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Facts
The assessee, an e-wallet service provider, made payments to two payment gateways (PGs) for services. The AO initiated proceedings under Section 201 and 201(1A) for not deducting TDS on these payments, considering them as commission under Section 194H. The assessee contended that the PGs were independent contractors and not acting as agents, thus no principal-agent relationship existed.
Held
The Tribunal held that a principal-agent relationship is a prerequisite for invoking Section 194H. Based on contractual agreements and judicial precedents, it was determined that the PGs acted as independent service providers and not as agents of the assessee. The payments were considered fees for facilitation services, not commission.
Key Issues
Whether the payments made to payment gateways constitute commission attracting TDS under Section 194H in the absence of a principal-agent relationship.
Sections Cited
201, 201(1A), 194H
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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI ANUBHAV SHARMA
O R D E R PER AMITABH SHUKLA, A.M: These three appeals, preferred by the assessee for assessment year 2015-16 – 2017-18, are directed against the combined order of Commissioner of Income-Tax (Appeals)-1, Gurgoandated 09.10.2018 in appeal No. 589- 591/17-18 against the order u/s 201 and 201(1A) passed by the Joint Commissioner of Income Tax(OSD), TDS Circle, Gurgaon). The reference
Page 1 of 19 , 273 – 274 / Del/2025 to the word “Act” in this order hereinafter shall mean the Income Tax Act, 1961 as amended from time to time. 2.0 It has been noted that there is a delay of 2208 days in respect of appeals no.273-274/Del/2025 for AY-2016-17 & 2017-18 in filing of these appeals before the tribunal. In its affidavit the assessee has pleaded that in this case the Ld.CIT(A) had passed a common order for assessment years 2015-16 to 2017-18 confirming, the orders of the Ld.AO passed u/s u/s 201 and 201(1A) of the Act and accordingly the assessee had contested the impugned order by filing a common appeal through Form-36 for all the three years vide dated 07.12.2018. It was contended that there was no challenge to the impugned filing by the registry. However, during the course of hearing, the fact of joint filing was noticed and appellant was advised to file separate appeals. Consequently, appeals for AY-2016-17 and 2017-18 were delinked and appeals vide 274/Del/2025 for AY-2016-17 & 2017-18 respectively were filed. All these activities contributed to the delay which was neither willful nor wanton. It is the case of the assessee that its act of joint filing is well recognized practice in filing of appeals before the tribunals and which has the support from Hon’ble High Courts as well as ITAT. Reference was invited to the decision of Hon’ble Bombay High Court in the case of BDA Limited as at 153 taxmann.386
Page 2 of 19 , 273 – 274 / Del/2025 wherein it was held that filing of composite appeals does not suffers from any deficiency. Similarly, reliance was also placed upon the decision of Hon’ble Uttara Khand High Court in the case of Transocean Offshore International Ventures Limited 20 taxmann.com 737, of ITAT Bangalore in the case of JCR Drill Sol Pvt Ltd 164 taxmann.com 283 ruling on similar lines. The Ld.Counsel for the assessee argued that even though assessee’s case of original filing of a composite appeal was supported by judicial precedents, as a matter of abundant precaution, it chose to, upon being advised by the Bench, file separate appeals albeit with a delay of about 2208 days. The assessee submitted that there will not be case of any non-compliance now. We have considered the justification put forth by the assessee and we are satisfied with their adequacy. We are also conscious of the fact that no litigant gains by intentionally delaying its own matters. The Ld. DR did not pose any serious objections to the delay. Accordingly, we hereby condone the delay and proceed to adjudicate this appeal.
3.0 All the three appeals are revolving around a common issue and hence were heard together and are being adjudicated by this common order. The appeal vide for AY-2015-16 is taken as lead year for factual analysis. The decision taken therein shall apply mutatis mutandis to & 274 for AY’s-2016-17 & 2017-18 respectively. Page 3 of 19 , 273 – 274 / Del/2025 4.0 The only issue contested in the present appeal qua / Del / 2025, through its grounds of appeal are regarding the action of the Ld.AO in invoking provisions of section 201 and 201(1A) in the case of the assessee holding it as an assessee in default for not deducting TDS on commission payments allegedly made u/s 194H.
5.0 At this stage we deem it necessary to recapitulate brief factual matrix of the case as discerned from the order of lower authorities. A survey under TDS provisions u/s 133 (2A) was conducted upon the assessee on 07.11.2017. The assessee company has been granted permission by the RBI for operating a payment system for issuance and operation of prepaid instruments in India known as “Stored Value Card Wallet” where customers are provided payment facilities in connection with their stored value wallets maintained with the appellant. Thus, mobikwik is an e-wallet service provider company that processes the transaction that a customer undertakes through its installed App with the assistance of payment Gateways (PG) companies. In continuance of its business, the assessee uses two payment gateways company namely CC Avenues and Zaaki payment services pvt ltd. During the course of survey, it was noted that payments made to CC Avenues and Zaaki payment services pvt ltd were not exposed to TDS. The Ld.AO held that the payments made by the assessee fell within the mischief of section Page 4 of 19 , 273 – 274 / Del/2025 194H as commission payment and hence liable for deduction of TDS. Rejecting arguments of the assessee that RBI regulations, CBDT notification no.47 / 2016 dated 17.06.2016 support its case , the Ld.AO held the assessee to be in default. It was contended that a relationship of principal to agent existed between the assessee and CC Avenues and Zaaki payment services pvt ltd. Consequently, for AY-2015-16 the Ld.AO vide his order dated 19.03.2018 raised a demand u/s 201 and 201(1A) of Rs.19,82,522/-. On identical analogy the Ld.AO raised demand for AY-2016-17 and 2017-18. Aggrieved, the assessee filed appeal before the Ld.CIT(A) who concurred with the findings of the Ld.AO and confirmed the demand raised by the Ld.AO. While doing so, it was, inter-alia, concluded that the two payment gateways were acting on behalf of the assessee and therefore the assessee was liable for tax deduction.
6.0 Per contra the Ld.DR relied upon the order of lower authorities. It was argued that CBDT notification no.47 / 2016 dated 17.06.2017 is not applicable in the case of the assessee. It was, inter-alia, urged that as the twin gateway payments were acting on behalf of appellant, a relationship of principal to agent arose and hence deduction of TDS became mandatory.
Page 5 of 19 , 273 – 274 / Del/2025 7.0 We have heard the rival submissions in the light of material available on records. It is the case of the assessee that the lower authorities have misunderstood the facts of the case while holding the assessee in default. In support of its contentions, the appellant assessee has filed a detailed paper book, inter – alia, comprising agreements with the payment gateways, (PGs), CBDT notifications and Judicial Precedents. The principal argument taken by the assessee is that there is no principal to agent relationship existing between the assessee and the two payment gateways. The Ld.Counsel for the assessee took us through the contractual agreements entered between the assessee and the two payment gateways to allude that a principal to principal relationship is existing between two parties. Thus, for Zaakpay and CC Avenues, reliance was placed on para 27.2 and 17.4 of the agreement placed at page 94 and 65 of the paper book conveying that the assessee and the PGs are independent parties and no relationship of principal to agent subsist between them. Again, through other provisions of the agreement it was argued that there is total absence of control or any supervision between assessee and its PGs and that the latter are in the capacity of an independent contractor. Drawing references to the terms of the contract the Ld.Counsel argued that the PGs are entitled to their own fees and charges, for providing services to the assessee and the same was deducted before remitting
Page 6 of 19 , 273 – 274 / Del/2025 amounts due to the assessee. The Ld.Counsel for the assessee defended the indemnity clause appearing in the agreement by stating that it is a standard risk mitigation practice incorporated in all service agreements and cannot be construed to indicate any agency relationship. The Ld.Counsel argued that the original order / requirement from the customer is received by the assessee which subsequently gets transmitted to the PGs for processing. It is not a case where the PGs are directly dealing with any clients / customers of the assessee. The Ld.Counsel invited our attention to the RBI circular issued in March 2020 stipulating that PG companies are outsourcing partners and the ultimate responsibility for transaction always rests upon the main service provider or the e-wallet company. The Ld.Counsel argued that existence of a principal agency relationship is sina qua non for invocation of provisions of section 194H r.w.s. 201 / 201(1A). Reliance was placed upon the decision of Hon’ble Gujarat High Court in its decision in the case of Ahmadabad Stamp Vender Association 257 ITR 202.
8.0 In support of its contentions, the Ld.Counsel placed reliance upon a plethora of judicial pronouncements as supporting its case. It was argued that Hon’ble Apex Court in the case of Bharti Cellular Limited has also held that principal agency relationship is sina qua non for invocation of provisions
Page 7 of 19 , 273 – 274 / Del/2025 of section 194H r.w.s. 201 / 201(1A). Thus, reference was invited to para 6 of the order.
….6. It is settled by a series of judgments of this Court that the expression 'acting on behalf of another person'postulates the existence of a legal relationship of principal and agent, between the payer and therecipient/payee.5 The law of agency is technical. Whether in law the relationship between the parties is that of principal-agent is answered by applying Section 182 of the Contract Act, 18726. Therefore, the obligation todeduct tax at source in terms of Section 194-H of the Act arises when the legal relationship of principal-agentis established. It is necessary to clarify this position, as in day-to-day life, the expression 'agency' is used toinclude a vast number of relationships, which are strictly, not relationships between a principal and agent… Again, the Ld.Counsel drew attention to para 8 and 9 of the impugned order holding as under:-
“….8. Agency is therefore a triangular relationship between the principal, agent and the third party. In order tounderstand this relationship, one has to examine the inter se relationship between the principal and the thirdparty and the agent and the third party. When we examine whether a legal relationship
Page 8 of 19 , 273 – 274 / Del/2025 of a principal and agentexists, the following factors/aspects should be taken into consideration:(a) The essential characteristic of an agent is the legal power vested with the agent to alter hisprincipal's legal relationship with a third party and the principal's co-relative liability to have hisrelations altered.7(b) As the agent acts on behalf of the principal, one of the prime elements of the relationship is theexercise of a degree of control by the principal over the conduct of the activities of the agent. Thisdegree of control is less than the control exercised by the master on the servant, and is differentfrom the rights and obligations in case of principal to principal and independent contractorrelationship.(c) The task entrusted by the principal to the agent should result in a fiduciary relationship. Thefiduciary relationship is the manifestation of consent by one person to another to act on his or herbehalf and subject to his or her control, and the reciprocal consent by the other to do so.8(d) As the business done by the agent is on the principal's account, the agent is liable to render accounts thereof to the principal. An agent is entitled to remuneration from the principal for the work he performs for the principal.
At this stage, three other relevant aspects/considerations should be noted. First is the difference between'power' and 'authority'. The two terms though connected, are not synonymous. Authority refers to a factualposition, that is, the terms of contract between the two parties. The power of the agent Page 9 of 19 , 273 – 274 / Del/2025 however, is not, strictlyspeaking, conferred by the contract or by the principal but by the law of agency. When a person givesauthority to another person to do the acts which bring the law of agency into play, then, the law vests powerwith the agent to affect the principal's legal relationship with the third parties. The extent and existence of thepower with the agent is determined by public policy. The authority, as observed above, refers to the factualsituation. The second consideration is that the primary task of an agent is to enter into contracts on behalf ofhis principal, or to dispose of his principal's property. The factors mentioned in clauses (b) to (d) in paragraph8 above flow, and are indicia of this primary task. Clauses (b) to (d) of paragraph 8 are useful as tests orstandards to examine the true nature or character of the relationship. Lastly, the substance of the relationshipbetween the parties, notwithstanding the nomenclature given by the parties to the relationship, is of primaryimportance. The true nature of the relationship is examined by reference to the functions, responsibility andobligations of the so-called agent to the principal and to the third parties….”
9.0 The Ld.Counsel argued that Hon’ble Delhi High Court in the case of Make My Trip India Pvt Ltd as at 104 taxmann.com 263 has, relying upon the aforementioned decisions, held that services provided by PGs falls in the Page 10 of 19 , 273 – 274 / Del/2025 realm of fees and not commission. Thus, Hon’ble High Court held as under:-
“….9. The decision in JDS Apparels ( P) Ltd. (supra) holds that in a similar kind of transaction, the amountretained by the bank is a fee charged for having rendered banking services and "cannot be treated as acommission or brokerage paid in course of use of any services by a person acting on behalf of another forbuying or selling of goods." The ITAT has, in view of this Court rightly, held that the services provided by thepayment gateway is such that the charges collected by it has to be necessarily treated as fees and not as acommission. The payment in fact is made by one principal to another and it is only being facilitated by thepayment gateway by providing a service. The following observation of this Court in JDS Apparels (P) Ltd.(supra) equally applies to the case on hand:
16. The amount retained by the bank is a fee charged by them for having rendered the banking servicesand cannot be treated as a commission or brokerage paid in course of use of any services by a personacting on behalf of another for buying or selling of goods. The intention of the legislature is to includeand treat commission or brokerage paid when a third person interacts between the seller and the buyer asan agent and thereby renders services in Page 11 of 19 , 273 – 274 / Del/2025 the course of buying and/or selling of goods. This happens whenthere 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 ofgoods. 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 oreven 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. HDFC in this case, after retaining a small portion of the same as their charges. The banking services cannot be covered and treatedas 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….
10.0 In the case of Corporation Bank, Hon’ble Karnataka High Court relying upon JDS apparels held that Page 12 of 19 , 273 – 274 / Del/2025 “….7. Now we may advert to the facts of the case in hand. In case the credit card issued by the assessee was usedon the swiping machine of another bank, the customer whose credit card was used got access to internetgateway of acquiring bank resulting in realization of the payment. Subsequently, the acquiring bank realizeand recover the payment from the bank, which had issued the credit card. The relationship between theassessee and any other bank is not of an agency but that of two independent basis on principal- principal basis.Even assuming that the transaction was being routed to National Financial Switch and Cash Tree, then also itis pertinent to mention here that the same is a consortium of banks and no commission or brokerage is paid toit. It does not act as an agent for collecting charges. Therefore, we concur with the view taken by the Highcourt of Delhi in JDS Apparels supra and hold that provisions of section 194H of the Act are not attracted tothe fact situation of the case. In the result, the third substantial question of law is also answered against therevenue and in favour of the assessee. In the result, we do not find any merit in this appeal, the same fails andis hereby dismissed…”
11.0 The Ld.Counsel also drew attention to the decision of Coordinate bench of the Bangalore tribunal in the case of Knowledge Hut Solutions as at 466 / Bang / 2023
Page 13 of 19 , 273 – 274 / Del/2025 “….
On merit we have heard the Ld.Counsel appearing for theassessee. According to him, TDS is also not liable deductedon whole receipts. On this aspect, he has relied upon certainjudgments. TDS u/s. 194H has to be made on thecommission part and not on the whole receipts as the crux ofhis arguments. The addition therefore, has been made onlyon estimation basis and thus liable to be deleted.
Moreso, the appellant paid Rs. 16,76,041/- andRs.9,76,530/- towards the gateway payment charges to thesaid M/s. Razor Pay and M/s. Avenue India Pvt. Ltd. andalso filed reconciliation statement of commission expenseswith books of accounts and the TDS returns filed by the appellant……………………………………………………………………………… …………………………………………………………………………………………
Further the Hon’ble Delhi High Court in case of PCIT vs.Make My Trip India (P.) Ltd. (supra) has observed as follows:
16. The amount retained by the bank is a fee charged bythem for having rendered the banking services and cannotbe treated as a commission or brokerage paid in course ofuse of any services by a person acting on behalf of anotherfor buying or selling of goods. The intention of thelegislature is to Page 14 of 19 , 273 – 274 / Del/2025 include and treat commission or brokeragepaid when a third person interacts between the seller andthe buyer as an agent and thereby renders services in thecourse of buying and/or selling of goods. This happenswhen there is a middleman or an agent who interacts onbehalf of one of the parties, helps the buyer/seller to meet,or participates in the negotiations or transactions resultingin the contract for buying and selling of goods. Thus, therequirement of an agent and principal relationship. This isthe exact purport and the rationale behind the provision.The bank in question is not concerned with buying orselling of goods or even with the reason and cause as towhy the card was swiped. It is not bothered or concernedwith the quality, price, nature, quantum etc. of the goodsbought/sold. The bank merely provides banking servicesin the form of payment and subsequently collects thepayment. The amount punched in the swiping machine iscredited to the account of the retailer by the acquiringbank, i.e. HDFC in this case, after retaining a small portionof the same as their charges. The banking services cannotbe covered and treated as services rendered by an agentfor the principal during the course of buying or selling ofgoods as the banker does not render any service in thenature of agency.
From the case in hand, we find that the parties are serviceproviders who collect fees from participants and they collectgateway payment commission Page 15 of 19 , 273 – 274 / Del/2025 from the appellant afterreturning the gateway charges they transfer the balanceamount collected from the participants to the appellant.
We find that the payments made to gateway providers are not brokerage and TDS u/s. 194H of the Act is not liable to be deducted.
Thus taking into consideration the entire aspect of the matter and respectfully relying on the judgment passed by thedifferent forums, we find that in the present facts andcircumstances of the matter, TDS is not liable to be madeu/s. 194H. The addition, is, therefore, deleted….”
10.0 Defending its case of reliance upon the CBDT notification no.47 / 2016 dated 17.06.2016 it was pleaded that as PG charges are similar in nature to a credit or debit card commission such charges get covered by the impugned notification as held by Hon’ble Delhi High Court in the case of Make my trip supra. The Ld.Counsel argued that CBDT notification No.56 / 2012 dated 31.12.2012 also postulates that no TDS is deductible on such payments.
11.0 We find sufficient force in the argument of the assessee regarding the non-existence principal to agency relationship between the assessee and the two PGs. We have also noted that the assessee’s case is covered by the Page 16 of 19 , 273 – 274 / Del/2025 decisions as well as CBDT instruction discussed hereinabove. We are therefore of the considered view that the provisions of section 194H r.w.s. 201 and 201(1A) are not attracted in this case. Accordingly, we set aside the order of the lower authorities and direct the Ld.AO to delete the impugned demand raised u/s 201 and 201(1A) for AY-2015-16. All the grounds of appeal raised by the assessee are therefore allowed.
12.0 In the result the appeal of the assessee vide is allowed.
As stated above, the facts in assessee’s appeal vide for AY-2015-16 are reported to be identical to those in & 274 / Del / 2025 supra. No distinguishment of facts was pointed out by the Revenue. Consequently the decision taken in for AY-2015-16 shall apply mutatis mutandis in ITA Nos.273 & 274 / Del / 2025 also. Accordingly, in the impugned appeals also, we set aside the order of the lower authorities and direct the Ld.AO to delete the impugned demand raised u/s 201 and 201(1A) for AY-2016-17 & 2017-18 All the grounds of appeal raised by the assessee are therefore allowed.
Page 17 of 19 , 273 – 274 / Del/2025 14.0 In the result the appeal of the assessee vide & 274/Del/2025 are also allowed.
Order pronounced in open court on 26.09.2025.