DCIT, Bangalore V. M/s Adishwar India Limited, Bangalore

ITA 527/BANG/2015

• Counselvise Citation: 52721114 RSA 2015
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 30-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR AGARWAL JT
• Assessee Lawyers: SUNDER HEGDE K
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO. 527/BANG/2015 ASSESSMENT YEAR : 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1), BANGALORE. VS. M/S. ADISHWAR INDIA LTD., # 146, 11 TH C CROSS, 1 ST MAIN, 2 ND STAGE, WEST OF CHORD ROAD, RAJAJINAGAR, BANGALORE 560 086. PAN : AABCA 4663P APPELLANT RESPONDENT APPELLANT BY : SHRI SUNIL KUMAR AGARWAL, JT. CIT(DR) RESPONDENT BY : SHRI SUNDER HEGDE, K., CA DATE OF HEARING : 27.07.2015 DATE OF PRONOUNCEMENT : 30.07.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DA TED 12.1.2015 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO ASSESSMEN T YEAR 2011-12. ITA NO.527/BANG/2015 PAGE 2 OF 7 2. THE ONLY ISSUE FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER THE CIT(APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOW ANCE MADE BY THE AO U/S. 40(A)(IA) OF THE ACT. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF DIRECT MARKETING AND CHAIN STORES OF CONSUMABLES AND HOUSE HOLD ARTICLES & ELECTRONIC GOODS. WHILE SCRUTINIZING THE P&L ACCOUN T OF THE ASSESSEE, THE AO NOTICED THAT THERE WAS AN EXPENDITURE OF RS.1,18 ,43,146 CLAIMED ON ACCOUNT OF CARD SWIPING CHARGES. THE NATURE OF THI S CHARGE IS THAT THE ASSESSEE IN THE COURSE OF ITS BUSINESS OFFERS CUSTO MERS THE FACILITY OF MAKING PAYMENTS FOR PURCHASE OF ITS PRODUCTS BY THE CUSTOMERS THROUGH CREDIT CARDS. FOR THIS PURPOSE, THE ASSESSEE ENTER ED INTO AGREEMENT WITH A BANK FOR THE PURPOSE OF PROCESSING THE TRANSACTION OF REALIZING THE MONEY PAID BY THE CUSTOMER THROUGH CREDIT CARD. THE EDC MACHINE IS PROVIDED AND THE CREDIT/DEBIT CARD IS SWIPED ON THE EDC MACH INE. ON A SUCCESSFUL COMPLETION OF THE PAYMENT THROUGH CREDIT CARD, THE BANK REALIZES THE MONEY THROUGH CUSTOMERS BANKERS AND PAYS IT OVER TO THE A SSESSEE. THE BANK CHARGES COMMISSION. ACCORDING TO THE REVENUE, THE ASSESSEE WAS PAYING COMMISSION TO THE BANK AND WAS THEREFORE OBLIGED TO DEDUCT TAX AT SOURCE U/S. 194H OF THE ACT. 4. SINCE THE ASSESSEE DID NOT DEDUCT THE TAX AT SOU RCE, IT IS THE CASE OF THE REVENUE THAT THE AMOUNT CLAIMED AS DEDUCTION UN DER THE HEAD CREDIT CARD SWIPING CHARGES SHOULD BE DISALLOWED U/S. 40( A)(IA) OF THE ACT. THE ITA NO.527/BANG/2015 PAGE 3 OF 7 AO ON THE ABOVE REASONING DISALLOWED THE CLAIM OF T HE ASSESSEE FOR DEDUCTION ON ACCOUNT OF CARD SWIPING CHARGES. 5. ON APPEAL, THE CIT(APPEALS), FOLLOWING THE DECIS ION OF THE ITAT BANGALORE BENCH IN THE CASE OF TATA TELE SERVICES LTD. V. DCIT (2010) 140 ITD 451, HELD THAT THE CARD SWIPING CHARGES ARE NOT IN THE N ATURE OF COMMISSION. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING OF THE APPEAL, IT WAS BRO UGHT TO OUR NOTICE BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE TRIBUNAL ON IDENTICAL FACTS AND CIRCUMSTANCES WHERE A DISALLOWANCE OF CARD SWIPING CHARGES WAS MADE IN AY 2010-11, THE DISALLOWANCE WAS DELETED BY THE CIT (A). ON FURTHER APPEAL BY THE REVENUE IN ASSESSEES OWN CASE FOR AY 2010-11 IN ITA NO.1506/BANG/2013, ORDER DATED 21.11.14, THIS TRIBU NAL HELD THAT DISALLOWANCE U/S. 40(A)(IA) OF THE ACT SHOULD NOT B E MADE. 7. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORD ER OF THE AO. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THIS TRIBUNAL IN ASSESSEES OWN CASE IN THE ORDER CITED SUPRA BY THE LD. COUNSEL FOR THE ASSESSEE, DEALT WITH AN IDENTICAL ISSUE AND HELD AS FOLLOWS:- 3. IN ITS APPEAL BEFORE THE CIT(A) ARGUMENT OF TH E ASSESSEE WAS THAT FLOW OF CREDIT CARD PROCESS WAS AS UNDER; A) CUSTOMER MAKES A PURCHASE FROM US AND PROVIDES CREDIT CARD INFORMATION TO A POINT OF SALES TERMINA L. ITA NO.527/BANG/2015 PAGE 4 OF 7 B) POINT OF SALES TERMINAL ENCRYPTS AND RELAYS THE INFORMATION TO THE PAYMENT PROCESSORS. THE PAYMENT PROCESSOR USES A PAYMENT GATEWAY TO RELAY THE CREDI T CARD DATA TO THE VISA/MASTER CARD ASSOCIATION. C) PAYMENT GATEWAY VERIFIES CREDIT CARD INFORMATI ON BY SEEKING APPROVAL FROM THE CREDIT CARD ASSOCIATION. D) UPON RECEIVING THE REQUEST FROM PAYMENT GATEWA Y, CREDIT CARD ASSOCIATION SENDS THE REQUEST TO CREDIT CARD ISSUING BANK FOR THEIR APPROVAL. E) CREDIT CARD ISSUING BANK ACCEPTS OR DECLINES T HIS AND RELAYS THIS MESSAGE BACK TO THE CREDIT CARD ASSOCIA TION. CREDIT CARD ASSOCIATION TRANSMITS THE MESSAGE TO TH E PAYMENT GATEWAY. IF THE SAME IS APPROVED, THE CUS TOMER IS NOTIFIED THAT THE TRANSACTION IS COMPLETE AND TH E MERCHANT ESTABLISHMENT CAN RELEASE THE GOODS TO THE CUSTOMER. F) THE CARD ISSUING BANK SENDS THE PAYMENTS TO TH E CREDIT CARD ASSOCIATION AFTER DEDUCTING A SMALL SER VICE FEE. THE CREDIT CARD ASSOCIATION TRANSFERS THE PAYMENT T O THE PAYMENT PROCESSOR. THE PAYMENT PROCESSOR MAKES TH E PAYMENT TO ACQUIRING BANK AND IN TURN ACQUIRING BAN K TRANSFER THE AMOUNT DIRECTLY INTO THE MERCHANTS BA NK ACCOUNT. 4. ACCORDING TO THE ASSESSEE MERCHANT ESTABLISHMEN TS LIKE ASSESSEE DID NOT EFFECT PAYMENT TO ANY OF THE PARTI ES IN THE CHAIN. THUS, AS PER ASSESSEE, IT WOULD NOT COME WITHIN THE MEANING OF THE PHRASE PERSON RESPONSIBLE FOR PAYING, APPLYIN G SECTION 194H OF THE ACT. 5. LEARNED CIT(A) WAS APPRECIATIVE OF THE ABOVE CONTENTIONS. RELYING ON THE DECISION OF THE CO-ORD INATE BENCH IN THE CASE OF M/S TATA TELESERVICES LTD., HE HELD THA T ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE. 6. NOW BEFORE US, LEARNED DR SUBMITTED THAT ASSESS EE WAS LIABLE TO DEDUCT TAX AT SOURCE ON THE COMMISSION. H AVING NOT DONE SO, AO ACCORDING TO HIM WAS JUSTIFIED IN DISAL LOWING THE EXPENDITURE CLAIMED BY THE ASSESSEE. 7. PER CONTRA, LEARNED AR SUPPORTED THE ORDER OF T HE CIT(A). ITA NO.527/BANG/2015 PAGE 5 OF 7 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. AT PARA-3.4 OF ITS ORDER, THIS TRIBUN AL IN THE CASE OF TATA TELESERVICES PVT.LTD.,(SUPRA) HAD HELD AS UNDE R; 4. WE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. ASSESSEE IS A COMPANY ENGAGED I N THE BUSINESS OF DIRECT RETAIL TRADING IN CONSUMER GOODS . ASSESSEE CLAIMED DEDUCTION OF RS.16,34,000 ON ACCOU NT OF COMMISSION PAID TO THE CREDIT CARD COMPANIES, WHICH HAS BEEN DISALLOWED BY THE ASSESSING OFFICER IN TERMS O F S.40(A)(IA) ON ACCOUNT OF THE FAILURE OF THE ASSESS EE TO DEDUCT TAX AT SOURCE IN TERMS OF S.194H OF THE ACT, WHILE MAKING THE SAID COMMISSION PAYMENTS. IT WAS THE CONTENTION OF THE ASSESSEE BEFORE THE LOWER AUTHORI TIES THAT THE ASSESSEE ONLY RECEIVES THE PAYMENT FORM TH E BANK/CREDIT CARD COMPANIES CONCERNED, AFTER DEDUCTI ON OF COMMISSION THEREON, AND THUS, THIS IS ONLY IN THE N ATURE OF A POST FACTO ACCOUNTING AND DOES NOT INVOLVE ANY PA YMENT OR CREDITING OF THE ACCOUNT OF THE BANKS OR ANY OTH ER ACCOUNT BEFORE SUCH PAYMENT BY THE ASSESSEE. CONSID ERING THESE SUBMISSION OF THE ASSESSEE, THE CIT(A) ACCEPT ED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE AMOUNT O F RS.16,34,000 ON THE FOLLOWING REASONING- 9.8 ON GOING THROUGH THE NATURE OF TRANSACTIONS, I FIND CONSIDERABLE MERIT IN THE CONTENTION OF THE APPELLANT THAT COMMISSION PAID TO THE CREDIT CARD COMPANIES CANNOT BE CONSIDERED AS FALLING WITHIN TH E PURVIEW OF S.194H. EVEN THOUGH THE DEFINITION OF TH E TERM 'COMMISSION OR BROKERAGE' USED IN THE SAID SECTION IS AN INCLUSIVE DEFINITION, IT IS CLEAR THA T THE LIABILITY TO MAKE TDS UNDER THE SAID SECTION ARISES ONLY WHEN A PERSON ACTS BEHALF OF ANOTHER PERSON. I N THE CASE OF COMMISSION RETAINED BY THE CREDIT CARD COMPANIES HOWEVER, IT CANNOT BE SAID THAT THE BANK ACTS ON BEHALF OF THE MERCHANT ESTABLISHMENT OR THA T EVEN THE MERCHANT ESTABLISHMENT CONDUCTS THE TRANSACTION FOR THE BANK. THE SALE MADE ON THE BASI S OF A CREDIT CARD IS CLEARLY A TRANSACTION OF THE MERCHANTS ESTABLISHMENT ONLY AND THE CREDIT CARD COMPANY ONLY FACILITATES THE ELECTRONIC PAYMENT, FO R A CERTAIN CHARGE. THE COMMISSION RETAINED BY THE CREDIT CARD COMPANY IS THEREFORE IN THE NATURE OF NORMAL BANK CHARGES AND NOT IN THE NATURE OF ITA NO.527/BANG/2015 PAGE 6 OF 7 COMMISSION/BROKERAGE FOR ACTING ON BEHALF OF THE MERCHANT ESTABLISHMENT. ACCORDINGLY, CONCLUDING THAT THERE WAS NO REQUIREMENT FOR MAKING TDS ON THE COMMISSION RETAINED BY THE CREDIT CARD COMPANIES, THE DISALLOWANCE OF RS.16,34,000 IS DELETED.. WE FIND NO INFIRMITY IN THE ABOVE REASONING GIVEN B Y THE CIT(A). WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT( A) AND REJECT THE GROUNDS OF THE REVENUE WHICH ARE DEV OID OF MERIT.' 8. WE FIND THAT THE FACT MATRIX HERE IS EXACTLY SI MILAR TO THAT IN M/S TATA TELESERVICES PVT. LTD. WE THEREFORE, F IND NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). 9. RESPECTFULLY FOLLOWING THE DECISION RENDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE CITED SUPRA , WE UPHOLD THE ORDER OF THE CIT(APPEALS) AND DISMISS THE APPEAL OF THE REVENUE. 10. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JULY, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 30 TH JULY, 2015. /D S/ ITA NO.527/BANG/2015 PAGE 7 OF 7 COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.