ACIT 2(3), MUMBAI V. S.J. INVESTMENT AGENCIES P. LTD, MUMBAI

ITA 3820/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8400 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 28-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 05-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUSUM INGLE
• Assessee Lawyers: R C JAINSHRI SANJAY BOBRA
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 3820/MUM/2009 (ASSESSMENT YEAR: 2006-07) ACIT - 2(3) M/S. S.J. INVESTMENT AGENCIES P. LTD. ROOM NO. 555, AAYAKAR BHAVAN 107, BANAJI HOUSE, 361 D.N. ROAD M.K. ROAD, MUMBAI 400020 VS. FLORA FOUNTAIN, FORT MUMBAI 400001 PAN - AAHCS 9535 Q APPELLANT RESPONDENT CO NO. 01/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S. S.J. INVESTMENT AGENCIES P. LTD. ACIT - 2(3) 107, BANAJI HOUSE, 361 D.N. ROAD ROOM NO. 555, AAYA KAR BHAVAN FLORA FOUNTAIN, FORT VS. M.K. ROAD, MUMBAI 400020 MUMBAI 400001 PAN - AAHCS 9535 Q CROSS OBJECTOR APPELLANT IN APPEAL REVENUE BY: SMT. KUSUM INGLE ASSESSEE BY: SHRI R.C. JAIN/SHRI SANJAY BOBRA O R D E R PER B. RAMAKOTAIAH, A.M. THE APPEAL BY THE REVENUE IS AGAINST THE ORDER OF T HE CIT(A) XXX DATED 31.03.2009 AND THE CROSS OBJECTION BY THE ASSESSEE IS IN SUPPORT OF THE ORDER OF THE CIT(A). 2. REVENUE HAS RAISED THE FOLLOWING TWO GROUNDS: - 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF SUB-BROKERAGE OF RS.6,57,57,041/- M ADE BY THE ASSESSING OFFICER U/S. 40(A)(IA) OF THE I.T. ACT BY ERRONEOUSLY HOLDING THAT THE SAID AMOUNT OF BROKERAGE FALLS IN THE EXCLUSION PROVIDED IN EXPLANATION TO SECTION 194H AND THEREFO RE, THE ASSESSEE IS NOT LIABLE FOR DEDUCTION OF TAX AT SOUR CE U/S. 194H OF THE I.T. ACT. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE SUB-BROKERAGE OF RS.6,57,57,041/- WAS EITHER PAID I N THE COURSE OF BUYING OR SELLING OF SECURITIES OR IN RELATION T O ANY TRANSACTION RELATING TO SECURITIES WAS PAID FOR JUST INTRODUCIN G THE CLIENTS. ITA NO. 3820/M/2009 & CO NO.1/M/2010 M/S. S.J. INVESTMENT AGENCIES P. LTD. 2 3. THE BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MUTUAL FUND DISTRIBUTION AND INVEST MENT AGENT. THE RETURN OF INCOME DECLARING TOTAL INCOME AT ` 39,56,535/- WAS FILED ON 27.11.2006. THE SAME WAS PROCESSED UNDER SECTION 143(1) OF THE I.T. ACT. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AND FINALLY THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 28.11.2008 BY DETERMINING T OTAL INCOME AT ` 6,97,13,580/-. WHILE DETERMINING THIS INCOME, THE A SSESSING OFFICER MADE DISALLOWANCES ON ACCOUNT OF SUB-BROKERAGE AMOUNTING TO ` 6,57,57,041/- UNDER SECTION 40(A)(IA). 4. BEFORE THE CIT(A) IT WAS CONTENDED THAT THE ASSESSE E WAS MAINLY ENGAGED IN DISTRIBUTION OF UNITS OF MUTUAL FUNDS AN D THESE MUTUAL FUNDS ARE CONSIDERED AS SECURITIES AS PER THE PROVISIONS OF SECTION 194H AND NO TAX WAS DEDUCTED AT SOURCE FROM BROKERAGE BY MUTUAL FUN D COMPANIES. SINCE THE ASSESSEE RECEIVES BROKERAGE WITHOUT ANY TAX DED UCTION AT SOURCE IN VIEW OF PROVISIONS OF SECTION 194H, THE PAYMENT OF SUB-B ROKERAGE ON SIMILAR LINES ALSO GETS EXEMPTION UNDER THE PROVISIONS OF SECTION 194H. IT WAS FURTHER CONTENDED THAT THE ASSESSING OFFICERS OPINION THAT THE SUB-BROKERS ARE RENDERING PROFESSIONAL/TECHNICAL SERVICES AND SHOUL D HAVE BEEN DEDUCTED TAX HAS NO BASIS AS THE ASSESSEE ENTERED INTO AGREE MENTS WITH VARIOUS SUB- BROKERS WHO HELPED IN ENROLLING CLIENTS TO THE ASSE SSEE IN PROPAGATION OF MUTUAL FUNDS. IN SUPPORT OF THE CONTENTIONS, ASSESS EE MADE DETAILED SUBMISSIONS, ENCLOSED COPY OF ENROLMENT FORMS, BROK ER STATEMENTS AND ALSO AN ORDER UNDER SECTION 154 PASSED IN ANOTHER CASE B Y THE A.O. DELETING THE ADDITION SO MADE UNDER SECTION 40(A)(IA). THE CIT(A ) HAS ACCEPTED THE CONTENTIONS AND DIRECTED THE A.O. TO DELETE THE DIS ALLOWANCE SO MADE UNDER SECTION 40(A)(IA). THE REVENUE IS AGGRIEVED ON THE DIRECTION OF THE CIT(A) WHEREAS THE ASSESSEE IN THE CROSS OBJECTION RAISED THE ISSUE OF SERVICE TAX INCLUDED IN THE ABOVE AMOUNT, WHICH WAS POINTED OUT TO THE CIT(A) BUT NOT ADJUDICATED. THE BALANCE OF THE GROUNDS IN THE CROS S OBJECTION SUPPORTS THE ORDER OF THE CIT(A). 5. WE HAVE HEARD THE LEARNED D.R. AND THE LEARNED COUN SEL FOR THE ASSESSEE AND EXAMINED THE PAPER BOOK PLACED ON RECO RD CONTAINING 53 PAGES. ITA NO. 3820/M/2009 & CO NO.1/M/2010 M/S. S.J. INVESTMENT AGENCIES P. LTD. 3 6. AFTER CONSIDERING THE ARGUMENTS AND SUBMISSION WE A GREE WITH THE FINDINGS OF THE CIT(A). THE PROVISIONS OF SECTION 1 94H ARE AS UNDER: - 194H. ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU UNDI VIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING, ON OR AFTER THE 1ST DAY OF JUNE, 2001, TO A RESIDENT, ANY INCOME BY WAY OF COMMISSIO N (NOT BEING INSURANCE COMMISSION REFERRED TO IN SECTION 194D) O R 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 TH E 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 .. PROVIDED .. PROVIDED .. EXPLANATION.FOR THE PURPOSES OF THIS SECTION, (I) COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECE IVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACT ING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PRO FESSIONAL 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, VALUABLE ARTICLE OR THING , NOT BEING SECURITIES; (II) .. (III) .. (IV) .. AS CAN BE SEEN FROM THE ABOVE PROVISION, THE COMMIS SION OR BROKERAGE DEFINITION DOES NOT INCLUDE TRANSACTIONS IN SECURIT IES. THERE IS NO DOUBT THAT MUTUAL FUNDS ARE CATEGORISED AS SECURITIES ON WHICH THERE IS NO OBJECTION FROM THE REVENUE EITHER BEFORE THE A.O. OR BEFORE T HE CIT(A). IN FACT THE CIT(A) ALSO GIVES A FINDING THAT THE A.O. HAS NOT D ISPUTED THAT UNITS OF MUTUAL FUNDS ARE SECURITIES AS PER SECURITIES CONTR ACTS (REGULATION) ACT, 1956. ASSESSEE IS IN THE BUSINESS OF MUTUAL FUNDS D ISTRIBUTION AND INVESTMENT AGENT. FROM THE DETAILS OF BROKERAGE REC EIVED AND SERVICE TAX DEDUCTED THERE FROM IT CAN BE SEEN THAT OUT OF THE BROKERAGE INCOME OF ` 8,28,56,873/- THE BROKERAGE INCOME OF ` 8,27,47,095/- IS FROM MUTUAL FUNDS. THE BALANCE BROKERAGE OF ` 1,09,779/- IS TOWARDS BONDS AND FIXED DEPOSITS. THE SUB-BROKERAGE IS PAID IN RELATION TO UNITS OF MUTUAL FUNDS. FROM THE DETAILS PLACED ON RECORD, WE ARE CONVINCED THAT THE SUB-BROKERAGE PAID IS CONNECTED WITH THE SERVICES RENDERED IN THE COURSE OF BUYING AND SELLING OF UNITS OF MUTUAL FUNDS OR IN RELATION TO TRANSACTIONS PERTAINING TO ITA NO. 3820/M/2009 & CO NO.1/M/2010 M/S. S.J. INVESTMENT AGENCIES P. LTD. 4 MUTUAL FUNDS AND AS PER THE PROVISIONS OF SECTION 1 94H EXPLANATION (I) THESE ARE NOT COVERED BY THE PROVISION FOR DEDUCTIO N OF TAX AT SOURCE. THERE IS NOTHING ON RECORD TO INDICATE THAT THE SUB-BROKE RAGE IS PAID FOR ANY OTHER SERVICES OTHER THAN RELATING TO SECURITIES. THE A.O . ALSO ACCEPTS THAT THE BROKERAGE RECEIVED BY THE ASSESSEE IS NOT COVERED B Y TDS WHEREAS HE WAS OF THE OPINION THAT THE SUB-BROKERAGE PAID IS COVERED BY THE PROVISIONS. WE ARE UNABLE TO UNDERSTAND THIS LOGIC OF THE A.O. FOR THE SE REASONS, WE ARE OF THE OPINION THAT THE ORDER OF THE CIT(A) DOES NOT REQUI RE ANY MODIFICATION AND ACCORDINGLY THE SAME IS CONFIRMED. REVENUES GROUND S ON THIS ISSUE ARE ACCORDINGLY REJECTED. 7. WITH REFERENCE TO THE CROSS OBJECTION IT WAS THE CO NTENTION OF THE ASSESSEE THAT THE AMOUNT DISALLOWED BY THE A.O. INC LUDES SERVICE TAX OF ` 76,74,991/- WHICH SHOULD NOT HAVE BEEN DISALLOWED. THE SAME CONTENTION WAS ALSO MADE BEFORE THE CIT(A). AS SEEN FROM THE P APER BOOK THE CONTENTIONS SEEM TO BE CORRECT. HOWEVER, SINCE THE ENTIRE AMOUNT DISALLOWED BY THE AO WAS ALLOWED TO THE ASSESSEE, THERE IS NO NEED TO ADJUDICATE THIS ISSUE SEPARATELY. HOWEVER, WE MAKE IT CLEAR THAT TH E AMOUNT THAT SHOULD HAVE BEEN DISALLOWED BY THE A.O. WAS TO BE REDUCED BY THE AMOUNT OF ` 76,74,991/- AND THIS STATEMENT IS ONLY MADE FOR THE PURPOSE OF RECORD. SINCE THE A.O. MADE THE DISALLOWANCE OF THE ENTIRE SUM INCLUDING THE SERVICE TAX COMPONENT AND AS ASSESSEE WAS ALLOWED THE ENTIR E AMOUNT, THERE IS NO NEED TO GIVE ANY SPECIFIC DIRECTION TO THE A.O. ACC ORDINGLY THE CROSS OBJECTION IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED A ND THE CROSS OBJECTION IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23RD FEBRUA RY 2011. SD/ SD/ (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 23RD FEBRUARY 2011 ITA NO. 3820/M/2009 & CO NO.1/M/2010 M/S. S.J. INVESTMENT AGENCIES P. LTD. 5 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXX, MUMBAI 4. THE CIT II, MUMBAI CITY 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.