Facts of the Case

The assessee, Make My Trip India Pvt. Ltd., was engaged in the business of selling travel products through its online platform. Customers made payments using internet payment gateways facilitated by banks such as HDFC, ICICI, Citibank, and American Express.

The payment gateway deducted certain charges before transferring the net amount to the assessee. The Assessing Officer treated these charges as “commission” and disallowed ₹12.52 crore under Section 40(a)(ia) for non-deduction of TDS under Section 194H.

The CIT(A) partly upheld the disallowance, but the ITAT deleted the addition, holding that such charges were not commission.

Issues Involved

  1. Whether payment gateway charges retained by banks constitute “commission or brokerage” under Section 194H of the Income Tax Act, 1961?
  2. Whether failure to deduct TDS on such charges attracts disallowance under Section 40(a)(ia)?

Petitioner’s Arguments (Revenue)

  • The Revenue contended that payment gateway charges are in the nature of commission.
  • It argued that banks act as intermediaries facilitating transactions, thereby attracting Section 194H.
  • The Revenue attempted to distinguish earlier judgments by arguing that online transactions differ from physical card swiping systems.

Respondent’s Arguments (Assessee)

  • The assessee contended that payment gateway charges are fees for banking services, not commission.
  • There is no principal-agent relationship between the assessee and banks.
  • Payments are made between two principals, and banks merely provide infrastructure services.
  • Reliance was placed on judicial precedent holding that such charges are not commission.

Court’s Findings / Order

  • The Delhi High Court upheld the ITAT’s decision.
  • It held that payment gateway charges are fees for banking services and not commission.
  • Therefore, Section 194H is not applicable, and no TDS is required.
  • Consequently, disallowance under Section 40(a)(ia) was rightly deleted.

The Court dismissed the Revenue’s appeal, holding that no substantial question of law arose.

Important Clarification by the Court

  • The Court relied on the precedent of Commissioner of Income Tax vs JDS Apparels (P) Ltd. (2015) 370 ITR 454 (Del).
  • It clarified that:
    • Banks do not act as agents in such transactions.
    • There is no role in negotiation or sale of goods/services.
    • Charges retained are purely for banking/payment facilitation services.

Additionally, the Court referred to the CBDT Notification dated 31.12.2012, which exempts TDS on credit/debit card commission between merchant establishments and banks.

Sections Involved

  • Section 194H – TDS on Commission or Brokerage
  • Section 40(a)(ia) – Disallowance for Non-Deduction of TDS
  • Section 260A – Appeal to High Court
  • Section 195(3) – Nil Withholding Certificate

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2019:DHC:1711-DB/SMD25032019ITA1362019.pdf

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