2023 (2) TMI 193 - AT - Income Tax

TDS u/s 194A - disallowance of delayed payment charges u/s. 40(a)(ia) for failure to deduct TDS - AO has disallowed a sum towards late payment charges paid to broker on the ground that said payment is in the nature of interest as defined u/s. 2(28A) of the Act and thus, the assessee ought to have deducted TDS u/s. 194A - HELD THAT - From the definition of interest as per section 2(28A) of the Act, it is very clear that in order to bring any payment within the ambit of the term interest, there should be lender and borrower relationship. In this case, the assessee has paid some charges for delayed payment of amount towards purchase and sale of shares to a broker, without there being any contractual obligation or other terms and conditions applicable to borrowing - said payment cannot be considered as interest for the purpose of section 194A of the Act and consequently, the question of deduction of TDS does not arise. This view is fortified by various judicial precedence, including case of PCIT vs West Bengal Housing Infrastructure Development Corporation Ltd. 2018 (9) TMI 114 - CALCUTTA HIGH COURT where it has been clearly held that since, there is neither any borrowing of money nor incurring of debts on the part of the assessee, interest as defined u/s. 2(28A) of the Act can have no application to said payment. Also in the case of ITO vs T. Rajendran 2016 (1) TMI 635 - ITAT CHENNAI had considered an identical issue and held that, when the impugned payment had a direct link with the trade liability, then same cannot fall within the category of interest as defined u/s. 2(28A) of the Act for the purpose of deduction of tax at source u/s. 194A of the Act. Provisions of section 194A has no application to delayed payment charges on trade liability and thus, the assessee does not require to deduct TDS u/s. 194A of the Act. Consequently, impugned payment cannot be disallowed u/s. 40(a)(ia) - we direct the AO to delete additions made towards disallowance of late payment charges u/s. 40(a)(ia) of the Act. - Decided in favour of assessee. Assessment of profit/loss derived from share trading activity under the head speculative income - HELD THAT - In order to decide whether transactions of the assessee are come under derivatives or speculative, necessary details needs to be analyzed. In this case, the assessee could not furnish any evidences except summary of statement issued by the stock broker to verify the claim of the assessee to ascertain whether said transactions are derivatives or speculative - broker, ICICI Securities Ltd., also could not furnish any details when the AO has called for certain details from them. In absence of necessary details, the nature of transactions of the assessee cannot be ascertained. In fact, the AO never held that these transactions are speculative in nature, however arrived at a reasonable conclusion on the basis of ITR information and non-availability of information to verify the claim of the assessee. Therefore, we are of the considered view that, the issue needs to go back to the file of the AO for further verification to ascertain the nature of transactions. As regards, the arguments of assessee in light of various judicial precedence, we find that the ratios laid down by courts and tribunals cannot be read in isolation with context under which said ratio has been rendered. We are of the considered view that the issue needs to go back to the file of the AO and thus, we set aside the issue to the file of the AO and direct the AO to verify the issue in light of various evidences, including obtaining necessary evidence from broker, ICICI Securities Ltd. The assessee is also directed to furnish necessary evidence to justify her claim. Appeal filed by the assessee is treated as allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of delayed payment charges under Section 40(a)(ia) of the Income-tax Act, 1961 for failure to deduct TDS under Section 194A.
2. Assessment of profit/loss from share trading under the head speculative income/loss versus income from business or profession.

Issue-wise Detailed Analysis:

1. Disallowance of Delayed Payment Charges under Section 40(a)(ia):
The primary issue is the disallowance of late payment charges amounting to Rs. 14,07,762/- under Section 40(a)(ia) of the Income-tax Act, 1961 due to non-deduction of TDS under Section 194A. The Assessing Officer (AO) considered these charges as interest under Section 2(28A) and thus required TDS deduction. However, the assessee argued that these charges were paid to a broker for delayed payments in share trading, which does not constitute interest as there was no borrower-lender relationship. The Tribunal agreed with the assessee, referencing the definition of interest under Section 2(28A) and judicial precedents, including the Hon'ble Calcutta High Court's decision in PCIT vs. West Bengal Housing Infrastructure Development Corporation Ltd, which clarified that such charges do not fall under the ambit of interest when there is no borrowing or debt incurred. Consequently, the Tribunal directed the AO to delete the disallowance.

2. Assessment of Profit/Loss from Share Trading as Speculative Income:
The second issue pertains to the classification of profit/loss from share trading. The AO assessed the loss from trading as speculative based on the ITS statement indicating speculative transactions under code 03. The assessee contended that the transactions were in derivatives, which are excluded from speculative transactions under Section 43(5). The Tribunal noted that trading in derivatives on recognized stock exchanges does not fall under speculative transactions as per Section 43(5). However, due to the lack of detailed evidence from the assessee and non-response from ICICI Securities Ltd., the Tribunal could not ascertain the nature of transactions. Therefore, it remanded the matter back to the AO for further verification, directing the assessee to provide necessary evidence and the AO to obtain details from ICICI Securities Ltd. if required.

Consolidated Orders for Related Appeals:
For the appeals ITA Nos: 278/Chny/2019 & 334/Chny/2020, the Tribunal applied the same reasoning as in ITA No. 293/Chny/2019. It directed the AO to delete the disallowance of late payment charges under Section 40(a)(ia) and to re-examine the classification of share trading profit/loss after obtaining necessary evidence.

Conclusion:
The Tribunal concluded by allowing the appeals for statistical purposes, remanding the cases back to the AO for further verification and evidence collection, particularly from ICICI Securities Ltd., to determine the accurate nature of transactions and ensure compliance with the Income-tax Act provisions. The order was pronounced in Chennai on 11th January 2023.