Credit Card  Issued By Foreign Branches But Used In India; No Income Tax On Credit Card Fee: Delhi High Court

The Delhi High Court has held that the credit card  issued by foreign branches but used in India and no income tax is payable on the credit card fee.

The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has observed that the charges are received by the foreign branch for providing and extending a credit line to the account holder outside India. It has further been noted that the amount payable by those card holders would clearly be a debt incurred outside India. The fee in respect of the transactions outside India would not be taxable in India.

Background

The appellant/department has challenged the orders of the Income Tax Appellate Tribunal (ITAT) and principally raised a question of allowability of expenses incurred by the respondent/assessee for garnering foreign currency fixed deposit (FCNR) deposits which were to be maintained at its Indian branches. 

Yet another question which is raised is in respect of credit card commission and with those being in relation to cards which had been issued by the foreign branches of the respondent and used in India.

During the hearing the CIT (DR) stated that the CIT (Appeals) had erred in holding that the expenses incurred at places Like Singapore, Hong-Kong etc could not be treated as a part of head office expenses and they were to be allowed after obtaining the exact details from assessee despite the fact that such expenses were not even debited in the accounts of Indian Branch. In any case the AO had separately allowed a deduction at 5% under Section 44C on account of Head Office expenses and therefore no separate deduction was allowable for expenses incurred outside India.

The assessee-bank explained that the Indian branches of the assessee bank had opened off-shore NRI counters outside India to obtain foreign currency deposits/funds from Non-Resident Indians (NRls). The country was passing through a balance of payments crises and urgently needed foreign exchange into the country the RBI had issued circulars giving foreign currency deposits of NRI’s a favourable rate of interest as against LIBOR rates of interest. 

The assessee-bank submitted that the expenses were incurred recently for marketing the Resurgent Bonds after the nuclear explosion in India to obtain the necessary foreign exchange. For that, counters were opened outside India for soliciting and mobilizing foreign currency deposits from NRI’s and for advertising and explaining the RBI Circulars, the tenure of NRI DepositsIInterest Rates etc. This entire business was managed and controlled from India in accordance with RBI guidelines and was totally and entirely India-centric. 

The Tribunal held that the expenses were incurred for the purposes of inviting NRIs’ to open deposits in the Indian branches of the respondent assessee. The initiative was predicated upon the circular of the RBI itself which is dated 16 October 1991. Since the expenditure which was incurred solely for the purpose of the business of the respondent assessee in India, there is no merits in the challenge which stands mounted to the order of the Tribunal in this respect.

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Conclusion – No Income Tax on Credit Card Fee

The court while dismissing the department’s appeal upheld the order passed by the tribunal in which it was held that the expenses were incurred for the purposes of inviting NRIs’ to open deposits in the Indian branches of the respondent assessee. The entire business was managed and controlled from India in accordance with RBI guidelines and was totally and entirely India-centric. 

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Case Details

Case Title: Director Of Income Tax New Del V/S Anz Grindlays Bank 

Citation: ITA 563/2007 

Counsel for the Petitioner: Sunil Agarwal

Counsel for the Respondent: Shashi Kapila

Date of Decision: 19.09.2024

Read Order