ITO, New Delhi V. M/s. Mittal Investment & Company, New Delhi

ITA 1951/DEL/2012

• Counselvise Citation: 195120114 RSA 2012
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 15-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 27-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS SHUMANA SEN
• Keywords: Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E: NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI JOGINDER SINGH, JUDICIAL MEMBER ITA NO. 1951/DEL/2012 ASSESSMENT YEAR: 2008-09 ITO, WARD 36(2), ROOM NO. H- 105, H-BLOCK, VIKAS BHAWAN, NEW DELHI. VS. MITTAL INVESTMENT & COMPANY, 79, DEFENCE ENCLAVE, MAIN VIKAS MARG, NEW DELHI. PAN NO. AAAFM8888N (APPELLANT) (RESPONDENT) APPELLANT BY: MRS. SHUMANA SEN, SR. DR RESPONDENT BY: SH. R.S. SINGHVI, CA O R D E R PER S.V. MEHROTRA, A.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A) DATED 20/01/2012 FOR A.Y. 2008-09. 2. THE ASSESSEE, A PARTNERSHIP FIRM, IN THE RELEVAN T ASSESSMENT YEAR WAS ENGAGED IN THE BUSINESS AS AGENT OF POST OFFICE SCH EMES, PPF, RBI BONDS, LIC, MUTUAL FUNDS ETC. ON COMMISSION BASIS. IT HAD FILED ITS RETURN OF INCOME, DECLARING TOTAL INCOME OF RS. 9,10,367/-. ITA NO. 1951/D/2012 2 3. THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD SHOWN GROSS RECEIPTS OF COMMISSION AT RS. 61,91,491.60/-. HE FURTHER NO TICED THAT ASSESSEE HAD CLAIMED EXPENSES OF RS. 20,85,695/- ON ACCOUNT OF C OMMISSION EXPENSES. FURTHER A SUM OF RS. 1,38,202/- WAS ALSO CLAIMED AS STAFF COMMISSION EXPENSES. THE AO REQUIRED THE ASSESSEE TO FURNISH COMPLETE DETAILS OF COMMISSION PAID WITH PROOF OF TDS DEDUCTED AND DEPO SITED ON THE COMMISSION SO PAID. HE FURTHER OBSERVED THAT THE S AID COMMISSION EXPENSES, AS CLAIMED BY THE ASSESSEE, INCLUDED RS. 11,33,292/- PAID TO SPECIFIED PERSONS AS UNDER: - I. SMT. RAJNI MITTAL, WIFE OF PARTNER RS. 229,46 7/- II. SH. RAVI KUMAR MITTAL, BROTHER OF PARTNER RS. 872,245/- III. RAVI KUMAR MITTAL (HUF) HUF OF BROTHER OF PARTNER. RS. 312,580/- 4. THE AO AFTER CONSIDERING THE ASSESSEES SUBMISSI ONS DISALLOWED THE COMMISSION EXPENSES PAID TO RAVI KUMAR MITTAL (HUF) , INTER-ALIA, OBSERVING THAT EARNING OF COMMISSION INVOLVED RENDERING OF AC TUAL SERVICES; WHICH HUF COULD NOT PERFORM; PARTICULARLY IN THE LIGHT OF THE FACT THAT THE KARTA OF THE SAID HUF HAD RENDERED SERVICE FOR HIMSELF IN HIS INDIVID UAL CAPACITY. THE AO FURTHER DISALLOWED RS. 19,11,317/- U/S 40(A)(IA) FO R NON DEDUCTION OF TAX. 5. BEFORE LD. CIT(A), THE ASSESSEE HAD FILED APPLIC ATION UNDER RULE 46A FOR ADMISSION OF ADDITIONAL EVIDENCE IN THE FORM OF DETAILS OF COMMISSION PAID TO RAVI KUMAR MITTAL (HUF), BOND LETTERS ISSUED BY OTHER BROKERS TO RAVI ITA NO. 1951/D/2012 3 KUMAR MITTAL (HUF), COPY OF ITR OF RAVI KUMAR MITTA L FOR THREE YEARS, COPIES OF LETTERS FROM MUTUAL FUNDS HOUSES IN RESPECT OF N O TDS ON COMMISSION PAID ON MUTUAL FUNDS. 6. LD. CIT(A) FORWARDED THE SUBMISSIONS TO AO FOR C OMMENTS. COPY OF THE REMAND REPORT DATED 10 TH AUGUST, 2011 WAS PROVIDED TO THE ASSESSEE WHO FILED ITS REJOINDER ON 17 TH OCTOBER, 2011. LD. CIT(A) ADMITTED THE ADDITIONAL EVIDENCE AS AO DID NOT RAISE ANY OBJECTI ON TO ADMISSION OF THE SAME. WITH REGARD TO TDS ON COMMISSION EXPENSES, I T WAS STATED THAT COMMISSION FOR PURPOSES OF SECTION 194H DOES NOT IN CLUDE COMMISSION PAID ON SECURITIES. IT WAS SUBMITTED THAT COMMISSION WA S PAID IN RESPECT OF SALE AND PURCHASE OF MUTUAL FUNDS TO SUB-BROKERS. FURTH ER IT WAS SUBMITTED THAT MUTUAL FUNDS ARE SECURITIES IN TERMS OF SECTION 2 (H) OF SECURITIES CONTRACT (REGULATION) ACT, 1956. THE ASSESSEE FURTHER SUBMI TTED THAT IN ITS OWN CASE VARIOUS MUTUAL FUND AGENCIES FROM WHOM THE ASSESSEE RECEIVES COMMISSION, HAD NOT DEDUCTED ANY TDS FOR THE SAME R EASON. FURTHER IT WAS SUBMITTED THAT ON THE COMMISSION PAID IN RESPECT OF OTHER THAN ON SECURITY WHERE EVER THE AMOUNT WAS MORE THAN RS. 5,000/-, TD S WAS MADE AS PER THE PROVISIONS OF SECTION 194H AND WHERE EVER THE P AYMENT WAS LESS THAN RS. 5,000/-, NO TDS WAS REQUIRED TO BE MADE IN TERM S OF PROVISIONS OF SECTION 194H. LD. CIT(A) HAS OBSERVED THAT IN THE REMAND REPORT THE AO SUBMITTED THAT DISALLOWANCE WAS CALLED FOR, FOR THE FOLLOWING REASONS: - ITA NO. 1951/D/2012 4 1) COMMISSION WAS PAID TO SPECIFIED PERSONS U/S 40 A(2)(B) AND, THEREFORE, THE ENTIRE COMMISSION PAID SHOULD HAVE B EEN DISALLOWED RATHER THAN ONLY RS. 3,12,580/- PAID TO RAVI MITTAL HUF; 2) THE AO ALSO RELIED ON THE DECISION IN THE CASE OF GANESH SOAPS WORKS VS. CIT, 161 ITR 876 IN WHICH IT WAS HELD THAT SELL ING COMMISSION PAID TO INTERESTED PERSON HAVING NO EDUCATION OR BUSINESS T RAINING WAS DISALLOWABLE; 3) WITH REGARD TO NO TDS MADE U/S 194H OF THE ACT, THE AO OBSERVED THAT THE COMMISSION PAID BY ONLY THE COMPANY ISSUING SEC URITIES WOULD BE COVERED UNDER EXEMPTION OF COMMISSION ON THE SECURI TIES AND NOT THE BROKERS AND SUB-BROKERS DEALING WITH SECURITIES; 4) THE AO ALSO OBSERVED THAT COMMISSION IN THE PRE SENT CASE HAD BEEN EARNED ON ACCOUNT OF RENDERING OF PERSONALIZED SERV ICES, THEREFORE, THE SAME CANNOT BE ALLOWED IN THE HANDS OF THE HUF. 7. IN THE REJOINDER THE ASSESSEE HAD ADVANCED FOLLO WING SUBMISSIONS: - 1) RENDERING OF SERVICES BY THE FAMILY MEMBERS AND JUSTIFICATION OF THE SAME WAS NOT DISPUTED, REASONABLENESS OF THE EXPENS ES HAD ALREADY BEEN ACCEPTED BY THE AO HIMSELF IN THE ASSESSMENT O RDER; 2) THE PAYMENT TO THE HUF IS ON THE SAME BASIS AS TO THE OTHER FAMILY MEMBERS/OUTSIDERS, GENUINENESS OF THE PAYMENT IS NO T IN DISPUTE; ITA NO. 1951/D/2012 5 3) THE INCOME EARNED BY THE HUF HAD DULY BEEN SHOWN IN ITS RETURN OF INCOME AND HAD BEEN ACCEPTED AS SUCH. 8. LD. CIT(A) AFTER CONSIDERING THE AFOREMENTIONED SUBMISSIONS OF AO AND ASSESSEE, DELETED THE ADDITION FOR THE FOLLOWIN G REASONS: - 1) HUF IS A SEPARATE LEGAL ENTITY WHICH CAN PERFOR M ITS BUSINESS THROUGH ITS KARTA AND OTHER MEMBERS. AS THE SERVICES RENDE RED BY SH. RAVI KUMAR MITTAL IN HIS INDIVIDUAL CAPACITY HAD BEEN AC CEPTED, THERE WAS NO REASON FOR NOT ACCEPTING HIS SERVICES IN HIS CAPACI TY AS A KARTA OF THE HUF; 2) AS REGARDS AO OBJECTION WITH REFERENCE TO SECTI ON 40(A)(2)(B) LD. CIT(A) OBSERVED THAT THE PAYMENT OF COMMISSION TO B OTH THE SPECIFIED PERSONS AS WELL AS PERSONS OTHER THAN SPECIFIED PER SONS HAD BEEN MADE ON THE SAME BASIS AND THE SAME PERCENTAGE. 3) AS REGARDS DISALLOWANCE OF COMMISSION PAYMENTS ON THE GROUND THAT TDS HAD NOT BEEN DEDUCTED ON THE COMMISSION PAYMENT S IN TERMS OF SECTION 194H OF THE ACT, LD. CIT(A) AFTER CONSIDERI NG THE PROVISIONS OF SECTION 194H, INTER-ALIA, OBSERVED THAT THE CONTENT ION OF THE AO IN THE REMAND REPORT THAT EXEMPTION FROM TDS U/S 194H WAS AVAILABLE TO COMMISSION/BROKERAGE ONLY FROM THE COMPANY ISSUING SUCH MUTUAL FUNDS SCHEME HAD NOT BEEN FOUND TO BE CORRECT BECAUSE UND ER EXPLANATION (I) TO SECTION 194H, THERE IS NO SUCH RESTRICTION. ITA NO. 1951/D/2012 6 9. LD. DR REFERRED TO PAGE 3 PARA 3 OF THE ASSESSME NT ORDER AND SUBMITTED THAT ASSESSEE HAD NOT DEDUCTED TDS ON THE COMMISSION EXPENSES PAID BY IT. 10. BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL BE FORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT NO TAX IS REQUIRED TO BE DEDUCTED ON THE ENTIRE COMMISSION OF RS. 19,11,317/- WHEN THE ASSESSEE HAS NOT GIVEN THE BREAKUP OF THE COMMISSION PAID RELATING TO SECURITIES AND OTHER THAN SECURITIES. 2. THE APPELLANT CRAVES TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 11. THUS, IT IS EVIDENT THAT DEPARTMENT HAS NOT ASS AILED THE FINDINGS OF LD. CIT(A) IN REGARD TO DISALLOWANCE OF RS. 3,12,580/- AND ALSO OTHER COMMISSION PAID TO SPECIFIED PERSONS ON THE GROUND OF APPLICABILITY OF PROVISIONS OF SECTION 40A(2)(B). THE ONLY GRIEVANC E OF THE DEPARTMENT IS THAT THE TDS WAS NOT MADE BY THE ASSESSEE AS PER LAW. ITA NO. 1951/D/2012 7 12. LD. COUNSEL REITERATED THE SUBMISSIONS MADE BEF ORE LD. CIT(A) AND SUBMITTED THAT IN VIEW OF THE PROVISIONS OF EXPLANA TION (I) TO SECTION 194H READ WITH SECTION 2(H) OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956, NO TDS WAS REQUIRED TO BE MADE ON SERVICES RELATED TO SECURITY TRANSACTION. IN THIS REGARD, LD. COUNSEL ALSO REFERRED TO PAGE 106 OF PAPER BOOK TO DEMONSTRATE THAT HDFC WAS ALSO NOT DEDUCTING TDS IN RESPECT OF COMMISSION PAID RELATING TO MUTUAL FUNDS. IN THE ALTERNATIVE LD. COUNSEL RELIED ON THE DECISION OF SPL. BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORTERS VS. ADDL. CIT, 136 ITD 23 (SB) AND SUB MITTED THAT IN VIEW OF THE MAJORITY VIEW OF SPL. BENCH, SINCE NOTHING WAS PAYA BLE AT THE YEAR END, THEREFORE, NO TDS WAS REQUIRED TO BE MADE. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. 14. THE ONLY POINT ON WHICH LD. CIT(A)S ORDER HAS BEEN ASSAILED IS THAT THE TDS WAS NOT MADE IN TERMS OF SECTION 194H. SECTION 194H DEALS WITH PROVISIONS RELATING TO TDS ON COMMISSION OR BROKERA GE. COMMISSION OR BROKERAGE HAS BEEN DEFINED IN EXPLANATION (I) AS UN DER: - EXPLANATION (I) COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE, DIRECT LY OR INDIRECTLY, BY A PERSON ACTING ON BEHALF OF ANOT HER PERSON FOR SERVICES RENDERED (NOT BEING PROFESSIONA L ITA NO. 1951/D/2012 8 SERVICES) OR FOR ANY SERVICES IN THE COURSE OF BUYI NG OR SELLING OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUATION ARTICLE OR THING, NOT BEING SECURITIES ; 15. A BARE PERUSAL OF THE ABOVE EXPLANATION CLEARLY SHOWS THAT IF THE COMMISSION OR BROKERAGE HAS BEEN PAID BY A PERSON A CTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED IN CONNECTION WITH SECURITIES THEN THE SAID COMMISSION OR BROKERAGE IS OUTSIDE THE PURVIEW OF SECTION 194H. CLAUSE (H) OF SUB-SECTION (2) OF THE SECURITIES CON TRACT ACT READS AS UNDER: - CLAUSE (H) OF SECTION 2 OF THE SECURITIES CONTRACT S (REGULATION) ACT, 1956 (42 OF 1956) DEFINES SECURIT IES AS UNDER: (H) SECURITIES INCLUDE (I) SHARES, SCRIPTS, STOCKS, BONDS, DEBENTURES, DEBENTURE STOCK OR OTHER MARKETABLE SECURITIES OF A LIKE NATURE IN OR OF ANY INCORPORATED COMPANY OR OTHER BODY CORPORATE; (IA) DERIVATIVE; (IB) UNITS OR ANY OTHER INSTRUMENT ISSUED BY ANY COLLECTIVE INVESTMENT SCHEME TO THE INVESTORS IN SUCH SCHEMES; (IC) SECURITY RECEIPT AS DEFINED IN CLAUSE (ZG) OF SECTION 2 OF THE SECURITIZATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002; (ID) UNITS OR ANY OTHER SUCH INSTRUMENT ISSUED TO THE INVESTORS UNDER ANY MUTUAL FUND SCHEME ; ITA NO. 1951/D/2012 9 (IE) ANY CERTIFICATE OR INSTRUMENT (BY WHATEVER NAME CALLED), ISSUED TO AN INVESTOR BY ANY ISSUER BEING A SPECIAL PURPOSE DISTINCT ENTITY WHICH POSSESSES ANY DEBT OR RECEIVABLE, INCLUDING MORTGAGE DEBT, ASSIGNED TO SUCH ENTITY, AND ACKNOWLEDGING BENEFICIAL INTEREST OF SUCH INVESTOR IN SUCH DEBT OR RECEIVABLE, INCLUDING MORTGAGE DEBT, AS THE CASE MAY BE; (II) GOVERNMENT SECURITIES; (IIA) SUCH OTHER INSTRUMENTS AS MAY BE DECLARED BY THE CENTRAL GOVERNMENT TO BE SECURITIES; AND (III) RIGHTS OR INTEREST IN SECURITIES; 16. THUS, IT IS EVIDENT THAT MUTUAL FUNDS ARE OUTSI DE THE AMBIT OF THE TERM SECURITIES. IN THE PRESENT CASE, ADMITTEDLY THE ASSESSEE WAS AGENT OF POST OFFICE SCHEMES, PPF, RBI BONDS, LIC, MUTUAL FUNDS E TC. AND, THEREFORE, THE COMMISSION PAID BY IT TO OTHER PERSONS WHOSE SERVIC ES WERE TAKEN FOR EARNING COMMISSION WAS ALSO OUTSIDE THE PURVIEW OF PROVISIONS OF SECTION 194H. THE DEFINITION USES THE TERM IN RELATION TO WHICH CLEARLY IMPLIES THAT WHENEVER ANY COMMISSION OR BROKERAGE IS PAID IN REL ATION TO SECURITIES THEN IT WOULD BE OUTSIDE THE AMBIT OF SECTION 194H. ADM ITTEDLY, THE ASSESSEE HAD PAID SUB-BROKERAGE IN RELATION TO SECURITIES (MUTUA L FUND) AND, THEREFORE, IT WAS OUTSIDE THE AMBIT OF SECTION 194H. WE, THEREFO RE, DO NOT FIND ANY REASON WITH THE ORDER OF LD. CIT(A). ITA NO. 1951/D/2012 10 17. IN THE RESULT, THE DEPARTMENTS APPEAL IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07/12/2012 SD/- SD/- (JOGINDER SINGH) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 07/12/2012 *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER ASSISTANT REGISTRAR