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of <h1>Payments to payment-gateway companies not liable to TDS under Section 194H; payer not defaulting under Sections 201/201(1A)</h1> ITAT (DEL) held that payments made to payment-gateway companies were not subject to TDS under section 194H and the assessee was not a defaulting payor ... TDS on Commission u/s 194H - Addition invoking provisions of section 201 and 201(1A) - 'assessee in default' for not deducting TDS - Payments made to CC Avenues and Zaaki payment services - Payment Gateways (PG) companies - Operating a payment system for issuance and operation of prepaid instruments in India known as “Stored Value Card Wallet” where customers are provided payment facilities in connection with their stored value wallets maintained with the appellant. - HELD THAT:- We find sufficient force in the argument of the assessee regarding the non-existence principal to agency relationship between the assessee and the two PGs. We have also noted that the assessee’s case is covered by the decisions as well as CBDT instruction discussed hereinabove. We are therefore of the considered view that the provisions of section 194H r.w.s. 201 and 201(1A) are not attracted in this case. Accordingly, we set aside the order of the lower authorities and direct the Ld.AO to delete the impugned demand raised u/s 201 and 201(1A) for AY-2015-16. All the grounds of appeal raised by the assessee are therefore allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the assessee is an assessee-in-default under sections 201 and 201(1A) for failure to deduct TDS under section 194H on amounts paid to payment gateway service providers. 2. Whether the relationship between the assessee and the payment gateway providers is that of principal-agent (bringing payments within section 194H) or principal-principal/independent contractor (charging fees not commission), having regard to contractual terms, RBI/CBDT notifications and judicial precedents. 3. Whether delay in filing appeals attributable to initial composite filing and subsequent delinking is condonable for purposes of tribunal adjudication. ISSUE-WISE DETAILED ANALYSIS Issue 3 - Delay in filing appeals: Legal framework - The tribunal considered the principles governing condonation of delay in filing appeals where delay arose from administrative/filing procedures and subsequent requirement to file separate appeals after initial composite filing. - Precedent Treatment: The assessee relied on High Court and ITAT decisions recognising composite/common appeals practice; the tribunal treated those precedents as supporting the assessee's position on reasonableness of initial joint filing. - Interpretation and reasoning: The tribunal accepted the explanation that the delay (2208 days) flowed from initial filing of a composite appeal followed by registry advice to file separate appeals and subsequent delinking, finding the delay neither willful nor wanton. The Revenue raised no serious objection. - Ratio vs. Obiter: Ratio - administrative delinking and reliance on established practice can constitute sufficient cause to condone delay where no mala fide or dilatory conduct is shown. This is a dispositive finding in the present proceedings. - Conclusion: Delay condoned; appeals admitted for adjudication on merits (cross-reference: Issues 1-2 where merits addressed after condonation). Issue 1 & 2 (grouped) - Applicability of sections 194H, 201 and 201(1A): Legal framework - Sections considered: Section 194H (TDS on commission or brokerage), and consequences under sections 201 and 201(1A) for failure to deduct and deposit tax at source. - Principles: Liability to deduct under section 194H requires that the payment be commission/brokerage arising from a principal-agent legal relationship; mere facilitation or provision of payment services by a third party ordinarily amounts to fee for services (principal-principal/independent contractor) and not commission triggering 194H. Precedent Treatment (followed/distinguished) - Followed: The tribunal relied on higher-court decisions establishing that 'acting on behalf of another person' demands a legal principal-agent relationship (law of agency, Section 182 Contract Act principles) and that payment gateway/banking charges often constitute fees for services rather than commission liable under section 194H. - Followed: Decisions holding that banking/payment gateway charges are fees (not commission) where gateways do not perform agent functions (do not alter principal's legal relations or act in a fiduciary capacity), and that factual substance outweighs nomenclature. - Distinguished/Not applied: The Revenue's contention that notification/exemptions (CBDT) are inapplicable was considered and rejected on facts where notification and judicial interpretations treated similar gateway/processing charges as fee-like and outside section 194H. Interpretation and reasoning - factual and contractual analysis - Contractual terms were examined (agreement clauses cited) showing: (a) parties described as independent, (b) absence of control/supervision characteristic of agency, (c) payment gateways entitled to their own fees and deduct such fees before remittance, and (d) indemnity clauses characterized as standard risk-mitigation, not indicia of agency. - Functional assessment: The assessee receives the original instruction from the customer and transmits it to PGs for processing; PGs provide payment processing services and retain contractual charges - they do not negotiate or contract on behalf of the assessee with end-customers, do not create fiduciary obligations or exercise legal power to alter the assessee's legal relations with third parties. - Regulatory context: RBI circulars and CBDT notifications were considered; the tribunal noted regulatory recognition of PGs as outsourcing/processing partners with ultimate responsibility resting on principal service provider, supporting characterization of PG charges as service fees rather than agency commission (cross-reference: precedents relied upon in analysis). Ratio vs. Obiter - Ratio: Where payment gateway service providers act as independent contractors and not as agents (no power/authority to alter principal's legal relations, no fiduciary/accounting obligations to principal, contractual independence and fee structure), amounts retained by them are fees for services and do not attract TDS under section 194H; consequently sections 201 and 201(1A) cannot be invoked against the payer for non-deduction. - Obiter: Observations on standard indemnity clauses being benign and on administrative practices of composite filings are instructive but ancillary to the dispositive agency analysis. Conclusions - The impugned finding of assessee being an assessee-in-default under sections 201 and 201(1A) for failure to deduct TDS under section 194H was set aside for AY-2015-16 on the ground that no principal-agent relationship existed between the assessee and the two payment gateways; payments constituted fees for services, not commission. - The tribunal directed deletion of demands raised under sections 201 and 201(1A) for AY-2015-16, and applied the same reasoning mutatis mutandis to AY-2016-17 and AY-2017-18, allowing those appeals as well. - Administrative finding: Delay in filing the separately docketed appeals was condoned on the facts, permitting merit adjudication (see Issue 3).
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