M/S Mysore Saree Udyog P. Ltd.,, vs Department Of Income Tax

This appeal by the revenue is against the order dated 29.10.2003 of

the CIT(Appeals)-III, Bangalore relating to assessment year 2010-11.

2. The first issue that arises for consideration in this appeal is as to

whether the CIT(Appeals) was justified in holding that there was no

obligation on the part of assessee to deduct tax at source on a sum of ITA No.93/Bang/2014 Page 2 of 9

Rs.27,65,565. The aforesaid sum was shown in the books of account of

assessee as credit card commission.

3. The assessee is in the business of manufacture and wholesale

dealing of pure silk sarees. When the customer purchases sarees using

credit card, the bank after retaining their charges, remit the remaining sum

to the assessee. The difference between the sale value of the sarees and

the amount remitted by the bankers of Rs.27,65,565, according to the

Revenue, was nothing but commission and therefore the assessee ought to

have deducted tax at source on the said sum u/s. 194H of the Act.

4. The plea of the assessee before the Assessing Officer was that

bankers only facilitate electronic payments for certain purchases and such

charges are normal bank charges and not in the nature of commission

falling with the ambit of section 194H of the Act. The assessee relied on

the decision of the following decisions:-

(1) DCIT v. Vah Magna Retail Pvt. Ltd., 4T(II) ITCL 537 (Hyd).

(2) Gems Paradise, ITA No.746 & 841/Jp/2011 dated 2.2.12.

5. The assessee also submitted that services rendered by the bank are

on a principal to principal basis and for characterizing the payment of

commission, there should be a relationship of principal and agent between

the payer and the recipient.

ITA No.93/Bang/2014 Page 3 of 9

6. The AO did not accept the claim of assessee. He held that the bank

was acting as an agent of merchant (assessee) and that the payment in

question is commission.

7. On appeal by the assessee, the CIT(Appeals), following the decision

of the Jaipur Bench of the Tribunal in the case of Gems Paradise (supra),

held that payment in question is not in the nature of commission and

deleted the disallowance of Rs.26,65,565 made by the AO by invoking the

provisions of section 40(a)(ia) of the Act.

8. Aggrieved by the order of the CIT(Appeals), the Revenue has

preferred appeal before the Tribunal. The learned DR relied on the order of

the AO. The learned counsel for the Assessee relied on the order of the

CIT(A).

9. We have given a careful consideration to the rival submissions. The

provisions of Sec.194-H of the Act, in so far as it relevant for the present

appeal, read as follows:

"Section 194H: COMMISSION, BROKERAGE, ETC.

(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of October, 1991 but before the 1st day of June, 1992, to a resident, any income by way of commission (not being insurance commission referred to in 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.

ITA No.93/Bang/2014 Page 4 of 9 (2) The provisions of sub-section (1) shall not apply -

(a) To such persons or class or classes of persons as the Central Government may, having regard to the extent of inconvenience caused or likely to be caused to them and being satisfied that it will not be prejudicial to the interests of the revenue, by notification in the Official Gazette , specify in this behalf;

(b) 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 by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed two thousand five hundred rupees.

Explanation : For the purposes of this section, -

(i) "Commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing;

(ii) "Professional services" means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA;

10. The question whether the payments on account of credit card

charges should be treated as commission within the meaning of sec.194H

of the Act came up for consideration before the Hon'ble ITAT, Hyderabad,

in the case of DCIT Vs. Van Magna Retain (P) Ltd. (supra) and it was held

as follows:-

ITA No.93/Bang/2014 Page 5 of 9

"4. We heard the Learned Departmental Representative and perused the orders of the lower authorities and other material on record. Assessee is a company engaged in the business of direct retail trading in consumer goods. Assessee claimed deduction of Rs.16,34,000 on account of commission paid to the credit card companies, which has been disallowed by the assessing officer in terms of S.40(a)(ia) on account of the failure of the assessee to deduct tax at source in terms of S.194H of the Act, while making the said commission payments. It was the contention of the assessee before the lower authorities that the assessee only receives the payment form the bank/credit card companies concerned, after deduction of commission thereon, and thus, this is only in the nature of a post facto accounting and does not involve any payment or crediting of the account of the banks or any other account before such payment by the assessee. Considering these submission of the assessee, the CIT(A) accepted the claim of the assessee for deduction of the amount of Rs.16,34,000 on the following reasoning-

'9.8 On going through the nature of transactions, I find considerable merit in the contention of the appellant that commission paid to the credit card companies cannot be considered as falling within the purview of S.194H. 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 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, concluding that there was no requirement for making TDS on the 'Commission retained by the credit card companies, the disallowance of Rs.16,34,000 is deleted.....'

We find no infirmity in the above reasoning given by the CIT(A). We accordingly uphold the order of the CIT(A) and reject the grounds of the Revenue which are devoid of merit." ITA No.93/Bang/2014 Page 6 of 9

11. Similar view has been expressed by several Bench of ITAT in the

following cases:

1. M/S.TATA Teleservices Ltd. Vs. DCIT ITA No.393-396/Bang/11 order dated 27.11.2012

2. ITO (TDS) Vs. M/S.Jet Airways ITA No.7439-41/Mum/2010 order dated 17.7.2013,

3. M/S.Gems Paradise Vs. ACIT ITA No. 746/JP/2011 order dated 2.2.2012.

12. In light of the aforesaid decisions, we are of the view that payments

to banks on account of utilization of credit card facilities would be in the

nature of bank charge and not in the nature of commission within the

meaning of sec.194H of the Act. The same cannot also be said to be in the

nature of professional services as services rendered by Banks is neither a

service specified in the section nor notified. The CBDT by notification

u/s.197A of the Act vide notification NO.56/2012 dated 31.12.2012

specified that credit/debit card commission for transaction between the

merchant establishment and acquirer bank need not be subject to TDS.

The revenue has argued before us that before the said notification such

charges were subject to TDS. We are of the view that the notification is

only recognition of the position as it always prevailed and as interpreted by

several decisions rendered by the different benches of ITAT. The

notification therefore cannot be the basis on which it can be said that the

amount retained by the bank was in the nature of commission within the

meaning of Sec.194-H of the Act. For the reasons given above, we confirm ITA No.93/Bang/2014 Page 7 of 9

the order of the CIT(Appeals) on this issue and dismiss the appeals of the

Revenue.

13. For the reasons given above, we are of the view that the order of

the CIT(Appeals) does not call for any interference.

14. The other issue raised by the Revenue is with regard to the action

of the CIT(Appeals) in deleting the addition of Rs.6,96,923 out of

commission payments claimed as deduction by the assessee.

15. The assessee has made a total commission payment of

Rs.2,44,18,648, out of which Rs.6,96,923 was commission paid to auto and

taxi drivers. As already seen the Assessee is in the business of selling silk

saree. The assessee's explanation was that auto & taxi drivers who bring

potential customers/clients are paid commission in cash. The AO wanted

the names and addresses of drivers who were paid such commission. The

assessee could not produce the details and also the details of even the taxi

and name of drivers was not maintained by them. There were, however,

cash vouchers evidencing payment of commission. According to AO, it

was not possible to verify the payments made by the assessee nor was tax

deduction at source done by the assessee on the aforesaid payments, on

the pretext that individual payments were less than the monetary limits for

making tax deduction at source. According to the AO, genuineness of these

expenses was not proved and therefore he disallowed the claim of

assessee for deduction.

ITA No.93/Bang/2014 Page 8 of 9

16. On appeal by the assessee, the CIT(Appeals) held as under:-

" I have carefully considered this issue. It is pointed by the AO in the assessment order that the total commission payments made during the year was an amount of Rs. 2,44,80,648/-. Thus the amount of Rs. 6,96,923/- is approximately 3% of the total commission payment. There is no conclusive material brought on record by the AO to consider this amount not genuine. AO has also not led any evidence to show that these are payments above the threshold limit where tax is required to be deducted u/s 194H. Considering the quantum involved and the nature of the business of the appellant , I am of the view that the amounts are admissible. The AO is directed to delete the amount of addition made. These grounds are therefore, allowed."

17. Before us, the ld. DR reiterated the stand of the AO as contained in

the order of assessment.

18. We are of the view that the ld. CIT(Appeals) had rightly held that

disallowance made by the AO was not warranted. The fact that such

commission payments are routine in the line of business of assessee is not

disputed by the AO. The genuineness of the payment has also not been

doubted by the AO. There is no material on record to show that the

amounts paid to individual taxi & auto drivers were above the threshold limit

for deduction of tax at source. It is not the case of the AO that individual

vouchers evidencing payments in cash, were in excess of the specified limit

for deduction of tax at source. In our view, the addition has been made by

the AO only on the basis of surmises and was rightly deleted by the

CIT(Appeals).

ITA No.93/Bang/2014 Page 9 of 9

19. In the result, the appeal by the Revenue is dismissed.

Pronounced in the open court on this 27th day of March, 2015.

Sd/- Sd/-

( JASON P. BOAZ ) ( N.V. VASUDEVAN ) Accountant Member Judicial Member

Bangalore, Dated, the 27th March, 2015.

/D S/

Copy to:

1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file

By order

Assistant Registrar/ Senior Private Secretary ITAT, Bangalore.