Payments made to payment gateway like CC Avenues are not subject to TDS
M/s. One Mobikwik Systems Ltd. Exonerated from TDS Liability on Payments to Payment Gateway Companies, ITAT Delhi Bench Rules No Principal-Agent Relationship Exists; Exempts Mobikwik from Section 194H Obligations
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Delhi Bench has absolved M/s. One Mobikwik Systems Ltd. from the obligation to deduct Tax Deducted at Source (TDS) on payments made to payment gateway companies under Section 194H of the Income Tax Act, 1961. The tribunal concluded that the relationship between Mobikwik and the payment gateway companies, namely CC Avenues and Zaaki Payment Services Pvt. Ltd., is on a principal-to-principal basis rather than a principal-agent basis, thereby exempting such payments from the purview of Section 194H.
The case revolved around whether payments made by Mobikwik to these payment gateways constituted commission payments subject to TDS under Section 194H. The Joint Commissioner of Income Tax (OSD) had earlier deemed Mobikwik in default for not deducting TDS on these transactions, arguing that a principal-agent relationship existed.
In its judgment, the ITAT highlighted the contractual agreements between Mobikwik and the payment gateways, which established an independent contractor relationship rather than an agency relationship. The tribunal referred to multiple judicial precedents and CBDT Notification No. 47/2016, which supports the view that payments to payment gateways are fees for services rather than commissions. The tribunal emphasized that for Section 194H to apply, a principal-agent relationship is a sine qua non, which was not present in this case.
The tribunal's decision effectively sets aside the orders of the lower authorities and directs the deletion of the TDS demand raised under Sections 201 and 201(1A) for the assessment years 2015-16, 2016-17, and 2017-18. This judgment aligns with similar rulings in cases involving MakeMyTrip and others, reinforcing the stance that payment gateway charges are akin to credit or debit card commissions and thus exempt from TDS under the relevant CBDT notification.
Bottom Line:
Payments made to payment gateway (PG) companies like CC Avenues and Zaaki Payment Services Pvt. Ltd. are not subject to TDS under Section 194H of the Income Tax Act, 1961, as there is no principal-agent relationship between the assessee and the payment gateways.
Statutory provision(s): Income Tax Act, 1961 Sections 194H, 201, 201(1A), CBDT Notification No. 47/2016
