DELHI BENCH "A": NEW DELHI
BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER
AND
SHRI A. T. VARKEY, JUDICIAL MEMBER
ITA No. 1221/Del/2013 (Assessment Year: 2009-10)
and
ITA No. 4456/Del/2013 (Assessment Year: 2010-11)
DCIT Asian Hotels (North) Ltd.,
Circle-2(1), Room 1A, Hotel Hyatt Regency,
No.398D, Vs. Bhikaji Cama Place, M.G. Marg,
C. R. Building Ring Road, New Delhi
New Delhi PAN AAACA0125H
(Appellant) (Respondent)
Appellant by : Y. Kakkar, Sr. DR
Respondent by : M.P.Rastogi, Adv
ORDER
PER A. T. VARKEY, JUDICIAL MEMBER
These departmental appeals involve consideration of common issues
and therefore were heard together and are being disposed off by this
common order.
2. The solitary grounds raised in both the appeals relates to disallowance
made u/s 40(a)(ia) of the Income Tax Act, 1961 (herein after `the Act') on the
ground that the assessee failed to deduct TDS u/s 194H of the Act.
3. The facts in brief are that the assessee operates a hotel, wherein it
allows its guest to make payment through credit-card. On examination of the
books, the AO observed that the assessee had paid charges of Rs.14,53,717/-
HDFC Bank for Assessment Year 2009-10. He held that these charges are for
rendering services for recovery of the bill of credit-card payment made by
customers. Accordingly he concluded such payments are in the nature of
commission/ discount u/s 194H of the Act. And as assessee failed to deduct
TDS, therefore disallowance is warranted u/s 40(a)(ia) of the Act.
Page 2 of 5
4. The ld CIT(A) deleted the disallowance by following the order of the ITAT,
Hyderabad Bench in the case of DCIT Vs. M/s. Vah Magna Retail (P) Ltd. in
ITA No.905/Hyd/2011.
5. Having considered the rival submissions we find that the ld CIT(A) has
deleted the disallowance by concluding that payments to credit-card
company by a Hotel, in connection with the operation of the Hotel is not
commission/ discount u/s 194H of the Act. We have noted that before the
AO, the assessee had explained the nature of the transaction as under:-
"6.1 The submission filed by the AR of the assessee company vide
letter dated 26.12.2011 is being reproduced for the sake of
convenience:
"Asian Hotels Ltd AY 2009-10 Submissions regarding allowance of
Charges to HDFC Bank on Bills of Customers availing Credit Card facility
1. The company operates a 5 star deluxe hotel. It allows its guests to
make payment through credit card. On producing credit Card issued
to a person by a Bank and also signing a credit card charge slip -which
is a type of 'Bill of Exchange' / Usance Promissory Note undertaking to
pay the amount on presentation after a specified period -which
normally is about one month
2. The Credit Card operations are briefly explained hereunder, so
that your good self can appreciate the transaction in a proper
perspective.
a) A Bank after examining the credentials of a person and his
creditworthiness, issues him a serially numbered Card
[popularly referred to as Credit Card]
b) Then the Bank enters into arrangements with various
Merchant and Commercial Establishments whereby it
agrees to purchase the Bills raised by such Establishments
for the sale of goods or services made by it to such card
holders, on the condition that it will purchase it at a pre
determined Discount Rate and will make payment to it on
presenting the bill [with certain conditions /procedures
being fulfilled] on same day or within 24 hours of
presentation.
c. The Bank then installs an Electronic Data Capture [EDC for
short] device at all the Establishments with which it has
entered into an arrangement in this regard, to enable it to
intimate and pass on the data to it.
d. Once the Establishment makes a sale /service to such
Card holder it is required to intimated/transfer such data to
it through the EDC and the Bank remits the bill amount less
the agreed Discount to the Bank account of the company
within 24 hours.
Page 3 of 5
e) The Establishment forwards to the Bank the bill and credit
card slip copy which enables it to collect it from the
concerned person at its own cost and risk.
3 The accounting entries made for it are to the following effect:
a) On raising of the bill and the customer signing the credit
card slip
Credit Card Customer Ale Or 100.00%
To Sales Revenue 100.00% /
b) On receipt of the bill amount
Bank Or 98. 75%~
Credit Card Charges Or 1.25~
To Credit Card Customer Alc 100.00%
The Details of the Charges to HDFC Bank on Bills of Customers
availing Credit Card facility as desired by your kind self is
Rs.14,53,717.00. Your kind self has also asked us explain as to why
the charges on credit cards to HDFC Bank should not be treated
as a payment of in the nature of Commission /Discount to it and
disallow it u/s 40(a)(ia) as no Tax at Source (TDS) for short] on it
has been deducted on it while making payment to it"
6. From the aforesaid we conclude that the credit-card company does
not render services to the Hotel. On the contrary, the services are provided
by the credit-card company to the customer of the hotel. There is no
payment made by the hotel to the credit-card company. All what happens is
that the credit-card company deducts charges before remitting the amount
to the hotel which is not in consideration for any services rendered in the
course of operation of the Hotel. This issue has been examined by the
Hyderabad Bench in the case of DCIT Vs. M/s Vah Magna Retail Pvt. Ltd. In
ITA No.905/Hyd/2011(supra)as under:-
"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 in the business of direct retail
trading in consumer goods. Assessee claimed deduction of
Rs.16,34,000/- on account of commission paid to the credit card
companies, which has been disallowed by the AO in terms of
S.40(a)(ia) on account of the failure of the assessee 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
authorities that the assessee only receives the payment from the
bank/credit card companies concerned, after deduction of
Page 4 of 5
commission thereon, and thus, this is only in the nature of a post facto
accounting and does not involve any payment or crediting of the
account of the banks or any other account before such payment by
the assessee. Considering these submission of the assessee, the CIT(A)
accepted the claim of the assessee for deduction of the amount of
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 the
purview of S.19H. Even though the definition of the term "commission or
brokerage" used in the said section is an inclusive definition, it is clear
that the liability to make TDS under the said section arises only when a
person acts on behalf of another person. In 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 that even
the merchant establishment conducts the transaction for the bank. The
sale made on the basis of a credit card is clearly a transaction of the
merchants establishment only and the credit card company only
facilitates the electronic payment, for a certain charge. The
commission retained by the credit card company is thereof in the
nature of normal bank charges and not in the nature of
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 by the CIT(A).
We accordingly uphold the order of the CIT(A) and reject the grounds
of the Revenue which are devoid of merit."
7. We therefore uphold the order of the ld CIT(A) who has correctly held
that payment received by an assessee/ merchandiser from credit-card
issuing company of the buyer/customer, there is no principal-agent
relationship between the assessee and the credit-card company.
8. For the aforesaid reason, we hold that charges deducted by the
credit-card company on remittance to the assessee, do not constitute
commission u/s 194H. And as such section 40(a)(ia) of the Act is not
applicable. In the result the appeals filed by the revenues lacks merit and so
dismissed.
Page 5 of 5
9. In the result, both the appeals are dismissed.
Order pronounced in the open court on 21.11.2014.
-Sd/- -Sd/-
(S.V. MEHROTRA) (A. T. VARKEY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 21/11/2014
A K Keot
Copy forwarded to
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT
ASSISTANT REGISTRAR
ITAT, New Delhi
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