Credit Card Fees Payable To Foreign Counterpart Of Indian Banking Company Is Not Taxable In India: Delhi High Court

The Delhi High Court held that fees received by the foreign branch of banking company for extending a credit line to the account holder outside India, would not be taxable in India.

While noting that the amount payable by the credit card holders would clearly be a debt incurred outside India, the Division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja observed that fee in respect of such transactions would not be taxable in India.

Facts of the case

The funds mobilized abroad were brought to India in foreign currency account and kept in India for the Indian business of the assessee bank. Thus, the assessee claimed that benefits reaped by the India branch or Permanent Establishment in India were accounted for as Indian income. The AO however treated the same as Head office expenses with the meaning of Sec 44C and disallowed the said expenditure.

When the matter reached the Tribunal, it was held that these expenses incurred for procurement of business cannot be understood as Head Office expenses. Hence, the ITAT directed the AO to allow the deduction of actual expenditure. In addition, the ITAT held that credit card commission being in relation to cards which had been issued by the foreign branches of the respondent/ Indian assessee, could not be taxed in India. Hence, the Revenue Department approached the High Court.

Observation of the High Court

As far as FCNR deposits are concerned, the Bench found that the Tribunal had clearly observed that the expenses were incurred for the purposes of inviting NRIs' to open deposits in the Indian branches of the assessee.

The said initiative was predicated upon the RBI Circular dated Oct 16, 1991, added the Bench.

Thus, since the expenditure was incurred solely for the purpose of the business of the assessee in India, the Bench affirmed the order of the Tribunal that the same were not taxable u/s 44C.

As far as credit card fees are concerned, the Bench found that the credit cards had been issued by the foreign branches of the assessee bank.

Thus, it was noted by the Tribunal that the charges are received by the foreign branch for providing and extending a credit line to the account holder outside India, added the Bench.

The Bench further found that the amount payable by the card holders would clearly be a debt incurred outside India.

Hence, the High Court concluded that fee in respect of such credit card transactions utilized outside India, would not be taxable in India.

Hence, the High Court dismissed Revenue's appeal.

Counsel for Petitioner/ Revenue: Sunil Agarwal, Shivansh Pandya and Utkarsh Tiwari

Counsel for Respondent/ Assessee: Shashi Kapila, Pravesh Sharma, Sushil Kumar and Siddharth Kapila

Case Title: Director of Income Tax versus ANZ Grindlays Bank

Citation: 2024 LiveLaw (Del) 1074

Case Number: ITA 563/2007

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