Credit Card Commission to Banks does not attract TDS: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi benhc has held that the provisions of tax deduction at source (TDS) under section 194H of the Income Tax Act, 1961 are not applicable to credit card commission paid to Banks.

The assessee is engaged in the business of running a hotel in the name of ‘Taj Palace’. The department-initiated proceedings against the assessee by holding that no TDS was deducted by the assessee on the amount of commission allowed to the various banks on credit card transactions during the year under consideration.

The assessee, relying on the CBDT Notification No. 56 dated 31.12.2012, contended that the credit card commission was out of the realm of section 194H of the Act since there was no principal-agent relationship between the merchant establishment and the bank and, therefore, the provisions relating to tax deduction at source were not attracted in assessee’s case.

The assessee also relied on Notification No. 56 dated 31.12.2012 issued by the CBDT wherein it had been clarified that credit card commission was exempt from TDS. However, the Assessing Officer was of the opinion that there was an implied agency relationship between the assessee and the banker and, thereafter, relying upon Circular no. 619 dated 4.12.1991, the Assessing Officer proceeded to hold that the assessee was liable to deduct tax at source from the payments received on account of credit card payments.

The Tribunal observed that the issue is squarely covered in favor of the assessee by the judgment of the  Delhi High Court in the case of C.I.T. vs. JDS Apparels Pvt. Ltd. wherein it has been held that since the bank was making the payment to the assessee after deduction of bank charges, there was no occasion for the assessee to deduct tax at source and further the bank was not acting on behalf of the assessee but on the other hand was acting on behalf of the customers while processing payment through debit cards and credit cards.

Following the decision, the Tribunal granted relief to the assessee.