2019 (2) TMI 536 - HC - Income Tax

TDS u/s 194J or 194H - payment made to a holding company of the assessee - sub-brokerage payments - Held that - Any person responsible for paying to a resident any income by way of commission or brokerage would at the time of crediting of such income to the account of the payee or at the time of payment of such income whichever is earlier, deducted income tax at the rate of 5%. This specific provision requiring deduction of tax at source in relation to payment of commission of brokerage cannot be ignored while examining the payment of brokerage in the present case so as to take the case within the ambit of Section 194J of the Act as was admitted by the Assessing Officer, CIT (Appeals) and the Tribunal correctly assessing the statutory position and deleted the disallowance. No question of law arises.

Summary

Issues:
1. Whether payment made to a holding company falls under section 194J of the Income Tax Act, 1961?
2. Whether sub-brokerage paid falls under section 194H or section 194J of the Income Tax Act, 1961?

Analysis:
1. The appellant, a subsidiary of Stock Holding Corporation of India Limited, paid sub-brokerage to the holding company. The Assessing Officer believed tax should have been deducted at the source under Section 194J. The assessee argued that Section 194H applied to such payments and no tax deduction was required. The Commissioner (Appeals) limited the sub-brokerage to 50% under Section 40A(2)(b). The Tribunal rejected the revenue's appeal and allowed the assessee's appeal, focusing on the tax deduction issue and not on Section 40A(2)(b) disallowance. The Tribunal correctly interpreted the law, stating that Section 194J pertains to fees for professional and technical services, while Section 194H relates to commission or brokerage payments. The Tribunal upheld that tax deduction under Section 194H is mandatory for commission or brokerage payments. Consequently, the Tribunal dismissed the Income Tax Appeal, affirming the statutory position and deleting the disallowance.

2. The judgment clarifies the distinction between Sections 194J and 194H of the Income Tax Act, 1961, regarding tax deduction on payments. It emphasizes that Section 194H specifically mandates tax deduction at the rate of 5% on commission or brokerage payments to residents. The Tribunal's decision aligns with the legal framework, highlighting the importance of correctly applying the relevant sections of the Act based on the nature of payments made. The judgment underscores the significance of adhering to the statutory provisions to determine the applicability of tax deduction requirements, ensuring compliance with the Income Tax Act's stipulations.