Loading judgment…
No AI summary yet for this case.
1 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCHES: “E” NEW DELHI ]
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L. P. SAHU, ACCOUNTANT MEMBER.
I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10. Makemy Trip India Pvt. Ltd., Addl. Commissioner 243, Ground Floor, Tower A, Vs. of Income Tax, SP Infocity, Udyog Vihar, Phase–I, Range : 6, Gurgaon [Haryana] – 122 016. New Delhi. PAN : AADCM 5146 R (Appellant) (Respondent)
Assessee by : Shri Tarandeep Singh, C. A.; Department by : Ms. Renu Amitabh, CIT [DR]; Date of Hearing : 20.09.2017 Date of Pronouncement : 26.09.2017 O R D E R. PER BHAVNESH SAINI, J. M. :
This appeal by the assessee has been directed against the order of the ld. CIT (Appeals)–XXIX, New Delhi, dated 13.06.2014 for the assessment year 2009-10.
2 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
We have heard the learned counsels of both the parties and perused the findings of the authorities below.
The assessee on ground No. 1 challenged the disallowance under section 40(a)(ia) of the Income Tax Act, 1961 of Payment Gateway Charges for a sum of Rs.8,38,85,754/-. The Assessing Officer disallowed Rs.12,52,49,946/- for want of non-deduction of TDS under section 194H of the I. T. Act. The assessee submitted before the ld. CIT (Appeals) that it is engaged in the business of selling its travel products to the customers. The products sold were through the website operated by the company i.e. makemytrip.com. In this case, a customer can log in to the above website from anywhere, choose from various travel products displayed on the website and make a transaction on line. For such transaction undertaken payment is made by the customer using the facility of an Internet Payment Gateway (payment gateway). Once a travel product is selected, the customer is directed to the secure payment gateway of banks which provide this facility of making payment through internet. The payment gateways are secured websites and are used by e-Commerce companies like assessee for the purpose of automatic and instant fund settlement of any transaction authenticated and authorised
3 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
by VISA and Master Cards. The transaction is authorised by VISA / Master Card to ensure that the customer, while using his credit card on the payment gateway has sufficient credit limit to purchase the product. In other words, payment gateway website provides the facility for secure fund settlement in e-Commerce transaction electronically, automatically, instantly, round the clock, without involving manual intervention and as system driven transaction. In the nut-shell, the website of the assessee automatically opens for payment gateway as soon as the customer selects the product and clicks the payment option. The payment gateway website electronically transfers the customer data to the credit card issuer through VISA / Master Card, for the approval of the issuer and consequently the amount is debited by the issuer to the card-holder. Instantly the payment gateway website confirms approval to the merchant e-Commerce website and the transaction with respect to the customer gets concluded. The net price after deduction of facility charges by payment gateway have automatically credited to the bank account of the merchant. The amount retained by the payment gateway facility provider includes the charges for the facility of secured payment gateway and whatever are charges of VISA net / issuer. The secured
4 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
payment gateway facilities are provided to all e-Commerce customers and are in the nature of standard facilities.
3.1 The Assessing Officer has disallowed the payment gateway charges paid to the banks – HDFC, ICICI, American Express and Citi Banks aggregating to Rs.12,52,49,946/- under section 40(a)(ia) of the Act, holding that TDS should have been deducted under section 194H of the Act treating as payment of “commission” or “brokerage”. With regard to applicability of section 194H of the Act, the AO stated that the services rendered by the bank are in the nature of recovery of bills from customers on behalf of the merchant. The payment made against the service is in the nature of commission i.e. being charged by the bank per transaction. Accordingly, the AO disallowed the payment gateway charges paid to the bank by treating the same as commission under section 194H of the Act. During the course of assessment proceedings the assessee also filed the ‘NIL’ with-holding tax certificate under section 195 of the Act with respect to payments received by American Express and Citi Bank. The assessee submitted that the payment gateway charges paid to the banks is not in the nature of commission or brokerage under section 194H of the Act. The provisions of section 194H
5 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
of the Act deals with the deduction of tax at source on the payments in the nature of brokerage and commission. From the perusal of provisions of section 194H itself amply clear that for a payment to fall within the ambit of term ‘commission or brokerage’, it is necessary that such payment is received or receivable, directly or indirectly, by a person acting on behalf of other persons for :- (i) services rendered (not being professional charges) in the course of buying or selling of goods or (ii) in relation to any transaction relating to any asset, valuable article or things, not being securities. The assessee, therefore, submitted that if the payment is made by one principal to another principal, then it would not be in the nature of commission. The detailed submissions of the assessee are noted in the impugned order along with case laws on which assessee relied upon along with the issue of notification under section 197A of the Income Tax Act by the Government of India. The assessee, therefore, pleaded that section 194H of the I. T. Act would not apply in the case of assessee because there is no transaction of commission or brokerage. The assessee also submitted that American Express Bank Ltd. and Citi Bank have issued ‘NIL’ TDS certificate under section 195(3) of the Act by the DDIT, Mumbai and copies of the same were placed before AO. As per certificate, these banks can
6 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
receive payment of interest and other sum without any TDS. The assessee submitted that in any view of the matter, payment gateway charges of Rs.1,39,75,886/- paid to American Express Bank Ltd. And Rs.7,84,06,562/- to the Citi Bank would not have been subject to TDS and there is no default in not deducting the TDS and, therefore, provisions of section 40(a)(ia) of the Income Tax Act are not applicable in this case.
3.2 The learned CIT (Appeals) considered this issue in detail in the light of the Notification of the Government of India and section 194H of the Income Tax Act, 1961 and noted that these payments are collected by the said banks for and on behalf of the assessee and after deducting its commission balance is transferred to the bank account of the assessee. Thus, the banks are providing service in the course of buying of the goods from the assessee. Hence, payment received by the banks for providing such services to the assessee are in the nature of commission or brokerage and, therefore, subject to TDS. The learned CIT (Appeals) also noted that the assessee has furnished certificates from Citi Bank and American Express Bank wherein it has been mentioned that gateway charges were received
7 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
by Indian branches on their own account and these payments have been duly declared in their respective returns of income filed in India. In view of these facts, the learned CIT (Appeals) held that assessee was not under obligation to deduct tax while making payments of gateway charges to Citi Bank and American Express Bank. The learned CIT (Appeals), therefore, held that provisions of section 194H would be applicable to payment gateway charges paid to the banks, since assessee has not made TDS as per provisions of section 194H on these payments, the action of the Assessing Officer in disallowing these payments under section 40(a)(ia) of the Act was upheld. However, payments made to Citi Bank and American Express Bank were not to be considered for the purpose of disallowance under the above provision. Appeal of the assessee was partly allowed.
The learned counsel for the assessee, at the outset, submitted that the issue is covered by the order of the ITAT, SMC Bench, in the case of same assessee for assessment years 2010-11 and 2011-12 in I. T. Appeal Nos. 7054 and 7055/Del/2014 vide order dated 30th January, 2017, in which an identical issue was decided, ld. CIT (Appeals) deleted the addition and Department’s appeal has been dismissed.
8 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
The findings of the Tribunal in para Nos. 6 to 9.1 of the above order are reproduced as under :-
“ 6. The Assessing Officer levied interest under section 201(1A) and raised demand of Rs.11,36,600/- in the assessment year 2010-11 and Rs.20,29,758/- in the assessment year 2011-12 on account of default under section 201(1) for non-deduction of tax on payment of gateway charges retained/paid to bank under section 194H of the Act and in consequence also charged interest under section 201(1A). The ld. CIT (Appeals) has also deleted the addition made on account of default on account of provisions made in the books of account, because as per the appellant, TDS has to be made on payment or credit whichever is earlier. The ld. CIT (Appeals) has deleted these demands, which have been questioned by the Revenue.
At the outset of hearing, the ld. AR pointed out that the issue raised is fully covered by the decision of Hon’ble jurisdictional High Court of Delhi in the case of CIT Vs. J.D.S. Apparels Pvt. Ltd., Income Tax Appeal No. 608/2014 dated 18.11.2014. He submitted that gateway charges incurred is neither commission nor brokerage and with this observation the Hon’ble jurisdictional High Court has decided the issue in
9 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
favour of the assessee in the above cited decision. He also placed reliance on the following decisions and Notification of the CBDT :-
“ (i) CIT Vs. JDS Apparels Pvt. Ltd. (Del.) (ITA. No. 608/2014) (Paras 16 & 17); (ii) DCIT Vs. Vah Magna Retail (Pvt.) Ltd. (ITA. No. 905/Hyd./2011); (iii) ITO Vs. Jet Airways India (Pvt.) Ltd. 36 Taxman.com 379; (iv) Tata Teleservices Ltd. Vs. DCIT 29 Taxman.com 261 (Bang.); (v) Copy of the assessment order passed under section 143(3) of the Act for assessment year 2011-12 in the respondent’s case; (vi) CBDT Notification No. SO3069(E)56/2012 Dated 1.01.2013; (vii) Industrial Development Bank of India Vs. ITO [ JO SOT 397 ]; (viii) Pfizer Ltd. Vs. ITO (TDS), ( ITA. No. 1667/Mum./2010). ”
The ld. Sr. DR, on the other hand, placed reliance on the assessment order.
10 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
Having gone through the above cited decisions especially the decision of Hon’ble jurisdictional High Court of Delhi in the case of CIT Vs. J.D.S. Apparels Pvt. Ltd. (supra), I find that an identical issue has already been decided in favour of the assessee. The Assessing Officer was of the view that the payments on account of gateway charges made by the assessee to the banks constitutes “commission” as contemplated by section 194H of the Act and levied interest under section 201(1A) on non-deduction of tax on the payment. The payment gateways are secured website and are used by e-commerce companies like assessee for the purpose of automatic and instant fund settlement of any transaction authenticated and authorized by VISA and Master Card (VISA/Master Card). The transaction is authorized by VISA/Master Card to ensure that the customer, while using his credit card on the payment gateway, has sufficient credit limit to purchase the product.
9.1 The contention of the assessee remained that provisions of section 194 of the Act deal with deduction of tax at source on the payments in the nature of brokerage and commission and for a payment to fall within the ambit of the term “commission or brokerage”, it is necessary that such payment is received or receivable, directly or indirectly by a person
11 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
acting on behalf of another person for (i) services rendered (not being professional services) or in the course of buying and selling of goods; or (ii) in relation to any transaction relating to any asset, valuable article or thing not being securities. Thus recipient of commission is an agent, representative of the payer being the principal. If the payment is made by one principal to another principal, as in the present case, then it would not be in the nature of commission. The Hon’ble jurisdictional High Court of Delhi in the case of the CIT Vs. J.D.S. Apparels Pvt. Ltd. (supra) has decided the issue in favour of the assessee. The relevant finding given in para Nos. 15 and 16 are being reproduced hereunder :-
“ 15. Applying the above cited case law to the factual matrix of the present case, we feel that Section 194H of the Act would not be attracted. HDFC was not acting as an agent of the respondent-assessee. Once the payment was made by HDFC, it was received and credited to the account of the respondent-assessee. In the process, a small fee was deducted by the acquiring bank, i.e. the bank whose swiping machine was used. On swiping the credit card on the swiping machine, the customer whose credit card was used, got access to the internet gateway of the acquiring bank resulting in the realisation of payment. Subsequently, the acquiring bank realised and recovered the payment from the bank which had issued the credit card. HDFC had not undertaken any act on “behalf” of the respondent-assessee. The relationship between HDFC and the respondent-assessee was not of an agency but that of two independent parties on principal to principal basis.
12 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
HDFC was also acting and equally protecting the interest of the customer whose credit card was used in the swiping machines. It is noticeable that the bank in question or their employees were not present at the spot and were not associated with buying or selling of goods as such. Upon swiping the card, the bank made payment of the bill amount to the respondent- assessee. Thus, the respondent assessee received the sale consideration. In turn, the bank in question had to collect the amount from the bankers of the credit card holder. The Bank had taken the risk and also remained out of pocket for sometime as there would be a time gap between the date of payment and recovery of the amount paid.
The amount retained by the bank is a fee charged by them for having rendered the banking services and cannot be treated as a commission or brokerage paid in course of use of any services by a person acting on behalf of another for buying or selling of goods. The intention of the legislature is to include and treat commission or brokerage paid when a third person interacts between the seller and the buyer as an agent and thereby renders services in the course of buying and/or selling of goods. This happens when there is a middleman or an agent who interacts on behalf of one of the parties, helps the buyer/seller to meet, or participates in the negotiations or transactions resulting in the contract for buying and selling of goods. Thus, the requirement of an agent and principal relationship. This is the exact purport and the rationale behind the provision. The bank in question is not concerned with buying or selling of goods or even with the reason and cause as to why the card was swiped. It is not bothered or concerned with the quality, price, nature, quantum etc. of the goods bought/sold. The bank merely provides banking services in the form of payment and subsequently
13 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
collects the payment. The amount punched in the swiping machine is credited to the account of the retailer by the acquiring bank, i.e. HDFC in this case, after retaining a small portion of the same as their charges. The banking services cannot be covered and treated as services rendered by an agent for the principal during the course of buying or selling of goods as the banker does not render any service in the nature of agency. ”
In view of above decision and the decisions cited by the assessee before the ld. CIT (Appeals), I am of the view that the ld. CIT (Appeals) has rightly held that the provisions of section 194H of the Act are not applicable in the present case and thus, the assessee was not in default under section 201(1) on account of gateway payment charges and hence levy of interest under section 201(1A) of the Act by the Assessing Officer was not justified. He thus has rightly deleted the additions made on account of default under section 201(1) of the Act and interest levied under section 201(1A) in consequent to the above default under section 201(1) of the Act in both the assessment years. The same are upheld. ”
The learned CIT [DR], however, relied upon the orders of the authorities below.
On consideration of the rival submissions in the light of the earlier order of the Tribunal dated 30th January, 2017
14 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
(supra) we find that this issue is already decided in favour of the assessee by the Tribunal following the decision of the Hon’ble Delhi High Court in the case of CIT Vs. JDS Apparels (P.) Ltd. (2015) 370 ITR 454 (Del.) 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.
Learned counsel for the assessee further submitted that 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.
15 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
We accordingly set aside the orders of the authorities below and delete the entire addition.
In the result, ground No. 1 of appeal of the assessee is allowed.
On ground No. 2 the assessee challenged the disallowance of Rs.1,63,257/- on account of rate of depreciation on computer peripherals. During the assessment year under appeal the assessee has included various computer peripherals, which form an integral part of the computer system under the block “Computer including software”. The computer peripherals so includes routers, printers, UPS batteries, modems etc. The assessee submitted that while passing the assessment order, the Assessing Officer has allowed depreciation on computer peripherals @ 15% as plant and machinery instead of 60% as computer including software. The assessee has relied upon certain case laws in support of the contentions, which are reproduced in the appellate order and prayed that depreciation on computer peripherals may be allowed at the rate of 60%.
The learned CIT (Appeals) considering the details of items on which higher depreciation has been claimed, found that most of the items are UPS, modems, printers and routers. All these items
16 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
have been held by various judicial authorities to be computer peripherals, which are subjected to depreciation @ 60%. However, the list includes certain items like digital call logger board and software protection, Nortel equipment, head-sets, and time attendance system. These items do not satisfy the criterion of the computer peripherals as enunciated by various judicial authorities. Hence, these items are subject to depreciation like plant and machinery. This issue was partly allowed in favour of the assessee.
After considering the rival submissions, we do not find any justification to interfere with the order of the learned CIT (Appeals). New Appendix 1, applicable to assessment year under appeal, Income Tax Rules in Part III(5) provides depreciation @ 60% on computers including computer software. Notes 7 below the table provides "Computer software" means any computer program recorded on any disc, tape, perforated media or other information storage device, as follows :-
“ 1[NEW APPENDIX I [Effective from assessment year 2006-07 onwards] [See rule 5]
TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE
17 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
Block of assets ………… ………… ………… I. Building [See Notes 1 to 4 below this Table] ………… ………… …………
III. Machinery and Plant ………… ………… …………
(5) Computers including computer software (See Note 7 below this Table) = 60% ………… ………… ………… ………… ………… ………… Notes: 1. "Buildings" include roads, bridges, culverts, wells and tubewells. ………… ………… ………… ………… ………… …………
"Computer software" means any computer program recorded on any disc. tape, perforated media or other information storage device.
………….. ………….. …………..
………….. ………….. ………….. ”
11.1 The learned counsel for the 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
18 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
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.
In the result, the appeal of the assessee is partly allowed.
The order is pronounced in the Open Court on : 26th September, 2017.
Sd/- Sd/- ( L. P. SAHU ) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : the 26th September, 2017.
*MEHTA*
19 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
Copy of the Order forwarded to :- 1. Appellant; 2. Respondent; 3. CIT; 4. CIT (Appeals); 5. DR, ITAT, ND. BY ORDER
ASSISTANT REGISTRAR
20 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.
Date Draft dictated on 20-25.09.2017 Draft placed before author 21-26.09.2017 Draft proposed & placed before the 26.09.2017 second member Draft discussed/approved by 26.09.2017 Second Member. Approved Draft comes to the 26.09.2017 Sr.PS/PS Kept for pronouncement on 26.09.2017 File sent to the Bench Clerk 26.09.2017 Date on which file goes to the AR Date on which file goes to the Head Clerk. Date of dispatch of Order.
21 I. T. Appeal No. 4721/Del/2014 Assessment Year : 2009–10.