2020 (10) TMI 81 - AT - Income Tax

TDS u/s 194H - payment to Gateways - Non deduction of tds - As per assessee terms and conditions under which the Gateway has rendered services to the customers were invariably recorded in the agreements between the company and the respective Gateways, which establish that the company, on the one hand, and Gateways on the other hand, were independent parties in their respective fields and, therefore, there was no necessity of deducting any TDS - CIT-A deleted the disallowance - HELD THAT - CIT(A) has followed the decisions of the coordinate benches of this Tribunal in own case wherein it has been held that the sale made on the basis of a credit card is the transaction of the merchant establishment and that the credit company only facilitates the electronic payment for a certain charge and the commission retained by the credit card company is therefore in the nature of normal banking charges and not in the nature of commission/brokerage for acting on behalf of the merchant establishment. DR has not been able to rebut the decisions of the Tribunal with any decision of the appellate forums to the contrary - No reason to interfere with the order of CIT(A) in deleting the disallowance made by the AO u/s 40(a)(ia) - also noticed that the Gateways have offered the income to tax in their hands in their respective returns of income. Therefore, the proviso to section 40(a)(ia) is applicable and for this reason also, the disallowance cannot be sustained. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 40(a)(ia) for non-deduction of TDS on payments made to gateways.
2. Applicability of section 40(a)(ia) on payments made to payment gateway companies not covered under Notification No. 56/2012.
3. Interpretation of the nature of payments to gateways and whether TDS should have been deducted.

Analysis:

Issue 1: Disallowance under section 40(a)(ia) for non-deduction of TDS on payments made to gateways:
The Revenue appealed against the CIT(A)'s decision to delete the disallowance under section 40(a)(ia) for non-deduction of TDS on payments made to gateways. The AO had disallowed 30% of the payment made to gateways for failure to deduct TDS at 30%. The assessee argued that the payments were service charges retained by gateways, not commission, and therefore TDS was not required. The Tribunal upheld the CIT(A)'s decision, citing previous rulings that payments made through credit card gateways are normal banking charges, not commission. As the gateways had offered the income for taxation in their returns, the proviso to section 40(a)(ia) applied, and the disallowance was not sustainable.

Issue 2: Applicability of section 40(a)(ia) on payments made to payment gateway companies not covered under Notification No. 56/2012:
The Revenue questioned whether section 40(a)(ia) applied to payments made to payment gateway companies not covered under Notification No. 56/2012. The Tribunal focused on the nature of the payments, determining that they were service charges, not commission. As the gateways had already offered the income for taxation, the proviso to section 40(a)(ia) applied, rendering the disallowance invalid.

Issue 3: Interpretation of the nature of payments to gateways and whether TDS should have been deducted:
The core issue revolved around the nature of payments to gateways and the requirement for TDS deduction. The assessee argued that the service charges retained by gateways were not commission, and thus TDS was not applicable. The Tribunal agreed, emphasizing that the gateways' role was facilitating electronic payments, not acting as commission agents. This interpretation, supported by previous Tribunal decisions, led to the dismissal of the Revenue's appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the disallowance under section 40(a)(ia) for non-deduction of TDS on payments made to gateways, emphasizing the nature of the payments and the application of the proviso to section 40(a)(ia) due to the gateways offering the income for taxation. The appeal of the Revenue was dismissed, and the order was pronounced on 29th September 2020.