JAIN INVESTMENT, MUMBAI V. ITO 20(1)(3), MUMBAI

ITA 3663/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8972 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 07-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MALTHI R SRIDHARAN
• Section: 40(a)(ia)

Judgement Text

I.T.A NO.3663/ MUM/2010 JAIN INVESTMENT 1 IN THE INCOME TAX APPELLATE TRIBUNAL, SMC BENCH, MUMBAI. [ BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER ] I.T.A NO.3663/ MUM/2010 ASSESSMENT YEAR: 2006-07 JAIN INVESTMENT .. APPELLANT 01, ANDHERI ANURAG CHS, BHARDAWADI, NEAR ICICI COLONY, ANDHERI(W), MUMBAI PA NO.AAEFJ 2578 C VS INCOME TAX OFFICER WARD 20(1)(3) ,. RESPONDEN T 5 TH FLOOR, PIRAMAL CHAMBER, LOWER PARE(E) MUMBAI. APPEARANCES: RAVINDRA S.SABNIS, FOR THE APPELLANT MALTHI R. SRIDHARAN, FOR THE RESPONDENT O R D E R 1. THE SHORT ISSUE THAT I AM REQUIRED TO ADJUDICATE IN THIS APPEAL IS WHETHER OR NOT THE CIT(A) WAS JUSTIFIED IN UPHOLDING THE IMPUGNE D DISALLOWANCE OF RS 2,87,409, IN RESPECT OF SUB BROKERAGE PAID ON SALE OF MUTUAL FUN D UNITS, ON THE GROUND THAT THE ASSESSEE FAILED TO DISCHARGE HIS TAX WITHHOLDING OBLIGA TIONS IN RESPECT OF THE PAYMENTS MADE FOR SUCH SUB BROKERAGE. THE ASSESSMENT YEAR INVOLVED IS 2006-07 AND THE IMPUGNED ASSESSMENT WAS FRAMED UNDER SECTION 143( 3) OF THE INCOME TAX ACT, 1961. 2. BRIEFLY, THE MATERIAL FACTS ARE AS FOLLOWS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSE E HAS CLAIMED A DEDUCTION OF RS 2,87,409 IN RESPECT OF THE BROKERAGE PAID. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE, AS REQUIRED UND ER SECTION 194H, FROM THESE PAYMENTS. ACCORDINGLY, THE ASSESSING OFFICER INVOKED SEC TION 40(A)(IA) TO DISALLOW I.T.A NO.3663/ MUM/2010 JAIN INVESTMENT 2 THE PAYMENTS SO MADE BY THE ASSESSE. AGGRIEVED, ASSESSEE CAR RIED THE MATTER IN APPEAL BUT WITHOUT ANY SUCCESS. IN APPEAL, IT WAS PO INTED OUT THAT THE BROKERAGE ON SALE OF SECURITIES IS NOT COVERED BY TAX WITHHOLDING RE QUIREMENTS UNDER SECTION 194 H, BUT THE CIT(A) REJECTED THE SAID PLEA ON THE GROU ND THAT THE EXPRESSION SECURITIES, AS DEFINED UNDER SECTION 2 (H) OF THE SE CURITIES CONTRACTS (REGULATIONS) ACT, DOES NOT COVER MUTUAL FUND UNITS AND IT IS THIS DEFINITION WHICH IS RELEVANT FOR THE PURPOSE OF SECTION 194 H OF THE INCOME TAX ACT A S WELL. THE ASSESSEE IS NOT SATISFIED AND IS IN SECOND APPEAL BEFORE ME. 3. I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE A PPLICABLE LEGAL POSITION. 4. I FIND THAT SECTION 194 H OF THE INCOME TAX ACT, AS IT STOOD AT THE MATERIAL POINT OF TIME, PROVIDED AS FOLLOWS: COMMISSION OR BROKERAGE 194H. ANY PERSON, NOT BEING AN INDIVIDUAL OR A HIND U UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING, ON OR AFTER THE 1ST DAY OF JUNE, 2001, TO A RESIDENT, ANY INCOME BY WAY OF COMMISSION (NOT BEING INSURANCE COMMISSION REFERRED TO IN SECTION 194D ) OR BROKERAGE, SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT OF SUCH INCOME IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATE OF TEN PER CENT : PROVIDED THAT NO DEDUCTION SHALL BE MADE UNDER THIS SECTION IN A CASE WHERE THE AMOUNT OF SUCH INCOME OR, AS THE CASE MAY BE, THE AGGREGATE O F THE AMOUNTS OF SUCH INCOME CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR TO THE ACCOUNT OF, OR TO, THE PAYEE, DOES NOT EXCEED FIVE THOUSAND RUPEES : PROVIDED FURTHER THAT AN INDIVIDUAL OR A HINDU UNDI VIDED FAMILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSIO N CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A) OR CLAUSE (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH S UCH COMMISSION OR BROKERAGE IS CREDITED OR PAID, SHALL BE LIABLE TO DEDUCT INCOME- TAX UNDER THIS SECTION EXPLANATION.FOR THE PURPOSES OF THIS SECTION, (I) COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE DIRECTLY OR INDIRECTLY, BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVICES) OR FOR ANY SERVICES IN THE C OURSE OF BUYING OR SELLING OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES; I.T.A NO.3663/ MUM/2010 JAIN INVESTMENT 3 (II) THE EXPRESSION PROFESSIONAL SERVICES MEANS SERVICES RENDERED BY A PERSON IN THE COURSE OF CARRYING ON A LEGAL, MEDICAL, ENGINEERING OR ARCHITECTURAL PROFESSION OR THE PROFESSION OF ACCOUNTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DECORATION OR SUCH OTHER PROFESSION AS IS NOTIFIED BY THE BOARD FOR THE PURP OSES OF SECTION 44AA ; (III) THE EXPRESSION SECURITIES SHALL HAVE THE M EANING ASSIGNED TO IT IN CLAUSE (H) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) ( IV) WHERE ANY INCOME IS CREDITED TO ANY ACCOUNT, WH ETHER CALLED SUSPENSE ACCOUNT OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE P ERSON LIABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCO ME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY . 5. LEARNED COUNSEL FOR THE ASSESSEE INVITES OUR ATTENTI ON TO THE FACT THAT SECTION 2 (H) OF THE SECURITIES CONTRACTS (REGULATIO NS) ACT, 1956, WHICH HAS BEEN REFERRED TO IN SECTION 194 H FOR THE PURPOSES OF DEFI NITION OF SECURITIES, SPECIFICALLY INCLUDES MUTUAL FUNDS UNDER CLAUSE (ID) WHICH PROVIDES THAT SECURITIES INCLUDE UNITS OR ANY OTHER SUCH INSTRUMENTS ISSUED TO THE INVESTOR S UNDER ANY MUTUAL FUND SCHEME. WHEN LEARNED DEPARTMENTAL REPRESENTATIVE WAS CONFRONTED WITH THIS FACT, SHE DID NOT HAVE MUCH TO SAY EXCEPT PLACING H ER RELIANCE ON THE ORDER OF THE CIT(A). WE ARE UNABLE TO SEE ANY MERITS IN THE STAND T AKEN BY THE CIT(A) AND THE OBJECTION OF THE CIT(A) IS CLEARLY DEVOID OF ANY LEG ALLY SUSTAINABLE MERITS. WE REJECT THE SAME. LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVE R, HAS AN INTERESTING POINT TO MAKE. SHE SUBMITS THAT DEFINITION OF COMMISSION OR BROKERAGE, UNDER EXPLANATION (I) TO SECTION 194 H, HAS THREE PARTS F IRST, RELATING TO SERVICES RENDERED BY ONE PERSON ON BEHALF OF ANOTHER ; SECOND- SERVICES RENDERED IN CONNECTION WITH PURCHASE OR SALE; AND, THIRD TRANSAC TION OF SALES OF ANY ASSET ETC OTHER THAN SECURITIES. SHE CONTENDS THAT IT IS ONLY WH EN THIRD PART OF THIS DEFINITION IS INVOKED THAT THERE WILL BE ANY RELEVANCE OF DEFIN ITION OF SECURITIES, BUT SINCE SERVICES RENDERED BY THE ASSESSEE ARE COVERED BY THE FIRST PART, I.E. RENDERING OF SERVICES, THIS DEFINITION IS NOT RELEVANT. WE ARE UNABL E TO SEE ANY MERITS IN THIS OBJECTION EITHER. THE EXPRESSION COMMISSION OR BROKERAG E INCLUDES PAYMENT FOR SERVICES FOR SERVICES RENDERED FOR, OR IN THE COURSE OF , BUYING AND SELLING OF GOODS, OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES. THE PAYMENT IN THE PRESET CASE HAS BE EN MADE FOR SALE OF MUTUAL FUND UNITS AND THE MUTUAL FUND UNITS ARE COVERED BY T HE SCOPE OF DEFINITION OF I.T.A NO.3663/ MUM/2010 JAIN INVESTMENT 4 SECURITIES. THE SERVICES RENDERED FOR SALE OF MUTUAL FUND UNITS, THEREFORE, CANNOT BE COVERED BY THE SCOPE OF SECTION 194 H. THE DEFINITIO N HAS TO BE READ IN ENTIRETY AND NOT IN FRAGMENTS, AS SUGGESTED BY THE LEARNED DEPARTMEN TAL REPRESENTATIVE. THE PROVISIONS OF LAW ARE CLEAR AND ADMIT NO AMBIGUITY. I N ANY EVENT, IT WAS NOT EVEN THE CASE BY ANY OF THE AUTHORITIES BELOW. I, THEREFORE, H OLD THAT THE ASSESSEE DID NOT HAVE ANY TAX WITHHOLDING REQUIREMENTS SO FAR AS IMPUGNED PA YMENTS FOR COMMISSION ON SALE OF MUTUAL FUND UNITS ARE CONCERNED. 6. IN VIEW OF MY FINDINGS THAT THERE WERE NO TAX WI THHOLDING OBLIGATION FROM PAYMENTS ON ACCOUNT OF BROKERAGE ON SALE OF MUTUAL FU ND UNITS, THE VERY FOUNDATION OF IMPUGNED DISALLOWANCE CEASES TO HOLD GOOD IN LAW. T HE DISALLOWANCE U/S.40(A)(IA) CAN ONLY BE MADE WHEN THERE IS A TAX W ITHHOLDING REQUIREMENT, AND ASSESSEE FAILS TO COMPLY WITH THE SAID REQUIREMENT. THAT IS NOT THE CASE BEFORE ME. ACCORDINGLY, I UPHOLD THE GRIEVANCE OF THE ASSESSEE AN D DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE. 7. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THE DATE OF HEARING I.E. ON 24 TH JANUARY, 2011. SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 24 TH JANUARY, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),31, MUMBAI 4. COMMISSIONER OF INCOME TAX,20 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH SMC, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI I.T.A NO.3663/ MUM/2010 JAIN INVESTMENT 5 I.T.A NO.3663/ MUM/2010 JAIN INVESTMENT 6