Tribunal rules in favor of assessee on Payment Gateway Charges but upholds disallowance of depreciation.

The Tribunal partly allowed the assessee's appeal, ruling in favor of the assessee regarding the disallowance under section 40(a)(ia) for Payment Gateway Charges, stating that the charges were not liable for TDS. However, the disallowance of depreciation on certain computer peripherals was upheld, with only eligible items receiving higher depreciation. The Tribunal's decision was pronounced on 26th September 2017.

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Issues Involved:
1. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961 for Payment Gateway Charges.
2. Disallowance of depreciation on computer peripherals.

Issue-wise Detailed Analysis:

1. Disallowance under section 40(a)(ia) of the Income Tax Act, 1961 for Payment Gateway Charges:

The primary contention was the disallowance of Rs. 12,52,49,946/- under section 40(a)(ia) for non-deduction of TDS under section 194H on payment gateway charges. The assessee argued that these charges paid to banks like HDFC, ICICI, American Express, and Citi Banks were not in the nature of "commission" or "brokerage" as defined under section 194H. The payment gateways facilitated secure, automatic, and instant fund settlements for e-commerce transactions without manual intervention. The AO, however, treated these payments as commission, asserting that the banks were acting on behalf of the assessee in collecting payments from customers.

The CIT (Appeals) upheld the AO's decision, except for payments to Citi Bank and American Express Bank, as they had 'NIL' TDS certificates under section 195(3), indicating no obligation for TDS on these payments. The assessee cited the ITAT's previous decisions and the Delhi High Court's ruling in CIT Vs. JDS Apparels Pvt. Ltd., which held that such charges were not liable for TDS under section 194H. The Tribunal agreed with the assessee, referencing the High Court's decision that the relationship between the banks and the assessee was on a principal-to-principal basis, not an agency relationship, and therefore, section 194H was not applicable. Consequently, the Tribunal deleted the addition, ruling in favor of the assessee.

2. Disallowance of depreciation on computer peripherals:

The second issue involved the disallowance of Rs. 1,63,257/- due to the rate of depreciation on computer peripherals. The assessee claimed depreciation at 60% on items like routers, printers, UPS batteries, and modems, categorizing them as part of the "Computer including software" block. The AO allowed only 15% depreciation, treating these items as plant and machinery. The CIT (Appeals) partially allowed the assessee's claim, recognizing most items as computer peripherals eligible for 60% depreciation but excluded items like digital call logger boards, software protection, Nortel equipment, head-sets, and time attendance systems, which were not considered computer peripherals.

The Tribunal upheld the CIT (Appeals)'s decision, agreeing that the excluded items did not meet the criteria for computer peripherals as defined under the Income Tax Rules. The Tribunal found no error in the CIT (Appeals)'s judgment and confirmed the partial allowance of higher depreciation on eligible items, dismissing the ground of the assessee.

Conclusion:

The Tribunal's judgment concluded with the appeal of the assessee being partly allowed, providing relief on the issue of payment gateway charges but upholding the partial disallowance of depreciation on certain computer peripherals. The order was pronounced on 26th September 2017.

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