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No TDS is to be deducted on service charges retained by a bank if it has no principal-agent relationship with assessee: ITAT

2019-TIOL-1523-ITAT-DEL

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘G’ NEW DLEHI

ITA.No.1496/Del/2017
Assessment Year: 2013-14

ASSISTANT COMMISSIONER OF INCOME TAX
CIRCLE 77(1), NEW DELHI

Vs

M/s SPICE JET LTD 
319, UDYOG VIHAR PHASE-IV, GURGAON
PAN NO:AACCR1459F

O P Kant, AM & Narasimha Chary, JM

Date of Hearing: July 18, 2019
Date of Decision: July 23, 2019

Appellant Rep by: Shri S S Rana, CIT-DR
Respondent Rep by: 
Shri Tarandeep Singh, Adv.

Income Tax – Sections 194H, 201(1), 201(1A) & 271C

Keywords – Assessee in default – Commission – Principal-agent relationship – Service charges – Tax deducted at source

THE assessee company was engaged in the aviation business. During the assessment proceedings, the assessee submitted before the AO that as a part of its business of operating airlines, they accepts payments made by customers through credit cards and in that connection they have entered into agreements with several banks, which make payments of the ticket amount paid by the passengers through credit card. The assessee after retaining charges for such services, in turn collect payments from the credit card issued by bank through the Bill settling agency. However, the AO rejecting the submissions of the assessee held that such charges withheld by credit card payment collecting bank, before releasing payment to the assessee, was in the nature of “commission” defined u/s 194H and, therefore, the assessee was liable to withhold tax and that because of the failure on the part of the assessee to withhold tax the assessee was treated as “assessee in default” u/s 201(1)/(1A). Thus, AO determined the tax liability of the assessee, while simultaneously making reference to initiate penalty proceedings u/s 271C. On appeal, the CIT(A) answered in favour of the assessee.

On appeal, the Tribunal held that,

Whether in the absence of principal-agent relationship between the assessee and the bank, there is any obligation on the bank to deduct TDS in respect of the amounts as retained by them towards service charges – NO: ITAT

++ this Tribunal has followed the decision of CIT v. JDS Apparels in assessee’s own case for the AY 2011-12 and 2012-13 and respectively answered the issue in favour of the assessee. Subsequently, When there is no change in the fundamental facts which permeate all through these years to disturb a consistent view taken by the Tribunal in assessee’s own case while following the binding precedent of the judicial High Court in the case of CIT vs. JDS Apparels P. Ltd, there is no reason for this Bench also to take a different view or to deviate from the view which is consistently taken on the identical set of facts and circumstances. Therefore, respectfully following the decision of the jurisdictional High Court and also the view taken by this Tribunal consistently over a period of time, this Tribunal take a view there is no relationship of principal between the assessee and the banks and the bank has no obligation to deduct TDS in respect of the amounts retained by the banks towards the service charges. Therefore, this Tribunal while accepting the contention of the assessee upheld the order passed by the CIT(A).

Revenue’s appeal dismissed

Cases followed:

CIT vs. JDS Apparels P. Ltd. – 2014-TIOL-2046-HC-DEL-IT

DCIT vs. M/s SPICE JET LTD – 2019-TIOL-1206-ITAT-DEL

ORDER

Per: Narasimha Chary:

Aggrieved by the order dated 26.12.2016passed by the learned Commissioner of Income Tax (Appeals)-41, New Delhi(“Ld. CIT(A)”), the assessee, namely M/s Spice Jet Limitedfiled this appeal in respect of the assessment year 2012-13.

2. Brief facts of the case are that the assessee company has been incorporated under the Companies Act, 1956 and has been engaged in aviation business. As a part of its business of operating airlines, the assessee accepts payments made by customers, inter alia, through credit cards and in that connection they have entered into agreements with several banks, which make payments of the ticket amount paid by the passengers through credit card, to the assessee, after retaining charges for such services, and in turn collect payments from the credit court issuing bank, through the Bill settling agency, namely, Visa/MasterCard.

3. By order dated 12/3/2015, the learned Assessing Officer held that such charges withheld by credit card payment collecting bank, before releasing payment to the assessee, was in the nature of “commission” defined under section 194H of the Income Tax Act, 1961 (for short “the Act”) and, therefore, the assessee was liable to withhold tax therefrom under such section; and that because of the failure on the part of the assessee to withhold tax under section 194 H of the Act, the assessee was treated as “assessee in default” under section 201(1)/(1A) of the Act, and determined the tax liability of the assessee at Rs.2,13,72,840/- for the financial year 2012-13, while simultaneously making reference to initiate penalty proceedings under section 271C of the Act.

4. Assessee preferred appeal before the Ld. CIT(A) and contended that there is no principal-agent relationship between the assessee and the banks, which is sine qua non for invoking the provisions under section 194H of the Act and since no payment was made by the assessee to the banks, the provisions of section 194H of the Act were not applicable.

5. Ld. CIT(A) considered the contentions of the assessee, and while taking note of the decisions of the Tribunal on this aspect and following the decision of the Hon’ble jurisdictional High Court in the case of CIT vs. JDS Apparels P. Ltd. (2015) 370 ITR 454 = 2014-TIOL-2046-HC-DEL-IT, wherein the decision of Hon’ble Apex Court in the case of Ahmedabad Stamp Vendor’s Association vs. Union of India (2002) 257 ITR 202 = 2003-TIOL-423-HC-AHM- IT and Allahabad High Court in the case of Chief Treasury Officer vs. Union of India (2013) 355 ITR 484 = 2013-TIOL-604-HC-ALL-IT were considered, by way of impugned order, held that the customer by making payment through credit card, directs the credit card provider to make payment and the credit card provider of the bank does not render any service to the assessee, but the bank for promoting its own business merely extends a facility to its customer, as such there does not exist any relationship of service provider or service receiver between the assessee and the banks which retain their banking charges while making payments to the assessee.

6. Ld. CIT(A) also noted the notification of the CBDT No. 56/2012 (F No. 275/53/2012-IT (B)) dated 31.12.2012 wherein it was clarified that provisions of TDS are not applicable on debit/credit commission on transaction between merchant establishment and acquirer banks.

7. At the outset, Ld. AR submitted that the order of the Ld. CIT(A) is perfectly legal because it was rendered while following the binding precedent of the Hon’ble jurisdictional High Court in the case of JDS Apparels (supra), and as a matter of fact, while following the same, coordinate Benches of this Tribunal in assessee’s own case for the Assessment Years 2011-12 and 2012-13 in ITA Nos. 4226/Del/2014 2019-TIOL-1206-ITAT-DELand 6103/Del/2015 2019-TIOL-611-ITAT-DEL by orders dated 22.4.2019 and 28.2.2019 respectively answered the issue in favour of the assessee.

8. We have gone through the record in the light of the submissions made on either side. It’s not the case of the Revenue that the decision of the Hon’ble jurisdictional High Court in the case of JDS Apparels (supra) has no obligation to the facts of the case. Further, this Tribunal followed the said decision in assessee’s own case for the Assessment Years 2011-12 and 2012-13 in ITA Nos. 4226/Del/2014 = 2019-TIOL-1206-ITAT-DEL and 6103 /Del/2015 = 2019-TIOL-1206-ITAT-DEL by orders dated 22.4.2019 and 28.2.2019 respectively answered the issue in favour of the assessee.

9. When there is no change in the fundamental facts that permeate all through these years to disturb a consistent view taken by the Tribunal in assessee’s own case while following the binding precedent of the Hon’ble judicial High Court in the case of JDS Apparels (supra), there is no reason for this Bench also to take a different view or to deviate from the view that is consistently taken on the same set of facts and circumstances. While respectfully following the decision of the Hon’ble jurisdictional High Court and also the view taken by this Tribunal consistently over a period of time, we take a view that there is no relationship of principal between the assessee and the banks and the bank has no obligation to deduct TDS in respect of the amounts retained by the banks towards the service charges. We, therefore, while accepting the contention of the assessee upheld the order passed by the ld. CIT(A) and dismiss the appeal of the Revenue.

10. In the result, appeal of the Revenue is dismissed.

(Pronounced in open court on this the 23.07.2019)

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