Thursday, September 12, 2013

No TDS on sum paid to banks for utilization of credit card facilities; they are in nature of bank charges & not commission

Payments to banks for utilization of credit card facilities are in nature of bank charges, and not commission, and, therefore, no tax is deductible at source from said payments under section 194H

In the instant case the assessee-company was engaged in the business of aviation, i.e., transportation of passengers and cargo by air. During assessment the AO held that assessee ought to have deducted tax at source on amounts retained by the banks in respect of air tickets booked through credit cards. The AO further stated that as per the agreement between the banks and the assessee, the banks were supposed to provide the assessee with the facility of their credit card internet payment gateway to enable the assessee to collect the payments made by the customers. Therefore, such payments were squarely covered by the definition of "commission or brokerage" as contemplated by section 194H. The CIT(A) reversed the order of AO. The aggrieved revenue filed the instant appeal.

The Tribunal held as under:

1) Section 194H is applicable where any commission has been paid by the principal to the commission agent. This was not a commission payment but a fees deducted by the bank. If there was an agreement, that was between the credit cardholder and the bank. It was not the case that banks had advised the assessee to sell their goods to its customers then he would pay them commission;

2) The provisions of section 194H of the Act were not applicable as the banks were making payments to the assessee after deducting certain fees as per the terms and conditions in the credit cards and it was not a commission but a fee deducted by the banks;

3) 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 was required to be deducted under section 194 H of the Act.  Thus, the order of CIT(A) was to be upheld – ITO v. Jet Airways (India) Ltd [2013] 36 379 (Mumbai - Trib.)

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