TDS under section 194H not applicable on fees paid to e-commerce platforms for technological services

ITAT Jaipur held that TDS under section 194H was not applicable on fees paid to e-commerce platforms. The tribunal ruled that the relationship between the assessee and e-commerce platform was principal-to-principal, not agent-principal. The platform fee deducted for e-commerce services did not constitute commission or brokerage requiring TDS deduction. The platform was not involved in actual buying/selling of goods but merely provided technological services. Since the platform paid taxes on its income and there was no revenue loss, the disallowance under section 40(a)(ia) was deleted.

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Issues Involved:

1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Applicability of Section 194H regarding Tax Deducted at Source (TDS) on commission payments.
3. Admission of additional evidence under Rule 29 of the ITAT Rules, 1963.

Issue 1: Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961

The primary issue in this case was the disallowance of Rs. 30,18,426/- under Section 40(a)(ia) of the Income Tax Act, 1961, due to the alleged failure of the assessee to deduct TDS on commission payments made to e-commerce platforms. The Assessing Officer (AO) applied the provisions of Section 40(a)(ia) which mandates a disallowance of 30% of any sum payable to a resident on which tax is deductible at source under Chapter XVII-B if such tax has not been deducted or paid. The CIT(A) upheld the AO's decision, leading the assessee to appeal further. The Tribunal examined the flow of transactions and the nature of deductions made by e-commerce platforms, concluding that the disallowance was not justified as the assessee was not in control of the payment flow, which was routed through the platforms.

Issue 2: Applicability of Section 194H regarding TDS on Commission Payments

The Tribunal considered whether Section 194H, which mandates TDS on commission or brokerage payments, applied to the assessee's transactions with e-commerce platforms. The Tribunal referred to precedents, notably the Delhi High Court's judgment in PCIT vs. Make My Trip India (P) Ltd., which clarified that amounts retained by payment gateways or similar entities are fees for services rendered, not commissions or brokerages. The Tribunal found that the relationship between the assessee and the e-commerce platforms was on a principal-to-principal basis, not as agent and principal, thus Section 194H was not applicable. The e-commerce platforms were not acting as agents of the assessee, and the fees retained were for services rendered, not commissions.

Issue 3: Admission of Additional Evidence under Rule 29 of the ITAT Rules, 1963

The assessee filed an application under Rule 29 of the ITAT Rules, 1963, to admit additional evidence, including Form No. 26A from Amazon Seller Services Pvt. Ltd. and Flipkart Internet Pvt. Ltd. This evidence was crucial as it covered a significant portion of the disputed amount. The Tribunal accepted the additional evidence, finding the reasons for its non-submission earlier to be satisfactory. The Tribunal considered the evidence in light of Section 201(1) of the Act, which provides that a person shall not be deemed an assessee in default if the payee has furnished their return of income and paid the due tax. The Tribunal concluded that the conditions under Section 201(1) were met, thereby allowing the assessee's appeal.

Conclusion:

The Tribunal allowed the appeal of the assessee, ruling that the disallowance under Section 40(a)(ia) was not justified given the nature of the transactions and the relationship with the e-commerce platforms. It held that Section 194H was not applicable as the platforms were not acting as agents of the assessee. Moreover, the additional evidence submitted by the assessee was duly accepted, supporting the assessee's compliance with tax obligations. The appeal was thus allowed, and the disallowance was deleted.

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