Delhi ITAT on MakeMyTrip: Comprehensive relief on depreciation, TDS and AMP disputes

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT Delhi) in ACIT Vs Makemy Trip India Pvt. Ltd. has rejected the Revenue’s appeal for A.Y. 2010-11 and sustained the relief granted to the assessee on four recurring issues:

  1. Eligibility of 60% depreciation on website development expenditure
  2. Disallowance under Section 40(a)(ia) on payment gateway charges for alleged non-deduction of TDS under Section 194H
  3. Treatment of advertisement, marketing and publicity (AMP) expenses
  4. Disallowance under Section 40(a)(ia) on payments/reimbursements to MMT-USA for non-deduction of TDS under Section 195

The Tribunal largely followed earlier years’ orders in the assessee’s own case and applied binding precedents of the Delhi High Court and the Supreme Court.

1. Background of the case

1.1 Parties and assessment details

  • Assessee: MakeMy Trip India Pvt. Ltd., a private limited company engaged in the business of travel agency and tour operations.
  • Group structure: Wholly owned subsidiary of International Web Travel Pvt. Ltd., Mauritius, which in turn is owned by SB Asia Infrastructure Fund II, Ltd. partnership, Cayman Islands.
  • Assessment Year: 2010-11
  • Return filed: NIL income on 09.10.2010
  • Assessment: Completed under Section 143(3) at total income of Rs. 147,39,83,860/-.

The Assessing Officer (AO), DCIT, Circle-6(1), New Delhi, made several additions and disallowances, including:

  • Reduction of depreciation rate on website development cost
  • Disallowance under Section 40(a)(ia) on payment gateway charges for non-deduction of TDS u/s Section 194H
  • Partial disallowance of AMP expenditure by treating it as capital
  • Disallowance under Section 40(a)(ia) in respect of payments made to MMT-USA for non-deduction of tax u/s Section 195

The assessee challenged the assessment order before the Commissioner of Income-tax (Appeals)–38, Delhi (CIT(A)), who partly allowed the appeal by order dated 07.07.2017.

The Revenue then carried the matter in appeal before the Delhi ITAT challenging the deletions made by the CIT(A).

1.2 Revenue’s grounds before the ITAT

The Revenue’s appeal contained multiple grounds, broadly contesting:

  • Allowance of 60% depreciation on website development expenditure instead of 25%
  • Deletion of disallowance under Section 40(a)(ia) by holding that payment gateway charges to banks are not subject to TDS u/s Section 194H
  • Deletion of disallowance of AMP expenditure by treating it as revenue and not as capital / international transaction or brand-building for the group
  • Deletion of disallowance under Section 40(a)(ia) on payments to MMT-USA (ticket cost and other reimbursements), which the AO had treated as “fees for technical services” chargeable to tax in India, requiring TDS u/s Section 195
  • The Revenue also contended that the CIT(A) wrongly relied on earlier years’ decisions despite the principle that each assessment year is a separate unit and res judicata does not strictly apply in income-tax proceedings.

The assessee’s Authorised Representative argued that all issues are “legacy issues” already decided in favour of the assessee in earlier years by coordinate benches and by the jurisdictional High Court.

2. Depreciation on website development cost – 60% allowed

2.1 AO’s disallowance

The assessee had claimed depreciation at 60% on its website development cost, treating it at par with computer software.

  • AO restricted the rate to 25%, treating the website as part of normal intangible/plant block.
  • This resulted in a disallowance of Rs. 70,47,390/-.

2.2 CIT(A)’s decision

The CIT(A) accepted the assessee’s contention that website development cost qualifies for higher depreciation, relying on:

  • Special Bench decision in Amway India Enterprises vs. DCIT [2008] 114 TTJ 476 (Delhi) (SB)
  • Its affirmation by the Delhi High Court in DCIT vs. Amway India Enterprises [2012] 346 ITR 341 (Del)
  • Tribunal’s own order in assessee’s case for A.Y. 2005-06, where 60% depreciation on website development was allowed.

The CIT(A) therefore directed the AO to grant depreciation at 60% on website development expenditure and recompute allowable depreciation accordingly.

2.3 ITAT’s ruling on depreciation

The Tribunal noted: