Dy. Commissioner of Income Tax , Circle-2(2), Hyderabad V. Head Infotech India Private Limited, Hyderabad

ITA 1014/Hyd/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8626 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-B
• Next Hearing Date: 30-03-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 21-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PAWAN KUMAR CHAKRA
• Keywords: TDS
• Section: 143(3); 40(a)(ia); 139(1)

Judgement Text

ITA NO1014 OF 2018 HEAD INFOTECH INDIA P LTD HYDERA BAD PAGE 1 OF 3 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD (THROUGH VIDEO CONFERENCING) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.1014/HYD/2018 ASSESSMENT YEAR: 2014-15 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 2(2) HYDERABAD VS. M/S. HEAD INFOTECH INDIA PRIVATE LIMITED, HYDERABAD PAN:AABCH6629L (APPELLANT) (RESPONDENT) REVENUE BY: SRI ROHIT MUJUMDAR, DR ASSESSEE BY : SRI PAWAN KUMAR CHAKRAPANI DATE OF HEARING: 23/06/2021 DATE OF PRONOUNCEMENT: 07/07/2021 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2014-15 AGAIN ST THE ORDER OF THE CIT (A)- 2, GUNTUR, DATED 16.03.20 18. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT(A) IS CORRECT IN LAW IN DELETING THE DISALLOWANCE U/S 40( A)(IA) EVEN THOUGH THE PAYMENT WAS DONE WITHOUT DEDUCTING TDS. 2.WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT()A) IS CORRECT IN LAW IN DELETING THE DISALLOWANCE U/S 40( A((IA) EVEN THOUGH THE PAYMENT WAS MADE TO PAYMENT GATEWAY COMPANIES WHICH ARE NOT COVERED UNDER THE NOTIFICATION NO. 56/2012, DATED 3 1/12/2012. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT (A) IS CORRECT IN LAW IN DELETING THE DISALLOWANCE U/S 40( A)(IA) IN THE YEAR UNDER CONSIDERATION ITSELF ON THE GROUND THAT THE P AYEES HAVE SHOWN RECEIPTS FILED THE RETURN OF INCOME U/S 139(1) AND PAID TAXES?. 3.ANY OTHER GROUND THAT MAY BE URGED DURING THE COU RSE OF APPELLATE PROCEEDINGS.' ITA NO1014 OF 2018 HEAD INFOTECH INDIA P LTD HYDERA BAD PAGE 2 OF 3 2. AT THE OUTSET IT IS SEEN THAT SAME ISSUE HAD ARI SEN IN THE ASSESSEES OWN CASE FOR THE A.Y 2015-16 AND THE TRIBUNAL VIDE ORDER DATED 29.09.2020 IN ITA NO.2372/HYD/2018 HAS HELD AS UNDER: 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-CO MPANY WHICH IS IN THE BUSINESS OF DEVELOPING AND RUNNING ONLINE GAME ON I TS OWN WEB PORTAL WWW.ACE2THREE.COM, FILED ITS RETURN OF INCOME ON 30 /09/2015 DECLARING TOTAL INCOME OF RS. 67,36,51,110/ - FOR THE AY 2015 -16. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY UNDER CASS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) OF THE IT ACT , THE AO OBSERVED THAT THE ASSESSEE HAD DEBITED RS. 6,35,90,429/- UNDER THE HE AD 'PAYMENT TO GATEWAYS'. THE ASSESSEE VIDE ITS LETTER DATED 08/09 /2017 EXPLAINED THE SAME AND AS TO WHY TDS WAS NOT DEDUCTED FROM THE SA ID PAYMENTS. IT WAS SUBMITTED THAT RS. 6,35,90,429/- REPRESENTS AGGREGA TE OF THE SERVICE CHARGES RETAINED BY THE GATEWAYS FROM THE AMOUNTS P AID BY THE CUSTOMERS FOR ENABLING THEM TO PLAY ONLINE GAMES IN THE PORTA L OF THE COMPANY. HE SUBMITTED THAT THE TERMS AND CONDITIONS UNDER WHICH THE GATEWAY HAS RENDERED SERVICES TO THE CUSTOMERS WERE INVARIABLY RECORDED IN THE AGREEMENTS BETWEEN THE COMPANY AND THE RESPECTIVE G ATEWAYS, WHICH ESTABLISH THAT THE COMPANY, ON THE ONE HAND, AND GA TEWAYS ON THE OTHER HAND, WERE INDEPENDENT PARTIES IN THEIR RESPECTIVE FIELDS AND, THEREFORE, THERE WAS NO NECESSITY OF DEDUCTING ANY TDS U/S 194 H OF THE ACT. 2.1 THE AO, HOWEVER, WAS NOT CONVINCED WITH THE ASSESSEE'S SUBMISSIONS AND HELD THAT THE COMMISSION RETAINED BY THE GATEWAYS IS THE COMMISSION PAID BY THE ASSESSEE TO THE GATEWAYS AND THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE AT 30%. FOR FAILURE TO DO SO, HE DISA LLOWED 30% OF THE PAYMENT OF RS. 6,21,71,195/- (AFTER EXCLUDING PAYME NT TO AXIS BANK, WHICH IS EXEMPT FROM TDS) AND BROUGHT TO TAX RS. 1,86,51, 359/- BEING 30% OF RS. 6,21,71,195/-. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A), WHO DELETED THE DISALLOWANCE MADE BY THE AO U/S 40(A)(I A) OF THE ACT, AND AGAINST THE RELIEF GRANTED BY THE CIT(A), THE REVEN UE IS IN APPEAL BEFORE US. 4. THIS CASE WAS TAKEN UP FOR HEARING ON 15/09/2020 THROUGH VIDEO CONFERENCING AND BOTH THE PARTIES WERE HEARD. 5. THE LD. DR SUPPORTED THE ORDER OF THE AO AND SUB MITTED THAT THE PAYMENT RETAINED BY THE GATEWAYS WAS, IN FACT, COMM ISSION PAID BY THE ASSESSEE TO GATEWAYS AND, THEREFORE, THE PROVISIONS OF SECTION 194H ARE APPLICABLE AND THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE UNDER THE SAID SECTION AND FOR FAILURE TO DO SO, THE PROVISIO NS OF SECTION 40(A)(IA) HAS BEEN RIGHTLY INVOKED BY THE AO. HE, THEREFORE, PRAY ED FOR RESTORATION OF THE ASSESSMENT ORDER ON THIS ISSUE. 6. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF CIT(A) AND SUBMITTED THAT THE ASSESSEE HOSTS ONLINE GAMES AND WHEN THE CUSTOMERS MAKE PAYMENTS THROUGH BANKING GATEWAYS BY WAY OF CR EDIT OR DEBIT CARD OF THE RELEVANT BANKS (WHICH ARE REFERRED TO AS GAT EWAYS) AND WHILE TRANSFERRING MONEY TO THE ASSESSEE'S ACCOUNT, BANKS INVARIABLY RETAIN SERVICE CHARGES. IT IS SUBMITTED THAT SERVICE CHARG ES COLLECTED BY THE ITA NO1014 OF 2018 HEAD INFOTECH INDIA P LTD HYDERA BAD PAGE 3 OF 3 BANKS/GATEWAYS CANNOT BE CONSIDERED AS COMMISSION P AID BY THE ASSESSEE AND, THEREFORE, PROVISIONS OF SECTION 194H ARE NOT APPLICABLE. HE SUBMITTED THAT THE CIT(A), IN ASSESSEE'S OWN CASE F OR AY 2013 - 14 AND 2014-15, HAD CONSIDERED THE ISSUE AT LENGTH AND HAD HELD THAT PROVISIONS OF SECTION 194H ARE NOT APPLICABLE AND THE DECISION IN THE SAID YE ARS HAS BEEN FOLLOWED BY HIM IN THE AY UNDER CONSIDERATION. HE SUBMITTED THAT THE CIT(A) HAS ALSO RECORDED THAT THE GATEWAYS HAVE OFF ERED THE PAYMENT RETAINED BY THEM IN THEIR RESPECTIVE RETURNS OF INC OME AND, THEREFORE, NO DISALLOWANCE U/S 40(A)(IA) IS TO BE MADE. 7. HAVING REGARD TO THE RIVAL SUBMISSIONS AND AFTER PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE CIT(A) HAS FOLLOWED THE DECISIONS OF THE COORDINATE BENCHES OF THIS TRIBUNAL WHEREIN IT HAS BEEN HELD THAT THE 'SALE MADE ON THE BASIS OF A CREDIT CARD ' IS THE TRANSAC TION OF THE MERCHANT ESTABLISHMENT AND THAT THE CREDIT COMPANY ONLY FACI LITATES THE ELECTRONIC PAYMENT FOR A CERTAIN CHARGE AND THE COMMISSION RET AINED BY THE CREDIT CARD COMPANY IS THEREFORE IN THE NATURE OF NORMAL B ANKING CHARGES AND NOT IN THE NATURE OF COMMISSION/BROKERAGE FOR ACTIN G ON BEHALF OF THE MERCHANT ESTABLISHMENT. THE LD. DR HAS NOT BEEN ABL E TO REBUT THE DECISIONS OF THE TRIBUNAL WITH ANY DECISION OF THE APPELLATE FORUMS TO THE CONTRARY. THEREFORE, WE DO NOT FIND ANY REASON TO I NTERFERE WITH THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) OF THE ACT . THUS, UPHOLDING THE SAME, WE DISMISS THE GROU NDS RAISED BY THE REVENUE ON THIS ISSUE. FURTHER, IT IS ALSO NOTICED THAT THE GATEWAYS HAVE OFFERED THE INCOME TO TAX IN THEIR HANDS IN THEIR R ESPECTIVE RETURNS OF INCOME. THEREFORE, THE PROVISO TO SECTION 40(A)(IA) IS APPLICABLE AND FOR THIS REASON ALSO, THE DISALLOWANCE CANNOT BE SUSTAI NED. 3. RESPECTFULLY FOLLOWING THE SAME, THE APPEAL OF T HE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH JULY, 2021. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 7 TH JULY, 2021. VINODAN/SPS COPY TO: S.NO ADDRESS ES 1 ACIT, CIRCLE 2(2) ROOM NO.513, 5 TH FLOOR, SIGNATURE TOWERS, OPP: BOTANICAL GARDEN, KONDAPUR, HYDERABAD 500084 2 M/S. HEAD INFOTECH INDIA P LTD, P.NO.17, LEFT WIN G, 6 TH FLOOR, AURIGA BLOCK, THE V SOFTWARE UNIT LAYOUT, MADHAPUR, HYDERA BAD 3 CIT (A) - 2, G UNTUR 4 PR. CIT 2, HYDERABAD 5 DR, ITAT HYDERABAD BENCHES 6 GUARD FILE BY ORDER