S. 194H TDS not applicable on Charges for use of Swipe Machine paid to banks

Assessee was engaged in the business of trading in ready made garments. A letter was received from the Assessing Officer, TDS Circle Mumbai that the respondent- assessee had paid ³commission’ to HDFC on payments received from customers who had made purchases through credit cards. Survey under Section 1 33A of the Act had been conducted on HDFC, who had provided card swiping machines to retail merchants, including the respondent- assessee. A credit card holder could make payment by swiping the credit card on the said machines. The details of the bill amount, etc. were thereupon forwarded to the acquiring bank, which is the bank which had provided the machine, i.e. HDFC in this case, which then made payment to the respondent assessee. The payment made to the respondent-assessee was after withholding or deducting the fee payable to HDFC. Thereafter, the acquiring bank, i.e. HDFC recovered the bill amount from the issuing bank of the customer.

The Assessing Officer held that the amount earned by the acquiring bank, i.e. HDFC in this case, was in the nature of ^{“commission”} and should have been subjected to deduction of tax at source @ 10% under Section 194H of the Act. As the commission had not been subjected to tax at source, Rs.44,65,654/- should be disallowed under Section 40(a)(ia) of the Act, as this amount had been claimed as an expenditure by the assessee.

The aforesaid opinion was affirmed by the Commissioner of Income Tax (Appeals), who held that the transaction in question was in the nature of bill discounting by the acquiring bank, who had paid the bill amount after deducting the commission payable to them.

It is apparent from the decision of the Supreme Court in the case of Ahmedabad Stamp Vendors Association (supra) that clause (i) of the Explanation to Section 194H of the Act has been read as exhaustive and not as expansive. This is the reason why the Supreme Court in the short order drew distinction between a transaction of sale and a contract of agency and also between discount and commission/brokerage. Otherwise, the expression “any service rendered in the course of buying or selling of goods”possibly would have encompassed and included the “discount” given to the stamp vendors, who render service during the course of buying and selling of goods, i.e. the stamp papers.

Contention could be raised that payment received or receivable directly or indirectly for any services in course of buying or selling of goods need not arise out of a contract of agency or from a relationship of a principal and an agent. The said contention has to be rejected in view of the aforesaid judgments, which positively hold that the three separate conditions when tax at source is required to be deducted would only apply provided the recipient is acting on behalf of another, i.e. relationship of a principal and an agent exists and not otherwise. This interpretation has been consistent and uniformly applied while interpreting clause (i) of the Explanation to Section 1 94H of the Act. Appropriate in this regard would be to refer to the decision of the High Court of Delhi in Commissioner of Income Tax versus Idea Cellular Limited, (2010) 325 ITR 148 (Delhi) wherein Explanation clause (i) to Section 194H of the Act had come up for consideration and on interpretation it was held that it would apply only if payment was received or receivable directly or indirectly by a person acting on behalf of another person for (i) services rendered (not being professional) and (ii) for any services in the course of buying or selling of goods or in relation to any transaction relating to an asset, valuable article or thing. The judgment records that the counsel for both the parties, i.e. the Revenue and the assessee, had agreed that the element of agency was to be established in all the aforesaid circumstances (see page 156 placitum 9 of the ITR citation). Thus, this contention if raised would not stand judicial scrutiny on the principles of consistency and certainty. Even otherwise, the view expounded and accepted is plausible, besides being reasonable.

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