No TDS u/s 194H on credit card charges paid to banks – Mum ITAT


ITO(TDS) v Jet Airways (India) Ltd. [IT APPEAL NOS. 7439, 7440 & 7441 (MUM) OF 2010] dtd 26.06.13 Mumbai ITAT

Background:

The assessee is a company engaged in the business of aviation. A survey action u/s 133A of the Act was carried out. After survey, proceedings were initialed u/s 201(1)/201(1A) of the Act in connection with the applicability of TDS on amounts retained by the banks in respect of air tickets booked through credit cards. Assessee during the course of proceedings stated that provisions of section 194H of the Act are not applicable on the above mentioned amounts retained by the banks as the amounts retained by the banks is in the nature of discounting in consideration of immediate payment made by the banks to the assessee. 

However, the AO did not accept the submissions of the assessee. The AO held that such a payments made for 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. 

Assessee’s Contentions:

  • The provisions of section 194H are applicable only in those cases where an element of agency is in existence
  • Since there was no element of agency between the assessee and the banks who are making the payment of tickets purchased by the bank’s clients, are being made by the banks during the normal course of bank’s business. 
  • The transactions between the banks and the assessee are based on principal to principal.
Tax Authority’s arguments:
  • As per the agreement between the banks and the assessee, the banks suppose to provide the assessee the facility of their credit card internet payment gateway to enable the assessee to collect the payment made by the customer to it for orders placed through such facility by the such customer i.e the person holding credit card. 
  • As per the agreement, there is no talk of any discount to be given by the assessee to the banks and such payments are the transactions charges. 
  • Such a payments made for 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.

HELD:

  • Similar issue has been considered by the Jaipur Bench of the Tribunal in the case of Gems Paradise ITA No. 746/JP/2011 (AY-2008-09) dated 2.2.2012 and the Tribunal held that the provisions of section 194H of the Act are not applicable as the banks make payments to the assessee after deducting certain fees as per the terms and conditions in the credit card and it is not a commission but a fee deducted by the banks. 
  • The said issue was again considered by the Jaipur Bench of the Tribunal in the case of Bhandari Jewellers ITA NO. 745/JP/2011(AY- 2008-09) dated 02.02.2012 wherein it was also held that held that no TDS is required to be deducted on the fees charged by the bank on credit card transactions
  • Further, Hyderabad Bench of the Tribunal in the case of Dy. CIT v. Vah Magna Retail (P.) Ltd. in ITA No.905/Hyd/2011(AY-2007-08) dated 10.4.2012 has held that :
    “Even though the definition of the term “commission or brokerage” used in the said section is an inclusive definition, it is clear that the 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 194 H of the Act. 

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