19/10/2025
TDS on Payment Gateway Charges – No Deduction Required u/s 194H
Case: One Mobikwik Systems Ltd. (earlier known as One Mobikwik Systems Pvt. Ltd.) vs. Joint Commissioner of Income Tax (OSD), TDS Circle, Gurgaon
ITAT Delhi
ITA Nos. 7830/Del/2018, 273 & 274/Del/2025
Date of Order: September 2025
1. Background and Facts
A survey under section 133A(2A) was conducted on One Mobikwik Systems Ltd., a company authorized by the RBI to operate a “Stored Value Card Wallet” — an electronic wallet system allowing users to make digital transactions.
Mobikwik used two Payment Gateway (PG) service providers — CC Avenue and Zaaki Payment Services Pvt. Ltd. — to facilitate online payments.
During the survey, the Assessing Officer (AO) observed that Mobikwik had made payments to these PG companies without deducting TDS, and held that the same amounted to commission under section 194H. Consequently, Mobikwik was treated as an assessee in default under sections 201 and 201(1A), and demands were raised for AYs 2015-16 to 2017-18.
The CIT(A) confirmed the AO’s view, holding that a principal–agent relationship existed between Mobikwik and the PGs, thereby attracting TDS under section 194H.
2. Assessee’s Contention
The assessee argued that:
• The relationship with payment gateways is principal-to-principal, not principal-agent.
• The agreements with CC Avenue and Zaaki clearly stipulate that both parties act independently, and there is no element of control, supervision, or fiduciary relationship.
• Payment gateways simply provide a technology platform to facilitate payments, charging a processing fee, not a commission.
• RBI guidelines (March 2020) treat PGs as outsourcing partners, not agents.
• Reliance was placed on:
• CBDT Notification No. 47/2016 dated 17.06.2016, and Notification No. 56/2012 dated 31.12.2012, exempting TDS on certain payment transactions.
• Judicial precedents emphasizing that agency is sine qua non for section 194H, including:
• Ahmadabad Stamp Vendors Association (257 ITR 202, Guj.)
• Bharti Cellular Ltd. v. ACIT (SC)
• MakeMyTrip India Pvt. Ltd. v. PCIT (104 taxmann.com 263, Del HC)
• Corporation Bank v. CIT (Karnataka HC)
• Knowledge Hut Solutions Pvt. Ltd. (ITAT Bangalore)
3. Relevant Legal Principles
Section 194H – “Commission or Brokerage”
TDS is applicable only where there exists:
• A relationship of principal and agent; and
• The payment is commission/brokerage for services rendered on behalf of the principal.
Judicial Interpretation
The Supreme Court in Bharti Cellular Ltd. held:
“The expression ‘acting on behalf of another person’ postulates the existence of a legal relationship of principal and agent… the obligation to deduct TDS u/s 194H arises only when such relationship exists.”
The Delhi High Court in MakeMyTrip India Pvt. Ltd. clarified:
“Payment gateway charges are fees for banking or technical services and not commission, since the gateway merely facilitates the transfer of funds between two principals.”
4. ITAT’s Findings
The Tribunal found substantial merit in the assessee’s submissions, holding that:
• No principal-agent relationship exists between Mobikwik and the PGs.
• The PGs act as independent service providers facilitating electronic fund transfers — not as intermediaries negotiating or transacting on behalf of Mobikwik.
• The deduction of a small fee by PGs before remitting the balance to Mobikwik represents service charges, not commission.
• The CBDT notifications and judicial precedents support the assessee’s position that no TDS is deductible under section 194H on payment gateway charges.
Accordingly, the Tribunal set aside the orders of the lower authorities and directed deletion of the demand raised under sections 201 and 201(1A) for all years in question.
5. Key Extracts from the ITAT’s Observations
“We find sufficient force in the argument of the assessee regarding the non-existence of a principal-agency relationship between the assessee and the payment gateways. The assessee’s case is covered by judicial precedents and CBDT instructions. Hence, the provisions of section 194H read with sections 201 and 201(1A) are not attracted.”
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