Stallion Finstock Pvt.Ltd., Ahmedabad V. The Dy. Commissioner of Income Tax, Circle-1(3), Ahmedabad

ITA 1901/AHD/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2718 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 18-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAJANA PARIMITA
• Keywords: TDS
• Section: 40(a)(ia)

Judgement Text

ITA NO. 1901/AHD/2016 STALLION FINSTOCK PVT LTD VS. DCIT ASSESSMENT YEAR : 2006-07 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR, VP AND MS. MADHUMITA ROY, JM] ITA NO. 1901/AHD/2016 ASSESSMENT YEAR: 2006-07 STALLION FINSTOCK PVT LTD ................ ..APPELLANT 101, SHITALNATH APARTMENT, VIKAS GRUH ROAD, PALDI AHMEDABAD 380 007 [PAN : AAFCS 7281 R] VS. DY. COMMISSIONER OF INCOME-TAX ............................RESPONDENT CIRCLE 1(3), AHMEDABAD APPEARANCES BY: URVASHI SHODHAN, FOR THE APPELLANT PRAJANA PARIMITA, FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 28.11.2018 DATE OF PRONOUNCING THE ORDER : 25.02.2019 O R D E R PER PRAMOD KUMAR, VICE PRESIDENT : 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED CORRECTNESS OF ORDER DATED 19.04.2016 PASSED BY THE LEARNED CIT(A) FOR THE ASSESSMENT YEAR 2006- 07. 2. GRIEVANCE OF THE ASSESSEE, AS PRESSED BEFORE US, IS AGAINST LEARNED CIT(A)S UPHOLDING THE DISALLOWANCE OF RS.9,79,553/- IN RESP ECT OF COMMISSION PAID BY THE ASSESSEE. 3. THIS IS SECOND ROUND OF PROCEEDINGS. VIDE ORDER DATED 27.09.2013, THE TRIBUNAL HAD REMITTED THE MATTER TO THE FILE OF THE CIT(A) BUT THE CIT(A) HAS, IN THE IMPUGNED ORDER, CONFIRMED THE DISALLOWANCE BY OBSER VING AS FOLLOWS:- 2.1 APPELLANT IS A FRANCHISEE OR SUB-BROKER OF SH AH INVESTORS HOME LTD WHICH IS A REGISTERED BROKER AT NSE AND BSE. APPEL LANT RECEIVES 70% OF THE BROKERAGE FROM SHAH INVESTORS HOME LTD. AS BROKERAG E FOR THE BUSINESS GIVEN BY THE APPELLANT. M/S. SHAH INVESTORS HOME L TD. AND THE APPELLANT BOTH ARE THE REGISTERED INTERMEDIARIES OF SECURITIES MAR KET AS PER THE SECURITIES CONTRACT & REGULATION ACT, AND REGISTERED WITH SEBI . THEY ARE ELIGIBLE AND ENTITLED TO RECEIVE THE BROKERAGE ON THE TRANSACTIO N OF SECURITIES ON REGISTERED STOCK EXCHANGE. THE BUSINESS OF BUYING AND SELLING OF SECURITIES ON THE STOCK EXCHANGE COMES FROM THE CLIENTELE OF APPELLANT WHIC H INCLUDES INDIVIDUALS AS WELL AS AGENTS OF THE APPELLANT WHO BRING BUSINESS TO THE APPELLANT. DURING THE ITA NO. 1901/AHD/2016 STALLION FINSTOCK PVT LTD VS. DCIT ASSESSMENT YEAR : 2006-07 PAGE 2 OF 4 YEAR UNDER CONSIDERATION, APPELLANT WAS TO RECEIVE RS.45,99,677/- FROM SHAH INVESTORS HOME LTD. AS AGAINST THIS EXPECTED BROKER AGE INCOME, APPELLANT HAD REFLECTED BROKERAGE INCOME OF RS.36,87,887/-. A CCORDING TO THE APPELLANT IT HAS PAID DIFFERENCE OF RS.9,79,553/- TO VARIOUS REMISIERS AS IT IS THE REMISIERS WHO BRING CLIENTS TO THE APPELLANT ON WHI CH BROKERAGE IS EARNED. APPELLANT HAD EXPLAINED VARIOUS FUNCTIONS OF REMISI ERS DURING THE ASSESSMENT PROCEEDINGS TO THE A.O. DURING THE APPELLATE PROCEE DINGS AS WELL AS ASSESSMENT PROCEEDINGS IT HAD SUBMITTED LEDGER ACCO UNTS OF RS. 9,79,553/- PAID AS COMMISSION TO VARIOUS REMISIERS. APPELLANT HAS RELIED UPON THE CASE LAW OF MUMBAI TRIBUNAL IN THE CASE OF DCIT VS. S.J. INVESTMENT AGENCIES PVT LTD, 21 ITR (TRIB) 258 (MUM) WHEREIN IT WAS HELD TH AT NO TDS WAS REQUIRED TO BE DEDUCTED IN CASE OF TRANSACTIONS OF PURCHASE AND SALE OF SECURITIES. THERE ARE VARIOUS FUNCTIONS OF REMISIERS AS EXPLAINED BY THE APPELLANT. IT IS THE REMISIERS WHO BRINGS CLIENTS TO THE APPELLANT AND I N THE PROCESS APPELLANT ALSO EARNS BROKERAGE ON THE TRANSACTIONS. AS PER THE EX TANT GUIDELINES OF SEBI THE SUB-BROKERS OF BROKERS ARE NOT FURTHER ALLOWED TO A PPOINT OR REGISTER FURTHER SUB-SUB BROKERS KEEPING IN MIND THE PROTECTION OF I NTEREST OF THE INVESTORS. SIMILARLY, THE FRANCHISE AGREEMENT OF THE APPELLANT WITH SHAH INVESTORS HOME LTD ALSO PROHIBITED THE APPELLANT FROM APPOINTING A NY SUB FRANCHISEE FURTHER. THERE HAVE BEEN NO WRITTEN AGREEMENT BETWEEN APPELL ANT AS FRANCHISE OF BROKER AND THE REMISIERS APPOINTED BY THE APPELLANT . SEBI HAS CONSCIOUSLY TAKEN A DECISION PROHIBITING FURTHER CHAIN OF SUB-S UB BROKERS IN ORDER TO PROTECT THE INTEREST OF INVESTORS. YET APPELLANT H AD GONE AHEAD AND APPOINTED REMISIERS AND PAID COMMISSION TO THESE REMISIERS AM OUNTING TO RS.9,79,553/-. WHAT THE APPELLANT HAS DONE IS THAT IT HAS EARNED B ROKERAGE AND PAID COMMISSION TO THE REMISIERS. THE KIND OF SERVICES THAT ARE OFFERED BY THE REMISIERS, KEEPING IN MIND THE RESTRICTIONS PLACED BY SEBI IN ORDER TO CHECK FRAUDULENT TRANSACTIONS, I AM CONVINCED THAT APPELL ANT HAS PAID COMMISSION TO THE REMISIERS FOR THE BUSINESS BROUGHT IN BY THEM A ND IT IS NOT BROKERAGE ON SALE OF SECURITIES. APPELLANT HAS ALSO FAILED TO P ROVE DURING THE APPELLATE AS WELL AS ASSESSMENT PROCEEDINGS THE NATURE OF SERVIC ES THAT WERE RENDERED BY THE REMISIERS WERE AS PER THE WRITTEN AGREEMENT BET WEEN APPELLANT AND REMISIERS AS WELL AS ALLOWED BY THE SEBI. I COMPLE TELY AGREE WITH THE DECISION OF ITAT, MUMBAI INT HE CASE OF DCIT VS. SJ INVESTMENT AGENCIES P LTD (SUPRA) WHEREIN IT HAS RULED THAT NO TDS IS REQ UIRED TO BE MADE ON THE BROKERAGE PAID ON TRANSACTIONS OF SECURITIES. HOWE VER, IN THE CASE OF APPELLANT, APPELLANT HAS PAID COMMISSION TO THE REM ISIERS FOR THE SERVICES AND BUSINESS BROUGHT IN AND NOT THE BROKERAGE AS ENVISA GED U/S 194H OF THE ACT. APPELLANT HAS PAID COMMISSION TO REMISIERS FOR VARI OUS SERVICES INCLUDING BRINGING CLIENTS TO THE APPELLANT. IT IS NOT THE P AYMENT OF BROKERAGE U/S 194H OF THE ACT. THEREFORE, I AM OF THE CONSIDERED OPINI ON THAT APPELLANT SHOULD HAVE DEDUCTED TDS ON PAYMENT OF COMMISSION TO THESE REMISIERS U/S 194H OF THE ACT. CONSIDERING THE ABOVE MENTIONED FACTS AND CIRCUMSTANCES, I HEREBY CONFIRM THE ADDITION OF RS.9,79,553/- ON ACCOUNT OF FAILURE OF THE APPELLANT TO DEDUCT TAX ON THE COMMISSION PAYMENT TO THE REMISIE RS AND THE DECISION OF AO TO DISALLOW COMMISSION PAYMENT OF RS.9,79,553/- U/S 40(A)(IA) OF THE ACT IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. ITA NO. 1901/AHD/2016 STALLION FINSTOCK PVT LTD VS. DCIT ASSESSMENT YEAR : 2006-07 PAGE 3 OF 4 4. BEFORE WE DEAL WITH THE CORRECTNESS OF STAND SO TAKEN BY THE CIT(A), WE MAY ALSO TAKE NOTE OF THE FACTS AS DISCERNIBLE FROM MAT ERIAL ON RECORD. THE ASSESSEE IS A SUB-BROKER OF SHAH INVESTORS HOME LTD AND HE GOT 70 % OF THE COMMISSION EARNED BY THE BROKER FOR GENERATING BUSINESS. THE ASSESSE E HAS ALSO ENGAGED VARIOUS REMISIERS WHO HELP HIM GENERATE THE BUSINESS FOR TH E PRINCIPAL BROKER. THE COMMISSION SO PAID WAS, HOWEVER, DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE DID NOT JUSTIFY THE COMMIS SION, THAT THE ASSESSEE IS NOT PERMITTED TO ENGAGE SUB FRANCHISEE IN TERMS OF PARA 2.17 OF ITS FRANCHISE AGREEMENT WITH THE PRINCIPAL BROKER AND THAT THERE WAS NO WRI TTEN AGREEMENT WITH THE REMISIERS TO WHOM COMMISSION WAS PAID. WHEN ASSESSEE CARRIED THE MATTER IN APPEAL, LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSIN G OFFICER BUT THEN TRIBUNAL VACATED THE CIT(A)S ORDER AND SENT IT BACK FOR FRE SH ADJUDICATION BY THE CIT(A). THATS HOW THE IMPUGNED ORDER, EXTRACTS FROM WHICH HAVE BEEN REPRODUCED EARLIER, WAS PASSED. THE ASSESSEE IS ONCE AGAIN NOT SATISFI ED AND IS AGAIN IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 6. WE FIND THAT COMPLETE DETAILS OF COMMISSION PAID , MANNER OF CALCULATION, NAMES AND ADDRESSES OF THE PERSONS WHO RECEIVED THE SAID COMMISSION AND ALL THE REQUISITE DETAILS WERE BEFORE THE AUTHORITIES BELOW , AND YET THESE PAYMENTS HAVE BEEN DISALLOWED. IN OUR CONSIDERED VIEW, MERE ABSE NCE OF A FORMAL WRITTEN AGREEMENT CANNOT BE REASON ENOUGH TO DISALLOW THE C OMMISSION. ALL THE DETAILS WERE ALL ALONG ON RECORD AND GENUINENESS OF EXPENSE S HAVE NOT BEEN DOUBTED. AS FOR THE BREACH OF TERMS WITH THE PRINCIPAL BROKER, THAT IS A BREACH, IF AT ALL, OF COMMERCIAL AGREEMENT AND THAT CANNOT BE A REASON TO DISALLOW THE COMMISSION EITHER. AS REGARDS DISALLOWANCE UNDER SECTION 40 ( A)(I) R.W.S. 194H, THERE IS NO MERIT IN THIS PLEA EITHER BECAUSE OF THE SIMPLE REASON TH AT IN TERMS OF EXPLANATION (I) TO SECTION 194H, THESE TAX WITHHOLDING OBLIGATIONS EXT END TO ANY PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACT ING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED OR FOR ANY SERVICES IN THE COURSE OF BUYING OR SELLING OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES . IN OTHER WORDS, ANY PAYMENT FOR SERVICES RELATI NG TO SALE OF SECURITIES WILL BE OUTSIDE THE AMBIT OF SECTION 194H. THE VERY FOU NDATION OF DISALLOWANCE IS THUS DEVOID OF LEGALLY SUSTAINABLE MERITS. IN VIEW OF T HE THESE DISCUSSIONS AND BEARING IN MIND ENTIRETY OF THE CASE, WE DEEM IT FIT AND PROPE R TO DELETE THIS DISALLOWANCE OF RS.9,79,553/-. TO THIS EXTENT, THE APPELLANT SUCCE EDS. 7. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TERM S INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 25 TH FEBRUARY, 2019. SD/- SD/- MS. MADHUMITA ROY PRA MOD KUMAR (JUDICIAL MEMBER) (VICE PRESIDENT) AHMEDABAD, THE 25 TH DAY OF FEBRUARY, 2019 *BT ITA NO. 1901/AHD/2016 STALLION FINSTOCK PVT LTD VS. DCIT ASSESSMENT YEAR : 2006-07 PAGE 4 OF 4 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD 1. DATE OF DICTATION: 25.01.2019.. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: .. 25.01.2019......... 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . P.S./P.S.: ..25.02.2019... 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT:... 25.02.2019.. 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK : ... 25.02.2019................... 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK : . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 8. DATE OF DESPATCH OF THE ORDER: ......