Income Tax, Issue Update

Payment gateway charges paid by the taxpayer to banks/credit card agencies

Case:  Asst. CIT vs Head Infotech India Pvt Ltd, Hyderabad ITAT

Outcome: Assessee


  • The Assessee was in the business of developing and running online game on its own web portal –, filed its return of income on 30.09.2015 declaring total income of Rs. 67.36 Crs for the AY 2015-16.
  • The return of income was selected for scrutiny under CASS. During the course of assessment proceedings under section 143(3), the Assessing Officer observed that the Assessee had debited Rs. 6.35 Crs on account of payment to gateways and had not deducted any tax at source on the same.
  • The Assessee contended that Rs. 6.35 Crs represented aggregate of the service charges retained by the gateways from the amounts paid by the customers for enabling them to play online games in the portal of the company. He submitted that the terms and conditions under which the gateway had rendered services to the customers were invariably recorded in the agreements between the company and the respective gateways, which establish that the company, on the one hand, and gateways on the other hand, were independent parties in their respective fields and, therefore, there was no necessity of deducting any tax deducted at source under section 194H of the Act.
  • However, the Assessing Officer was not convinced with the Assessee’s submissions and held that the commission retained by the gateways was the commission paid by the Assessee to the gateways and that the Assessee was required to deduct tax at source at 30%.

Key points

  • The Tribunal placed reliance on the decisions of the coordinate benches of this Tribunal, wherein it was held that the sale made on the basis of a credit card was the transaction of the merchant establishment and that the credit company only facilitated the electronic payment for a certain charge and the commission retained by the credit card company was in the nature of normal banking charges and not in the nature of commission/ brokerage for acting on behalf of the merchant establishment.
  • Further, the revenue was not able to rebut the decisions of the Tribunal with any decision of the appellate forums to the contrary in the present facts of the case. It was also noticed that the gateways have offered the income to tax in their hands in their respective returns of income and hence, disallowance could not be sustained.
  • Therefore, following the same in the instant case the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act was to be deleted.

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