JOINT COMMISSIONER OF INCOME TAX (OSD), KANPUR vs. M/S. SPFL SECURITIES LIMITED, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “a”, LUCKNOW BEFORE SHRI. A. D. JAIN, VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER ITA No.35/lkw/2018 Assessment Year: 2011-12 Joint CIT (OSD) v. M/s SPFL Securities Ltd. Kanpur C/o S.A. Kapoor & CO. 13th Floor, Himalaya House 23, K.G. Marg, New Delhi TAN/PAN:AABCS2452C (Appellant) (Respondent) Appellant by: Shri C. K. singh, D.R. Respondent by: Shri Sudhindra Jain, FCA Date of hearing: 07 03 2019 Date of pronouncement: 08 03 2019

O R D E R PER A. D. JAIN, V.P.: This is Revenue’s appeal against the order of the ld. CIT(A)-8, New Delhi dated 3/10/2017 for assessment year 2011-12, taking the following grounds of appeal:- 1. Whether the Ld. CIT(A) erred in Jaw and in Facts and circumstances m deleting the addition made by the A.O. u/s 40(a)(ia) of the Income-tax Act, 1961. 2. Whether the Ld. CIT(A) was justified in holding that the assessee has not violated the provisions of section 194H of the L T. Act, 1961 so as to enable the A.O. to make addition/disallowance u/s. 40(a)(ia) of the Income-tax Act, 1961 on account of non-deduction of tax from the brokerage paid to various .parties without appreciating that the amount was paid as brokerage to various sub-brokers/authorized persons for introducing clients and business for (he company and not for

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buying or selling securities. 3. That the order of the Ld. CIT(A) being erroneous in law and on facts which needs to be vacated and the order of the A.O. be restored. 2. The ld. CIT(A) while deciding the issue in favour of the assessee, has followed the Delhi Bench Tribunal decision dated 15/6/2017 in the assessee’s own case for the assessment year 2009-10. In that order, the Tribunal has held as follows:- “9.1. We have considered the rival arguments made by both the sides, perused the orders of the AO as well as CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case is a member of National Stock Exchange, Bombay Stock Exchange and MCX Stock Exchange. It has paid certain amount to different brokers and sub brokers on which no tax has been deducted for which the AO made disallowance under section 40(ia) of the Income Tax Act for violation of the provisions of section 194H / 194C and made addition of Rs.81,52,443/- and Rs. 59,27,785/- respectively. We find in appeal the learned CIT(A) upheld the action of the AO and such reasoning of the CIT(A) has already been reproduced in the preceding paragraphs. 10. It is the submission of the learned counsel for the assessee that provisions of section 194H are not applicable to commission / brokerage paid in respect of a transaction in securities. We find the Mumbai Bench of the Tribunal in the case of S.J. Investment Agencies Private Ltd (Supra) while dealing with such an issue has dismissed the appeal filed by the Revenue against the order of the CIT(A) deleting the addition made. The relevant observation of the Tribunal at para 6 of the order reads as under: “After considering the arguments and submission we 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 undivided family, who is responsible for paying, on or after the ist 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

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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 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 course of buying 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 commission or brokerage definition does not include transactions in securities. 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 the CIT(A). In fact the CIT(A) also gives a finding that the A.O. has not disputed that units of Mutual Funds are securities as per Securities Contracts (Regulation) Act, 1956. Assessee is in the business of Mutual Funds distribution and investment agent. From the details of brokerage received and service tax deducted there from it can be seen that out of the brokerage income of Rs. 8,28,56,873/- the brokerage income of ?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 ar e 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 Mutual Funds and as per the provisions of section 194H Explanation (i) these are not covered by the provision for deduction of tax at source. There is nothing on record, to indicate that the sub-brokerage 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 by 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

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these reasons, we are of the opinion that the order of the CIT(A) does not require any modification and accordingly the same is confirmed. Revenue’s grounds on this issue are accordingly rejected. 11. We find the Mumbai Bench of the Tribunal in the case of Prayas Securities Pvt. Ltd. (Supra) while dealing with an identical issue reads as under: “So far as the payment of NSE charges is concerned, it appears to us that section 194H which is referred to in the assessee's reply dated 19.11.2008 to the Assessing Officer (reproduced in page 2 of the assessment order) is not applicable since they are only payments to the sub-brokers for mobilizing business for the assessee, who is actually the broker of NSE. The payment is for the services of the sub-brokers in relation to the securities. Explanation (i) below section 194H excludes from the purview of "commission or brokerage" any payment made for services rendered in the course of buying or selling or in relation to any transaction relating to securities and the word "securities" is defined in Explanation (iii) to have the same meaning assigned to it under the Securities Contracts (Regulation) Act, 1956, which we have already referred to. The effect of these provisions is that any payment of commission or brokerage made in respect of a transaction in securities is not covered by the requirement of tax deduction under section 194H of the Act. Therefore, the assessee which has paid commission or brokerage to the sub-brokers for mobilizing business in securities was not required to deduct the tax. In this view of the matter the disallowance made under section 40(a)(ia) in respect of NSE charges is also not justified.” 12. In view of the above decisions cited (Supra) we are of the considered opinion that assessee has not violated the provisions of section 194H of the Income Tax Act so as to enable the AO to make addition / disallowance under section 40(ia) of the Income Tax Act on account of non-deduction of tax from the brokerage paid to various parties. The learned DR could not distinguish the above decisions cited by learned counsel for the assessee nor could bring any material before us so as to take a different view than the views taken by the Mumbai Bench of the Tribunal. We, therefore, set aside the order of the CIT(A) and direct the AO to delete the addition.” 3. It remains undisputed that the issue presently under consideration is exactly the one adjudicated in favour of the assessee in

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the assessee’s own case for the assessment year 2009-10, under similar facts and circumstances, by virtue of the aforesaid order dated 15/6/2017. The said decision of the Tribunal has not been shown to have been upset on appeal, nor the operation thereof, is stated to have been stayed. Therefore, the ld. CIT(A) cannot be said to have erred in deciding this issue in favour of the assessee for the year under consideration. The impugned order is, therefore, confirmed and the grievance sought to be raised by the Department is rejected as being without merit. 4. In the result, the appeal is dismissed. Order pronounced in the open Court on 08/03/2019.

Sd/- Sd/- [T. S. KAPOOR] [A. D. JAIN] ACCOUNTANT MEMBER VICE PRESIDENT

DATED:8th March, 2019 JJ:0703