In a significant ruling, a Division Bench of the Delhi High Court held that payments related to credit cards issued by foreign branches of banks are not subject to tax in India. The central issue revolved around the taxation of credit card commissions related to cards issued by foreign branches but used within India.
The batch of appeals impugned the orders of the Income Tax Appellate Tribunal (ITAT) and principally raise a question in respect of credit card commission and with those being in relation to cards which had been issued by the foreign branches of the respondent and used in India.
The court observed that while transactions involving these credit cards took place in India, the credit itself was extended by the foreign branches of the bank. Therefore, the debt incurred and commissions generated arose outside India.
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Indian merchants, who received payments for goods or services, did not incur any debt. The commissions were paid to the foreign branches for providing credit to cardholders outside India.
The Income Tax Appellate Tribunal (ITAT) had previously ruled in favour of the bank, and the High Court upheld this decision, stating that the fees related to such transactions are not taxable in India.
The High Court Bench of Justices Yashwant Varma and Ravinder Dudeja noted that the commissions were earned by the foreign branch for activities entirely executed outside the country, and as a result, these earnings do not fall under India’s tax jurisdiction.
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It was observed that, “Undisputedly the credit cards had been issued by the foreign branches of the respondent. It was in the aforesaid backdrop that the Tribunal noted that the charges are received by the foreign branch for providing and extending a credit line to the account holder outside India. It has further been noted that the amount payable by those card holders would clearly be a debt incurred outside India.” The Delhi High Court confirmed that income generated from such activities remains outside the purview of Indian taxation unless explicitly sourced or attributed to operations within India.
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