2014 (4) TMI 246 - HC - Income Tax

Ambit of section 194H of the Act - Commission paid to TPL in relation to Mutual Fund Schemes - Whether the ITAT was justified in law in allowing expenses paid by the assessee firm without deducting tax at source, ignoring the provisions of section 40(a)(ia) Held that - The JCIT fell in error in holding that while TPL had motivated investors to subscribe to Mutual Fund Schemes, it had no connection whatsoever with 'securities' as defined in Explanation (i) and (iii) of Section 194-H - Explanation (iii) to Section 194-H specifically states that the expression 'securities' will have the meaning assigned to it in Clause (h) of Section 2 of the Securities Contracts (Regulation) Act, 1956. TPL had motivated potential investors to invest through the assessee in Mutual Fund Schemes, it has to be held that the services which were rendered in relation to a transaction in 'securities' stood excluded from the definition of brokerage or commission u/s 194-H - The CIT(A) was justified in coming to the conclusion that the services which were rendered by TPL were in relation to 'securities' - No other services had been rendered - the dis-allowance u/s 40(a)(ia) was not warranted. A restrictive interpretation should be adopted because unless this were done, the expression 'securities' having been defined in an inclusive sense in Section 2(h) of the Securities Contracts (Regulation) Act, 1956, would exclude a large number of transactions from the ambit of Section 194-H where 'commission or brokerage' is paid to a person acting on behalf of another person for service rendered in relation to any transaction relating to securities - This is a matter of legislative policy - The duty of the Court is to adopt the plain & natural meaning of the words used, particularly in a taxing statute - Once Parliament has legislated by specifically incorporating that the expression 'securities' would have the same meaning as in Section 2(h) of the Securities Contracts (Regulation) Act, 1956, the plain effect cannot be diluted by the Court by reading down the statutory provision - The duty of the Court is to interpret a taxing statute on its plain and literal meaning - the expression 'in relation to' and 'relating to any asset, valuable article or thing, not being securities', are expressions of width and amplitude thus, there is no reason to interfere in the findings of the Tribunal Decided against Revenue.

Summary

Issues:
1. Interpretation of Section 194-H of the Income Tax Act, 1961 regarding the payment of commission by an assessee firm to another entity and the applicability of tax deduction at source.
2. Application of Section 40(a)(ia) in disallowing expenses paid by the assessee firm without deducting tax at source under Section 194-H.

Analysis:
1. The case involved the payment of commission by an assessee firm to Tapasya Projects Ltd. (&39;TPL&39;) without deducting tax at source under Section 194-H of the Income Tax Act, 1961. The Revenue contended that the payment should have been subject to tax deduction. The CIT(A) and the Tribunal held that the services rendered by TPL were in relation to securities, thus falling outside the purview of Section 194-H. The Tribunal relied on previous decisions to support this interpretation, emphasizing the broad definition of &39;securities&39; under the Securities Contracts (Regulation) Act, 1956. The Court upheld this view, stating that the legislative intent was to include a wide range of transactions within the scope of Section 194-H, and the plain meaning of the statute should be followed.

2. Section 40(a)(ia) of the Income Tax Act, 1961 deals with disallowance of expenses if tax is deductible at source but not deducted. The Assessing Officer disallowed the commission paid by the assessee to TPL under this section. However, the CIT(A) overturned this decision, noting that the payment was for services related to securities, which were excluded from the definition of &39;brokerage or commission&39; under Section 194-H. The Court agreed with this interpretation, emphasizing that the services were indeed in relation to securities, and no other services were rendered. The Court rejected the Revenue's argument for a restrictive interpretation, stating that the legislative policy was clear, and the literal meaning of the statute should prevail.

In conclusion, the Court dismissed the appeal by the Revenue, upholding the decisions of the CIT(A) and the Tribunal regarding the non-applicability of tax deduction at source under Section 194-H and the disallowance of expenses under Section 40(a)(ia) in the case of the assessee firm.