reported in (2014) 366 ITR 505(Bom. HC) supports the case of assessee. Thus in view of aforesaid judicial precedence's and also by Respectfully following the decision of Mumbai-tribunal in assessee's own case for AY 2011-12, we order deletion of additions of Rs. 46,67,364/- made by the AO u/s 14A of the 1961 Act read with Rule 8D(2)(ii) of the 1962 Rules and decision of learned CIT(A) in deleting aforesaid additions stands affirmed for the reasons cited by us in this order. We order accordingly. 14.4 Further, we have observed that admittedly assessee has not received any exempt income during the year under consideration and hence no disallowance u/s 14A of the 1961 Act are warranted keeping in view ratio of decision of Hon'ble Delhi High Court in the case of Cheminvest Limited(supra) and of Hon'ble Bombay High Court in the case of Ballarpur Industries Limited(supra). We have further noted that Hon'ble Delhi High Court in the case of CIT v. GVK Project and Technical Services Limited in ITA n....