2014 (11) TMI 1000 - AT - Income Tax

TDS u/s 194J - Disallowance of transaction charges u/s 40(a)(ia) - non deduction of TDS - Held that - No disallowance u/s 40(a)(ia) should be made in the present assessment year as the assessee was under a bona fide belief that no tax was deductible, because in the earlier years both the revenue and the assessee had accepted the position that no tax was deductible on the transaction charges. It has been stated before us by the learned counsel that assessee is now deducting tax u/s 194J on transaction charges in the wake of the decision of the Hon ble High Court in the case of Kotak Securities Ltd. 2011 (10) TMI 24 - Bombay High Court . Accordingly, we hold that no disallowance should be made u/s 40(a)(ia) in this year. - Decided in favour of assessee.

Summary

Issues involved:
Disallowance of transaction charges under section 40(a)(ia) for Assessment Year 2008-09.

Analysis:

Issue 1: Disallowance of transaction charges under section 40(a)(ia)

The appellant, engaged in stock broking services, appealed against the disallowance of transaction charges amounting to Rs. 14,33,110 under section 40(a)(ia) for Assessment Year 2008-09. The appellant argued that no TDS was deducted based on a bona fide belief supported by previous years' practices and an ITAT Mumbai Bench decision. The assessing officer disallowed the amount citing a subjudice matter before the Hon'ble Bombay High Court. The Hon'ble High Court later reversed the ITAT decision, holding that transaction charges constituted "fees for technical services" requiring TDS deduction under section 194J. The appellant contended that the disallowance should not stand due to the long-standing belief and acceptance by both the revenue and the assessee regarding non-deductibility of tax on transaction charges. The Hon'ble High Court's observation emphasized the bona fide belief held by both parties for nearly a decade, leading to the deletion of the disallowance under section 40(a)(ia). The Tribunal concurred with the appellant's argument, holding that no disallowance should be made as the appellant acted in good faith, and now complies with TDS requirements post the Hon'ble High Court's decision. Consequently, the appeal was allowed, and no disallowance was upheld for the Assessment Year 2008-09.

This detailed analysis covers the issues involved in the legal judgment regarding the disallowance of transaction charges under section 40(a)(ia) for the specified Assessment Year.