Itxa/1486/2016 Of Pr. Commissioner Of Income Tax-4 v. M/S Shcil Services Ltd

Priya Soparkar (Substitute order in view of speaking to the minutes order dated 26.3.2019)1 13a itxa 1486-16-o IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1486 OF 2016 Pr.Commissioner of Income Tax-4… Appellant V/s. M/s SHCIL Services Ltd.… Respondent --- Mr.Suresh Kumar for the Appellant.Mr.F.V.Irani with Mr.Atul Jasani for the Respondent. --- CORAM : AKIL KURESHI AND M.S.SANKLECHA, JJ. DATE : FEBRUARY 05, 2019. P.C.:- 1.Revenue has filed this appeal against the judgment of theIncome Tax Appellate Tribunal. Following questions were pressedbefore us:- “1.Whether on the facts and in the circumstancesof the case and in law, the ITAT erred in notaccepting the fact that the payment made to M/sSHCIL Ltd., being a holding company of the assesseefalls within the purview of section 194J of theIncome Tax Act, 1961? 2.Whether on the facts and in the circumstancesof the case and in law, the ITAT erred in holdingthat the sub-brokerage paid would fall under theprovisions of section 194H and not under theprovisions of section 194J, despite the holding Priya Soparkar (Substitute order in view of speaking to the minutes order dated 26.3.2019)2 13a itxa 1486-16-o company providing various “Professional orTechnical Services” and the assessee not specificallyavailing any services exclusively pertaining tobuying and selling of securities?” 2.The respondent-assessee is a 100% subsidiary of StockHolding Corporation of India Limited and is engaged in thebusiness of share broking and providing port-folio managementservices. For the assessment year 2011-12, the Assessing Officernoticed that the assessee had paid sub-brokerage of Rs.21.80crores (rounded off) to Stock Holding Corporation of IndiaLimited. He was of the opinion that on such payments theassessee ought to have deducted tax at source in terms of Section194J of the Income Tax Act, 1961 (“the Act” for short). Theassessee contended that such payment is covered under Section194H of the Act, which contains a specific provision to thiseffect and that by virtue of the explanation to Section 194H, onpayment of brokerage towards securities, no requirement ofdeducting tax at source would arise. The Assessing Officer didnot accept such a contention. The assessee carried the matter in appeal. Commissioner Priya Soparkar (Substitute order in view of speaking to the minutes order dated 26.3.2019)3 13a itxa 1486-16-o (Appeals) accepted the assessee's contention, but invoked theprovisions of Section 40A(2)(b) of the Act. He restricted sub-brokerage to 50% of the expenditure. 4.The revenue as well as the assessee filed appeals beforethe Tribunal. The Tribunal rejected the revenue's appeal andallowed the appeal of the assessee. In this appeal the revenue hasconfined its dispute to the question of deducting tax at source. Inother words, the question of disallowance under Section 40A(2)(b) is not carried in appeal. 5.Section 194J pertains to deduction of tax at source onpayment of fees for provisional and technical services. Incomparison, Section 194H pertains to requirement of deductionof tax at source on payment of commission of brokerage. Relevantportion of Section 194H reads as under :- “Any person, not being an individual or a Hinduundivided family, who is responsible for paying,on or after the 1[st] day of June, 2001, to a resident,any income by way of commission (not beinginsurance commission referred to in section 194D )or brokerage, shall, at the time of credit of suchincome to the account of the payee or at the time of Priya Soparkar (Substitute order in view of speaking to the minutes order dated 26.3.2019)4 13a itxa 1486-16-o 5.Section 194J pertains to deduction of tax at source onpayment of fees for provisional and technical services. Incomparison, Section 194H pertains to requirement of deductionof tax at source on payment of commission of brokerage. Relevantportion of Section 194H reads as under :- “Any person, not being an individual or a Hinduundivided family, who is responsible for paying,on or after the 1[st] day of June, 2001, to a resident,any income by way of commission (not beinginsurance commission referred to in section 194D )or brokerage, shall, at the time of credit of suchincome to the account of the payee or at the time of Priya Soparkar (Substitute order in view of speaking to the minutes order dated 26.3.2019)4 13a itxa 1486-16-o payment of such income in cash or by the issue of acheque or draft or by any other mode, whichever isearlier, deduct income-tax thereon at the rate of[five] per cent: ......... Explanation.—For the purposes of this section,— (i) "commission or brokerage" includes any paymentreceived or receivable, directly or indirectly, by a personacting on behalf of another person for services rendered(not being professional services) or for any services in thecourse of buying or selling of goods or in relation to anytransaction relating to any asset, valuable article or thing,not being securities; 6.In terms of this provision, therefore, any person responsiblefor paying to a resident any income by way of commission orbrokerage would at the time of crediting such income to theaccount of the payee or at the time of payment of such incomewhichever is earlier, deduct income tax at the rate of five percent.Explanation (i) below the said provision defines the term"commission or brokerage", for the purpose of the said Section, asto include any payment received or receivable by a person actingon behalf of another person for services rendered or for anyservices in the course of buying and selling of goods or in relationto any transaction relating to any asset, valuable article or thing,not being securities. The Tribunal on the basis of these statutory Priya Soparkar (Substitute order in view of speaking to the minutes order dated 26.3.2019)5 13a itxa 1486-16-o provisions correctly came to the conclusion that in view of specificprovisions contained in Section 194H, the transaction would notcome within the ambit of Section 194J and further that the abovenoted explanation makes a specific exclusion from the requirementof deducting tax at source in respect to payment of sub-brokerage.The CIT(A) and the Tribunal, therefore, correctly applied thestatutory provisions and deleted the disallowance made by theAssessing Officer. No question of law arises. Income Tax Appealis dismissed. (M.S.SANKLECHA,J.) (AKIL KURESHI,J.)….