Meal-voucher redemption payments to affiliates are not contractor payments under section 194C when the assessee acts only as facilitator.

Payments made by a regulated meal-voucher facilitator to affiliates on redemption of vouchers were not payments for carrying out work under section 194C because the assessee merely held customer funds in escrow and remitted the voucher value to merchants supplying goods. The service charges were taxed separately, and the redemption remittances did not fit the contractor-work nexus required for TDS under section 194C. Accordingly, the proposed liability under sections 201(1) and 201(1A) was not sustainable on this factual and regulatory structure.

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Issues: Whether the payments made by the assessee to affiliates on redemption of meal vouchers were payments for carrying out work within the meaning of section 194C of the Income-tax Act, 1961, so as to require deduction of tax at source and attract liability under sections 201(1) and 201(1A).

Analysis: The assessee operated a semi-closed prepaid payment system authorised under the Payment and Settlement Systems Act, 2007. The amount received from customers towards the face value of meal vouchers was required to be kept in escrow and could be used only for reimbursing affiliates on redemption of the vouchers. The service charges earned by the assessee were offered to tax separately. On the factual and regulatory scheme, the assessee functioned only as a facilitator or medium of payment, while the affiliates received payment for goods supplied to the employees of customers. The Court noted that section 194C applies to payments to contractors for carrying out work, including the extended categories in its Explanation, and the redemption value paid to affiliates did not answer that description. The distinction drawn by the Revenue between caterers and other affiliates did not alter the position, since tax had been deducted on caterer payments and the remaining payments were not shown to be for work done for the assessee.

Conclusion: The payments made to affiliates towards the face value of meal vouchers were not subject to deduction of tax at source under section 194C, and the demand raised under sections 201(1) and 201(1A) was not sustainable.

Ratio Decidendi: Where an assessee merely acts as a regulated payment facilitator and remits escrowed voucher value to merchants on redemption, such remittance is not payment for carrying out work under section 194C.

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