The Mumbai bench of the Income Tax Appellate Tribunal (ITAT), while quashing an order withholding of tax,has held that the provisions of TDS not applicable to the payment of credit/debit card commission to the domestic banks.
The Assessee is a domestic company engaged in the business of running hotels and resorts.During the relevant previous year, the Assessee had paid total credit card commission of INR 14.91 Crores to various banks and claimed deduction for the same. The majority of payments were made to the foreign banks (viz. American Express, Citi Bank and HSBC Bank) which have obtained “NIL” tax withholding certificates. Since the rest of the banks (viz. Axis bank, HDFC Bank and ICICI Banks) had not obtained ‘NIL‟ tax withholding certificates, the Assessing Officer held that the Assessee was liable to be withhold tax on payment of credit card commission aggregating to INR 3.87 Crores.
A Two-Member Tribunal comprising Mr.B.R. Baskaran (Accountant Member) and Shri Rahul Chaudhary, (Judicial Member) noted that the issue raised by the Revenue stands decided favour of the Assessee by the decision of the Tribunal in ITO (TDS) (OSD)-3(4) vs. The Indian Hotels Company Ltd., while examining the liability of the Assessee to withhold tax under Section 194H of the Act from payment of credit card collection charges to the banks, held that the commission to bank on payments received from customers who had made purchases through credit cards is not liable to TDS under section 194H of the Act.
Further, Notification No. 56 of 2012, dated 31.12.2012, issued by the Central Board of Direct Taxes clearly provides that no deduction of tax shall be made on the payments made to a bank (excluding foreign banks) which are in the nature of credit card or debit card commission for transaction between the merchant establishment and acquirer bank.
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