ITO, New Delhi V. M/s. KJH Financial Services (P) Ltd., Ghaziabad

ITA 6039/DEL/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2699 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 04-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMANA SEN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.6039/DEL/2012 ASSESSMENT YEAR : 2009-10 ITO, M/S KJH FINANCIAL SERVICES (P) WARD-5 (3), LTD. SA-18/2. SHASTRI NAGAR, NEW DELHI. V. GHAZIABAD. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AACCK AACCK AACCK AACCK- -- -3681 3681 3681 3681- -- -J JJ J APPELLANT BY : MS. SUMANA SEN, DR. RESPONDENT BY : SHRI G.N. GUPTA, ADVOCATE. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORD ER OF LD CIT(A) DATED 14.9.2012. THE GROUNDS RAISED BY THE RE VENUE ARE AS UNDER:- 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF ` .69,22,791/- AS DISALLOWANCE U/S 40(A)(IA) MADE BY THE ASSESSING OFFICER, SINCE THE ASSESSEE HAD FAILED TO DEDUCT T AX AT SOURCES U/S 194H. 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND ALTER OR FO RGO ANY GROUND (S) OF APPEAL RAISED ABOVE EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. ITA NO3663/DEL/2012 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN DISTRIBUTION OF MUTUAL FUNDS OF VARIOUS COM PANIES AND IS EARNING COMMISSION FOR THE SAME FROM VARIOUS MUTUAL FUN DS. THE RETURN OF INCOME FOR ASSESSMENT YEAR UNDER CONSIDERATION WAS FILED ON 23.9.2009. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUT INY UNDER CASS. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER O BSERVED THAT ASSESSEE HAD EARNED GROSS COMMISSION OF ` .77,01,033/- FROM VARIOUS MUTUAL FUND COMPANIES AND HAD PAID ` .69,28,562/- TO VARIOUS PERSONS AS SUB BROKING COMMISSION, THE DETAIL OF WHICH W ERE FILED WITH THE ASSESSING OFFICER. THE ASSESSING OFFICER FURTHER OBSERVE D THAT THE ASSESSEE WAS REQUIRED TO DEDUCT INCOME TAX U/S 194H OF T HE ACT WHICH IT DID NOT DEDUCT AND THEREFORE WAS NOT ELIGIBLE FO R DEDUCTION OF EXPENSES AS THE SAME WERE NOT ALLOWED AS PER PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THEREFORE, THE ASSESSEE WAS SPECIF ICALLY ASKED TO SUBMIT ITS SUBMISSIONS. IN RESPONSE TO THE QUERY, THE ASSESSE E SUBMITTED ITS REPLY WHICH THE ASSESSING OFFICER HAS INCORP ORATED IN HIS ORDER AS UNDER:- IN RESPONSE TO THE SHOW CAUSE, THE ASSESSEE HAS SUBMITTED VI DE ITS LETTER DATED 13.10.2011 THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROCURING MUTUAL FUND UNITS FOR THE INVESTOR S. THE MUTUAL FUND UNITS HAVE BEEN DEFINED AS SECURITIES AS PER CLAUSE (H) OF SEC. 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956). BY GETTING THE INVESTMENT DONE IN DIFF ERENCE MUTUAL FUNDS LIKE ABN, AMRO MUTUAL FUND, DSP MUTUAL FUND, FIDELITY MUTUAL FUND, ICICI PRUDENTIAL MUTUAL FUND ING MUTUAL FUND, KOTAK MUTUAL FUND AND LOTUS MUTUAL FUND AS APP LIED BY THE INVESTORS THROUGH SUB BROKERS THE ASSESSEE EARNS ITS COMMISSION/BROKERAGE AS DEFINED IN SECTION 194H OF THE IT ACT, 1961. AS PER THE EXPLANATION (I) TO SEC. 194H FOR THE PURPOSE OF THIS SECTION COMMISSION OR BROKERAGE INCLUDES ANY PAYME NT ITA NO3663/DEL/2012 3 RECEIVED OR RECEIVABLE DIRECTLY OR INDIRECTLY BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BE ING PROFESSIONAL SERVICES) OR FOR ANY SERVICES IN THE COURSE O F BUYING OR SELLING OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THIN, NOT BEING SECURIT IES, IT IS EVIDENT THAT AS PER THE ABOVE SECTION 194H OF THE IT ACT, 1961, NO TDS IS TO BE DEDUCTED FROM COMMISSION OR BROKERAGE PAID FOR PROCURING THE BUSINESS OF SECURITIES. AS A RESULT, NEITHE R THE TDS OF THE ASSESSEE HAS BEEN DEDUCTED BY THE DIFFERENT MUTU AL FUNDS NOR THE ASSESSEE HAS DEDUCTED TDS ON THE COMMISSION PAID, FOR PROCURING THE BUSINESS OF SECURITIES, TO THE SUB BROKERS/A GENTS INVOLVED. FURTHER THE ASSESSEE HAS STATED VIDE ITS LETTER DATED 4.11 .2011 THAT TAX IS NOT DEDUCTED ON SUB BROKERAGE PAID BY MUT UAL FUND DISTRIBUTOR TO ITS SUB DISTRIBUTORS/SUB BROKER FOR DISTR IBUTION OF UNITS TO THE SCHEMES AS THE TRANSACTION RELATING THE BUY ING AND SELLING OF SECURITIES WHICH INCLUDES MUTUAL FUND UNITS I S SPECIFICALLY EXCLUDED FROM THE PROVISION OF SECTION 19 4H. AS A RESULT, NEITHER THE TDS OF OUR COMPANY HAS BEEN DEDU CTED NOR HAVE WE DEDUCTED TDS TO MUTUAL FUND SUB DISTRIBUTORS. IT IS INDUSTRY PRACTICE WHERE ON PAYMENTS TO SUB DISTRIBUTO RS, NO TDS IS BEING DEDUCTED FOR DISTRIBUTION OF UNITS OF THE SCHE MES. 3. THE EXPLANATION SUBMITTED BY THE ASSESSEE WAS HOWEVE R NOT ACCEPTED BY THE ASSESSING OFFICER AND HE MADE THE ADDIT ION OF ` .69,28,562/- ON WHICH TDS WAS NOT DEDUCTED. 4. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE LD CIT(A ) AND REITERATED ITS SUBMISSIONS BEFORE ASSESSING OFFICER. IT WAS SU BMITTED ITA NO3663/DEL/2012 4 THAT ITAT MUMBAI BENCH IN THE CASE OF SJ INVESTMENT A GENCIES (P) LTD. V. ACIT IN I.T.A. NO. 3820 AND IN THE CASE OF M/S JA IN INVESTMENT V. ITO IN I.T.A. NO.3663 HAS HELD THAT COMMISSION AND BROKERA GE DOES NOT INCLUDE COMMISSION AND BROKERAGE EARNED OR PAID IN TH E TRANSACTION OF SECURITIES. THE LD CIT(A) AFTER GOING THROUGH THE SUB MISSIONS OF THE ASSESSEE AND RELYING UPON THE CASE LAW RELIED UPON BY LD AR DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY HOLDING A S UNDER:- IN THE INSTANT CASE IT IS OBSERVED THAT THE APPELLANT HAD PAID BROKERAGE TO ITS SUB BROKERS IN RELATION TO UNITS OF MU TUAL FUNDS. THE SUB BROKERAGE PAID IS CONNECTED WITH THESE SERVICES RENDERED IN THE COURSE OF BUYING AND SELLING OF UNITS OF MUTUAL FUNDS OR IN RELATION TO TRANSACTIONS PERTAINING TO M UTUAL FUNDS. THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY FACT S TO INDICATE THAT THE SUB BROKERAGE HAS BEEN PAID FOR AN Y OTHER SERVICES OTHER THAN THAT RELATING TO MUTUAL FUNDS. THE ENTIRE BUSINESS OF THE APPELLANT IS RELATING TO EARNING OF BRO KERAGE FROM MUTUAL FUNDS AND IN THE PROCESS PAYMENT IS BEING MADE T O SUB BROKERS ON ACCOUNT OF BROKERAGE. SECTION 2(H) OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 WHICH HAS BEEN REFE RRED TO IN SECTION 194H FOR THE PURPOSE OF DEFINITION OF SECURITI ES SPECIFICALLY INCLUDES MUTUAL FUNDS UNDER CLAUSE (ID) WH ICH PROVIDES THAT SECURITIES INCLUDES UNITS OR ANY OTHER INST RUMENTS ISSUED TO THE INVESTORS UNDER ANY MUTUAL FUNDS SCHEME. IN VIEW OF THE FINDINGS ABOVE, AND ALSO KEEPING IN VIEW THE J UDICIAL PRECEDENTS DISCUSSED ABOVE THE APPELLANT IS NOT LIABLE TO DEDUCT TDS ON THE SUB BROKERAGE PAID TO ITS SUB BROKERS. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT AS PER L AW AND HENCE DELETED. ITA NO3663/DEL/2012 5 5. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 6. AT THE OUTSET, THE LD DR READ ASSESSMENT ORDER AND A RGUED THAT ASSESSING OFFICER HAD RIGHTLY REJECTED THE CLAIM OF THE ASSESSEE AS THE ASSESSEE HAD NOT DEDUCTED TAX ON COMMISSION PAID TO OTHER PERSONS. HE FURTHER ARGUED THAT THE COMMISSION WAS PAID FOR PRO CUREMENT OF BUSINESS FOR WHICH SECTION 194H IS APPLICABLE. IN VIEW O F THE ABOVE, HE ARGUED THAT LD CIT(A) HAD WRONGLY DELETED THE ADDIT ION. 7. THE LD AR, ON THE OTHER HAND, RELIED UPON THE PR OVISIONS OF SECTION 194H AND ARGUED THAT EXPLANATION TO SECTION 1 94H ITSELF STATES THAT COMMISSION AND BROKERAGE DOES NOT INCLUDE COMMISSIO N PAID ON THE TRANSACTIONS OF SECURITIES. THEREFORE, IN VIEW OF THE ABOVE, THE LD AR ARGUED THAT ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX ON THE PAYMENT OF COMMISSION TO SUB BROKERS WHICH WAS PAID FOR PROCUREMENT OF BUSINESS OF INVESTMENT IN TO MUTUAL FUN DS. THE LD AR FURTHER PUT RELIANCE ON THE ORDER OF LD CIT(A) WHO HAD FOLLOWED MUMBAI TRIBUNAL IN THE CASE OF M/S JAIN INVESTMENT CO. WHEREI N SIMILAR ADDITION WAS DELETED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE MATTER IS SQUARELY COVERED BY THE ORDER OF MUMBAI S MC BENCH IN THE CASE OF M/S JAIN INVESTMENT IN I.T.A. NO. 3663/MUM/201 0. THE HON'BLE TRIBUNAL IN THE ABOVE NOTED CASE HAS HELD AS UNDER:- 5. LEARNED COUNSEL FOR THE ASSESSEE INVITES OUR ATTENTION TO THE FACT THAT SECTION 2 (H) OF THE SECURITIES CONTRACTS ( REGULATIONS) ACT, 1956, WHICH HAS BEEN REFERRED TO IN SECTION 194 H FOR THE PURPOSES OF DEFINITION OF SECURITIES, SPECIFICALLY INC LUDES MUTUAL FUNDS UNDER CLAUSE (ID) WHICH PROVIDES THAT SECURITIES INCLUDE UNITS OR ANY OTHER SUCH INSTRUMENTS ISSUED TO THE INVEST ORS UNDER ANY MUTUAL FUND SCHEME. WHEN LEARNED DEPARTMENTAL REPRESENTATIVE WAS CONFRONTED WITH THIS FACT, SHE DID N OT HAVE ITA NO3663/DEL/2012 6 MUCH TO SAY EXCEPT PLACING HER RELIANCE ON THE ORD ER 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 CLEARL Y DEVOID OF ANY LEGALLY SUSTAINABLE MERITS. WE REJECT THE SAME. LEARNE D DEPARTMENTAL REPRESENTATIVE, HOWEVER, HAS AN INTERESTI NG POINT TO MAKE. SHE SUBMITS THAT DEFINITION OF COMMISSION OR BROKERAGE, UNDER EXPLANATION (I) TO SECTION 194 H, HAS THREE PARTS FIRST, RELATING TO SERVICES RENDERED BY ONE PER SON ON BEHALF OF ANOTHER ; SECOND-SERVICES RENDERED IN CONNEC TION WITH PURCHASE OR SALE; AND, THIRD TRANSACTION OF SALES OF A NY ASSET ETC OTHER THAN SECURITIES. SHE CONTENDS THAT IT IS ONL Y WHEN THIRD PART OF THIS DEFINITION IS INVOKED THAT THERE WILL BE ANY RELEVANCE OF DEFINITION OF SECURITIES, BUT SINCE SERVICES RENDER ED BY THE ASSESSEE ARE COVERED BY THE FIRST PART, I.E. RENDERING O F SERVICES, THIS DEFINITION IS NOT RELEVANT. WE ARE UNABLE TO SEE ANY MERITS IN THIS OBJECTION EITHER. THE EXPRESSION COMMISSION OR BROK ERAGE 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 BEE N MADE FOR SALE OF MUTUAL FUND UNITS AND THE MUTUAL FUND UNI TS ARE COVERED BY THE SCOPE OF DEFINITION OF SECURITIES. TH E SERVICES RENDERED FOR SALE OF MUTUAL FUND UNITS, THEREFORE, CA NNOT 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 DEPARTMENTAL REPRESENTATIVE. THE PROVISIONS OF LAW ARE CLEAR AND ADMIT NO AMBIGUITY. IN ANY EVENT, IT WAS N OT 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 ITA NO3663/DEL/2012 7 IMPUGNED PAYMENTS FOR COMMISSION ON SALE OF MUTUAL FUND UNITS ARE CONCERNED. 9. FOLLOWING THE ABOVE JUDICIAL PRECEDENTS, WE DO NO T SEE ANY MERIT IN THE ARGUMENT OF LD DR. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. 11. ORDER PRONOUNCED IN THE OPEN COURT ON 30TH DAY OF APRIL, 2013. SD/- SD/- (U.B.S. BEDI) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 30.4.2013. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 7.2.2013 DATE OF DICTATION 26.4.2013 DATE OF TYPING 26.4.2013 DATE OF ORDER SIGNED BY 30.4.2013 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 30.4.2013 & SENT TO THE BENCH CONCERNED.