One Mobikwik Systems Ltd. Vs JCIT (OSD) (ITAT Delhi)
Payment Gateway Is a Service Provider, Not an Agent: No TDS u/s 194H on Gateway Charges Paid to CC Avenue & Zaakpay
The Delhi ITAT has held that payment gateway charges paid by an e-wallet company to payment gateway service providers cannot be treated as commission or brokerage liable for TDS u/s 194H where the parties operate on a principal-to-principal basis. Since the payment gateways were independent service providers and did not act as agents of the assessee, the assessee could not be treated as an assessee-in-default u/s 201 and 201(1A).
One Mobikwik Systems Ltd. was authorised by the RBI to operate a payment system involving prepaid instruments described as a Stored Value Card Wallet. Customers used Mobikwik’s application to undertake transactions, which were processed with the assistance of payment gateway companies. For this purpose, Mobikwik availed the services of CC Avenue and Zaakpay Payment Services Pvt. Ltd.
During a TDS survey conducted u/s 133(2A) on 07.11.2017, the Department noticed that Mobikwik had not deducted tax from the payments or charges retained by these payment gateway companies. The AO treated the amounts as commission within the meaning of Section 194H, holding that the payment gateways were acting on behalf of Mobikwik and that a principal-agent relationship existed between them.
