Payment to Master & Visa without tax deduction is not disallowable

Whether on the facts and in the circumstances of the case and in law, the Tribunal is correct in holding that payment to Master Card International and Visa Card International without deduction of tax at source is not disallowable u/s. 40(a)(i) in view of the Article 26(3) of the Indo US DTAA, when the provisions of Article 26(3) were not attracted in the case, and especially for the year in question.

The Respondent­Assessee during subject Assessment Year made payment through Master Card International and Visa Card International being assessment and equipment fees. The payments were made by the Respondent­Assessee without deducting tax at source. In view of the above, the Assessing Officer disallowed the entire amount of fees remitted, aggregating to Rs.82.33 lakhs in terms of Section 40(a)(i) of the Act.

In Appeal, the CIT(A) upheld the order of the Assessing Officer holding that Visa Card International and Master Card International have permanent establishment in India and, therefore, the income generated by them is taxable in India. Thus, the order of the Assessing Officer, disallowing the entire fees remitted for failure to deduct tax under Section 40(a)(i) of the Act was upheld.

On further Appeal by the Respondent­Assessee, the Tribunal by the impugned order allowed the Appeal of the Respondent­ Assessee. In allowing its appeal, the Tribunal followed its decision in the case of Central Bank of India v/s. DCIT 42 SOT 450 – wherein on similar facts,it was held that even if no TDS is deducted, the payments made to Visa Card International and Master Card International on account of fees could not be disallowed in view of Article 26(3) of Indo ­US Double Taxation Avoidance Agreement (DTAA).

On reading of the decision of the Tribunal in Central Bank of India (supra) with the assistance of the Counsel, we find that the question raised herein is covered by the order in Central Bank of India (supra) rendered in the context of similar/ identical facts and law.

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