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25-03-2019, MAKE MY TRIP INDIA, Section 260-A, 40(a)(ia), HIGH COURT OF DELHI

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3 months 3 weeks ago #8912 by amit
Section - 260-A, 40(a)(ia), 194H, 195(3)
Order Date - 25-03-2019
Favouring - Assessee
Appellant - PCIT
Citation - 319Taxpundit430
Appeal No. - ITA 136/2019
Asstt. Year - 2009-10


PER : Dr. S. Muralidhar, J.

1. This appeal by the Revenue under Section 260-A of the Income Tax Act, 1961 („Act‟) is directed against an order dated 26th September, 2017, passed by the Income Tax Appellate Tribunal, („ITAT‟) New Delhi in ITA No.4721/Del/2014 for assessment year („AY‟) 2009-10.

2. The question of law sought to be urged by the Revenue reads as under:

“Whether the ITAT erred in deleting the addition of Rs. 12,52,49,946/- made by the Assessing officer under Section 40(a)(ia) of the Income Tax Act,1961 being non deduction of TDS on account of payment gateway charges?”

3. The facts in brief are that the Assessee is engaged in the business of selling its travel products to the customers through the website 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 netprice 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 facility of secured payment gateway and the charges of VISA/Mastercard.

4. The Assessing Officer (AO) disallowed the payment of Rs. 12,52,49,946/- 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 have been deducted.

5. The appeal filed by the Assessee on this issue was partly allowed by the Commissioner of Income Tax (Appeals) by order dated 13th June 2014 by reducing the disallowance to Rs. 8,38,85,784/-. The CIT (A) noted that before the AO, the Assessee had produced the 'Nil' withholding tax certificate under Section 195 (3) of the Act with respect to payments received by American Express and Citi Bank by virtue of which the said Banks could receive payments of the charges for payment gateway facility provided by them without deduction of TDS. The CIT (A) accepted the Assessee‟s submission that the payment gateway charges in the sums of Rs.1,39,75,886/- paid to American Express Bank Ltd. and Rs.7,84,06,562/- to Citi Bank were not subject to TDS and therefore Section 40 (a) (ia) of the Act was not applicable to such payments. However, the CIT (A) treated the sums paid to HDFC and ICICI towards payment gateway charges as commission and concurred with the AO that from the said sums TDS was required to be deducted by the Assessee under Section 194 H of the Act while making payment. The Assessee‟s appeal was thus allowed in part.

6. Aggrieved by the above order of the CIT (A) to the extent it affirmed in part the AO‟s assessment order on this issue, the Assessee filed ITA No. 4721/Del/2014 before the ITAT. The Revenue however accepted the order of the CIT (A) to the extent it partly allowed the appeal of the Assessee and did not file any cross-objection before the ITAT.

7. The ITAT has 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. In coming to the said conclusion, the ITAT relied on the judgment of this Court in Commissioner of Income Tax v JDS Apparels (P) Ltd. (2015) 370 ITR

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