Make My Trip was not liable to deduct TDS on gateway charges payments to Banks – High Court upheld ITAT action in deleting addition u/s 40(a)(ia)
ABCAUS Case Law Citation:
ABCAUS 2850 (2019) (03) HC
Important Case Laws Cited/relied upon by the parties
Commissioner of Income Tax v JDS Apparels (P) Ltd. (2015) 370 ITR
In this case, the Revenue had filed an Income Tax Appeal against an order passed by the Income Tax Appellate Tribunal, (ITAT) in deleting the addition made by the Assessing Officer (AO) u/s 40(a)(ia) of the Income Tax Act, 1961 (the Act) being non deduction of TDS on account of payment gateway charges.
The Assessee was a engaged in the business of selling its travel products to the customers through a renowned website namely makemytrip.com. A customer can log on to the Assessee’s website, choose from its various travel products displayed there. Once the customer enters into a transaction, payment therefor is made by using the facility of an Internet Payment Gateway, which automatically opens. The payment gateway, which is provided in this case by four banks viz., HDFC, ICICI, Citibank and American Express, electronically transfers the customer data to the credit card issuer through VISA / Master Card, for the approval of the issuer and consequently the amount is debited by the issuer to the cardholder. Instantly the payment gateway website confirms approval to the merchant/e-Commerce website and the transaction gets concluded. The net price after deduction of facility charges by the payment gateway is automatically credited to the bank account of the merchant.
The amount retained by the payment gateway facility provider includes the charges for the facility of secured payment gateway and the charges of VISA/Mastercard.
The AO disallowed the payment made by the Assessee to the above Banks towards charges for providing the payment gateway facility for the AY in question under Section 40(a)(ia) of the Act since according to the AO the said payment was in the nature of commission paid to the Banks from which TDS under Section 194 H of the Act ought to had been deducted.
The Commissioner of Income Tax (Appeals) reduced the disallowance as the assessee, before the AO, had produced the ‘Nil’ withholding tax certificate under Section 195 (3) of the Act with respect to some payments.
he ITAT, in the impugned order allowed the Assessee’s appeal on this issue and held that the payment gateway charges were in nature of fees for banking services and not “commission‟ or “brokerage” and thus no TDS was deductible from the said charges under Section 194 H of the Act.
The Hon’ble High Court noted that the ITAT had relied on its judgment wherein it was held that in a similar kind of transaction, the amount retained by the bank is a fee charged for having rendered banking services and “cannot be treated as a commission or brokerage paid in course of use of any services by a person acting on behalf of another for buying or selling of goods.”
The Hon’ble High Court opined that the ITAT had rightly, held that the services provided by the payment gateway is such that the charges collected by it has to be necessarily treated as fees and not as a commission. The payment in fact was made by one principal to another and it is only being facilitated by the payment gateway by providing a service.
The Hon’ble High Court further noted that the Central Government, by notification dated 31st December, 2012 had notified that no TDS shall be made on specified payments to the banks listed in the Second Schedule to the Reserve Bank of India Act which inter alia exempted credit card or debit card commission for transaction between the merchant establishment and acquirer bank.
The Hon’ble High Court observed that the said notification though referred to in the order of the CIT (A) but not discussed. The assessee was right in contending that by virtue of the above notification no TDS is deductible from payments made towards “credit card or debit card commission for transaction between the merchant establishment and the acquirer bank”. This applied to the charges paid to the Banks for providing payment gateway in the case on hand.
The Hon’ble High Court held that the ITAT had not committed any error in deleting the addition under section 40(a)(ia) of the Act on account of non-deduction of TDS from the payment gateway charges paid to the Banks