MakeMyTrip not liable to deduct TDS from Payment Gateway Charges paid to Banks: Delhi HC deletes Addition of Rs. 12.5 Crores [Read Judgment]

MakeMyTrip - Supreme Court of India - Taxscan

In a significant ruling for online travel portals, the Delhi High Court has held that the assessee, Make My Trip was not liable to deduct TDS from the payment gateway charges paid to the Banks. The verdict confirmed the deletion of demand of Rs. 12,52,49,946/- made by the department under section 40(a)(ia) of the Income Tax Act.

The Assessee is engaged in the business of selling its travel products to the customers through the website makemytrip.com. A customer can log on to the Assessee’s website, choose from its various travel products displayed there. Once the customer enters into a transaction, payment therefor is made by using the facility of an Internet Payment Gateway, which automatically opens. The payment gateway, which is provided in this case by four banks viz., HDFC, ICICI, Citibank and American Express, electronically transfers the customer data to the credit card issuer through VISA / Master Card, for the approval of the issuer and consequently the amount is debited by the issuer to the cardholder. Instantly the payment gateway website confirms approval to the merchant/e-Commerce website and the transaction gets concluded. The net price after deduction of facility charges by the payment gateway is automatically credited to the bank account of the merchant. The amount retained by the payment gateway facility provider includes the charges for the facility of secured payment gateway and the charges of VISA/Mastercard.

The Assessing Officer noted that the said payment of payment gateway charges was subject to TDS and therefore, made an addition by invoking Section 40(a)(ia) of the Income Tax Act,1961.

The division bench comprising Justices S Muralidhar and I S Mehta noted that in the year 2012, the Central Government notified that no TDS shall be made on the following payments to the banks listed in the Second Schedule to the Reserve Bank of India Act. They are, (i) bank guarantee commission; (ii) cash management service charges; (iii) depository charges on maintenance of DEMAT accounts; (iv) charges for warehousing services for commodities; (v) underwriting service charges; (vi) clearing charges (MiCR charges); (vii) credit card or debit card commission for transaction between the merchant establishment and acquirer bank.

Upholding the ITAT order deleting the addition, the bench said that “The above notification was referred to in the order of the CIT (A) but not discussed. The assessee is right in contending that by virtue of the above notification no TDS is deductible from payments made towards “credit card or debit card commission for transaction between the merchant establishment and the acquirer bank”. This applies to the charges paid to the Banks for providing payment gateway in the case on hand.”

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