SUBBULAKSHMI SIVATHANU,CHENNAI vs. ITO, NON CORP WARD 10(4), CHENNAI

Both the assessee’s have filed common grounds of appeal in their respective Memorandum of appeal and also many times amended the grounds of appeals. From the grounds of appeals of both assessee’s, two issues are emanating for adjudication viz. (i) disallowance of delayed payment charges u/s. 40(a)(ia) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for failure to deduct TDS u/s. 194A of the Act (ii) assessment of profit/loss derived from purchase and sale of shares under the head speculative income/loss as against assessee’s admission under the head income from business or profession. Therefore, we deem it not necessary to reproduce grounds of appeals filed by both the assessee’s.

The first issue that came up for our consideration from assessee appeal is disallowance of late payment charges u/s. 40(a)(ia) of the Act. The AO has disallowed a sum of Rs. 14,07,762/- towards late payment charges paid to broker on the ground that said payment is in the nature of interest as

The Ld. Counsel for the assessee, referring to various judicial precedence including the decision of Hon’ble Calcutta High Court in the case of PCIT vs West Bengal Housing Infrastructure Development Corporation Ltd [2018] 257 Taxman.570, submitted that in order to bring any payment within the ambit of interest as defined u/s. 2(28A) of the Act, there should be borrower and lender relationship. In this case, the assessee has paid late payment charges for delayed payment to broker for share trading activity which cannot be considered as interest to disallow said payment u/s. 40(a)(ia) of the Act for failure to deduct TDS u/s. 194A of the Act.

The Ld. DR, on the other hand referring to decision of ITAT, Mumbai, submitted that the definition of interest as per section 2(28A) of the Act is of widest amplitude which includes any charges for delayed payment and thus, the assessee

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The provisions of section 2(28A) of the Act, defined the term interest, which means interest payable in any manner in respect of any money borrowed or debt incurred (including deposits, claims or other similar rights or obligation) and includes any service fee or other charges in respect of the money borrowed or debit incurred or in respect of any credit facility which has not been utilized. From the definition of interest as per section 2(28A) of the Act, it is very clear that in order to bring any payment within the ambit of the term interest, there should be lender and borrower relationship. In this case, the assessee has paid some charges for delayed payment of amount towards purchase and sale of shares to a broker, without there being any contractual obligation or other terms and conditions applicable to borrowing. Therefore, we are of the considered view that, said payment cannot be

In this view of the matter and consistent with the view taken by the co-ordinate bench, we are of the considered view that provisions of section 194A has no application to delayed payment charges on trade liability and thus, the assessee does not require to deduct TDS u/s. 194A of the Act. Consequently, impugned payment cannot be disallowed u/s. 40(a)(ia) of the

The next issue that came up for our consideration from assessee appeal is assessment of profit/loss derived from share trading activity under the head speculative income. The facts with regard to the impugned dispute are that, the assessee is engaged in the business of purchase and sale of shares. During the course of assessment proceedings, the AO noticed that as per the ITS statement available in records, the assessee has entered into purchase and sale transactions under code 03, which is applicable to speculative transactions. The AO called upon the assessee to file necessary evidences to justify her stand in offering income/loss under the head profit/gain from business. The assessee, in response submitted that, it is difficult to submit script wise purchase and sale details, however claimed that she had transacted with derivatives which is outside the scope of provisions of section 43(5) of the Act. In order to verify the claim of the assessee, the Assessing Officer has issued letter to ICICI Securities Ltd, calling for the details of transactions, including position of

The Ld. Counsel for the assessee, referring to various documents submitted that, the details called for by the AO cannot be furnished at all. He further, submitted that there is no dispute that, she was trading in derivatives and derivative trading is outside the scope of speculative transactions as defined u/s. 43(5) of the Act. The Ld. Counsel for the assessee, further referring to Circular no. 03/2006 dated 27.02.2006, submitted that the Board itself has excluded trading in derivatives on recognized stock exchanges from the ambit of speculative transactions. Therefore, he submitted that the AO as well as the Ld. CIT(A) have clearly erred in assessing profit/loss under the head speculative income. In this regard, he relied upon certain judicial precedence on the principles of assessment of income including the decision of Hon’ble Supreme Court in the case of Central India Spinning &

The Ld. DR, on the other hand supporting the order of the Ld. CIT(A) submitted that, the assessee could not file any evidence to justify share trading in derivatives. Further, the AIR data base clearly shows that she had trading in speculative transactions. Therefore, the AO in absence of necessary evidences has rightly assessed profit/loss under the head speculative transactions and their order should be upheld.

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that the assessee was engaged in share trading activity on the recognized stock exchange. It was also not in dispute that ICICI Securities Ltd, a stock broker reported transactions of the assessee under STT code no. 03 which is exclusively for speculative transactions as claimed by the Assessing Officer. The assessee claims that she was trading in derivatives, but not in future and options trading which comes under

In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the issue needs to go back to the file of the AO and thus, we

In the result, appeal filed by the assessee is treated as allowed for statistical purposes.

The first issue that came up for our consideration from both these appeals filed by the assessee is disallowance of late payment charges u/s. 40(a)(ia) of the Act for failure to deduct TDS u/s. 194A of the Act. We find that an identical issue had been considered by us in ITA No. 293/Chny/2019 for assessment year 2015-16 in the case of Subbalakshmi Sivathanu, where we have deleted addition made by the AO towards late payment charges u/s. 40(a)(ia) of the Act, for non-deduction of TDS u/s. 194A of the Act. The reasons given by us in preceding para no. 7 and 8 in ITA No. 293/Chny/2019, shall mutandis mutatis apply to these,

The next issue that came up for our consideration from assessee’s appeal for both assessment years is assessment of profit/loss from share trading activity under the head speculative transactions as against the claim of the assessee under the head profit from business. We find that an identical issue had been considered by us in ITA No. 293/Chny/2019 for assessment year 2015-16 in the case of Subbalakshmi Sivathanu, where we have set aside the issue to the file of the AO for reconsideration. The reasons given by us in preceding para no. 12 & 13 in ITA No. 293/Chny/2019 shall mutandis mutatis, apply to these, appeals as well. Therefore for similar reasons, we set aside the issue for both assessment years to the file of the AO and direct the AO to re-examine the issue in light of various evidences and if necessary obtain evidence from the broker ICICI Securities Ltd. The assessee is also directed to file necessary evidence to justify his claim.