No TDS since Amount paid to RMCs by Tour Operators for Purchase of Foreign Currency cannot be treated as Commission: ITAT [Read Order]

A division bench of Income Tax Appellate Tribunal, Mumbai recently declared that no TDS can be availed since amount paid to RMCs by Tour operators, for purchase of foreign currency cannot be treated as Commission.

The bench comprising of Shri Saktijit Dey, Judicial Member and Shri Manjunatha, Accountant Member were ruled so while allowing the assessee’s appeal.

In instant appeal assessee challenged disallowance under Section 40(a)(ia) of the Income Tax Act for non-deduction of tax under section 194H on the payments made to Restricted Money Changers (ax ).

The assessee is in the business of tours and travels and during the course of business it also engages itself in trading in foreign currency. During the assessment proceedings AO noticed that the business is carrying foreign exchange trade called for the details of such transactions.

While observing AO found that an amount is debited in foreign exchange account under the head as commission payment. The AO called upon the assessee to furnish details of tax deducted at source on such payments.

When called upon to explain the reason for non-deduction of tax at source on such amount, it was submitted by the assessee that the payment was not in the nature of commission but premium paid separately to RMCs at Goa for purchase of foreign currency by the assessee from them and which they, in turn have purchased from foreign tourists. The AO was not convinced with the explanation of the assessee.

Since the assessee had not deducted tax at source on such payment, the AO disallowed the amount of 19,09,775/- under section 40(a)(ia) of the Act. The assessee challenged the matter before the first Appellate authority; the CIT (A) after considering the submissions sustained the additions made by the revenue.

Aggrieved assessee went for an appeal before ITAT and the counsel for revenue relied upon the decision of CIT (A).The assessee in the instant issue  has a foreign exchange division approved by the RBI and is authorised to buy foreign exchange and travellers cheques from RMCs and others and sell them to persons in need of them. Based on these facts the bench had an opinion that transaction between the assessee and the RMCs is on principal to principal basis and there is no principal agent relationship existing between them.

Finally the tribunal bench declared that financial statement assessee has debited the amount as commission it cannot be treated so without looking at the real nature of the transaction and also added that no enquiry has been made by the AO with the RMCs to find out the real nature of transactions between them.