Sections 40(a)(ia), 194H — Commission retained by credit card companies out of amounts paid to merchant establishment is not liable for deduction of tax at source u/s.194H.

Sections 40(a)(ia), 194H — Commission retained by credit card companies out of amounts paid to merchant establishment is not liable for deduction of tax at source u/s.194H.

The assessee-company, engaged in business of direct retail trading in consumer goods, had claimed a deduction of Rs.16,34,000 on account of commission paid to credit card companies, which amount was disallowed by the AO u/s.40(a)(ia) on the ground that assessee failed to deduct tax at source u/s.194H of the Act. Aggrieved the assessee preferred an appeal to the CIT(A) where it contended that the assesee only receives payment from bank/credit card companeis after deduction of commission thereon, and thus, this is only in the nature of a post facto accounting and does not involve any payment or credit to the account of the banks or any other account before making such payment by the assessee. The CIT(A) accepted the claim of the assessee for deduction of Rs.16,34,000 and observed as follows: “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 section 194H. 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 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, 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 . . . . .” Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held:

 The Tribunal found no infirmity in the reasoning given by the CIT(A). It upheld the order passed by the CIT(A). The Tribunal dismissed the appeal filed by the Revenue.