2013 (5) TMI 276 - AT - Income Tax

Disallowance u/s 40(a)(ia) - non deduction of tax at sources u/s 194H - assessee is engaged in distribution of mutual funds of various companies and is earning commission for the same from various mutual funds - case of the assessee was selected for scrutiny under CASS - Held that - The expression commission or brokerage includes payment for services for services rendered for, or in the course of, buying and selling of goods, or in relation to any transaction relating to any asset, valuable article or thing, not being securities. The payment in the preset case has been made for sale of mutual fund units and the mutual fund units are covered by the scope of definition of securities . The services rendered for sale of mutual fund units, therefore, cannot be covered by the scope of Section 194 H. The definition has to be read in entirety and not in fragments, as suggested by the DR. The provisions of law are clear and admit no ambiguity. In any event, it was not even the case by any of the authorities below therefore to hold that the assessee did not have any tax withholding requirements so far as impugned payments for commission on sale of mutual fund units are concerned. In favour of assessee.

Summary

Issues:
1. Whether the deletion of the addition of Rs.69,22,791/- as disallowance u/s 40(a)(Ia) by the Ld CIT(A) was justified.

Analysis:
1. The appeal was filed by the revenue against the order of Ld CIT(A) dated 14.9.2012, challenging the deletion of the addition of Rs.69,22,791/- as disallowance u/s 40(a)(Ia) made by the Assessing Officer. The Assessing Officer observed that the assessee had not deducted tax at source u/s 194H on commission paid to various persons. The assessee contended that no TDS was required as the commission was related to mutual funds, which are excluded from the definition of securities under section 194H. The Ld CIT(A) accepted the assessee's explanation, relying on judicial precedents, and deleted the addition.

2. The Assessing Officer made the addition of Rs. 69,28,562/- as TDS was not deducted on commission paid. The assessee argued that the commission paid to sub brokers was connected to buying and selling mutual fund units, which are excluded from the definition of securities under section 194H. The Ld CIT(A) agreed with the assessee's contention and deleted the addition, citing industry practice and legal provisions.

3. The revenue challenged the Ld CIT(A)'s order, contending that the commission paid was for procurement of business, thus falling under section 194H. The Ld AR, representing the assessee, argued that the commission paid on mutual fund transactions was not subject to TDS as per the explanation to section 194H. The Ld AR relied on the Mumbai Tribunal's decision in a similar case where the addition was deleted.

4. The Tribunal referred to the Mumbai Tribunal's decision in M/s Jain Investment Co. case, where it was held that commission on mutual fund units does not require TDS deduction under section 194H. The Tribunal rejected the revenue's arguments, emphasizing that mutual fund units are covered under the definition of securities and, therefore, exempt from TDS. The Tribunal dismissed the revenue's appeal, upholding the Ld CIT(A)'s decision based on legal precedents and the provisions of section 194H.

This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, the Assessing Officer's observations, the Ld CIT(A)'s decision, and the Tribunal's final ruling based on legal interpretations and precedents.