ITO v Mittal Investment & Co. [IT Appeal No. 1951 (Delhi) of 2012] (Del ITAT)

Background:

The assessee, a partnership firm, was engaged in the business as agent of post office schemes, PPF, RBI Bonds, LIC, Mutual Funds etc. on commission basis.  The assessee had claimed expenses of Rs. 20,85,695/- on account of commission expenses. During the course of assessment proceedings, AO required the assessee to furnish complete details of commission paid with proof of TDS deducted and deposited on the commission so paid. Since, no TDS was deducted u/s 194H, the AO disallowed the commission u/s 40(a)(ia) for non deduction of tax.

Assessee’s contentions:

• Commission for purposes of section 194H does not include commission paid on securities.
• Commission was paid in respect of sale and purchase of mutual funds to sub-brokers. Mutual funds are “securities” in terms of section 2(h) of Securities Contract (Regulation) Act, 1956.
• The assessee further submitted that in its own case various mutual fund agencies from whom the assessee receives commission, had not deducted any TDS for the same reason.
• Thus, as per explanation (i) to section 194H read with section 2(h) of the Securities Contracts (Regulation) Act, 1956, no TDS was required to be made on services related to security transaction.

HELD:

• A bare perusal of the Explanation clearly shows that if the commission or brokerage has been paid by a person acting on behalf of another person for services rendered in connection with securities then the said commission or brokerage is outside the purview of section 194H.
• The assessee was agent of post office schemes, PPF, RBI Bonds, LIC, Mutual Funds etc. and, therefore, the commission paid by it to other persons whose services were taken for earning commission was also outside the purview of provisions of section 194H.
• The definition uses the term “in relation to” which clearly implies that whenever any commission or brokerage is paid in relation to securities then it would be outside the ambit of section 194H.