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2022 (2) TMI 474 - AT - Income TaxTDS u/s 194C - payments made by the assessee to its affiliates - Payment towards face value of the meal vouchers to the affiliates - primary contention of the assessee that in terms of approval granted by the Reserve Bank of India (RBI) under the Payment and Settlement Systems Act, 2007 ( PSS Act ), the assessee is operating a payment system for issuance of meal vouchers, wherein, the only role played by it is to provide an alternative system of payment - As per assessee since the payment made by the assessee to the affiliates is merely reimbursement for the prepaid vouchers under the alternative system of payment, it is not exigible to TDS provisions - HELD THAT - The factual matrix reveals that the assessee is operating a semi-closed prepaid payment system being authorized by RBI in terms of section 7 of the Payment and Settlement System Act, 2017. Under the aforesaid scheme, the assessee issues printed paper vouchers to be utilized for purchase of food and non-alcoholic beverages at certain specified establishments. It is an accepted factual position that the service charge received by the assessee, both, from the customers as well as affiliates is offered as income. So far as the face value of the meal voucher is concerned, as per clause 8 of RBI Master Circular placed in the paper book, the amount received from the customers towards issuance of meal vouchers has to be kept in escrow account maintained with any Scheduled Commercial Bank. The Master circular mandates that the amount so deposited in the escrow account can only be used for making payment towards reimbursement of the face value of the meal voucher to the affiliates. The Government Regulations make it clear that the face value of the meal vouchers cannot be used by the assessee for any other purpose. Thus, it is very much clear that the amount received by the assessee from customers for providing the meal vouchers is not an income of the assessee but has to be used only for the purpose of making payment to the affiliates towards redemption value of vouchers. The entire scheme relating to issuance of printed meal vouchers read with PSS Act and RBI Master Circular make it clear that the assessee is merely a facilitator or a medium for enabling payments to be made by the user of the vouchers to the affiliates when the user purchases food and non alcoholic beverage from the affiliates. In other words, the assessee is merely providing the service of an alternative mode of making payment. Except one of the categories i.e. catering, the payment of the face value of meal vouchers to affiliates would not come within the definition of work either as per the general meaning or even under the extended meaning of work as per section 194C of the Act. In so far as catering is concerned, the admitted factual position is, the assessee has deducted tax on the payment made to caterers, who basically are in house facilities established by customers of the assessee. Thus, under no circumstances, the payment made by the assessee towards face value of the meal vouchers to the affiliates can come within the ambit of section 194C of the Act. In any case of the matter, as per the scheme of PSS Act and Master Circular issued by the RBI, the amount received towards face value of the meal vouchers is not money belonging to the assessee and has to be used exclusively for the purpose of making payment to the affiliates. There is nothing on record to suggest that the regulatory authorities have found any violation of conditions of PSS Act, 2007 or the RBI guidelines by the assessee while carrying out the business. Thus, the assessee is merely a custodian of the money and for facilitating the provision of making available food and beverages to the employees of customers through the affiliates, the assessee is merely a service provider. Because of the service provided by the assessee, both, the affiliates and employees are benefited. For this process of facilitation which is in the nature of service, the assessee receives service charges both from its customers as well as affiliates. The payment made by the assessee towards face value of the meal vouchers to the affiliates are not in the nature of payment made towards works contract so as to fall within the provision of section 194C - Demand raised under section 201(1) and 201(1A) are deleted. The grounds raised by the assessee are allowed.
Issues Involved:
1. Applicability of Section 194C to payments made by the assessee to affiliates. 2. Nature of payments made by the assessee to affiliates. 3. Compliance with regulatory guidelines under the Payment and Settlement Systems Act, 2007 (PSS Act) and RBI Master Circular. 4. Obligation of the assessee to deduct tax at source on payments made to affiliates. Detailed Analysis: 1. Applicability of Section 194C to Payments Made by the Assessee to Affiliates: The primary issue in these appeals is whether the payments made by the assessee to its affiliates fall under the purview of Section 194C of the Income Tax Act, which mandates tax deduction at source (TDS) for payments made to contractors for carrying out any work. The assessing officer argued that the payments to affiliates were for carrying out work as envisaged under Section 194C, while the assessee contended that the payments were mere reimbursements for prepaid vouchers and did not involve any work or service provided by the affiliates to the assessee. 2. Nature of Payments Made by the Assessee to Affiliates: The assessee operates a semi-closed prepaid payment system authorized by the RBI, issuing meal vouchers used by employees of its clients to purchase food and non-alcoholic beverages from specified affiliates. The affiliates then submit these vouchers to the assessee for reimbursement. The assessing officer claimed that the affiliates were performing specific tasks (e.g., examining security features of vouchers, cancellation of vouchers, etc.) and thus, the payments were for work performed under Section 194C. However, the assessee argued that these payments were mere reimbursements for the face value of the vouchers and not for any work performed by the affiliates. 3. Compliance with Regulatory Guidelines under the PSS Act and RBI Master Circular: The assessee's business model involves keeping the face value of the vouchers in an escrow account as mandated by the RBI Master Circular, to be used exclusively for reimbursing affiliates. The court noted that the amount received from customers for the vouchers is not the income of the assessee but a liability to be discharged to the affiliates, and this amount is shown as a liability in the balance sheet, not routed through the profit and loss account. The Supreme Court, in the assessee’s own case, had previously observed that the assessee acts merely as a facilitator or medium for enabling payments between the users of the vouchers and the affiliates. 4. Obligation of the Assessee to Deduct Tax at Source on Payments Made to Affiliates: The court examined whether the payments to affiliates constituted "work" under Section 194C. The definition of "work" includes advertising, broadcasting, carriage of goods/passengers, catering, and manufacturing/supplying products. The court found that the payments to affiliates, except for caterers, did not fall under this definition. The assessee had deducted tax on payments to caterers as a matter of caution, as catering is explicitly included in the definition of "work." For other affiliates, the court held that the payments were not for work performed but were reimbursements for the face value of the vouchers, thus not attracting TDS under Section 194C. Conclusion: The court concluded that the payments made by the assessee to affiliates were not for carrying out any work as defined under Section 194C but were reimbursements for the face value of meal vouchers. Therefore, the assessee was not required to deduct tax at source on these payments. The demands raised under Section 201(1) and 201(1A) were deleted, and the appeals filed by the assessee were allowed.
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