Additions under section 40(a)(ia) deleted: payment gateway charges to banks treated as banking fees, not commission under section 194H

HC upheld ITAT and ruled for the assessee, deleting additions under section 40(a)(ia) for non-deduction of TDS on payment gateway charges. The court held such charges paid to banks are fees for banking services, not commission under section 194H, and noted the Central Government notification of 31 December 2012 exempting TDS on specified payments to banks listed in the Second Schedule to the RBI Act. Accordingly, no TDS was deductible on the payment gateway/ card transaction charges paid to the banks.

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Issues:
1. Whether non-deduction of TDS on payment gateway charges under Section 40(a)(ia) of the Income Tax Act, 1961 is justifiedRs.

Analysis:
1. The appeal by the Revenue challenged an order by the ITAT regarding the addition of a specific amount under Section 40(a)(ia) of the Act for non-deduction of TDS on payment gateway charges.
2. The Assessee, engaged in selling travel products online, made payments to banks for payment gateway services, prompting the AO to disallow a significant amount under Section 40(a)(ia) as commission payments requiring TDS deduction.
3. The CIT (A) partially allowed the Assessee's appeal, distinguishing between payments to different banks based on TDS applicability, leading to a reduced disallowance.
4. The ITAT, in the impugned order, held that payment gateway charges were fees for banking services, not commission, thus rejecting the need for TDS deduction under Section 194 H of the Act, citing a relevant precedent.
5. The Revenue's attempt to distinguish the precedent was based on the nature of transactions, but the Court upheld the ITAT's decision, emphasizing the distinction between fees for services and commission or brokerage.
6. Referring to a notification exempting certain bank payments from TDS, the Court affirmed the ITAT's decision to delete the addition made by the AO, concluding that no substantial question of law arose for consideration.

This comprehensive analysis covers the key legal issues, arguments, and the Court's reasoning behind dismissing the appeal and upholding the ITAT's decision regarding TDS on payment gateway charges.

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