DCIT 2(3), MUMBAI V. SENATOR COMMODITIES P.LTD, MUMBAI

ITA 8321/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1663 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 01-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPAK K SINHA J
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO. 8321/M/2010 ASSESSMENT YEAR: 2006-2007 DCIT-2(3), R.NO.555, AAYAKAR BHAVAN, MUMBAI 400 020. VS. SENATOR COMMODITIES PVT. LTD., 11, 1 ST FLOOR, J.B. HOUSE, 19, RAGHUNATH DADAJI STREET, FORT, MUMBAI 400 001. PAN: AAACS6840F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DEEPAK K SINHA, JCIT-DR RESPONDENT BY : NONE DATE OF HEARING: 31.12.12 DATE OF ORDE R: 4 .1.2013 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 1.12.2010 IS AG AINST THE ORDER OF CIT (A)- 6, MUMBAI DATED 20.9.2010 FOR THE ASSESSMENT YEAR 2 006-07. 2. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROU NDS WHICH READ AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT (A) HAS ERRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW: 1. THE ORDER OF THE CIT (A) IS OPPOSED TO LAW AND FACT S OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT (A) ERRED IN RESTRICTING THE DISALLOWANCE MADE U/S 14A READ WITH RULE-8D WITH RESPECT TO EXPENDITURE RELATED TO INVESTMENT IN PARTNERSHIP FIRM IGNORING THE CLEAR PROVISIONS OF S EC 14A AND RULE 8D. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT (A) ERRED IN DELETING THE ADDITION OF RS. 8,50,000/- ON ACCOUNT OF NON-DEDUCTION OF TDS WITH RESPECT TO SUB BROKERAGE PAID BY ASSESSEE TO DIFFERENT PERSONS IGNORING THE PROVISIO NS OF SECTION 40(A)(IA). 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT TH E TIME OF HEARING, THE DECISION OF THE CIT (A) MAY BE SET ASI DE AND THAT OF THE AO RESTORED. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE ENGAGED IN THE BUSINESS OF SHARE TRADING & MUTUAL FUND DISTRIBUTIO N FILED ITS RETURN DECLARING TOTAL 2 INCOME OF RS. 12,98,780/-. THE SAME WAS PROCESSED U/S 143(3) OF THE ACT. AO AFTER MAKING CERTAIN DISALLOWANCES UNDER SECTION 14 A OF RS. 2,17,981/- AND DISALLOWANCE OF SUB-BROKERGE PAID U/S 40(A)(IA) AMO UNTING TO RS. 8,50,000/- (RS. 2,17,981 + RS.8,50,000= 10,67,981/-), ADDED THE SAM E TO THE TOTAL INCOME OF THE ASSESSEE DETERMINING THE TAXABLE INCOME OF RS. 23,6 6,760/-. AGGRIEVED WITH THE DECISION OF THE AO, ASSESSEE FILED AN APPEAL BEFORE CIT (A). 4. IN THE FIRST APPELLATE PROCEEDINGS, CIT (A) PARTL Y ALLOWED THE ASSESSEES APPEAL. GROUND 1 AND 4 ARE GENERAL. VIDE GROUND 2, ON THE ISSUE OF ADDITION U/S 14A OF THE ACT, CIT(A) MERELY DIRECTED THE AO TO RECOMP UTE THE DISALLOWANCE ADOPTING THE REASONABLE BASIS AS ENUNCIATED BY THE HONBLE H IGH COURT OF THE BOMBAY IN THE CASE OF M/S GODREJ BOYCE & MFG CO. IN OUR OPINION, THE SAID JUDGMENT IS BINDING AND THEREFORE, THE SAID DIRECTION OF THE CIT (A) DOES N OT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND 2 OF THE APPEAL IS DISMISSED. 5. GROUND NO.3 RELATES TO DELETION OF AN ADDITION O F RS. 8,50,000/- ON ACCOUNT OF NON-DEDUCTION OF TDS WITH REGARD TO SUB BROKERAGE P AID TO DIFFERENT PERSONS, OF THE CIT(A) GRANTED RELIEF TO THE ASSESSEE THE DISCUSSIO N GIVEN IN PARA 6 TO 6.4 OF THE IMPUGNED ORDER. PARA 6.3 OF THE IMPUGNED ORDER CONT AINS THE DISCUSSION OF THE CIT(A) FOR GRANTING RELIEF TO THE ASSESSEE. THE SAM E READS AS UNDER: 6.3. I HAVE CONSIDERED THE FACTS OF THE ISSUE AND T HE SUBMISSIONS MADE BY THE AR. THERE IS MERIT IN THE SUBMISSIONS OF THE A R THAT THE APPELLANT WAS NOT OBLIGED TO DEDUCT TAX U/S 194H AND THEREFORE NO T HIT BY SECTION 40(A)(IA) OF THE ACT FOR THE FOLLOWING REASONS: (A) THE AO HAS NOT DISPUTED THAT UNITS OF MUTUAL FUNDS ARE SECURITIES AS PER SECURITIES CONTRACTS (REGULATION) ACT, 1956. (B) AS PER EXPLANATION TO SECTION 194H COMMISSION OR B ROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE, DIRECT LY OR INDIRECTLY BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVI CES RENDERED OR FOR ANY SERVICES IN THE COURSE OF BUYING AND SELLING OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSETS, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO TO HOLD THAT PAYMENTS TO SUB-BROKERS WAS NOT MADE F OR RENDERING SERVICES IN CONNECTION WITH TRANSACTION RELATING TO SECURITIES. THE AO HAS ACTUALLY STATED IN THE ORDER THAT THE BROKERAGE WAS IN RELATION TO SALE OF MUTUAL FUNDS. 3 (C) FROM THE FACTS PLACED ON RECORD IT IS NOTICED THAT SUB-BROKERAGE PAID IS DIRECTLY OR INDIRECTLY FOR SERVICES RENDERED EIT HER IN THE COURSE OF BUYING AND SELLING OF UNITS OF MUTUAL FUNDS OR IN R ELATION TO TRANSACTIONS RELATING TO UNITS OF MUTUAL FUNDS, BEI NG SECURITIES ON WHICH THERE IS NO LIABILITY TO DEDUCT TAX AT SOURCE . (D) I AM INCLINED TO AGREE WITH THE APPELLANT THAT EXPL ANATION TO SECTION 194H APPLIED TO SECURITIES AND THERE IS NOTHING I N THE SAID SECTIN WHICH PROVIDES THAT THE PROVISIONS OF SECTION 194H FOR NON DEDUCTIBILITY OF TAX AT SOURCE APPLY TO BROKERS ONL Y. IN MY CONSIDERED OPINION THE SAME APPLIED TO SUB-BROKERS SO LONG AS THE SAME IS PAID FOR ANY SERVICES RENDERED DIRECTLY OR INDIRECTLY IN CONNECTION WITH THE TRANSACTIONS OF UNITS OF MUTUAL FUNDS (SECURITIES). (E) IT IS ALSO PERTINENT TO NOTE THAT THERE IS NO MATER IAL ON RECORD TO HOLD THAT THE SUB-BROKERS RENDERED THE SERVICES ONLY FOR INTRODUCING THE CLIENTS. 6.4. IN VIEW OF THE ABOVE FACTS, IT IS HELD THAT SU B-BROKERAGE PAID IN THE COURSE OF BUYING AND SELLING OF SECURITIES OR IN RE LATION TO ANY TRANSACTION RELATING TO SECURITIES FALLS IN THE EXCLUSION PROVI DED IN EXPLANATION TO SECTION 194H AND IS NOT LIABLE TO TDS UNDER SECTION 194H. THEREFORE, THE APPELLANT DESERVES TO SUCCEED ON THIS ISSUE AND THIS GROUND O F APPEAL IS ALLOWED. 7. DURING THE PROCEEDINGS BEFORE US, LD DR FOR THE REVENUE FAIRLY MENTIONED THAT THE ISSUE STANDS COVERED BY THE M/S. S.J. INVE STMENT AGENCIES P. LTD. VIDE ITA NO. 3820/M/2009 (AY: 2006-07) DATED 23.2.2011. WE H AVE HEARD LD DR AND PERUSED THE RELEVANT MATERIAL PLACED BEFORE US. WE FIND THAT THE ISSUE RAISED BY THE REVENUE IS SQUARELY COVERED BY THE DECISION OF ITAT , MUMBAI IN THE CASE OF ACIT VS. M/S. S.J. INVESTMENT AGENCIES P. LTD. VIDE ITA NO. 3 820/M/2009 (AY: 2006-07) DATED 23.2.2011 AND PARA 6 OF THE ORDER IS RELEVANT IN THIS REGARD. FOR THE SAKE OF COMPLETENESS OF THE ORDER, THE SAME IS REPRODUCED H ERE UNDER: 6. AFTER CONSIDERING THE ARGUMENTS AND SUBMISSION W E AGREE WITH THE FINDINGS OF THE CIT (A). THE PROVISIONS OF SECTION 194H 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 COMMISSION (NOT BEING INSURANC E COMMISSION REFERRED TO IN SECTION 194D ) OR BROKERAGE, SHALL, AT THE TIME OF CREDIT OF SUC H INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYME NT OF SUCH INCOME IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHE R MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATE OF [ TEN] PER CENT : PROVIDED PROVIDED PROVIDED 4 EXPLANATION.FOR THE PURPOSES OF THIS SECTION, (I) 'COMMISSION OR BROKERAGE' INCLUDES ANY PAYME NT RECEIVED 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 BUYING OR SELL ING 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 NOT CATEGORIZED AS SECURITIES ON W HICH THERE IS NO OBJECTION FROM THE REVENUE EITHER BEFORE THE AO OR BEFORE THE CIT (A). IN FACT THE CIT (A) ALSO GIVES A FINDING THAT THE AO HAS NOT DISPUT ED THAT UNITS OF MUTUAL FUNDS ARE SECURITIES AS PER SECURITIES CONTRACTS (R EGULATION) ACT, 1956. ASSESSEE IS IN THE BUSINESS OF MUTUAL FUNDS DISTRIB UTION AND INVESTMENT AGENT. FROM THE DETAILS OF BROKERAGE RECEIVED AND SERVICES TAX DEDUCTED THERE FROM IT CAN BE SEEN THAT OUT OF THE BROKERAGE INCOME OF RS. 8,28,58,873/-, THE BROKERAGE INCOME OF RS. 8,27,47, 095/- IS FROM MUTUAL FUNDS. THE BALANCE BROKERAGE OF RS. 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 IS PAID IN CONNECTION WITH THE SERVICES RENDERED IN THE COURSE OF BUYING AND SELLING OF UNITS OF MUTUAL FUNDS OR IN RELATION TO TRANSACTIONS PERTAINING TO MUTUAL FUNDS AND AS PER THE PROVISIONS OF SECTION 1 94H EXPLANATION (I), THESE ARE NOT COVERED BY THE PROVISION FOR DEDUCTION OF T AX AT SOURCE. THERE IS NOTHING ON RECORD TO INDICATE THAT THE SUB-BROKERAG E IS PAID FOR ANY OTHER SERVICES OTHER THAN RELATING TO SECURITIES. THE AO 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 AO. FOR THE SE REASONS, WE ARE OF THE OPINION THAT THE ORDER OF THE CIT (A) DOES NOT REQU IRE ANY MODIFICATION AND ACCORDINGLY THE SAME IS CONFIRMED. REVENUES GROUN DS ON THIS ISSUE ARE ACCORDINGLY REJECTED. 8. THEREFORE, THE SUB-BROKERAGE PAID IS 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 BY THE SUB-BRO KER TO THE ASSESSEE IN THE COURSE OF BUYING AND SELLING OF UNITS OF MUTUAL FUN DS OR IN RELATION TO TRANSACTIONS PERTAINING TO MUTUAL FUNDS AND ACCORDINGLY, AS PER THE PROVISIONS OF SECTION 194H EXPLANATION (I), IMPUGNED PAYMENTS ARE NOT COVERED BY THE PROVISION. REVENUE HAS NOT FILED ANY OTHER DECISION CONTRARY TO THE ABOVE DECISION OF THE TRIBUNAL BEFORE US. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT T HE ISSUE RAISED BY THE REVENUE IS 5 DECIDED IN FAVOUR OF THE ASSESSEE AND THE ORDER OF THE CIT (A) DOES NOT CALL ANY INTERFERENCE. ACCORDINGLY, GROUND 3 RAISED BY THE REVENUE IS DISMISSED . 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF JANUARY, 2013. SD/- SD/- (D.K. AGARWAL) (D. KAR UNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 4.1.2013 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR E, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI