By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi, Chartered Accountants
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Section 194H – Service fees against credit cards is not commission and hence provisions of section 194H not applicable
Facts: The assessee, a company engaged in the business of telecom services has arrangement with several banks whereby the customers of the assessee holding credit card can make payment for services utilised by them through credit card. When a customer makes payment by credit card, bank processes payment after retaining fees for processing payment. The Assessing Officer treated such processing charges as commission and raised demands u/s. 201(1) and 201(1A). The CIT(A) rejected the Assessing Officers stand and upheld the claim of the assessee. The Department went into appeal.
Held: The Honourable Tribunal held 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 transactions 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 or brokerage for acting on behalf of the merchant establishment.
Thus there is no requirement for making TDS on the commission retained by the credit card companies since payments to bank on account of utilisation of credit card facilities would be in the nature of bank charges and not commission within meaning of section 194H.
