CA Prasun Kumar Bhattacharyya
Section 194O of the Income Tax Act, 1961 (Act), introduced by the Finance Act, 2020, effective from October 1, 2020 mandates the following, which warrants a definite relook into the provisions for appropriate amendments/deletions thereof :-
The full Section runs as follows :-
| Payment of certain sums by e-commerce operator to e-commerce participant. |
| 194-O. (1) Notwithstanding anything to the contrary contained in any of the provisions of Part B of this Chapter, where sale of goods or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility or platform (by whatever name called), such e-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier, deduct income-tax at the rate of one per cent of the gross amount of such sales or services or both.
Explanation.—For the purposes of this sub-section, any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant for the sale of goods or provision of services or both, facilitated by an e-commerce operator, shall be deemed to be the amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sale or services for the purpose of deduction of income-tax under this sub-section. (2) No deduction under sub-section (1) shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of an e-commerce participant, being an individual or Hindu undivided family, where the gross amount of such sale or services or both during the previous year does not exceed five lakh rupees and such e-commerce participant has furnished his Permanent Account Number or Aadhaar number to the e-commerce operator. (3) Notwithstanding anything contained in Part B of this Chapter, a transaction in respect of which tax has been deducted by the e-commerce operator under sub-section (1), or which is not liable to deduction under sub-section (2), shall not be liable to tax deduction at source under any other provision of this Chapter: Provided that the provisions of this sub-section shall not apply to any amount or aggregate of amounts received or receivable by an e-commerce operator for hosting advertisements or providing any other services which are not in connection with the sale or services referred to in sub-section (1). (4) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty. (5) Every guideline issued by the Board under sub-section (4) shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the e-commerce operator. (6) For the purposes of this section, e-commerce operator shall be deemed to be the person responsible for paying to e-commerce participant. Explanation.—For the purposes of this section,— |
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| (a) | “electronic commerce” means the supply of goods or services or both, including digital products, over digital or electronic network; |
| (b) | “e-commerce operator” means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce; |
| (c) | “e-commerce participant” means a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce; |
| (d) | “services” includes “fees for technical services” and fees for “professional services”, as defined in the Explanation to section 194J.] |
While analyzing the above, it is found that Section 194O(1) lays out harmlessly as follows :-
“Notwithstanding anything to the contrary contained in any of the provisions of Part B of this Chapter, where sale of goods or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility or platform (by whatever name called), such e-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier, deduct income-tax at the rate of one per cent of the gross amount of such sales or services or both.”
Basically there are 3 zones to the above
1) There has to be an “e-commerce operator” and an “e-commerce participant” – 2 distinct entities wherein sale of goods or provision of services of the e-commerce participant is facilitated by the e-commerce operator through its digital or electronic facility or platform.
2) The ultimate action of TDS warranted under this section is to be effectuated by the “e-commerce operator”
3) The TDS is to be effected by the “e-commerce operator”, “at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier”. In short, there has to be the logistical scope and opportunity of the “e-commerce operator” to:-
(a) credit amount of sale or services or both to the account of the e-commerce participant, AND
(b) make payment thereof to such e-commerce participant by any mode
to enable the “e-commerce operator” to deduct the Income tax at source. In other words, if the logistical scope or opportunity of the “e-commerce operator” to credit AND make payment to the “e-commerce participant” is not there, this Section ought not to have any bearing on any of the parties for any compliance under this section.
However, by providing the following Explanation to the above section, the main operative part of the section, i.e. in this case, zone no. 3) above, has been rendered totally redundant and ineffective, which cannot be a position in any statute.
An “Explanation” to the main section cannot negate or override or enlarge the section in such a manner so as to make the very pertinent “happening” attracting the compliance of the section, as “deemed to have happened”, in spite of such happening not taking place. Before venturing further, a critical look at this “Explanation” is required and the same runs as follows :-
| “Explanation.—For the purposes of this sub-section, any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant for the sale of goods or provision of services or both, facilitated by an e-commerce operator, shall be deemed to be the amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sale or services for the purpose of deduction of income-tax under this sub-section.” |
Where by the very premises of the Explanation, the framer of the law admits and acknowledges the position that payment is being made by the purchaser directly to the “e-commerce participant”, wherefrom will the “e-commerce operator” deduct the income tax at source – how can this action of the purchaser be “deemed” to be the amount credited or paid by the e-commerce operator to the e-commerce participant.
In fact, circumstances and contracts do exist whereby the payment moves in the REVERSE DIRECTION from the “e-commerce participant” to the “e-commerce operator”
In the above cases, when there is no source to deduct the Income tax from.
Section 194O falls under Chapter XVII of the Income Tax Act, 1961. The introductory section therein (in this Chapter XVII) being Section 190 states as follows :-
| Deduction at source and advance payment.
190. (1) Notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction or collection] at source or by advance payment or by payment under sub-section (1A) of section 192, as the case may be, in accordance with the provisions of this Chapter. (2) Nothing in this section shall prejudice the charge of tax on such income under the provisions of sub-section (1) of section |
The header label says it all. The intent is spelt out in the Section (the word “source” has been stated in bold) . Now Section 194O being subservient to Section 190 and a part of this Chapter XVII, cannot break the basic fabric of presence of a “source” to be at the disposal of the payer (Deductor) to make “payment” to the payee (Deductee) for effectuating the “deduction” of income tax at source as has been mandated in Section 190
Further, in many cases, the e-commerce operator simply provides the e-platform only to the bidders for auction of products of the e-participant against a simple fees from the e-participant which may/may not be directly recoverable from the bidders by the e-commerce operator for providing the platform.
The end of bidding and payment flows for such simple fees to the e-commerce operator as per the arrangement/contract between the e-participant and e-commerce operator ends the transaction and relationship inter se the e-commerce operator and the e-participant.
The contract between the bidder and the e-participant and movement of payment thereof between the bidder/purchaser becomes a matter of privity inter se themselves (e-participant and successful bidder). The e-commerce operator has no control or knowledge of at which time and for what quantum, payment is actually effected by the by the successful bidder to the e-participant, so how, for how much and at what juncture does the e-commerce operator by virtue of the Explanation to Section 194O(1) provided, effectuate the deduction of tax at source.
Taking the issue further, the terms of bidding itself may be of approximate quantities, may be subject to escalation with time, be a futuristic issue between the bidder and the e-participant the actual amount may stand crystallized after years. The movement of payment thereof between the bidder/purchaser remains a matter of privity inter se themselves (e-participant and successful bidder). The e-commerce operator remains incapable of exercising any control or knowledge of contractual performance or the payment whenever it is actually effected by the successful bidder to the e-participant, so here also the question arises as to how, for how much and at what juncture does the e-commerce operator by virtue of the Explanation to Section 194O(1) provided, effectuate the deduction of tax at source.
It is not clear as to in what manner, the framer of the “Explanation” portion in this section intends having the compliance. This Explanation is not in tune with the Chapter in which it is situated and certainly merits deletion.
Fortunately, the framer did have the inkling of the impossibility of compliance to this section and in Section 194O (4), we do have this window that “If any difficulty arises in giving effect to the provisions of this section, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty”
It’s time the Board does get into the issue and provides the due treatment this Explanation deserves.
(Author was Chairman of Eastern India Regional Council, The Institute of Chartered Accountants of India in 2012-13)
