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Facts
The assessee, engaged in selling products through e-commerce platforms, was subjected to scrutiny for large commission expenses and low net profit. The AO disallowed Rs. 30,18,426/- under section 40(a)(ia) for non-deduction of TDS on commission payments to e-commerce platforms. The CIT(A) confirmed the disallowance.
Held
The Tribunal held that the amounts retained by e-commerce platforms are fees for services rendered and not commission or brokerage paid for services rendered by an agent. Therefore, section 194H is not attracted, and the disallowance under section 40(a)(ia) is deleted.
Key Issues
Whether the disallowance made under section 40(a)(ia) for non-deduction of TDS on payments to e-commerce platforms is justified.
Sections Cited
40(a)(ia), 194H, 201(1)
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Income Tax Appellate Tribunal, JAIPUR BENCH “SMC”, JAIPUR
Before: Dr. S. SEETHALAKSHMI & SHRI GAGAN GOYAL
PER GAGAN GOYAL, A.M: This appeal by assessee is directed against the order of NFAC, Delhi dated 20.08.2024 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2020-21. The assessee has raised the following grounds of appeal:-
1 In the facts and circumstances of the case and in law, ld. CIT (A) has erred in confirming the action of ld. AO, in making disallowance of Rs. 30, 18,426/- u/s. 40(a)(ia) of the Income Tax Act, 1961. The action of ld. CIT(A)/NFAC is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the disallowance made by ld. AO and confirmed by ld. CIT(A). 2 The assessee craves his right to add, amend or alter any of the grounds on or before the hearing.”
The brief facts of the case are that the assessee individual is prop. of M/s. Ratnavali Jewels, engaged in the trading of selling products on e- commerce platforms like Amazon, Flipkart and Snapdeal etc. The case of the assessee was selected for scrutiny under CASS for complete scrutiny for the reason “Large Commission Expenses and Low Net Profit”. During the year under consideration the assessee filed his return of income on 09.02.2021 declaring total income at Rs. 17, 45,090/-. During the assessment proceedings it was observed by the AO that the turnover of the assessee during the previous year was Rs. 1, 25, 92,493/- and Rs. 2, 94, 62,792/- for the current year under consideration, hence the assessee was under obligation to deduct T.D.S. u/s. 194H of the Act @ 10% on commission payments made to the e- commerce platforms mentioned (supra). Consequently, applying the provisions of section 40(a)(ia) of the Act disallowance @ 30% amounting to Rs. 30,18,426/- was made. The assessee being aggrieved with this order of the AO preferred an appeal before the Ld. CIT (A), who in turn confirmed the order of the AO. The assessee being further aggrieved preferred the present appeal before us.
We have gone through the order of the AO, order of the Ld. CIT (A) and submissions of the assessee alongwith grounds taken before us. It is observed that the assessee has a virtual show case of his products on the platforms of the e-commerce companies. Thereafter, as per requisition goods are directly dispatched and billed by the assessee to the customers under relevant quality checks and instructions of the concerned portals. Payments are also being made directly by the customers to the concerned e-commerce portals. The e- commerce portals after retaining their commissions, advertisement charges and other charges release the remaining amount to the assessee’s account.
Considering the facts of the case, we deem it fit to discuss the bare provisions of sections 40(a) (ia) and 194H of the Act as under:
Amounts not deductible. 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",— (a) in the case of any assessee—
(ia) thirty per cent of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub- section (1) of section 139 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139,thirty per cent of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid :] Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub- clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso. Explanation.—For the purposes of this sub-clause,— (i) "commission or brokerage" shall have the same meaning as in clause (i) of the Explanation to section 194H; (ii) "fees for technical services" shall have the same meaning as in Explanation2 to clause (vii) of sub-section (1) of section 9; (iii) "professional services" shall have the same meaning as in clause (a) of the Explanation to section 194J; (iv) "work" shall have the same meaning as in ExplanationIII to section 194C; (v) "rent" shall have the same meaning as in clause (i) to the Explanation to section 194-I; (vi) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; Commission or brokerage. 194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of two per cent : Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed fifteen thousand rupees: Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section: Provided also that no deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees. Explanation.—for the purposes of this section,— (i) commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities; (ii) the expression "professional services" means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA; (iii) the expression "securities" shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (iv) where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
As mentioned (supra), as per section 194H of the Act the assessee shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of two per cent. Now, as observed in the present case, payments are being received by e-commerce platforms only and in turn after various deductions, it will reach to the account of the assessee. Here the mechanism provided in the section is failed and beyond the control of the assessee. Similar situation was being considered by the Hon’ble High Court of Delhi in the case of PCIT vs. Make My Trip India (P). Ltd. [2019] 104 taxmann.com 263 (Delhi),wherein the Hon’ble High Court observed as under: “The decision in CIT v. JDS Apparels (P.) Ltd. [2015] 53 taxmann.com 139/370 ITR 454 (Delhi) holds that in a similar kind of transaction, the amount retained by the bank is a fee charged for having rendered 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 Tribunal has in the instant case, rightly held that the services provided by the payment gateway is such that the charges collected by it has to be necessarily treated as fees and not as a commission. The payment in fact is made by one principal to another and it is only being facilitated by the payment gateway by providing a service. [Para 9] In that view of the matter, the Tribunal has not committed any error in deleting the addition of Rs. 12.52 crore made by the Assessing Officer under section 40(a)(ia) [as further reduced by the Commissioner (Appeals)] on account of non-deduction of TDS from the payment gateway charges paid to the banks. [Para 12]”
[2015] 53 taxmann.com 139 (Del.)CIT-II vs. JDS Apparels (P.) Ltd., Wherein the Hon’ble Court discussed the same issue very elaborately as under:
“Section 194H would not be attracted in present case, as bank 'H' was not acting as an agent of the assessee. Once the payment was made by said bank,it was received and credited to the account of the assessee. In the process, a small fee was deducted by the acquiring bank, i.e. said 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 realization of payment. Subsequently, the acquiring bank realized and recovered the payment from the bank which had issued the credit card. 'H' had not undertaken any act on "behalf" of the assessee. The relationship between 'H' and the assessee was not of an agency but that of two independent parties on principal to principal basis. 'H' 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 assessee. Thus, the 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 some time as there would be a time gap between the date of payment and recovery of the amount paid. [Para 15] 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 collects the payment. The amount punched in the swiping machine is credited to the account of the retailer by the acquiring bank, i.e. H 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. [Para 16] The aforesaid principles and interpretations can apply to taxing statutes. In the present case, the said principle should be applied as 'H' would necessarily have acted as per law and it is not the case of the revenue that the bank had not paid taxes on their income. It is not a case of loss of revenue as such or a case where the recipient did not pay their taxes. [Para 18]”
As discussed above, the assessee was not in a position to control the flow of then payments to be received from his customers and has to be routed through e-commerce platforms only. In that case section 194H can’t be applied on the assessee. It’s like saying the assessee to do an impossible task, in the guise of section 194H of the Act, which he is not able to. Section 194H of the Act would not be attracted in present case, as e-commerce was not acting as an agent of the assessee. Once the payment was made by the customer, it was received and credited to the account of the assessee. In the process, a small fee was deducted by the e-commerce platform, whose platform was used. The relationship between e-commerce platform and the assessee was not of an agency but that of two independent parties on principal to principal basis.
The amount retained by the e-commerce a fee charged by them for having rendered the e-commerce 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 e-commerce platform in question is not concerned with buying or selling of goods. It is not bothered or concerned with the quality, price, nature, quantum, etc. of the goods bought/sold. The aforesaid principles and interpretations can apply to taxing statutes. In the present case, the said principle should be applied as e- commerce platform would necessarily have acted as per law and it is not the case of the revenue that the e-commerce platform had not paid taxes on their income. It is not a case of loss of revenue as such or a case where the recipient did not pay their taxes.
Moreover, the assessee also filed an application under Rule 29 of the ITAT Rules, 1963 for admission of additional evidences, i.e. copy of form no. 26A obtained from Amazon Seller Services Pvt. Ltd. And Flipkart Internet Pvt. Ltd. For our perusal. These two companies itself covers major amount of Rs. 96, 65,541/- and Rs. 1, 49,060/- respectively out of total amount involved 1, 00, 61,420/-. We found the reason assigned by the assessee for not filing the same before the authorities below and allow to submit the same before us and accepted also.
The additional evidences submitted by the assessee are duly accepted and considered in the light of section 201(1) of the Act as under: Consequences of failure to deduct or pay. 201. (1) Where any person, including the principal officer of a company,— (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if suchpayee— (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed:
In view of the above discussion (supra) and considering the additional evidence furnished by the assessee in compliance with section 201 of the Act, we allow the ground raised by the assessee.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 16THday of December 2024.
Sd/- Sd/- (Dr. S. SEETHALAKSHMI) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Jaipur, िदनांक/Dated: 16/12/2024 Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. आयकर आयु� CIT 3. 4. िवभागीय �ितिनिध,आय.अपी.अिध.,Sr.DR., ITAT, 5. गाड� फाइल/Guard file.
BY ORDER, //True Copy// (Asstt. Registrar) ITAT, Jaipur
Details Date Initials Designation 1 Draft dictated on PC on 16.12.2024 Sr.PS/PS 2 Draft Placed before author 16.12.2024 Sr.PS/PS 3 Draft proposed & placed before the Second JM/AM Member 4 Draft discussed/approved by Second Member JM/AM 5. Approved Draft comes to the Sr.PS/PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS/PS 7. File sent to the Bench Clerk Sr.PS/PS 8 Date on which the file goes to the Head clerk 9 Date of Dispatch of order