By TIOL News Service

MUMBAI, JAN 01, 2019: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether fees charged by bank for processing the credit card payments, does not amount to any brokerage or commision, and hence outside the ambit of Section 194H. YES IS THE VERDICT.

Facts of the case:

The assessee company is engaged in the business of setting up of and operating of Deluxe Hotels. While scrutinizing the assessee's return, the AO noticed that assessee had not deducted tax at source in terms of Section 194H in relation to commission paid to the banks on processing of Credit Card Transactions. The AO therefore, disallowed the corresponding expenditure of Rs.1,96,68,165/- by invoking to Section 40(a)(ia). On appeal, the CIT(A) deleted the disallowance. On further appeal, the Tribunal held that the bank did not act as an agent of assessee while processing the credit card payments and, therefore, the charge collected by the Bank for such service, did not amount to commission within the meaning of Section 194H.

High Court held that,

++ it is seen that the decision of Delhi High Court in case of CIT v/s. JDS Apparels P. Ltd - 2014-TIOL-2046-HC-DEL-IT, was also rendered in the background of the Revenue's contention of breach of Section 194H in connection with the credit card charges, wherein it was observed that: "....amount retained by the bank is a fee charged by them for having rendered the banking services and cannot be treated as a commission or brokerage paid in course of use of any services by a person acting on behalf of another for buying or selling of goods. The intention of the Legislature is to include and treat commission or brokerage paid when a third person interacts between the seller and the buyer as an agent and thereby renders services in the course of buying and/or selling of goods. The bank in question is not concerned with buying or selling of goods or even with the reason and cause as to why the card was swiped. It merely provides banking services in the form of payment and, subsequently, collects the payment. The amount punched in the swiping machine is credited to the account of the retailer by the acquiring bank, after retaining a small portion of the same as their charges. The banking services cannot be covered and treated as services rendered by an agent for the principal during the course of buying or selling of goods as the banker does not render any service in the nature of agency...." In view of this decision of the Delhi High Court, the Tribunal has committed no error.

(See 2019-TIOL-02-HC-MUM-IT)