DCIT, V. M/s Mysore Saree Udyog P. Ltd.,

ITA 93/BANG/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8682 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-03-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 20-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.93/BANG/2014 ASSESSMENT YEAR : 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(1), BANGALORE. VS. M/S. MYSORE SAREE UDYOG PRIVATE LTD., NO.294, K. KAMRAJA ROAD, BANGALORE 560 001. PAN: AABCM 1340F APPELLANT RESPONDENT APPELLANT BY : DR. P.K. SRIHARI, ADDL. CIT(DR) RESPONDENT BY : NONE DATE OF HEARING : 17.03.2015 DATE OF PRONOUNCEMENT : 27.03.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER D ATED 29.10.2003 OF THE CIT(APPEALS)-III, BANGALORE RELATING TO ASSESSM ENT YEAR 2010-11. 2. THE FIRST ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER THE CIT(APPEALS) WAS JUSTIFIED IN HOLDING T HAT THERE WAS NO OBLIGATION ON THE PART OF ASSESSEE TO DEDUCT TAX AT SOURCE ON A SUM OF ITA NO.93/BANG/2014 PAGE 2 OF 9 RS.27,65,565. THE AFORESAID SUM WAS SHOWN IN THE B OOKS OF ACCOUNT OF ASSESSEE AS CREDIT CARD COMMISSION. 3. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE A ND WHOLESALE DEALING OF PURE SILK SAREES. WHEN THE CUSTOMER PUR CHASES SAREES USING CREDIT CARD, THE BANK AFTER RETAINING THEIR CHARGES , REMIT THE REMAINING SUM TO THE ASSESSEE. THE DIFFERENCE BETWEEN THE SALE V ALUE OF THE SAREES AND THE AMOUNT REMITTED BY THE BANKERS OF RS.27,65,565, ACCORDING TO THE REVENUE, WAS NOTHING BUT COMMISSION AND THEREFORE T HE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE ON THE SAID SUM U/S. 19 4H OF THE ACT. 4. THE PLEA OF THE ASSESSEE BEFORE THE ASSESSING OF FICER WAS THAT BANKERS ONLY FACILITATE ELECTRONIC PAYMENTS FOR CER TAIN PURCHASES AND SUCH CHARGES ARE NORMAL BANK CHARGES AND NOT IN THE NATU RE OF COMMISSION FALLING WITH THE AMBIT OF SECTION 194H OF THE ACT. THE ASSESSEE RELIED ON THE DECISION OF THE FOLLOWING DECISIONS:- (1) DCIT V. VAH MAGNA RETAIL PVT. LTD., 4T(II) ITC L 537 (HYD). (2) GEMS PARADISE, ITA NO.746 & 841/JP/2011 DATED 2.2.12. 5. THE ASSESSEE ALSO SUBMITTED THAT SERVICES RENDER ED BY THE BANK ARE ON A PRINCIPAL TO PRINCIPAL BASIS AND FOR CHARACTER IZING THE PAYMENT OF COMMISSION, THERE SHOULD BE A RELATIONSHIP OF PRINC IPAL AND AGENT BETWEEN THE PAYER AND THE RECIPIENT. ITA NO.93/BANG/2014 PAGE 3 OF 9 6. THE AO DID NOT ACCEPT THE CLAIM OF ASSESSEE. HE HELD THAT THE BANK WAS ACTING AS AN AGENT OF MERCHANT (ASSESSEE) AND T HAT THE PAYMENT IN QUESTION IS COMMISSION. 7. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS), FOL LOWING THE DECISION OF THE JAIPUR BENCH OF THE TRIBUNAL IN THE CASE OF GEMS PARADISE (SUPRA) , HELD THAT PAYMENT IN QUESTION IS NOT IN THE NATURE OF COMMISSION AND DELETED THE DISALLOWANCE OF RS.26,65,565 MADE BY TH E AO BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 8. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE HAS PREFERRED APPEAL BEFORE THE TRIBUNAL. THE LEARNED DR RELIED ON THE ORDER OF THE AO. THE LEARNED COUNSEL FOR THE ASSESSEE RELIE D ON THE ORDER OF THE CIT(A). 9. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIV AL SUBMISSIONS. THE PROVISIONS OF SEC.194-H OF THE ACT, IN SO FAR AS IT RELEVANT FOR THE PRESENT APPEAL, READ AS FOLLOWS: SECTION 194H: COMMISSION, BROKERAGE, ETC. (1) ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING, ON OR AFTER THE 1ST DAY OF OCTOBER, 1991 BUT BEFORE THE 1ST DAY OF JUNE, 19 92, TO A RESIDENT, ANY INCOME BY WAY OF COMMISSION (NOT BEIN G INSURANCE COMMISSION REFERRED TO IN SECTION 194D) O R BROKERAGE, SHALL, AT THE TIME OF CREDIT OF SUCH INC OME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT OF S UCH INCOME IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATE OF TEN PER CENT. ITA NO.93/BANG/2014 PAGE 4 OF 9 (2) THE PROVISIONS OF SUB-SECTION (1) SHALL NOT APP LY (A) TO SUCH PERSONS OR CLASS OR CLASSES OF PERSONS AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO THE EXTENT OF INCONVENIENCE CAUSED OR LIK ELY TO BE CAUSED TO THEM AND BEING SATISFIED THAT IT WI LL NOT BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE, BY NOTIFICATION IN THE OFFICIAL GAZETTE , SPECIFY IN T HIS BEHALF; (B) WHERE THE AMOUNT OF SUCH INCOME OR, AS THE CASE MAY BE, THE AGGREGATE OF THE AMOUNTS OF SUCH INCOME CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR BY THE PERSON REFERRED T O IN SUB-SECTION (1) TO THE ACCOUNT OF, OR TO, THE PAYEE , DOES NOT EXCEED TWO THOUSAND FIVE HUNDRED RUPEES. EXPLANATION : FOR THE PURPOSES OF THIS SECTION, - (I) 'COMMISSION OR BROKERAGE' INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVICES) OR FOR ANY SERVICES IN THE C OURSE OF BUYING OR SELLING OF GOODS OR IN RELATION TO ANY TR ANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING; (II) 'PROFESSIONAL SERVICES' MEANS SERVICES RENDERE D BY A PERSON IN THE COURSE OF CARRYING ON A LEGAL, MEDICA L, ENGINEERING OR ARCHITECTURAL PROFESSION OR THE PROF ESSION OF ACCOUNTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DE CORATION OR SUCH OTHER PROFESSION AS IS NOTIFIED BY THE BOARD FOR THE PURPOSES OF SECTION 44AA; 10. THE QUESTION WHETHER THE PAYMENTS ON ACCOUNT O F CREDIT CARD CHARGES SHOULD BE TREATED AS COMMISSION WITHIN THE MEANING OF SEC.194H OF THE ACT CAME UP FOR CONSIDERATION BEFORE THE HON BLE ITAT, HYDERABAD, IN THE CASE OF DCIT VS. VAN MAGNA RETAIN (P) LTD. ( SUPRA) AND IT WAS HELD AS FOLLOWS:- ITA NO.93/BANG/2014 PAGE 5 OF 9 4. WE HEARD THE LEARNED DEPARTMENTAL REPRESENTAT IVE AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND OTH ER MATERIAL ON RECORD. ASSESSEE IS A COMPANY ENGAGED IN THE BUSIN ESS OF DIRECT RETAIL TRADING IN CONSUMER GOODS. ASSESSEE CLAIMED DEDUCTION OF RS.16,34,000 ON ACCOUNT OF COMMISSION PAID TO THE C REDIT CARD COMPANIES, WHICH HAS BEEN DISALLOWED BY THE ASSESSI NG OFFICER IN TERMS OF S.40(A)(IA) ON ACCOUNT OF THE FAILURE OF T HE ASSESSEE TO DEDUCT TAX AT SOURCE IN TERMS OF S.194H OF THE ACT, WHILE MAKING THE SAID COMMISSION PAYMENTS. IT WAS THE CONTENTI ON OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT THE ASSE SSEE ONLY RECEIVES THE PAYMENT FORM THE BANK/CREDIT CARD COMP ANIES CONCERNED, AFTER DEDUCTION OF COMMISSION THEREON, A ND THUS, THIS IS ONLY IN THE NATURE OF A POST FACTO ACCOUNTING AND D OES NOT INVOLVE ANY PAYMENT OR CREDITING OF THE ACCOUNT OF THE BANK S OR ANY OTHER ACCOUNT BEFORE SUCH PAYMENT BY THE ASSESSEE. CONSI DERING THESE SUBMISSION OF THE ASSESSEE, THE CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE AMOUNT OF RS.16,34,00 0 ON THE FOLLOWING REASONING- 9.8 ON GOING THROUGH THE NATURE OF TRANSACTIONS, I FIND CONSIDERABLE MERIT IN THE CONTENTION OF THE APPELLA NT THAT COMMISSION PAID TO THE CREDIT CARD COMPANIES CANNOT BE CONSIDERED AS FALLING WITHIN THE PURVIEW OF S.194H. EVEN THOUGH THE DEFINITION OF THE TERM COMMISSION OR BR OKERAGE USED IN THE SAID SECTION IS AN INCLUSIVE DEFINITION , IT IS CLEAR THAT THE LIABILITY TO MAKE TDS UNDER THE SAID SECTI ON ARISES ONLY WHEN A PERSON ACTS BEHALF OF ANOTHER PERSON. IN THE CASE OF COMMISSION RETAINED BY THE CREDIT CARD COMP ANIES HOWEVER, IT CANNOT BE SAID THAT THE BANK ACTS ON BE HALF OF THE MERCHANT ESTABLISHMENT OR THAT EVEN THE MERCHANT ESTABLISHMENT CONDUCTS THE TRANSACTION FOR THE BANK . THE SALE MADE ON THE BASIS OF A CREDIT CARD IS CLEARLY A TRA NSACTION OF THE MERCHANTS ESTABLISHMENT ONLY AND THE CREDIT CAR D 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 CHARGE S AND NOT IN THE NATURE OF COMMISSION/BROKERAGE FOR ACTING ON BE HALF 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 R EJECT THE GROUNDS OF THE REVENUE WHICH ARE DEVOID OF MERIT. ITA NO.93/BANG/2014 PAGE 6 OF 9 11. SIMILAR VIEW HAS BEEN EXPRESSED BY SEVERAL BENC H OF ITAT IN THE FOLLOWING CASES: 1. M/S.TATA TELESERVICES LTD. VS. DCIT ITA NO.393- 396/BANG/11 ORDER DATED 27.11.2012 2. ITO (TDS) VS. M/S.JET AIRWAYS ITA NO.7439-41/MU M/2010 ORDER DATED 17.7.2013, 3. M/S.GEMS PARADISE VS. ACIT ITA NO. 746/JP/2011 ORDER DATED 2.2.2012. 12. IN LIGHT OF THE AFORESAID DECISIONS, WE ARE OF THE VIEW THAT PAYMENTS TO BANKS ON ACCOUNT OF UTILIZATION OF CREDIT CARD F ACILITIES WOULD BE IN THE NATURE OF BANK CHARGE AND NOT IN THE NATURE OF COMM ISSION WITHIN THE MEANING OF SEC.194H OF THE ACT. THE SAME CANNOT AL SO BE SAID TO BE IN THE NATURE OF PROFESSIONAL SERVICES AS SERVICES RENDERE D BY BANKS IS NEITHER A SERVICE SPECIFIED IN THE SECTION NOR NOTIFIED. THE CBDT BY NOTIFICATION U/S.197A OF THE ACT VIDE NOTIFICATION NO.56/2012 DA TED 31.12.2012 SPECIFIED THAT CREDIT/DEBIT CARD COMMISSION FOR TRA NSACTION BETWEEN THE MERCHANT ESTABLISHMENT AND ACQUIRER BANK NEED NOT B E SUBJECT TO TDS. THE REVENUE HAS ARGUED BEFORE US THAT BEFORE THE SA ID NOTIFICATION SUCH CHARGES WERE SUBJECT TO TDS. WE ARE OF THE VIEW TH AT THE NOTIFICATION IS ONLY RECOGNITION OF THE POSITION AS IT ALWAYS PREVA ILED AND AS INTERPRETED BY SEVERAL DECISIONS RENDERED BY THE DIFFERENT BENCHES OF ITAT. THE NOTIFICATION THEREFORE CANNOT BE THE BASIS ON WHICH IT CAN BE SAID THAT THE AMOUNT RETAINED BY THE BANK WAS IN THE NATURE OF CO MMISSION WITHIN THE MEANING OF SEC.194-H OF THE ACT. FOR THE REASONS G IVEN ABOVE, WE CONFIRM ITA NO.93/BANG/2014 PAGE 7 OF 9 THE ORDER OF THE CIT(APPEALS) ON THIS ISSUE AND DIS MISS THE APPEALS OF THE REVENUE. 13. FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIE W THAT THE ORDER OF THE CIT(APPEALS) DOES NOT CALL FOR ANY INTERFERENCE . 14. THE OTHER ISSUE RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF THE CIT(APPEALS) IN DELETING THE ADDITION OF RS. 6,96,923 OUT OF COMMISSION PAYMENTS CLAIMED AS DEDUCTION BY THE ASS ESSEE. 15. THE ASSESSEE HAS MADE A TOTAL COMMISSION PAYME NT OF RS.2,44,18,648, OUT OF WHICH RS.6,96,923 WAS COMMIS SION PAID TO AUTO AND TAXI DRIVERS. AS ALREADY SEEN THE ASSESSEE IS IN T HE BUSINESS OF SELLING SILK SAREE. THE ASSESSEES EXPLANATION WAS THAT AUTO & TAXI DRIVERS WHO BRING POTENTIAL CUSTOMERS/CLIENTS ARE PAID COMMISSION IN CASH. THE AO WANTED THE NAMES AND ADDRESSES OF DRIVERS WHO WERE PAID SU CH COMMISSION. THE ASSESSEE COULD NOT PRODUCE THE DETAILS AND ALSO THE DETAILS OF EVEN THE TAXI AND NAME OF DRIVERS WAS NOT MAINTAINED BY THEM. TH ERE WERE, HOWEVER, CASH VOUCHERS EVIDENCING PAYMENT OF COMMISSION. AC CORDING TO AO, IT WAS NOT POSSIBLE TO VERIFY THE PAYMENTS MADE BY THE ASSESSEE NOR WAS TAX DEDUCTION AT SOURCE DONE BY THE ASSESSEE ON THE AFO RESAID PAYMENTS, ON THE PRETEXT THAT INDIVIDUAL PAYMENTS WERE LESS THAN THE MONETARY LIMITS FOR MAKING TAX DEDUCTION AT SOURCE. ACCORDING TO THE AO , GENUINENESS OF THESE EXPENSES WAS NOT PROVED AND THEREFORE HE DISALLOWED THE CLAIM OF ASSESSEE FOR DEDUCTION. ITA NO.93/BANG/2014 PAGE 8 OF 9 16. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) HEL D AS UNDER:- I HAVE CAREFULLY CONSIDERED THIS ISSUE. IT IS POI NTED BY THE AO IN THE ASSESSMENT ORDER THAT THE TOTAL COMMISSIO N PAYMENTS MADE DURING THE YEAR WAS AN AMOUNT OF RS. 2,44,80,6 48/-. THUS THE AMOUNT OF RS. 6,96,923/- IS APPROXIMATELY 3% OF THE TOTAL COMMISSION PAYMENT. THERE IS NO CONCLUSIVE MATERIAL BROUGHT ON RECORD BY THE AO TO CONSIDER THIS AMOUNT NOT GENUIN E. AO HAS ALSO NOT LED ANY EVIDENCE TO SHOW THAT THESE ARE PA YMENTS ABOVE THE THRESHOLD LIMIT WHERE TAX IS REQUIRED TO BE DED UCTED U/S 194H. CONSIDERING THE QUANTUM INVOLVED AND THE NATURE OF THE BUSINESS OF THE APPELLANT , I AM OF THE VIEW THAT THE AMOUNT S ARE ADMISSIBLE. THE AO IS DIRECTED TO DELETE THE AMOUNT OF ADDITION MADE. THESE GROUNDS ARE THEREFORE, ALLOWED. 17. BEFORE US, THE LD. DR REITERATED THE STAND OF T HE AO AS CONTAINED IN THE ORDER OF ASSESSMENT. 18. WE ARE OF THE VIEW THAT THE LD. CIT(APPEALS) HA D RIGHTLY HELD THAT DISALLOWANCE MADE BY THE AO WAS NOT WARRANTED. THE FACT THAT SUCH COMMISSION PAYMENTS ARE ROUTINE IN THE LINE OF BUSI NESS OF ASSESSEE IS NOT DISPUTED BY THE AO. THE GENUINENESS OF THE PAYMENT HAS ALSO NOT BEEN DOUBTED BY THE AO. THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE AMOUNTS PAID TO INDIVIDUAL TAXI & AUTO DRIVERS WERE ABOVE THE THRESHOLD LIMIT FOR DEDUCTION OF TAX AT SOURCE. IT IS NOT THE CASE OF THE AO THAT INDIVIDUAL VOUCHERS EVIDENCING PAYMENTS IN CASH, WERE IN EXCES S OF THE SPECIFIED LIMIT FOR DEDUCTION OF TAX AT SOURCE. IN OUR VIEW, THE A DDITION HAS BEEN MADE BY THE AO ONLY ON THE BASIS OF SURMISES AND WAS RIGHTL Y DELETED BY THE CIT(APPEALS). ITA NO.93/BANG/2014 PAGE 9 OF 9 19. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF MARCH , 2015 . SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 27 TH MARCH , 2015 . /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR/ SENIOR PRIVATE SECRETARY ITAT, BANGALORE.