Home Income tax Corporate Income tax Payments to Gateway Providers Do Not Come Under Brokerage Therefore No TDS Will Applicable

Payments to Gateway Providers Do Not Come Under Brokerage Therefore No TDS Will Applicable

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Payments to Gateway Providers Do Not Come Under Brokerage Therefore No TDS Will Applicable
Banglore ITAT's Order For M/s. Knowledge Hut Solutions Pvt. Ltd

The funds made to gateway suppliers usually are not brokerage and TDS beneath Part 194H of the Revenue Tax Act,1961 just isn’t liable to be deducted, the Bangalore Bench of Revenue Tax Appellate Tribunal (ITAT) stated.

The taxpayer M/s. Data Hut Options Pvt. Ltd filed its earnings return for Evaluation 12 months (A.Y) 2018-19 exhibiting the entire earnings at Rs 3,67,36,490. The case was chosen for restricted scrutiny beneath CASS to verify the problem of “verification of the genuineness of the bills”.

Below Part 142(1) of the Revenue Tax Act, the taxpayer was served with the discover, and the evaluation was finalized on making the addition of Rs 15,34,844/- beneath Part 194H of the Revenue Tax Act. The taxpayer upset with the order filed an enchantment to the Commissioner of Revenue Tax (Appeals) which supported the AO’s resolution.

The Revenue-Dissatisfied Taxpayer Filed the Petition to The Tribunal

The Approved Consultant (AR) representing the taxpayer argued that on this explicit case, M/s. Avenue India Pvt. Ltd. and M/s. Razor Pay acts as a gateway supplier that collects charges from contributors on behalf of the appellant, charging a fee for his or her companies.

After deducting the fee, they switch the remaining quantity to the appellant. Tax Deducted at Supply (TDS) is withheld beneath Part 194H of the Revenue Tax Act on the fee portion solely, not on all the receipt, leading to a TDS credit score of Rs.1,32,629/-.

Moreover, the AR offered the truth that the corporate disbursed Rs.16,76,041/- and Rs.9,76,530/- as fee for gateway companies (fee) to M/s. Razor Pay and M/s. Avenue India Pvt. Ltd., respectively. In response to the tax audit report, the appellant accounted for a fee expense of Rs.26,52,620/-. TDS of Rs.1,32,631/- at a charge of 5% was deducted beneath Part 194H of the Revenue Tax Act.

However, the Departmental Consultant argued that the appellant recorded a fee expense of Rs.15,34,844/- of their books of accounts, and consequently, the Assessing Officer made an addition based mostly on this quantity beneath Part 194H of the Revenue Tax Act.

The AR contended that the case was subjected to restricted scrutiny beneath the (CASS) to look at the problem of “verification of the genuineness of the bills.” Subsequently, any try to make an addition on this case exceeds the scope of restricted scrutiny, and such an addition wouldn’t be in accordance with the legislation, warranting its deletion.

The Bench, consisting of Chandra Poojari, Accountant Member, and Ms Madhumita Roy, Judicial Member, famous that the appellant disbursed Rs. 16,76,041/- and Rs. 9,76,530/- as fee for gateway companies to M/s. Razor Pay and M/s. Avenue India Pvt. Ltd. Moreover, they submitted a reconciliation assertion reconciling the fee bills with their books of accounts and the TDS returns filed.

The Tribunal acknowledged that the scope of restricted scrutiny is restricted to verifying the authenticity of bills, excluding concerns associated to TDS funds, as was the case with the Assessing Officer (AO) and the next addition. Subsequently, the addition was deemed unjustified and was consequently deleted.

The Bench drew upon a precedent from the Karnataka Excessive Court docket within the matter of CIT vs. Company Financial institution. In that case, it was dominated that the service costs paid by the financial institution to Nationwide Monetary Swap and Money Tree for processing buyer funds to the assessee financial institution weren’t topic to TDS deduction beneath Part 194H of the Revenue Tax Act.

It was noticed that the events in query have been service suppliers who collected charges from contributors, together with gateway fee commissions from the appellant. Following the deduction of gateway costs, they transferred the remaining collected quantity from contributors to the appellant.

The Tribunal concluded that the funds made to the gateway suppliers didn’t represent brokerage, and due to this fact, TDS beneath Part 194H of the Revenue Tax Act was not relevant. Consequently, the enchantment filed by the assessee was upheld and allowed.

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