JM FINANCIAL SERVICES LTD,MUMBAI vs. CIT (TDS) 1, MUMBAI

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ITA 2421/MUM/2015Status: DisposedITAT Mumbai09 September 2016AY 2011-123 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that there was a lack of clarity regarding the recipient of the fees and whether they constituted 'interest' under the Act. The Tribunal also noted potential violations of natural justice. Therefore, the matter was remanded to the CIT for fresh adjudication.

What were the facts?

The assessee appealed against a revision order passed by the CIT under Section 263. The CIT had held that the assessee was liable to deduct tax at source on payments made to NSCCL, which the assessee contended were fees for borrowing securities and not interest.

What were the issues?

Whether the fees paid for borrowing securities fall under the definition of 'interest' requiring TDS, and whether the CIT's revision order was passed in accordance with principles of natural justice.

Which sections of the Income-tax Act were involved?

Section 263,Section 201(1),Section 201(1A),Section 194A,Section 2(28)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “J” BENCH, MUMBAI

Before: SHRI MAHAVIR SINGH & SHRI D. KARUNAKARA RAO

For Appellant: Dr. K. Shivram
For Respondent: Shri Alok Johari, CIT-DR
Hearing: 02.09.2016Pronounced: 09.09.2016

सुनवाई की तायीख / Date of Hearing : 02.09.2016 घोषणा की तायीख /Date of Pronouncement : 09.09.2016 आदेश / O R D E R PER D. KARUNAKARA RAO, AM:

This appeal filed by the assessee on 8.4.2015 is against the order of the CIT (TDS)-1, Mumbai dated 18.3.2015 u/s 263 of the Act for the assessment year 2011- 2012. In this appeal, assessee raised the following revised grounds which read as under:- “1. The Ld CIT failed to appreciate that the order dated 25.3.2015 u/s 201(1) / 201(1A) is neither erroneous nor prejudicial to the Revenue, and hence, erred in passing the order dated 18.3.2015 u/s 263 holding that the appellant was liable to deduct tax at source u/s 194A and thereby made a default u/s 201(1) / 201(1A) of the Act.

2.

The Ld CIT failed to appreciate that the payments made to National Securities Clearing Corporation Limited (NSCCL) are towards fees for borrowing of securities under the Securities Lending Scheme, 1997 and not towards interest on moneys borrowed or debt incurred. Therefore, the provisions of section 194A do not apply. Therefore, revision of order passed by the AO u/s 201(1) / 201(1A) is bad in law.

3.

Without prejudice to the above, the Ld CIT failed to appreciate that NSCCL is only an intermediary entitled to receive the payment from the appellant and pass on the same to the lender of securities whose identity is not known to the appellant without which tax cannot be deducted. Therefore, revision of order passed by the AO u/s 201(1) / 201(1A) is bad in law.

4.

Without prejudice to the above, the impugned payment is not in the nature of income in the hands of the intermediary, NSCCL and hence, the appellant was not required to deduct at source. Therefore, the provisions of section 194A do not apply.

5.

Without prejudice to the above, the Ld CIT erred in passing the order dated 18.3.2015 u/s 263 without providing sufficient opportunity to the appellant of being heard and filing explanations and documents. Hence, the order u/s 263 is bad in law.”

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