Twin EDS (e-seva), Hyderabad V. ITO,Ward 14(3), Hyderabad

ITA 216/HYD/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7715 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 12-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: A V RAGHURAM
• Section: 194C; 201(1)

Judgement Text

1 ITA.NO.216/HYD/2014 TWIN EDS (E-SEVA), HYDERABAD. IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.216/HYD/2014 ASSESSMENT YEAR 2010-2011 TWIN EDS (E-SEVA) HYDERABAD. PANHYDE00521D VS. THE INCOME TAX OFFICER, WARD-14(3), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. A.V. RAGHURAM FOR REVENUE : MR. RAJAT MITRA DATE OF HEARING : 10.12.2014 DATE OF PRONOUNCEMENT : 29.12.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), VIJAYAWADA DATED 27.11.201 3 ON THE ISSUE OF LEVY OF DEMAND AND INTEREST UNDER SECTION 201(1) AND 201(1A) OF THE INCOME TAX ACT, 1961. ASSESSEE HAS R AISED THE FOLLOWING GROUNDS IN THE APPEAL : 1. THE LEARNED CIT(A), ERRED IN APPLY THE PROVISIONS OF SECTION 194C WITHOUT CONSIDERING THE FACT THAT THER E IS NO CONTRACT BETWEEN ASSESSEE AND HDFC BANK. 2. THE LEARNED CIT(A) HAS WRONGLY INTERPRETED THE SEVE RAL CLAUSES OF AGREEMENT BETWEEN ASSESSEE AND HDFC BANK WITHOUT CONSIDERING THE FACT THAT IT WAS AN ARRANGEMENT IN THE NATURE OF ALLIANCE OR JOINT VENT URE. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT TH AT THE ASSESSEE IS ENGAGED IN PUBLIC UTILITY SERVICES AND THE CUSTOMERS WERE GIVEN A FACILITY OF BANK PAYMENT FOR 2 ITA.NO.216/HYD/2014 TWIN EDS (E-SEVA), HYDERABAD. THEIR CONVENIENCE AND AT THEIR COST WITHOUT ANY FINANCIAL IMPLICATION FOR THE ASSESSEE. 1.1. ASSESSEE ALSO RAISED AN ADDITIONAL GROUND AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, SINCE THE HDFC BANK (DEDUCTEE) HAS ALREADY ACCOUNTED FOR THE PAYMENT AND PAID TAXES, NO DEMAND CAN BE RAISED UNDER SECTION 201(1) AND SECTION 201( 1A) OF THE ACT. 1.2. SINCE THE ADDITIONAL GROUND IS ONLY A LEGAL G ROUND, AFTER CONSIDERING THE OBJECTIONS OF THE LEARNED D.R . ADDITIONAL GROUND IS ADMITTED. 2. BRIEFLY FACTS OF THE CASE ARE THAT ASSESSEE IS INVOLVED IN E-SEVA ON BEHALF OF STATE GOVERNMENT. A SSESSEE HAS ENTERED INTO AN AGREEMENT WITH HDFC FOR PROVIDING C O-BRANDED CREDIT CARDS BY NAME E-SEVA HDFC BANK CARD. IT WAS THE CONTENTION OF A.O. THAT HDFC BANK HAS WITHHELD AN A MOUNT OF RS.1,93,93,930 WHILE MAKING CREDIT CARD PAYMENTS TO ASSESSEE AND AS ASSESSEE IS HAVING A PRINCIPAL-AGENT RELATIO NSHIP THE AMOUNT WITHHELD BY THE BANK IS IN THE NATURE OF COM MISSION AS LAID DOWN UNDER THE PROVISIONS OF SECTION 194A O F THE ACT. SINCE NO TDS WAS DEDUCTED BY ASSESSEE, A.O. VIDE HI S ORDER DATED 29.03.2012 RAISED A DEMAND OF RS.19,39,393 UN DER SECTION 201(1) AND RS.7,97,464 AS INTEREST UNDER SE CTION 201(1A). 3. ASSESSEE AGGRIEVED AND PREFERRED APPEAL TO LD. CIT(A) AND SUBMITTED THAT THERE WAS NO PRINCIPAL-AG ENT RELATIONSHIP BETWEEN THE TWO PARTIES AND BOTH OF TH EM ARE HAVING PRINCIPAL TO PRINCIPAL RELATIONSHIP. IT IS F URTHER CONTENDED THAT ASSESSEE IS NOT PROVIDING ANY SERVIC ES TO HDFC 3 ITA.NO.216/HYD/2014 TWIN EDS (E-SEVA), HYDERABAD. AND HDFC ONLY CREDITS THE AMOUNT PAYABLE TO E-SEVA WHILE PAYING COMMISSION TO ITS MERCHANT ESTABLISHMENTS/CU STOMERS, THEREFORE, QUESTION OF RECEIVING COMMISSION OR ALLO WING COMMISSION BY E-SEVA DOES NOT ARISE. THE LD. CIT(A) NOTICED THAT PROVISION OF SECTION 194H ARE NOT APPLICABLE A ND SO ASKED THE ASSESSEE WHETHER PROVISIONS OF SECTION 194C ARE APPLICABLE. IT WAS SUBMITTED BY ASSESSEE THAT THERE IS NO CONTRACT BETWEEN HDFC AND ASSESSEE AND AGREEMENT EN TERED BY THEM IS IN THE NATURE OF ALLIANCE TO JOIN TOGETH ER BY PROVIDING CREDIT CARD FACILITIES TO CITIZENS. IT IS FURTHER ARGUED THAT THE SAID AGREEMENT DO NOT CONTAIN ANY CONSIDERATION/INTENTION AND THEREFORE, IT IS NOT OF A CONTRACT FOR ANY WORK OR SERVICE CONTRACT. IT WAS FURTHER SUBMIT TED THAT PROVISION OF SECTION 194C WOULD NOT APPLY IN RELATI ON TO PAYMENTS MADE TO BANKS FOR DISCOUNTING BILLS, COLLE CTING RECEIVING PAYMENTS THROUGH THE CHEQUE DEPOSITS, DRA FTS, LETTER OF CREDIT ETC., AS PER BOARDS CIRCULAR NO.681 DATE D 08.03.1994. LD. CIT(A) HOWEVER, DID NOT AGREE AND T REATED THE AMOUNT AS COVERED BY PROVISIONS OF SECTION 194C AND THEREAFTER, AFFIRMED THE DEMAND RAISED BY ASSESSEE BY STATING AS UNDER : 4. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER, THE INFORMATION ON/ WRITTEN SUBMISSIONS FURNISHED BY THE APPELLANT. IN THIS CASE, PROVISIONS OF SEC.194H ARE NOT APPLICABLE SINCE THERE IS AN AGREEMENT BETWEEN THE PARTIES. ON A PERUSAL OF THE AGREEMENT BETWEEN THE APPELLANT AND HOFC BANK, IT IS OBSERVED THAT THIS AGREEMENT IS NOTHING BUT CONTRACT FOR RENDERING SERVICES. SEVERAL CLAUSES SUCH AS 1.1, 1,2, 1.3, 1.8, 1 9, CL AUSE 2 OF OBLIGATIONS AT SECOND PARTY, 5.2, 6,1, 6.5 (CONFIDE NTIALITY), CLAUSE 7 (TERMINATION) PROVE THAT THERE EXISTS A CO NTRACT BETWEEN THE TWO PARTIES. SECTION 194C IS APPLICABLE TO SERVICES RENDERED ALSO. EVEN THOUGH THERE IS NO MEN TION IN THE AGREEMENT ABOUT THE CONSIDERATION TO BE PAID, T HE CONSIDERATION PAID/RECEIVED WAS RESULTED BECAUSE OF THE 4 ITA.NO.216/HYD/2014 TWIN EDS (E-SEVA), HYDERABAD. FULFILMENT OF THE TERMS OF THIS CONTRACT. SO PROVIS IONS OF SEC 194C ARE CLEARLY APPLICABLE IN THIS CASE. THE CBDT CIRCULAR QUOTED BY THE APPELLANT IS NOT APPLICABLE IN THIS C ASE SINCE THE PAYMENTS MADE TO HDFC BANK ARE NOT TOR DISCOUNT ING BILLS, COLLECTING I RECEIVING PAYMENTS THROUGH CHEQUES/DRAFTS OPENING AND NEGOTIATING LETTERS OF C REDIT AND TRANSACTIONS IN NEGOTIABLE INSTRUMENTS. THE AO HAS ERRONEOUSLY TREATED THIS PAYMENT AS COMMISSION UNDE R THE PROVISIONS OF SEC.194H OF THE ACT. IN THE LIGHT OF THE ABOVE POSITION. THE A.O. IS DIRECTED TO TREAT THIS PAYMEN T AS PAYMENT MADE IN PURSUANCE OF A CONTRACT AND APPLY PROVISIONS OF SEC.194C IN PLACE OF SEC.194H AND RECALCULATE THE DEMAND ACCORDINGLY. 4. LD. COUNSEL REFERRING TO THE AGREEMENT BETWEEN ASSESSEE AND HDFC SUBMITTED THAT THEY HAVE ONLY ENT ERED INTO AN ALLIANCE FOR PROVIDING FACILITY TO CUSTOMERS BY WAY OF E-SEVA HDFC BANK CARD WHICH OFFERED BENEFITS FOR BOTH E-SE VA SERVICE AND CREDIT CARD SERVICE, IN ADDITION OTHER VALUE AD DED BENEFITS AND FACILITIES AS DETAILED IN ANNEXURES 1 AND 2 TO THE AGREEMENT. HE FURTHER REFERRED TO THE OBLIGATION OF EACH PARTY AND SUBMITTED THAT THERE IS NO CONSIDERATION PAYABL E BY EITHER PARTY. THEREFORE, THERE IS NO WORK CONTRACT BETWEEN THE TWO PARTIES. IN FACT, IT IS NOT EVEN A CONTRACT FOR ANY CONSIDERATION BUT ONLY AN ALLIANCE TO PROVIDE SERVICE TO THE ULTI MATE E-SEVA CUSTOMERS. IT WAS SUBMITTED THAT LD. CIT(A) WAS WRO NG IN CONFIRMING THE DEMAND UNDER SECTION 194C WHILE ACCE PTING PROVISIONS OF SECTION 194H ARE NOT APPLICABLE. SINC E THE PROVISIONS OF SECTION 194C ARE NOT APPLICABLE, THE DEMAND HAS TO BE CANCELLED. 4.1. ON A QUERRY BY THE BENCH, HOW THE AMOUNTS ARE PAID BY HDFC BANK TO E-SEVA AND HOW THE AMOUNT OF RS.1,93,93,930 WAS ARRIVED AT BY A.O., HE PLACED ON RECORD THE STATEMENTS OBTAINED FROM HDFC BANK BY A.O. AND SUBM ITTED THAT ASSESSEE WAS NOT AWARE HOW THE AMOUNT WAS CRYS TALLIZED 5 ITA.NO.216/HYD/2014 TWIN EDS (E-SEVA), HYDERABAD. OR QUANTIFIED. FURTHER, LD. COUNSEL REFERRED TO THE ORDER OF A.O. TO SUBMIT THAT NEITHER COMMISSION NOR ANY PAYMENTS ARE MADE BY ASSESSEE TO HDFC BANK AND THE AMOUNT OF COMMISSI ON/ DISCOUNT IF ANY, PAID BY HDFC IS TO THE MERCHANT ESTABLISHMENTS FOR UTILIZING THE CREDIT CARD BUT NO T BY UTILIZING E-SEVA SERVICES. IT WAS SUBMITTED THAT DEMAND WAS Q UANTIFIED WRONGLY. 5. LEARNED D.R. HOWEVER, SUPPORTED THE ORDERS OF L D. CIT(A). 6. WE HAVE EXAMINED THE RIVAL CONTENTIONS AND PERUSED THE DETAILS PLACED ON RECORD. A.O. ORDER IN THIS REGARD IS FACTUALLY CORRECT BUT INTERPRETATIONS RAISED BY HIM ARE WRONG. AS FAR AS NATURE OF TRANSACTION IS CONCERNED , A.O. HAS RECORDED THE FOLLOWING : IF THE NATURE OF TRANSACTION IS ANALYZED IT IS SE EN THAT THERE ARE FIVE PLAYERS IN A CREDIT CARD TRANSACTION S NAMELY: 1. CREDIT CARD HOLDER (CUSTOMER) 2. CREDIT CARD ISSUING BANK 3. CREDIT CARD ACQUIRING BANK 4. RETAIL MERCHANT 5. BILL SETTLING AGENCY AN ISSUING BANK ISSUES CREDIT CARD TO A CUSTOMER. A N ACQUIRING BANK PROVIDES SWIPING MACHINE TO RETAIL MERCHANT. BILL SETTLING AGENCY WHICH IS VISA/MASTER CARD FACILITATES TRANSFER OF BILL AMOUNT. WHEN A RETAIL MERCHANT SWIPES A CREDIT CARD FOR REC EIVING PAYMENT FROM CUSTOMER THEN BILL DETAILS AND AMOUNT ARE FORWARDED TO THE ACQUIRING BANK WHICH MAKES PAYMENT OF THE BILL AMOUNT TO THE RETAIL MERCHANT AND WITHHOLD S ITS DISCOUNT IN NATURE OF COMMISSION FOR PROVIDING SERV ICES TO THE RETAIL MERCHANT. THE ACQUIRING BANK THEN THROUG H BILL SETTLING AGENCY RECOVERS THE BILL AMOUNT FROM THE I SSUING BANK. THUS THE ACQUIRING BANK FACILITATES RECOVERY OF BILL AMOUNT ON BEHALF OF RETAIL MERCHANT FOR WHICH IT CH ARGES 6 ITA.NO.216/HYD/2014 TWIN EDS (E-SEVA), HYDERABAD. DISCOUNT IN NATURE OF COMMISSION. THUS THE ACQUIRIN G BANK RENDERS SERVICES FOR RECOVERY OF THE BILL AMOUNT TO THE RETAIL MERCHANT AND HENCE ACTS AS AGENT OF THE RETA IL MERCHANT. AS THE PRINCIPAL-AGENT RELATIONSHIP IS ESTABLISHED BETWEEN THE RETAIL MERCHANT (IN THE INS TANT CASE TWINS-PRINCIPAL AND THE ACQUIRING BANK (IN THE INSTANT CASE HDFC BANK -AGENT), M/S. TWINS IS REQUI RED TO DEDUCT TAX AT SOURCE U/S.194H OF IT ACT. IT IS NOT ALSO OUT OF PLACE TO MENTION HERE THAT THOUGH THE COMMISSION CHARGES. ARE WITHHELD BY THE ACQUIRING BANK WHILE MAKING A PAYMENT TO THE RETAIL MERCHANT THOUGH THERE IS A CONSTRUCTIVE PAYMENT, TH E ASSESSEE IS LIABLE TO MAKE THE TDS. 6.1. THUS, AS CAN BE SEEN FROM THE ORDER OF A.O. I TSELF, THE PRINCIPAL-AGENT RELATIONSHIP IS WITH REFERENCE TO HDFC BANK AND THE RETAIL MERCHANT BUT NOT THE E-SEVA PRO VIDER. IT IS ALSO RECORDED BY A.O. THAT THE COMMISSION CHARGES A RE WITHHELD BY ACQUIRING BANK WHILE MAKING PAYMENT TO RETAIL MERCHANT. THE COMMISSION OR DISCOUNT WAS PROVIDED B Y HDFC BANK TO THE RETAIL MERCHANT BUT NOT BY E-SEVA SERVI CE PROVIDER IE. ASSESSEE. THUS, IN THE TRANSACTION BETWEEN CRED IT CARD HOLDER AND THE BANK, E-SEVA SERVICE HAS NO ROLE TO PLAY. AS FAR AS CREDIT CARD HOLDER IS CONCERNED, THE AMOUNT PAYA BLE TO E- SEVA IS CHARGED TO HIS ACCOUNT AND RETAIL MERCHANT ACTS AS A MEDIATOR FOR REMITTING AMOUNT TO E-SEVA BY UTILIZIN G THE HDFC BANK. AS FAR AS HDFC BANK IS CONCERNED, IT GIVES DISCOUNT/COMMISSION TO THE RETAIL MERCHANT FOR UTIL IZING THE FACILITY OF THE BANK. THUS, IF ANY PRINCIPAL-AGENT RELATIONSHIP IS EXISTING THAT IS BETWEEN THE BANK AND THE RETAIL ME RCHANT BUT NOT BETWEEN BANK AND E-SEVA. IN OUR OPINION, THE A. O. HAS WRONGLY INVOKED THE PROVISIONS OF SECTION 194H AGAI NST THE ASSESSEE WHO IS NOWHERE CONNECTED WITH THE COMMISSI ON PAID BY HDFC TO THE RETAIL MERCHANT. MOREOVER, THE LD. C IT(A) HAS FURTHER ERRED IN CONFIRMING THE AMOUNT UNDER SECTIO N 194C. 7 ITA.NO.216/HYD/2014 TWIN EDS (E-SEVA), HYDERABAD. THERE IS NO CONTRACT MORE SO, ANY WORK CONTRACT BET WEEN HDFC AND ASSESSEE. AS SEEN FROM THE TERMS OF AGREEM ENT, NO SERVICES ARE RENDERED BY E-SEVA TO HDFC OR VICE-VER SA. BOTH OF THEM HAVE ENTERED INTO AN ALLIANCE FOR PROMOTING TH E E-SEVA HDFC CREDIT CARD FOR THE USE OF CUSTOMERS NOT ONLY FOR REMITTING E-SEVA AMOUNTS BUT ALSO FOR UTILIZING IT AS A GENERAL CREDIT CARD FOR CERTAIN VALUE ADDED BENEFITS. THIS DOES NOT INVOLVE ANY CONTRACT BETWEEN THESE PARTIES, SO AS T O INVOKE PROVISIONS OF SECTION 194C. SINCE, LD. CIT(A) ALREA DY HELD THAT PROVISIONS OF SECTION 194H ARE NOT APPLICABLE TO TH E FACTS OF THE CASE AND SINCE PROVISIONS OF SECTION 194C ARE ALSO NOT APPLICABLE, DEMAND RAISED BY A.O. CANNOT BE SUSTAIN ED AT ALL. NOT ONLY THAT, WE ARE ALSO NOT SURE ON WHAT BASIS T HE A.O. HAS ARRIVED AT THE AMOUNT, IF AT ALL ANY AMOUNT IS WITH HELD BY HDFC BANK, IT IS NOT OUT OF AMOUNT PAID TO E-SEVA BUT OUT OF THE AMOUNTS PAYABLE TO MERCHANT BANKER FOR USING TH E CREDIT FACILITY. HOW THAT AMOUNT CAN BE ATTRIBUTABLE TO E- SEVA IS NOT EXPLAINED BY A.O. AS SEEN FROM THE DETAILS PLACED O N RECORD, EXCEPT THE CARDS SETTLEMENT DETAILS, NO OTHER DETAI LS ARE AVAILABLE. MOREOVER, ASSESSEE WAS NOT GIVEN ANY OPP ORTUNITY ON WHAT BASIS AMOUNTS WERE CRYSTALLIZED. NOT ONLY ON T HE FACTS BUT ALSO ON LEGAL PRINCIPLES, THE A.O. ACTION CANN OT BE SUSTAINED AT ALL IN RAISING DEMANDS UNNECESSARILY. IN VIEW OF THIS, WE HAVE NO HESITATION IN SETTING ASIDE THE OR DER. ASSESSEES GROUNDS ARE ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 29.12.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 29 TH DECEMBER, 2014 VBP/- 8 ITA.NO.216/HYD/2014 TWIN EDS (E-SEVA), HYDERABAD. COPY TO 1. TWIN EDS (E-SEVA), HYDERABAD. C/O. M/S. MAHESH, VIRENDER & SRIRAM, CHARTERED ACCOUNTANTS, 6-3-788/3 6 & 37A, AMEERPET, HYDERABAD. 2. INCOME TAX OFFICER, WARD-14(3), HYDERABAD 3. CIT(A), VIJAYAWADA 4. CIT(TDS), HYDERABAD 5. D.R. ITAT B BENCH, HYDERABAD.