2019 (3) TMI 1359 - HC - Income Tax

TDS u/s 194H - TDS liability on account of payment gateway charges - addition u/s 40(a)(ia) since according to the AO the said payment was in the nature of commission paid to the Banks - ITAT has 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 194H - HELD THAT - Central Government, by notification dated 31st December, 2012 has 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. The assessee is 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 applies to the charges paid to the Banks for providing payment gateway in the case on hand. In that view of the matter, this Court finds that the ITAT has not committed any error in deleting the addition This Court finds that the ITAT has not committed any error in deleting the addition made by the Assessing officer under section 40(a)(ia) of the Act on account of non-deduction of TDS from the payment gateway charges paid to the Banks - Decided in favour of assessee.

Summary

Issues:
1. Whether non-deduction of TDS on payment gateway charges under Section 40(a)(ia) of the Income Tax Act, 1961 is justified?

Analysis:
1. The appeal by the Revenue challenged an order by the ITAT regarding the addition of a specific amount under Section 40(a)(ia) of the Act for non-deduction of TDS on payment gateway charges.
2. The Assessee, engaged in selling travel products online, made payments to banks for payment gateway services, prompting the AO to disallow a significant amount under Section 40(a)(ia) as commission payments requiring TDS deduction.
3. The CIT (A) partially allowed the Assessee's appeal, distinguishing between payments to different banks based on TDS applicability, leading to a reduced disallowance.
4. The ITAT, in the impugned order, held that payment gateway charges were fees for banking services, not commission, thus rejecting the need for TDS deduction under Section 194 H of the Act, citing a relevant precedent.
5. The Revenue's attempt to distinguish the precedent was based on the nature of transactions, but the Court upheld the ITAT's decision, emphasizing the distinction between fees for services and commission or brokerage.
6. Referring to a notification exempting certain bank payments from TDS, the Court affirmed the ITAT's decision to delete the addition made by the AO, concluding that no substantial question of law arose for consideration.

This comprehensive analysis covers the key legal issues, arguments, and the Court's reasoning behind dismissing the appeal and upholding the ITAT's decision regarding TDS on payment gateway charges.