Is Section 194H of Income Tax Act attracted applicable on services rendered by NFS shared ATMs?
Ref: CIT v. Corporation Bank [2021] 431 ITR 554 (Kar)
Table of Contents:
- What is Section 194H
- National Financial Switch (NFS)
- Brief about the case
- Conclusion
What is Section 194H
As per section 194H of the Income Tax Act, any person (other than an individual or a HUF), who is responsible for paying to a resident, any income by way of commission or brokerage needs to deduct TDS. TDS shall be deducted at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier.
“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 service in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing;
”Professional services” means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA;
National Financial Switch (NFS)
National Financial Switch (NFS) is the largest network of shared automated teller machines (ATMs) in India. The National Financial Switch inter-connect bank switches which facilitate routing of ATM transactions. NFS links together the country’s ATMs in a single network.
Brief about the case
The assessee is a Nationalized Bank. The assessee had filed the return of income on 28.09.2011 by which income of Rs.1412,98,.50,750/- was declared. Thereafter, a revised return was filed on 23.12.2011 by which income of Rs.1366, 54,08,250/- was declared. The revised return was processed under the Act on 15.06.2012 and a refund of Rs.133,39,33,970/- was granted. Subsequently, the assessee filed a second revised return on 11.01.2013 in which an income of Rs.1367,59,11,162/- was admitted.
The subject matter of the appeal pertains to the Assessment year 2011-12.
One of the substantial questions of law admitted by this appeal is:
Whether on the facts and in the circumstances of the case, the Tribunal erred in holding that on the payment made towards the service charges rendered by M/s. NFS is neither commission nor brokerage which does not attract TDS under the Income Tax Act?
The provision of section 194H would apply if the payment was received or is receivable directly or indirectly by a person acting on behalf of another person for services rendered not being professional and for any services in the course of buying and selling of goods or in relation to any transaction relating to an asset, valuable article or thing.
Now we may advert to the facts of the case in hand. In this case the credit card issued by the assessee was used on the swiping machine of another bank; the customer whose credit card was used got access to the internet gateway of acquiring bank resulting in the realization of the payment. Subsequently, the acquiring bank realizes and recovers the payment from the bank, which had issued the credit card. The relationship between the assessee and any other bank is not of an agency but that of two independent basis on a principal-principal basis. Even assuming that the transaction was being routed to National Financial Switch and Cash Tree, then also it is pertinent to mention here that the same is a consortium of banks and no commission or brokerage is paid to it. It does not act as an agent for collecting charges. Therefore, it was held that the Act is not attracted in this case. As a result, the substantial question of law is also answered against the revenue and in favor of the assessee.
Conclusion
The relationship between the bank and National Financial Switch (NFS) is not of an agency but that of two independent parties on a principal to principal basis. Therefore, the provisions of section 194H are not attracted on payment made by Bank for services rendered by NFS shared ATMs in India.