Case Law Details

Case Name : CIT Vs Cleartrip Pvt. Ltd. (Bombay High Court)
Appeal Number : Income Tax Appeal No. 20 of 2017
Date of Judgement/Order : 25/03/2019
Related Assessment Year :
Courts : All High Courts (5888) Bombay High Court (1044)

CIT Vs Cleartrip Pvt. Ltd. (Bombay High Court)

In case of Amount retained by the bank for the fees charged for having rendered banking services, the same cannot be treated as a commission or a brokerage paid in course of use of banking service by a person acting on behalf of another for buying or selling goods, so as to be hit by section 194H (TDS on commission and brokerage).

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

1. This Appeal is filed by the Revenue challenging the Judgment of the Income Tax Appellate Tribunal. The following question has been presented for our consideration :

Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT was justified in holding that no TDS was deductible u/s 194­H of the Act by the assessee company on the amount withheld by the banks/credit card agency as service charges in respect of credit card services provided ?

2. Learned Counsel for the Revenue submitted that the issue has been admitted by this Court in several appeals. He drew our attention to some such admission orders. On the other hand, learned Counsel for the Assessee drew our attention to an order dated 18th December, 2018 passed in Income Tax Appeal No.847 of 2016 and connected Appeal to contend that by a detailed order, such a question has been rejected by the High Court. In response to this, the learned Counsel for the Revenue submitted that the order of rejection of the Revenue’s Appeal was passed without taking note of several other admitted Appeals on the issue.

3. Short question is, whether the Respondent, while making payment to the bank of credit card charges, was required to deduct tax at source. It is true that this question has been admitted by the High Court in Department’s Appeal. However, recently on 18th December, 2018 while hearing Income Tax Appeal No.847 of 2016 and connected Appeal filed by the Department, this Court considered the following question :

Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT is justified in holding the deletion of disallowance Rs.1,96,68,165/­ under section 40 a(ia) by the Tribunal without appreciating that the assessee had failed to deduct tax at source from commission paid to Banks for providing credit card services, in contravention of section 194H of the Act ?

4. The Court rejected the Revenue’s Appeal referring to and relying upon a decision of the Delhi High Court in case of Commissioner of Income ­Tax Vs. JDS Apparels P. Ltd.1. The Court has upheld and observed as under :

2 The Respondent­ Assessee is a Company, engaged in the business of setting up of and operating of Deluxe Hotels. While scrutinizing the Assessee’s return of income for the Assessment Year 2009-­10, the Assessing Officer noticed that the Assessee had not deducted tax at source in terms of Section 194H of the Income Tax Act, 1961 (for short “the Act”), in relation to commission paid to the banks on processing of Credit Card Transactions. The Assessing Officer disallowed the corresponding expenditure of Rs.1,96,68,165/­ by invoking to Section 40(a)(ia) of the Act. In Appeal, the Commissioner of Income Tax [Appeals] (for short “CIT[A]), deleted disallowance, upon which the Revenue approached the Tribunal. The Tribunal by the impugned Judgment, dismissed the Revenue’s Appeal, relying upon its Judgment in case of the Assessee for the earlier Assessment Year. In such Judgment, the Tribunal had relied upon the decision of the Delhi High Court in the case of CIT v/s. JDS Apparels P. Ltd., reported in 370 ITR 454. The Tribunal held that, in the present case, the bank did not act as an agent of the Assessee while processing the credit card payments and, therefore, the charge collected by the Bank for such service, does not amount to commission within the meaning of Section 194H of the Act.

3 The decision of the Delhi High Court in the case of JDS Apparels P. Ltd., (supra) was also rendered in the background of the Revenue’s contention of breach of Section 194H of the Act in connection with the credit card charges. The Court, after analyzing the provisions contained in Section 194H of the Act, held and observed as under:­

“15:­ Applying the above cited case law to the factual matrix of the present case, we feel that section 194H of the Act would not be attracted. HDFC was not acting as an agent of the respondent­ assessee. Once the payment was made by HDFC, it was received and credited to the account of the respondent­assessee. In the process, a small fee was deducted by the acquiring bank, i.e. the bank whose swiping machine was used. On swiping the credit card on the swiping machine, the customer whose credit card was used, got access to the internet gateway of the acquiring bank resulting in the realization of payment. Subsequently, the acquiring bank realized and recovered the payment from the bank which had issued the credit card. HDFC had not undertaken any act on “behalf” of the respondent­ assessee. The relationship between HDFC and the respondent ­assessee was not of an agency but that of two independent parties on principal to principal basis. HDFC was also acting and equally protecting the interest of the customer whose credit card was used in the swiping machines. It is noticeable that the bank in question or their employees were not present at the spot and were not associated with buying or selling of goods as such. Upon swiping the card, the bank made payment of the bill amount to the respondent­ assessee. Thus, the respondent­ assessee received the sale consideration. In turn, the bank in question had to collect the amount from the bankers of the credit card holder. The bank had taken the risk and also remained out of pocket for sometime as there would be a time gap between the date of payment and recovery of the amount paid.

16:­ The 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. This happens when there is a middleman or an agent who interacts on behalf of one of the parties, helps the buyer/seller to meet, or participates in the negotiations or transactions resulting in the contract for buying and selling of goods. Thus, the requirement of an agent and principal relationship. This is the exact purport and the rationable behind the provision. 

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 is not bothered or concerned with the quality, price, nature, quantum etc., of goods bought/ sold. The bank 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, i.e. HDFC in this case, 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.”

4. In view of the decision of the Delhi High Court in JDS Apparels P. Ltd., (supra), we do not find that Tribunal has committed any error. No question of law arises.

5. The issue is similar in the present Appeal. The High Court, having considered such an issue at length and having dismissed the Revenue’s Appeal relying upon a recent Judgment, though of another High Court, we do not find it necessary to admit the present Appeal. In effect, the High Court was in respectful agreement with the view of the Delhi High Court in case of JDS Apparels (supra). In the case of JDS Apparels (supra), a Division Bench of Delhi High Court had occasion to consider such an issue. In such decision, the High Court has come to the conclusion that the amount retained by the bank for the fees charged for having rendered banking services, which cannot be treated as a commission or a brokerage paid in course of use of banking service by a person acting on behalf of another for buying or selling goods.

6. We do not find any question of law arising. The Income Tax Appeal stands dismissed.

Notes:-

1 [2015] 370 ITR 454 (Delhi)

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