ACIT, New Delhi V. M/s. The Indian Hotels Company Ltd., New Delhi

ITA 4935/DEL/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4426 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: misc
• Appeal Filed On: 31-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMTI KATOCH
• Keywords: TDS
• Section: 40(a)(ia); 201(1)

Judgement Text

ITA NO. 4935/DEL/2015 ASSESSMENT YEAR 2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI N.K. SAINI, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 4935/DEL/2015 ASSESSMENT YEAR: 2012-13 ACIT, VS THE INDIAN HOTELS COMPANY L TD., CIRCLE-76(1), (TAJ PALACE-DELHI), ROOM NO. 604, SARDAR PATEL MAR G, AAYAKAR BHAWAN, DIPLOMATIC ENCLAVE, LAXMI NAGAR, NEW DELHI. NEW DELHI. (PAN: DELR05164F) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI AMTI KATOCH, SR. DR ASSESSEE BY : SHRI SHASHANK SHARMA, ADV. DATE OF HEARING: 12.02.2019 DATE OF PRONOUNCEMENT: 13.02.2019 ORDER PER SUDHANSHU SRIVASTAVA, J.M. THIS APPEAL IS PREFERRED BY THE DEPARTMENT AGAINST THE ORDER PASSED BY THE LD. CIT (APPEALS)-41, NEW DELHI VIDE DATED 12.5.2015 FOR ASSESSMENT YEAR 2012-13 RELEVANT TO F INANCIAL YEAR 2011-12 AND CHALLENGES THE ACTION OF THE LD. C OMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THAT THE ASSESSE E WAS NOT LIABLE TO DEDUCT TAX AT SOURCE ON MERCHANT DISCOUNT /COLLECTION CHARGES PAID ON ACCOUNT OF CREDIT CARD TRANSACTIONS . ITA NO. 4935/DEL/2015 ASSESSMENT YEAR 2012-13 2 2.0 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF RUNNING A HOTEL IN THE NAME OF TAJ PALACE. PROCEEDINGS U/S 201 OF THE INCOME TAX ACT, 1961 (HE REINAFTER CALLED 'THE ACT') WERE INITIATED BY WAY OF NOTICE U /S 201 R/W 201(1A) OF THE ACT AND THE ASSESSEE WAS ASKED TO FU RNISH DETAILS OF COMMISSION ALLOWED TO THE VARIOUS BANKS ON CREDI T CARD TRANSACTIONS DURING THE YEAR UNDER CONSIDERATION. IT WAS THE SUBMISSION OF THE ASSESSEE THAT CREDIT CARD COMMISS ION WAS OUT OF THE REALM OF SECTION 194H OF THE ACT SINCE THERE WAS NO PRINCIPAL-AGENT RELATIONSHIP BETWEEN THE MERCHANT E STABLISHMENT AND THE BANK AND, THEREFORE, THE PROVISIONS RELATIN G TO TAX DEDUCTION AT SOURCE WERE NOT ATTRACTED IN ASSESSEE S CASE. THE ASSESSEE ALSO RELIED ON NOTIFICATION NO. 56 DATED 3 1.12.2012 ISSUED BY THE CBDT WHEREIN IT HAD BEEN CLARIFIED TH AT CREDIT CARD COMMISSION WAS EXEMPT FROM TDS. HOWEVER, THE ASSES SING OFFICER WAS OF THE OPINION THAT THERE WAS AN IMPLIE D AGENCY RELATIONSHIP BETWEEN THE ASSESSEE AND THE BANKER AN D, THEREAFTER, RELYING UPON CIRCULAR NO. 619 DATED 4.1 2.1991, THE ASSESSING OFFICER PROCEEDED TO HOLD THAT THE ASSESS EE WAS LIABLE TO DEDUCT TAX AT SOURCE FROM THE PAYMENTS RECEIVED ON ACCOUNT OF ITA NO. 4935/DEL/2015 ASSESSMENT YEAR 2012-13 3 CREDIT CARD PAYMENTS. THIS RESULTED IN CREATION OF A DEMAND OF RS. 28,31,225/-. 2.1 ON APPEAL BY THE ASSESSEE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT IN CASE OF CREDIT CARD PAYM ENT, THERE WAS NO LIABILITY TO DEDUCT TAX U/S 194H AND FURTHER IN CASES WHERE UNDER BONA FIDE BELIEF THERE WAS NO REQUIREMENT TO DEDUCT TAX, THE ASSESSEE CANNOT BE SADDLED WITH THE LIABILITY T O PAY INTEREST U/S 201(1A) OF THE ACT. THE LD. COMMISSIONER OF IN COME TAX (APPEALS) ALLOWED THE ASSESSEES APPEAL AND NOW THE DEPARTMENT IS BEFORE THE ITAT AND HAS RAISED THE FOLLOWING GRO UNDS OF APPEAL:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE CIT (A) WAS JUSTIFIED IN HOLDING THAT THE BANKS THROUGH WHOSE CREDIT CARDS PAYMENTS WERE REALIZED B Y M/S THE INDIAN HOTELS COMPANY LIMITED HAD NOT RENDERED ANY SERVICE TO M/S THE INDIAN HOTELS LIMIT ED IRRESPECTIVE OF THE FACT THAT SUCH BANKS HAVE REALI ZED SERVICE CHARGES/ COMMISSION IN LIEU THEREOF M/S THE INDIAN HOTELS COMPANY LIMITED AND PAID SERVICE TAX ON SUCH SERVICES. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) WAS JUSTIFIED IN HOLDING THAT THERE WAS NO PRINCIPAL AND AGENT RELATIONSHIP BETWEEN M/S THE INDIAN HOTELS COMPANY LIMITED AND THE BANKS PARTICULARLY WHEN SUCH BANKS, AFTER GETTING THEIR C REDIT CARD SWAPPED ON THE MACHINES INSTALLED AT THE PREMI SES OF M/S THE INDIAN HOTELS COMPANY LIMITED, ARE BOUND TO MAKE PAYMENTS OF SALE CONSIDERATION TO M/S THE INDIAN HOTELS COMPANY LIMITED AND COLLECT THE SAME ITA NO. 4935/DEL/2015 ASSESSMENT YEAR 2012-13 4 FROM CREDIT CARD HOLDERS ON BEHALF OF M/S THE INDIA N HOTELS COMPANY LIMITED. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) WAS JUSTIFIED IN HOLDING THAT THE BANKS , AFTER GETTING THEIR CREDIT CARDS SWAPPED ON THE MACHINES INSTALLED AT THE PREMISES OF M/S THE INDIAN HOTELS COMPANY LIMITED, HAVE PROVIDED GATEWAY FOR PAYMENTS TO M/S THE INDIAN HOTELS COMPANY LIMITED PARTICULAR LY WHEN PAYMENTS MADE THROUGH DEBIT CARDS/ ATM CARDS ARE DIFFERENT THAN THOSE MADE THROUGH CREDIT CARDS AS IN THE CASE OF PAYMENTS MADE THROUGH DEBIT CARDS/ ATM CARDS THE BANKS ARE NOT REQUIRED TO COLLECT THE SALE CONSIDERATION FROM DEBIT CARD HOLDERS ON BEHALF OF M/S THE INDIAN HOTELS COMPANY LIMITED. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) WAS JUSTIFIED IN LAW IN HOLDING THAT TH E SUM RETAINED BY THE BANKS AS CREDIT COMMISSION DID NOT FALL IN THE PURVIEW OF SECTION 194H OF THE I.T ACT, 1961 PARTICULARLY WHEN THE CBDT NOTIFICATION NO. 56/2012 DATED 31.12.2012 WAS NOT EFFECTIVE FOR THE RELEVANT YEAR. 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) WAS RIGHT IN LAW IN TAKING A DECISION O N THE MERITS OF THE DEMAND AGGREGATING TO RS. 28,31,225/- U/S 201(1) AND 201(1A) OF THE I.T. ACT, 1961 IN RES PECT OF COMMISSION PAYMENT/ RETAINED TO/BY THE BANKS. 3.0 THE LD. AR APPEARING ON BEHALF OF THE ASSESSEE/ RESPONDENT SUBMITTED THAT THE ASSESSEES CASE WAS COVERED BY T HE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF C.I. T. VS. JDS APPARELS PVT. LTD. REPORTED IN (2015) 330 ITR 454 ( DEL). IT WAS ALSO SUBMITTED THAT THIS JUDGMENT OF THE HONBLE DE LHI HIGH COURT WAS FOLLOWED BY THE ITAT MUMBAI BENCH IN ASSE SSEES SISTER CONCERN IN THE CASE OF ITO(TDS)(OSD) VS THE INDIAN HOTELS ITA NO. 4935/DEL/2015 ASSESSMENT YEAR 2012-13 5 COMPANY LTD. IN ITA NO. 5419/MUMBAI/2014 VIDE ORDER DATED 13.04.2016 FOR ASSESSMENT YEAR 2011-12. A COPY OF THE SAID ORDER WAS PLACED ON RECORD. THE LD. AR ALSO PLACED RELIANCE ON ANOTHER ORDER OF THE ITAT MUMBAI BENCH IN THE CASE OF ASSESSEES SISTER CONCERN FOR ASSESSMENT YEAR 2010- 11 IN ITO(TDS)(OSD) VS. M/S INDIAN HOTELS COMPANY LTD. IN ITA NO. 2474/MUMBAI/2014 WHEREIN, VIDE ORDER DATED 23.06.20 17, IT HAS BEEN HELD THAT THERE WAS NO PRINCIPAL AGENT REL ATIONSHIP BETWEEN THE BANK AND THE ASSESSEE AND THAT THE ASSE SSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE U/S 194H ON DISCOUNT/COMMISSION CHARGES RETAINED BY THE BANKS F ROM THE CUSTOMERS WHO HAD MADE PURCHASES THROUGH THE CREDIT CARDS. RELIANCE WAS ALSO PLACED ON THE ORDER OF THE ITAT D ELHI IN THE CASE OF DCIT VS. P.C. JEWELLER LTD. IN ITA NO. 4942 /DEL/2015 WHEREIN, UNDER IDENTICAL FACTS, THE ITAT HAD UPHELD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN HOL DING THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE ON PAYMENTS RECEIVED THROUGH DEBIT CARDS AND CREDIT CARDS AS TH E BANK WAS NOT ACTING ON BEHALF OF THE ASSESSEE BUT WAS RATHER ACTING ON BEHALF OF THE CUSTOMERS WHILE PROCESSING PAYMENTS T HROUGH DEBIT CARDS AND CREDIT CARDS. ITA NO. 4935/DEL/2015 ASSESSMENT YEAR 2012-13 6 4.0 THE LD. SR. DR SUPPORTED THE ORDER OF THE ASSES SING OFFICER. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE AGREE WITH THE AVE RMENT OF THE LD. AR THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF C.I.T. VS. JDS APPARELS PVT. LTD. (SUPRA) W HEREIN IT HAS BEEN HELD THAT SINCE THE BANK WAS MAKING THE PAYMEN T TO THE ASSESSEE AFTER DEDUCTION OF BANK CHARGES, THERE WAS NO OCCASION FOR THE ASSESSEE TO DEDUCT TAX AT SOURCE AND FURTHE R THE BANK WAS NOT ACTING ON BEHALF OF THE ASSESSEE BUT ON THE OTH ER HAND WAS ACTING ON BEHALF OF THE CUSTOMERS WHILE PROCESSING PAYMENT THROUGH DEBIT CARDS AND CREDIT CARDS. THE RELEVANT OBSERVATIONS OF THE HONBLE DELHI HIGH COURT IN C.I.T. VS. JDS A PPARELS PVT. LTD. (SUPRA) ARE CONTAINED IN PARA 17 AND 18 AND TH E SAME ARE BEING REPRODUCED HEREUNDER FOR A READY REFERENCE:- 17. ANOTHER REASON WHY WE FEEL SECTION 40(A)(IA) OF THE ACT SHOULD NOT HAVE BEEN INVOKED IN THE PRESENT CASE IS THE PRINCIPLE OF DOUBTFUL PENALIZATION WHICH REQ UIRES STRICT CONSTRUCTION OF PENAL PROVISIONS. THE SAID P RINCIPLE APPLIES NOT ONLY TO CRIMINAL STATUTES BUT ALSO TO PROVISIONS WHICH CREATE A DETERRENCE AND RESULTS IN PUNITIVE PENALTY. SECTION 40(A)(IA) IS A DETERRENT AND A PENAL PROVISION. IT HAS THE EFFECT OF PENALISING TH E ASSESSEE, WHO HAS FAILED TO DEDUCT TAX AT SOURCE AN D ACTS TO THE DETRIMENT OF THE ASSESSEE S PROPERTY AND OTHER ECONOMIC INTERESTS. IT OPERATES AND INFLICTS ITA NO. 4935/DEL/2015 ASSESSMENT YEAR 2012-13 7 HARDSHIP AND DEPRIVATION, BY DISALLOWING EXPENDITUR E ACTUALLY INCURRED AND TREATING IT AS DISALLOWED. TH E EXPLANATION, THEREFORE, REQUIRES A STRICT CONSTRUCT ION AND THE PRINCIPLE AGAINST DOUBTFUL PENALIZATION WOULD C OME INTO PLAY. THE DETRIMENT IN THE PRESENT CASE, AS IS NOTICEABLE, WOULD INCLUDE INITIATION OF PROCEEDINGS FOR IMPOSITION OF PENALTY FOR CONCEALMENT, AS WAS DIREC TED BY THE ASSESSING OFFICER IN THE PRESENT CASE. THE AFORESAID PRINCIPLE REQUIRES THAT A PERSON SHOULD N OT BE SUBJECTED TO ANY SORT OF DETRIMENT UNLESS THE OBLIG ATION IS CLEARLY IMPOSED. WHEN THE WORDS ARE EQUALLY CAPA BLE OF MORE THAN ONE CONSTRUCTION, THE ONE NOT INFLICTI NG THE PENALTY OR DETERRENT MAY BE PREFERRED. IN MAXWELL S THE INTERPRETATION OF STATUTES, 12TH EDITION (1969) IT HAS BEEN OBSERVED:- 'THE STRICT CONSTRUCTION OF PENAL STATUTES SEEMS TO MANIFEST ITSELF IN FOUR WAYS: IN THE REQUIREMENT OF EXPRESS LANGUAGE FOR THE CREATION OF AN OFFENCE; IN INTERPRETING STRICTLY WORDS SETTING OUT THE ELEMENT S OF AN OFFENCE; IN REQUIRING THE FULFILMENT TO THE LETTER OF STATUTORY CONDITIONS PRECEDENT TO THE INFLICTION OF PUNISHMENT; AND IN INSISTING ON THE STRICT OBSERVAN CE OF TECHNICAL PROVISIONS CONCERNING CRIMINAL PROCEDURE AND JURISDICTION.' 18. THE AFORESAID PRINCIPLES AND INTERPRETATIONS CA N APPLY TO TAXING STATUTES. IN THE PRESENT CASE WE FU RTHER FEEL THE SAID PRINCIPLE SHOULD BE APPLIED AS HDFC W OULD NECESSARILY HAVE ACTED AS PER LAW AND IT IS NOT THE CASE OF THE REVENUE THAT THE BANK HAD NOT PAID TAXES ON THEIR INCOME. IT IS NOT A CASE OF LOSS OF REVENUE AS SUCH OR A CASE WHERE THE RECIPIENT DID NOT PAY THEIR TAXES. 5.1 ACCORDINGLY, RESPECTFULLY FOLLOWING THE RATIO O F THE JUDGMENT AS LAID DOWN BY THE HONBLE DELHI HIGH COURT, WE FI ND NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD. COMMISSIO NER OF INCOME ITA NO. 4935/DEL/2015 ASSESSMENT YEAR 2012-13 8 TAX (APPEALS) IN THIS REGARD AND WE DISMISS THE GRO UNDS RAISED BY THE DEPARTMENT. 6.0 IN THE RESULT, THE APPEAL OF THE DEPARTMENT STA NDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.02.2019. SD/- SD/- (N.K. SAINI) (SUDHANSHU SRIVASTAVA) VICE PRESIDENT JUDICIAL MEM BER DATED: 13 TH FEBRUARY, 2019 GS COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER ASSTT. REGISTRAR