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DCIT Circle-2(1), Room No.398D, C. R. Building New Delhi Vs. Asian Hotels (North) Ltd., 1A, Hotel Hyatt Regency, Bhikaji Cama Place, M.G. Marg, Ring Road, New Delhi
November, 27th 2014
                    DELHI BENCH "A": NEW DELHI

                 ITA No. 1221/Del/2013 (Assessment Year: 2009-10)
                 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



      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
             "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
             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
             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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