2017 (9) TMI 1775 - AT - Income Tax

TDS u/s 194H - payment gateway charges paid to the banks HDFC, ICICI, American Express and Citi Banks - made by one principal to another principal - Held that - On consideration of the rival submissions in the light of the earlier order of the Tribunal we find that this issue is already decided in favour of the assessee by the Tribunal following the decision of CIT Vs. JDS Apparels (P.) Ltd. (2014 (11) TMI 732 - DELHI HIGH COURT) in which it was held that commission to bank on payments received from customers who had made purchase through credit cards is not liable to TDS under section 194H of the I. T. Act. The issue is covered in favour of the assessee by order of ITAT, Delhi Bench in the case of same assessee vide order dated 30th January, 2017. Therefore, there is no justification for the authorities below to sustain addition on this issue. Assessee also moved before the Addl. Commissioner of Income Tax for direction under section 144A of the Income Tax Act for assessment year 2011-12 on the identical issue in which the learned Addl. Commissioner issued the directions vide order dated 20th March, 2015 directing the Assessing Officer to follow decision of the Hon ble jurisdictional High Court in the case of JDS Apparels (P.) Ltd. (supra). It, therefore, stands concluded that assessee is not liable to make TDS on payments gateway charges. Therefore, provisions of section 194H of the Income Tax Act would not apply to the facts and circumstances of the case. We accordingly set aside the orders of the authorities below and delete the entire addition. - Decided in favour of assessee Disallowance on account of rate of depreciation on computer peripherals - Held that - Assessee has not pointed out any error in the order of the learned CIT (Appeals) in declining part depreciation on the items which were not part of the computer software. The learned CIT (Appeals) did not allow higher depreciation on items like digital call logger board and software protection, Nortel equipment, head-sets and time attendance system, because they would not fall within the definition of computer or computer software. In the absence of any serious challenge to the findings of the learned CIT (Appeals), we do not find any justification to interfere with the order of the learned CIT (Appeals). We confirm the findings of the learned CIT (Appeals) and dismiss the ground of the assessee.

Summary

Issues Involved:
1. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961 for Payment Gateway Charges.
2. Disallowance of depreciation on computer peripherals.

Issue-wise Detailed Analysis:

1. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961 for Payment Gateway Charges:

The primary contention was the disallowance of ?12,52,49,946/- under section 40(a)(ia) for non-deduction of TDS under section 194H on payment gateway charges. The assessee argued that these charges paid to banks like HDFC, ICICI, American Express, and Citi Banks were not in the nature of "commission" or "brokerage" as defined under section 194H. The payment gateways facilitated secure, automatic, and instant fund settlements for e-commerce transactions without manual intervention. The AO, however, treated these payments as commission, asserting that the banks were acting on behalf of the assessee in collecting payments from customers.

The CIT (Appeals) upheld the AO's decision, except for payments to Citi Bank and American Express Bank, as they had 'NIL' TDS certificates under section 195(3), indicating no obligation for TDS on these payments. The assessee cited the ITAT's previous decisions and the Delhi High Court's ruling in CIT Vs. JDS Apparels Pvt. Ltd., which held that such charges were not liable for TDS under section 194H. The Tribunal agreed with the assessee, referencing the High Court's decision that the relationship between the banks and the assessee was on a principal-to-principal basis, not an agency relationship, and therefore, section 194H was not applicable. Consequently, the Tribunal deleted the addition, ruling in favor of the assessee.

2. Disallowance of depreciation on computer peripherals:

The second issue involved the disallowance of ?1,63,257/- due to the rate of depreciation on computer peripherals. The assessee claimed depreciation at 60% on items like routers, printers, UPS batteries, and modems, categorizing them as part of the "Computer including software" block. The AO allowed only 15% depreciation, treating these items as plant and machinery. The CIT (Appeals) partially allowed the assessee's claim, recognizing most items as computer peripherals eligible for 60% depreciation but excluded items like digital call logger boards, software protection, Nortel equipment, head-sets, and time attendance systems, which were not considered computer peripherals.

The Tribunal upheld the CIT (Appeals)'s decision, agreeing that the excluded items did not meet the criteria for computer peripherals as defined under the Income Tax Rules. The Tribunal found no error in the CIT (Appeals)'s judgment and confirmed the partial allowance of higher depreciation on eligible items, dismissing the ground of the assessee.

Conclusion:

The Tribunal's judgment concluded with the appeal of the assessee being partly allowed, providing relief on the issue of payment gateway charges but upholding the partial disallowance of depreciation on certain computer peripherals. The order was pronounced on 26th September 2017.