2014 (4) TMI 811 - AT - Income Tax

Deletion of allowance u/s 40(a)(ia) of the Act Payment of commission u/s 194H of the Act Held that - CIT(A) rightly set aside the disallowance on the basis that since the commission income earned by the assessee and commission expenditure incurred by the assessee were in relation to securities, as per the provision of section 194H, no TDS was required to be deducted on such expenditure and consequently, no disallowance is to be made u/s 40(a)(ia) of the Act for this amount - the decision in Deputy Commissioner of Income-tax Versus SJ. Investment Agencies P. Ltd. 2011 (2) TMI 1427 - ITAT MUMBAI followed - as per Explanation (i) to section 194H, no TDS was required to be deducted from such payment of commission because it is in relation to securities - payment of commission in relation to securities is covered by explanation (i) to section 194H and hence, TDS is not deductible Decided against Revenue.

Summary

Issues:
1. Allowance under section 40(a)(ia) of the IT Act, 1961 for payment of commission.
2. Applicability of section 40(a)(ia) on commission u/s 194H.
3. Interpretation of provisions of section 194H in relation to securities.

Detailed Analysis:
1. The appeal before the Appellate Tribunal ITAT Lucknow concerned the Revenue's challenge against the order of the Learned CIT(A)-II, Kanpur for the assessment year 2007-2008. The primary issue raised by the Revenue was the deletion of the allowance made under section 40(a)(ia) of the IT Act, 1961. The Revenue contended that the CIT(A) erred in law and on facts in holding that the provisions of section 40(a)(ia) were not applicable to the payment of commission under section 194H. The Revenue sought confirmation of the Assessing Officer's action in disallowing the amount due to non-deduction of TDS on the commission paid to M/s Tapasya Projects Ltd.

2. The Learned D.R. supported the assessment order and referred to written submissions highlighting the non-deduction of TDS on the brokerage paid to M/s Tapasya Projects Ltd. The D.R. argued that the services rendered were not related to securities, thus necessitating TDS deduction. The D.R. relied on the provisions of section 194H and the definition of "securities" under the Securities Contracts (Regulation) Act, 1956 to support the Revenue's position.

3. In response, the A.R. of the assessee supported the CIT(A)'s order, citing three Tribunal decisions favoring the assessee's position. The Tribunal analyzed the facts, noting that the commission income and expenditure were related to securities, thereby exempting the assessee from TDS deduction under section 194H. The Tribunal referred to previous decisions where similar issues were decided in favor of the assessee based on the applicability of Explanation (i) to section 194H. The Tribunal declined to interfere with the CIT(A)'s order, emphasizing that the written submissions of the Revenue did not alter the conclusion that TDS was not deductible on commission related to securities.

In conclusion, the Appellate Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision in favor of the assessee based on the provisions of section 194H and the interpretation of securities under the relevant Acts.