TDS u/s 194H not applicable to Commission to Credit Card Company: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that TDS under section 194H of the Income Tax Act, 1961 is not applicable to the amount of commission paid to a credit card company.

A division bench of the Tribunal comprising Shri Saktijit Dey, Judicial Member & Shri Pradip Kumar Kedia, Accountant Member was considering an appeal by Global Healthline Pvt. Ltd wherein the assessee thus contended that the commission retained by credit card company is not in the nature of commission contemplated under Section 194H of the Act and therefore the disallowance under Section 40(a)(ia) is uncalled for.

It is the case of the assessee that provisions of Section 194H are not attracted having regard to nature of such expenses. It is contended that provisions of Section 194H casting obligation on the assessee to deduct tax at source arises only when a person acts on behalf of other person. It was argued that the present case, the commission is unilaterally retained by the credit card company. It cannot be said that bank acts on behalf of the merchant establishment or that merchant establishment conducts the transaction for the bank. The sale made on the basis of credit card is merely a transaction by the merchant establishment and the credit card company only facilitates the electronic payment for a certain charge. The commission retained by the credit card company is therefore akin to normal bank charges and not in the nature of commission/brokerage on behalf of the merchant establishment as envisaged under Section 194H of the Act.

The bench noted that banking services cannot be covered and treated as services rendered by an agent for the principal during the course of buying and selling of goods as the banker does not render any service in the nature of agency.

Allowing the claim of the assessee, the Tribunal held that “In view of the judgment rendered by the Hon’ble Delhi High Court and applied by Co-ordinate Bench, we do not see any reason to take a different view while adjudicating the issue in favour of the assessee. We also notice that the Assessing Officer himself has accepted the aforesaid decision in subsequent Assessment Year 2014-15 passed under Section 143(3) of the Act vide order dated 09.12.2016 wherein Assessing Officer did not dispute the position taken by the assessee for non-deduction of TDS payment of service charges to banks situated in India such as HDFC Bank etc. (except for the credit/debit card charges pertaining to American Express Bank).”

“In view of the judgment in the case JDS Apparels Pvt. Ltd. (supra), the artificial distinction between charges attributable to foreign banks (American Express Bank herein) vis-à-vis bank situated in India, in our view, is not justified. Such differentiation made in the press release dated 04.01.2013 is not borne out by judicial pronouncements,” the bench concluded.

To Read the full text of the Order CLICK HERE

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