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Facts
The Revenue filed appeals against the order of the CIT(A) concerning the assessee's liability to deduct TDS under Section 194A of the Income Tax Act for Assessment Years 2013-14 and 2014-15. The assessee, acting as a broker, facilitated transactions on the National Spot Exchange Ltd. (NSEL) platform, which involved paired contracts. The Revenue contended that these transactions were in the nature of financing and that the assessee should have deducted TDS on the interest income earned by clients.
Held
The Tribunal held that the assessee was merely a broker and an intermediary, not a counterparty to the transactions. The primary responsibility for offering assured returns and managing the contracts lay with NSEL. Therefore, the assessee could not be held liable for deducting TDS under Section 194A as they were not responsible for paying interest income to the clients.
Key Issues
Whether the assessee, acting as a broker facilitating NSEL transactions, was liable to deduct TDS on the profits earned by clients, treating it as interest income?
Sections Cited
201(1A), 194A, 2(28A)
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Income Tax Appellate Tribunal, ‘A’ BENCH
Before: SHRI AMIT SHUKLA & SMT RENU JAUHRI&
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeals have been filed by the Revenue and cross objections by the assessee against order dated 11/08/2023 passed by ld. CIT (A)-53, Mumbai in relation to the order passed u/s. 201(1A) for the Assessment Years 2013-14 and 2014-15. 2. At the outset, the appeals filed by the Revenue are barred by limitation of 22 days. At the time of hearing we have heard both the parties on this issue and we found there were reasonable grounds for filing the appeal belatedly and since it is only for 22 days, accordingly, delay of 22 days is condoned. 3. In both the years the issues involved are common arising out of identical set of facts and therefore, same were heard together and have been disposed of by ways of this consolidated order. For the sake of ready reference appeal for A.Y.2013-14 is taken up wherein the Revenue has raised following grounds:- “Ground-1 "Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) was right in holding that the primary responsibility was of NSEL which has offered paired and others M/s. Anand Rathi Commodities Ltd. contracts and advertised the assured return and not the assessee? 2 "Whether on the facts and in the circumstances of the case and in Law, the Ld.CIT(A) was right in ignoring the fact that the SEBI has found fault in the assessee and considered that the assessee is not "fit and proper" person for holding the certificate of registration in the securities market and debarred it from trading in the Commodity Market.?" 3 "Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) was right in ignoring the facts that the deposits received by the assessee from the investors created an obligation on the assessee and the same is covered by the definition of the interest u/s 2(28) of the Income Tax.
The brief facts are that Assessee Company was acting as a broker in financial markets to facilitate its clients in placing trades and transaction with National Spot Exchange Ltd. (NSEL). All the transactions were in the nature of purchase / sale of commodities between the clients and NSEL. In respect of the transactions, the profits generated by the clients were considered as paired income from investment in the nature of business income and assessee only gets its brokerage.
The issue under consideration before us is, whether assessee was liable to deduct TDS on the profits earned from the commodity transactions which are earned by the clients by treating it to be interest income. At the outset, it would be relevant to discuss the functioning of NSEL to understand the issues which has been discussed by the ld. AO and ld. CIT (A). and others M/s. Anand Rathi Commodities Ltd.
The National Spot Exchange Limited ("NSEL") commenced trading in Commodities in and around October, 2008 and they permitted paired contracts whereby the clients were entitled to execute purchase and sale deals simultaneously with the delivery cycle of T+2 and T+25/T+36 respectively. The clients who wished to enter into paired contracts could trade as under: (a) The sellers (usually millers, farmers, etc.) are required to deposit their stocks in warehouses which were approved and designated by NSEL on or before the trade date. NSEL was responsible for checking and verifying the quality and quantity of the underlying commodities which will be monitored and certified by the warehouse supervisor. Upon NSEL certifying the same, a warehouse receipt is issued which evidences proof of stated quantity of commodities of a stated grade and quality owned by the holder of the certified warehouse receipt. (b) On Trade date, the Client would enter into a contract through its broker to buy the commodities with T+2 delivery cycle. On T+2, NSEL would collect price of the commodities so purchased by the buyer and issue a delivery allocation report in which the quantity and location of the commodities purchased would be mentioned. (c) Simultaneously, they would also enter into a contract to sell the said commodities (purchased under T+2 contracts) with a T+25 or T+36 delivery cycle. On the said day, NSEL would collect the money from the corresponding new buyer and would then release the commodities to the buyer and price of the commodities to the seller. NSEL would have the custody of the and others M/s. Anand Rathi Commodities Ltd. goods from the time of purchase under the T+2 contract till the time of its sale.
The ld. AO in his order u/s.201(1) r.w.s. 201(1A) of the Act has observed that in the year 2013, Forward Market Commission directed NSEL to stop launching contracts after the payment default and this led to the closure of NSEL in July 2013. Further, investigation led by Enforcement Directorate (ED) & Economic Offences Wing (EOW) revealed the active role of brokers also in alleged scam of NSEL. As per the findings of the Investigation agencies, the brokers had sold the commodities on the floor of National Spot Exchange to the clients by assuring them fixed returns. The transactions on the exchange were carried out in the guise of commodity trading without ensuring delivery of the commodity traded on the exchange. In light of these investigations, the proceedings u/s. 201(1) r.w.s. 201(1A) of the Act were initiated by the Ld. A.O. and he passed the order dated 20/03/2020 treating the assessee as an 'assessee in default' on account of non deduction of TDS amounting to Rs. 7,83,45.558/-.
AO in his order has further observed that investigation carried out by the various agencies showed that the transaction undertaken by the assessee on account of purchase and sale of commodity was in fact a financing transaction and the profit generated in the transaction was in the nature of interest paid by the assessee to the beneficiaries. The ld. A.O. observed that in the entire scheme, the sellers of the commodity would take the and others M/s. Anand Rathi Commodities Ltd. commodity to the NSEL's warehouse who would issue a Warehouse Receipt after examining the nature of goods. Thereafter, the sellers would go to the Exchange and spot sell the said Warehouse Receipt to the buyer. Simultaneously, the same seller, who had the buy position on the trade date will have to place buy order on the same date with the delivery date to be at T+25 cycle thereby squaring off the deal. This way the initial buyer would get a guaranteed return and the seller would get short time finance at interest for a period of around 25 days.
According to the ld. AO assessee was also roped in by the NSEL to popularize the said scheme of assured returns and assessee as a broker had carried out these back to back paired contract at NSEL and paid client beneficiaries an assured income which was in the form of interest on finance by way of paired contracts. The initial buyers were given interest on their investment in the guise of profit from commodity trading and the initial sellers paid interest for the short term finance availed by them in the guise of loan from trading in commodity. While concluding that the impugned transaction were financing transactions in the guise of commodity trading, the ld. A.O. referred to and relied upon the findings of various regulatory authorities including EOW, SEBI, FMC, etc. and the findings of Hon'ble Bombay High Court in the matter of Jignesh Prakash Shah v. State of Maharashtra in Criminal bail application No. 1263 of 2014 dated 22/08/2014. Referring to the EOW application for police custody remand dated 04/03/2015, the ld. A.O. observed that under the said application, allegations were and others M/s. Anand Rathi Commodities Ltd. made against the assessee that as per the statement given by the General Manager of Borosil Glass Works Ltd., the assessee misrepresented that adequate stocks of commodity were available in warehouse.
Further, reliance was also placed by the AO on the Enquiry report of SEBI dated 11/04/2017 wherein it was observed that the assessee had carried out back-to-back paired contracts at NSEL for and on behalf of its constituents and that the assessee had entered into short term buy contract and long-term sale contract with predetermined price and profit for the buyer and seller. The ld. A.O. also placed reliance on the order of Forward Market Commission dated 17/12/2013 and the judgement of the Hon'ble Bombay High Court in the case of 63 Moons Technologies Ltd. vs. UOI in Writ Petition No. 2743 of 2014 as well as the judgement of the Hon'ble Bombay High Court in the case of National Sport Exchange Ltd. vs. State of Maharashtra in Writ Petition No. 1403 of 2015 dated 01.10.2015 and held that the transaction undertaken by the assessee on the NSEL platform represented finance business in the garb of commodity trading.
Accordingly, AO held that the assessee company accepted deposits from its customer which was invested in such a manner that the returns on investments were assured for the beneficiaries. He therefore held that the fixed returns given to the investors by the assessee company was nothing but interest payment within the meaning of s. 2(28A) of the Act on which TDS and others M/s. Anand Rathi Commodities Ltd. u/s. 194A of the Act should have been deducted. The assessee was accordingly held to be an 'assessee in default' u/s. 201(1) of the Act for an amount of TDS of Rs. 7,83,45,558.
In the first appeal before the ld. CIT(A), first of all, referred to the order of Hon'ble Supreme Court in a case pertaining to amalgamation of 63 Moons Technologies Ltd. and NSEL in Civil Appeal No. 4476 of 2019 wherein, vide order dated 30.04.2019, the Hon'ble Supreme Court held that such paired contracts executed on the NSEL platform were financing transaction which were distinct from sale and purchase transaction in commodities. The Ld. CIT (A) also referred to the judgements of Hon'ble Supreme Court in the case of State of Maharashtra v 63 Moons Technologies Ltd. in Civil Appeal No. 2743-49 of 2022 dated 22.4.2022 wherein also the Hon'ble Court held that the NSEL represented to the investors that on receiving money and commodities, the members would receive assured returns and the services. Based on the aforesaid judgements, the Ld. CIT (A) concluded that the transactions were rightly held as financial transactions by the Ld. AO. Against this finding Assessee Company has filed cross objections.
However, ld. CIT (A) accepted the submissions of the assessee that assessee being broker earning brokerage income from the transaction entered on behalf of the clients on spot exchange and was not responsible for the income of the clients and therefore was not liable to deduct TDS. Ld. CIT (A) held that the provisions of s. 194A of the Act would not be attracted to the and others M/s. Anand Rathi Commodities Ltd. transactions, because it was NSEL which had offered assured returns to the investors and not the assessee. He further observed that the assessee, being a broker, cannot be fastened with the liability u/s. 194A of the Act as trade contract was between investors and the NSEL. The assessee broker was merely a facilitator who carried out the said transaction on behalf of their clients. The Ld. CIT (A) also referred to the order of SEBI passed on 29.11.2022 wherein SEBI has accepted that it was a primary responsibility of NSEL and not the brokers to ensure that there was adequate collateral to secure the orders for sale orders on its platform. The SEBI also observed that NSEL itself was advertising such contract as an alternative to fixed deposits and the return offered was 16% across all commodities. The Ld. CIT (A) also referred to various observations of the said order of SEBI as well as the judgement of the Hon'ble Supreme Court in the case of 63 Moons Technologies Ltd and held that the assessee merely facilitated these transactions and that they cannot be held liable to deduct TDS u/s.194A since the assessee was not the counter party to the transaction. It was accordingly, held that the provisions of Section 194A of the Act cannot be invoked in the case of the assessee. For the sake of ready reference the relevant observation of the Ld. CIT(A) holding that assessee was not liable to deduct TDS and there was no liability u/s.44A which is reproduced hereunder:- 16.2. Thus, in my view, the contracts/transactions do attract provisions of sec. 194A considering the unambiguous language used. However, the issue still to be decided is whether the and others M/s. Anand Rathi Commodities Ltd. appellant is responsible for paying the income and is correspondingly required to deduct TDS u/s.194A.
17. It has been contended that in the light of the decisions of the Hon'ble Supreme Court, it is NSEL which has offered assured returns schemes and had run exchange accordingly. The appellant being a broker of such an exchange cannot be fastened with the liability u/s.194A, as the trade contracts are between the Investor and exchange and the appellant is a facilitator for the same.
18. Fortunately, the views of SEBI, the market regulator, are readily available in this regard. Vide order dated 25.02.2019/SEBI had passed an adverse order against the appellant and held that it was not a fit and proper person to hold, directly or Indirectly, the certificate of registration as commodity derivatives broker. The complicity of the appellant in the NSEL Scam was also discussed therein. This order of SEBI was however set aside by the Hon'ble Securities Appellate Tribunal vide order dated 09.08.2022 in Appeal No. 214 of 2019. The matter was remitted back to be decided afresh.
19. Thereafter, SEBI, vide order no. WTM/AB/MIRSD/MIRSD1/21641/2022-23 dated 29.11.2022, rejected the application of the appellant seeking registration and also debarred it from making an application for 6 months. Some of the findings of the SEBI are very relevant and hence reproduced here: 25. I, therefore, note that the Hon'ble Supreme Court has already commented on the nature of the 'paired contracts' offered on the NSEL platform. In the merger petition (63 Moons Technologies Ltd, vs. UOI), it was held that these contracts were in the nature of financing transactions. In the MPID matter (The State of Maharashtra vs. 63 Moons Technologies Ltd.), the Hon'ble Supreme Court has held that such transactions come within the definition of 'deposits' under the MPID Act. 26. it is further noted that the Hon'ble Supreme Court in the MPID matter, had extensively referred to the claims made on the website of NSEL and the contents of the publicity material and other investor resources. Of particular Interest for the present matter is and others M/s. Anand Rathi Commodities Ltd. the data provided in the table reproduced on page 14. It can be noted from the said table that NSEL was advertising a uniform return on 10% p.a. for the 'paired contracts traded on its platform. The return offered was the same across commodities. The return remained the same irrespective of the duration of the contract. For example, a T+2 & T+25 paired contract in steel had the same offered return as a T+ 2 & T+ 35 paired contract in castor oil. The 'paired contracts', it is noted, were being marketed as an alternative to fixed deposits.
I note that it was primarily the responsibility of NSEL, and not the brokers, to ensure that there was adequate collateral to secure the sell orders posted on its platform. But in the larger scheme of how these "paired contracts' were structured, it was not inconceivable that sell orders would be short sales as they were designed to be reversed in all cases, Therefore, the question remains whether a reasonable person would expect the sellers to move the collateral to a warehouse in a situation where the transaction is reversed. However, as the responsibility was primarily of the exchange and got of the brokers facilitating these transactions, I am not going to delve any deeper on this issue.
I note the fact that 'paired contracts were by design structured in a manner that did not result in delivery of commodities, were offered by NSEL, have been found by authorities including the Hon'ble Supreme Court to be in violation of the conditions prescribed in the exemption Notification dated June 05, 2007, Issued by MCA.
This essentially leads to the question as to whether the Notice while facilitating such transactions for its clients was under the bona fide belief that the paired contracts' were actually spot contracts in commodities. Or can it be said that the very fact that 'paired contracts were offered meant that NSEL, was offering contracts which were not resulting in compulsory delivery and, therefore, the Notice should have been aware that such a product was far removed from the spot trading which was permitted on NSEL's platform. Further, as stated in the table reproduced at page 14 above, NSEL Itself was advertising such contracts as an alternative to fixed deposits and the return offered was 16% across all commodities irrespective of the nature of the contract or and others M/s. Anand Rathi Commodities Ltd. the duration, Further, these contracts were structured in a manner which ensured that the buyer always made pre-determined profits.
What is also undisputed is that there was a settlement default at NSEL and unsuspecting clients of the Notices suffered losses. The question that needs to be considered is whether there were enough red flags which should have alerted the Notice when these products were first offered by NSEL. Was the material on record, especially those summarized at paragraph 25 sufficient to make a reasonable person act in a more circumspect manner to come to the conclusion that what was being offered were not spot contracts in commodities but rather a financial product offering fixed returns, as the Hon'ble Supreme Court has held.
As already stated in paragraph 34, a criminal complaint has been filed by SEBI before the EOW against the Noticee. Further, the EOW has also filed a charge sheet against the Noticee, It is, therefore, noted that the Noticee attracts the disqualifications provided in paragraph 3(b) (1) and (ii). Further, the act of Noticee in offering access to 'palred contracts', as detailed in paragraph 26, also seriously calls into question the integrity honesty and lack of ethical behaviour on the part of the Noticee. These contracts, as stated earlier, were ex facie offered in violation of the exemption Notification Issued by MCA and far removed from the spot contracts In commodities which were permitted to be traded on NSEL, The 'paired contracts' were nothing but financing transactions masquerading as spot contracts in commodities.
The settlement default at NSEL led to investors suffering losses of more than INR 5600 Crore. This leads to the question whether the writing on the wall would have been visible if the Notice acted with responsibility, care and diligence. This was the period (2009-2013), when the policy repo rate ranged between 4.75 % to 8%, and NSEL, In its own publicity material, was promising an 'assured return' of 16%. Contracts were structured in a manner where the buy side always made a gain. The return across commodities, as highlighted in the table at page 14, were the same Irrespective of the duration of the contract. This is apart from the other ex facie deviations from the exemption notification that paired contracts suffered from. The lure of extra yield proved and others M/s. Anand Rathi Commodities Ltd. to be an irresistible bait. Brokers with vast experience like the Noticee should have been more careful while offering such a product to its clients.
I therefore note that there were enough red flags for a reasonable person to come to conclude that what was being offered as paired contracts on NSEL were not spot contracts in commodities. Given the above I am constrained to conclude that then Notices, presumably driven by its desire to earn brokerage, provided a platform for its clients to access a product which raised serious questions on the ability of the Noticee to conduct proper and effective due diligence regarding the product itself. In view of the above, I hold that the Notices does not satisfy the 'fit and proper parson' criteria specified in Schedule II of the Intermediaries Regulations, 20. Although SEBI has found fault with the appellant, the primary responsibility appears to have been laid on NSEL. While the appellant has failed to be careful in offering such a product to its clients, SEBI has concluded in para 46 that the appellant has presumably done so with a desire to earn brokerage. This finding of SEBI and the orders of the Hon'ble Supreme Court are convincing enough for me to conclude that it was NSEL which had offered such paired contracts and advertised the same as an assured return product. While the appellant has facilitated the same and cannot be held as blemish-free, it cannot be held liable to deduct TDS u/s.194A as it was a facilitator and not the counter- party to the transaction.
21. Accordingly, it is held that the appellant was not required to deduct TDS u/s.194A. The grounds raised by the appellant stand allowed. The remaining grounds/arguments (order being void, lack of natural Justice etc.) are not required to be adjudicated.
Similar finding has been given by the ld.AO and ld. CIT(A) in the A.Y.2014-15 also. and others M/s. Anand Rathi Commodities Ltd.
We have heard both the parties at length and also perused the relevant finding given in the impugned orders as well as the material referred to before us. As borne out from the records and also from the finding of the lower authorities that assessee was acting as a broker and intermediary as the entire set of transactions carried out by the assessee was on behalf of the client of NSEL platform. The assessee had undertaken the transactions only to earn brokerage and such income from brokerage have duly been offered to tax. Before us ld. Counsel submitted that the receipt of the assessee as well as the scope of involvement of the assessee in the entire transaction can be ascertained from the provisions of bye-laws of NSEL and he has also referred to certain clauses of bye-laws to explain the purpose and receipt of the assessee which are as under:- i) The clause 2.15 and 2.72 of the bye-laws defines the terms 'buyer' and 'seller' to mean the buying or selling client or the exchange member acting as an agent on behalf of the client. (ii) The clause 4 deals with the rules pertaining to the 'Dealing in Commodities'. The clause 4.6 specifically states that while entering an order in the system, the member shall specify whether such order is on own account or on account of his client. If the order is for and on behalf of the client, he should specify the respective client identification number. Thus, even the said clause defines the role of the assessee to be as an agent and a broker acting on behalf of his client. The clause 4.9 also requires that the members, upon executing a trade on the NSEL platform, shall issue a contract note for each of the transaction done by them for the respective client on the trading system. The said contract note issued by the member should be strictly in the format prescribed by the exchange. Even the fees payable on the and others M/s. Anand Rathi Commodities Ltd. transaction undertaken by the assessee on the exchange are decided by the NSEL, as evident from clause 4.19 of the bye- laws. This shows that NSEL was acting in its own right and that the assessee was merely acting as an intermediary on behalf of the clients and executing trade on the exchange as per the rules framed by the exchange. (iii) The clause 7 deals with the provisions pertaining to 'Clearing house of the Exchange'. It is provided in clause 7.9.1 that in respect of commodities or price indices traded and cleared by the exchange in the manner specified in the bye-laws, the exchange shall be deemed to guarantee the net outstanding financial obligations to the clearing members. Thus, the net liability towards the clients on account of the transaction undertaken on the exchange portal was that of the NSEL and not of the assessee. This also proves that the assessee was not a counter party to the transaction. (iv) The clause 9 of the bye-laws deals with the 'Clearing and Settlement' procedure pertaining to the transaction on the exchange. The assessee refers to clause 9.5 which states that an order to buy or sell will become matched transaction only when it is matched in the trading system. It is further provided in clause 9.6 that 'once a trade is matched and marked to market by the Clearing House, the Exchange shall be substituted as the counter-party for all the net financial liabilities of the clearing members in the specified commodities in which Exchange has decided to accept the responsibility of guaranteeing the financial obligations.' Thus it is proved that as per the bye-laws, it is NSEL which had accepted the financial liabilities towards the trade executed by the clients and not the assessee so as to be treated as counter party to the transaction. The assessee also referred to clause 10, pertaining to the 'Delivery' of commodities. The said clause deals with the delivery of the commodities upon conclusion of the transaction by the and others M/s. Anand Rathi Commodities Ltd. client, i.e., buyer or seller. Several sub-clauses deal with the issue of delivery order and allocation letter to the clients. The said clauses are with reference to delivery of commodities which deals with the transaction between NSEL and the buyers/sellers directly. These clauses goes to prove that it is the exchange (NSEL) that was directly dealing with the clients and was responsible as such.
Ld. Counsel submitted that all the clauses of the bye-laws of NSEL clearly shows that assessee was only an intermediary between clients and exchange and therefore, it cannot be held that assessee was counter party to the transaction and that the payment made by the assessee to the clients on account of the profit earned from the commodity transaction represent interest payable to the clients.
He further relied upon various evidences to prove that assessee was merely acting as an agent on behalf of the clients to undertake the transactions on exchange platform. The evidences which have been placed in the paper book which are as under:- (i) Member constitute agreement (ii) Letter of authority granted by the client to the assessee (iii) Contract note issued to the clients in the prescribed format (iv) Delivery allocation report issued by NSEL in respect of various clients on whose behalf trade was executed by the assessee. and others M/s. Anand Rathi Commodities Ltd.
We also find that in the impugned order the ld.AO has referred and relied upon various proceedings carried out by the Government agencies against NSEL, 63 Moons Technologies Ltd. and the assessee to establish that the impugned transaction was undertaken by the assessee and the same represented finance transaction. However, as pointed out before us even in these orders and in the proceedings relied upon by the ld. AO clearly indicate that assessee was never a counter-party to the transaction and it was only acting as an agent and intermediary between the client and the exchange. For ready reference our attention was drawn on enquiry report dated 11/04/2017 issued by SEBI in the case of the assessee and which has been incorporated at page 18 of the assessment order u/s.201 and the findings and the observations in the enquiry report relied upon by the ld. AO, also goes to prove that assessee was admittedly acting as an intermediary for and on behalf of the clients. Even reliance placed by the ld. AO on the judgment of Hon’ble Bombay High Court in the Criminal bail application No.1263 of 2014 in the matter of Jignesh Prakash Shah vs. The State of Maharashtra from where ld. AO observed that the paired contracts were actually finance transaction where the Investors and the buyers got fixed assured returns and the borrowers got easy short-term finance without providing any security. The said observations made by the Ld. A.O. from the order of the Hon'ble High Court clearly proves that the assessee was never a counter- party to the transaction and that the transaction, according to the Ld. A.O., was between the buyer and the seller. Identical and others M/s. Anand Rathi Commodities Ltd. observations have been made by the Ld. A.O. while relying on the order of the Hon'ble Bombay High Court dated 04.12.2017, in the matter of 63 Moons Technologies Ltd. v. UOI [WP NO.2743 of 2014]. Thus, from these materials itself it is well established that assessee was not counter party and was merely acting as an intermediary on behalf of the clients.
At the time of hearing, the ld. Counsel had referred to the judgment of the Hon’ble High Court in the case of 63 Moons Technologies Ltd. (formerly Financial Technologies (India) Ltd.) v. The State of Maharashtra [WP No. 1181 of 2018 and others dated 22.08.2019 and pointed out that the Hon'ble High Court, while dealing with the issue as to whether NSEL was a financial establishment and while concluding that the NSEL did not accept 'deposit' within the meaning of MPID Act, observed that the broker, like the assessee, was merely an intermediary as it was only the broker who had access to the on-line trading system set up by the exchange. The Hon'ble High Court observed in para 23 that broker placed the order either to buy or sell any commodity on behalf of its clients. When two orders are placed through two different brokers for two separate clients, a contract for buying and selling comes into existence. On the due date, the buyer through its broker pays-in the amount of purchase of commodity against transfer of document of title and on the same date, the amount is paid-out to the seller. The Hon'ble High Court, thus at Para 29 of its order, observed that the transaction was between the 2 persons, i.e. buyer and seller through medium of NSEL. This proves that even according to the Hon'ble and others M/s. Anand Rathi Commodities Ltd. High Court, the assessee was nowhere involved as the counter- party to the transaction. The said judgment of the Hon’ble High Court was challenged before the Hon’ble Supreme Court in the case of the State of Maharashtra v. 63 Moons Technologies Ltd. [CA No. 2748-49 of 2022]. Vide their order dated 22.04.2022, the Hon'ble Supreme Court observed that for the purpose of the provisions of MPID Act, the exchange, NSEL, can be said to have accepted 'deposit' within the meaning of MPID Act. The Hon'ble Supreme Court observed in para 42 that even if NSEL is only in custody of the commodity, it would still fall within the purview of 'deposit'. It was held that upon acceptance of custody of the commodity, the exchange had to provide various services and, therefore, such acceptance of the commodity even for custodial purpose would amount to acceptance of deposits. The Hon'ble Supreme Court, at para 58 of its judgement, also held that the Hon'ble High Court had lost sight of the fact that the s. 2(c) of the MPID Act defines the term deposit in the broad terms. It was also held at Para 58 of the judgment that the clause 10.8 of the bye-laws indicates that NSEL was not an intermediary but counter party. Thus, from these observations of the Hon’ble Supreme Court, the ld. Counsel pointed out that according to Hon’ble Supreme Court also NSEL was the custodial of the commodity and was acting as one of the counter party. Whence NSEL was the custodian of the commodity and even if it was a finance transaction then it was between NSEL and clients and assessee as a broker was not custodial of the deposits and hence there is no finance transaction qua the assessee and the client.
and others M/s. Anand Rathi Commodities Ltd. Ergo, we agree with the contention of the ld. Counsel and also as discussed above, assessee was merely a broker and an intermediary and it was never a counter party to the transactions.
Now under these circumstances and transaction between assessee and clients, whether the provisions of Section 194A can be invoked. Section 194 reads as under:- “194A: Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : ……. Explanation.—For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.”
Ergo, section 194 is attracted when a person is responsible for payment of interest other than income by way of income and securities. However, in the case of the assessee, assessee being a broker of certain exchange cannot be held to be a person who has been paying any interest to the clients and therefore, we hold that provision of Section 194A cannot be invoked in the case of the assessee because it cannot be reckoned as a person responsible for payment of income by way of interest to the clients. Ld. Counsel has referred few judgments of the Hon’ble and others M/s. Anand Rathi Commodities Ltd. Delhi High Court in the case of CIT vs. Hardarshan Singh reported in 350 ITR 427 (Del); and CIT vs. Cargo Linkers reported in 218 CTR 693(Del), wherein the Hon’ble High Court has held that provision of TDS cannot be applied in case of intermediary / agents acted on behalf of its clients and intermediary cannot be held to be person responsible for the purpose of TDS provisions. Though these decisions have been rendered in the case of CNF agents, however, the same principle will apply in the present case also because assessee was also an intermediary between the clients and the NSEL and was never party to any counter party members.
The ld. CIT(A) has referred to SEBI order dated 29/11/2022 and in that order SEBI in para 28 held that the primary responsibility was on NSEL and not the brokers. In short there was and adequate collateral to secure the sale orders posted on its platform. The entire responsibility has been put on to the exchange and not of the brokers facilitating these transactions. Thus, the order of the ld. CIT (A) holding that assessee is not required to deduct TDS u/s.194A is upheld and consequently, the grounds raised
by the Revenue are dismissed.
23. In Cross Objection assessee has challenged the finding of the ld. CIT(A) stating that he has erred in law and on facts in confirming the transaction undertaken by the NSEL. However, we have already held that assessee was not offered to deduct TDS u/s.194A, therefore, we are not going to the issue whether the transactions undertaken by the NSEL was whether financial and others M/s. Anand Rathi Commodities Ltd. transactions or not and therefore, it is treated as academic. Accordingly, the cross objections raised by the assessee are treated as infructous.
Since appeal for the A.Y.2014-15 is based exactly on similar facts and finding of the AO and ld. CIT (A), therefore, our finding given herein for the appeal for A.Y.2013-14 will apply mutatis mutandis. Accordingly, Revenue’s appeal as well as cross objections raised by the assessee are dismissed.
In the result, appeals filed by the Revenue as well as cross objections raised by the assessee are dismissed. Order pronounced on 18th November, 2024.