Facilities – Whether Commission of purpose of TDS under section 194H
1. Meaning of Commission for purpose of TDS under section194H
Section 194H provides for deduction of tax at source from any income by the way of Commission or brokerage to a resident.
Explanation (i) to section 194H explains the meaning of the term ‘Commission or brokerage. Accordingly, “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 course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities.
2. Nature of payment made to bank on account of utilization of credit card facilities.
Where credit card company retained commission while making payment to merchant establishment then it cannot be said that the bank acted on behalf of the merchant establishment or that even the merchant establishment conducted the transaction for the bank. The sale made on the basis of a credit card is clearly a transaction of the merchant 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 therefore in the nature of normal bank charges and not in the nature of commission/brokerage for acting on behalf of the merchant establishment. Accordingly, there is no requirement for making TDS on the commission retained by the credit card companies:- Vide Dy.CIT v. Vah Magna Retail (P) Ltd. 2012 TaxPub(DT) 2855 (Hyd-Trib).
In Germs Paradise v. Asstt.CIT ITA No.746/Jp/2011 ITA No.841/Jp/2011 (Jp ‘A’-Trib). it was observed that there is no relationship of a principal and commission agent between the bank and assessee shop keeper. It is not the case that bank has advised the assessee to sell their goods to its customers, then he will pay the commission. It is reversed in a situation as bank issued credit cards to the credit card holders on certain fees or whatever the case may be and the card holder purchases material from the market through his credit card without making any payment and that shop keeper presents the bill to the bank against whose credit card the goods were sold and on presentation of bill as stated above the bank makes the payment. Therefore, provisions of section194H are not attracted.
Where bank made payment to dealer for sales against credit cards and deducted handling charges before making payment to assessee, the transactions were principal basis and no element of agency was involved therein, the charges thus not being in the nature of commission, no liability to TDS under section 194H arose. – Vide ITO v. The Mobile Store Ltd 2016 TaxPub (DT) 4629 (Mum-Trib).
No tax is deductible on credit card charges collected by bank and paid by assessee as said commission paid to the credit card companies cannot be considered as falling within the purview of section 194H – Vide ITO v. Hotel Leela Venture Ltd. 2016 TaxPub(DT) 2796 (Mum-Trib).
3. Recent decision in Velankani Information System Ltd.’s case
In Velankani Information System Ltd v. Dy.CIT ITA Nos. 218,283 (Bang.) of 2017 the Bangalore Bench of the Tribunal followed its earlier decision in Tata Tele Services Ltd. V. DCIT (TDS) (2013) 29 taxmann.com 261 (Bang-Trib) : 2013 TaxPub (DT) 652 (Bang-Trib) wherein the Tribunal observed that payment to banks on account of utilization of credit card facilities would be in the nature of bank charge and not in the nature of commission within the meaning of section194H of the Act. The same cannot also be said to be in the nature of professional services as services rendered by Banks is neither a service specified in the section nor notifies. The CBDT by notification under section 197A of the Act vide Notification No.56/2012, dt 31.12.2012 specified that credit/debit card commission for transaction between the merchant establishment and acquirer bank need not be subject to TDS. The notification is only recognition of the position as it always prevailed and as interpreted by several decisions rendered by the different benches of ITAT. The notification cannot be the basis on which it can be said that the amount retained by the bank was in the nature of commission within the meaning of section 194-H of the Act.
The CBDT Notification No.56/2012, dt. 31.12.2012 has been suppressed by Notification No.SO 2143€, No.47/2016. Dt.17.6.2016 with certain addition but having no relevance. This notification was passed under section 197A (1F) of the Act through which exemption from TDS was granted to certain categories of payments. One of such category is “(Vii) credit card or Debit card Commission for transaction between merchant establishment and acquirer bank” and the same was effective from 1.1.2013. The assumption of assessing officer that since such exemption was not available to the Appellant during the relevant assessment year thus deduction of tax has to be done, is not correct as this notification is clarificatory in nature and not making a fresh concession.
Therefore no addition can be made on account of non-deduction of tax at source under section 194H on the Commission retained by the credit card companies.
4. Concluding remark
From the above discussion it can be concluded that payments to banks on account of utilization of credit card facilities would be in the nature of bank charge and not in the nature of commission within the meaning of section 194H of the Act.