2016 (11) TMI 960 - AT - Income Tax

TDS u/s 194J - non deduction of tds on transaction charges paid to the Stock Exchange - Held that - As decided in Commissioner of Income Tax 4, Mumbai Vs. Kotak Securities Ltd. 2016 (3) TMI 1026 - SUPREME COURT the assessee was not liable to deduct the TDS upon the transaction charges paid to the Stock Exchange. Therefore, when the amount was not due then no interest was liable to be payable. Accordingly, the order passed by the CIT(A) is wrong against law and facts and is liable to be set aside and these issues are decided in favour of the assessee against the revenue.

Summary

Issues:
1. Principle of natural justice violation in passing order under section 201(1) / 201(1A) without fair hearing.
2. Upholding interest levy under section 201(1A) for alleged failure to deduct tax.
3. Calculation of excess liability under section 201(1A).
4. Applicability of TDS on transaction charges paid to Stock Exchanges.

Issue 1: Principle of Natural Justice Violation:
The assessee contested the order passed by the CIT(A) under section 201(1) / 201(1A) of the Income Tax Act, alleging a violation of natural justice principles by not providing a fair hearing opportunity. The appellant claimed non-receipt of the hearing notice and sought annulment of the order. The Tribunal allowed the appeal, emphasizing the importance of adherence to natural justice principles in such proceedings.

Issue 2: Interest Levy under Section 201(1A):
The dispute revolved around the AO's decision to levy interest under section 201(1A) for the alleged failure to deduct tax on transaction charges paid to Stock Exchanges. The appellant argued that interest should only apply in case of tax payment default, which was not applicable when recipients claimed refunds or filed loss returns. The Tribunal directed deletion of the interest levied by the AO, highlighting the compensatory nature of interest under the Act.

Issue 3: Calculation of Excess Liability under Section 201(1A):
The CIT(A) upheld the AO's calculation of interest under section 201(1A) until the date of tax deduction, disregarding recipients' advance tax or self-assessment tax payments. The Tribunal directed the AO to recalculate interest from the date of tax deductibility until recipients' tax payments, emphasizing the correct application of interest provisions.

Issue 4: Applicability of TDS on Transaction Charges:
The core issue involved whether the assessee was obligated to deduct TDS on transaction charges paid to Stock Exchanges. Citing the Supreme Court's decision in the Commissioner of Income Tax Vs. Kotak Securities Ltd., the Tribunal ruled that transaction charges did not constitute technical services necessitating TDS deduction. The Tribunal held in favor of the assessee, setting aside the order based on the Kotak Securities Ltd. case law and determining no liability for TDS or interest on the transaction charges.

In conclusion, the Tribunal allowed the assessee's appeal, emphasizing adherence to natural justice principles, correct application of interest provisions, and the inapplicability of TDS on transaction charges based on relevant case law. The judgment highlighted the importance of legal interpretations and adherence to statutory provisions in tax matters.