2013 (5) TMI 446 - AT - Income Tax

Disallowance of transaction charges - addition u/s 40(a)(ia) - CIT(A) deleted the addition - Held that - As decided in Kotak Securities Ltd. case 2011 (10) TMI 24 - Bombay High Court Payment regarding transactions charges are in the nature of the payment for technical services and liable to TDS however held that the assessee had bonafide reason to believe that tax was not deductible at source from the payment of transaction charges under section 194J. Prior to this decision this Tribunal has been taking the view that the payments of transaction charges are not subjected to TDS u/s 194J. Even the revenue was also proceedings with a view that no TDS is deductible in respect of payment of transaction charges prior to the assessment year 2006-07. Further when the issue has been decided in favour of the assessee by the Tribunal for the AY 2006-07 then no doubt about the bonafide of the claim of the assessee under belief that no tax at source was required to be deducted u/s 194J. Further it is to be noted that the assessee filed its return of income for the year under consideration on 24.10.2007 and even till the said date no disallowance was made by the revenue u/s 40(a)(ia) in respect of transaction charges paid because the assessment order for the AY 2006-07 was passed on 22.12.2008. Thus as that first time the AO has disallowed the transaction charges by invoking the provisions of sec. 40(a)(ia) while passing the assessment order for Assessment Year 2006-07 on 22.12.2008. Therefore no reason to interfere with the impugned order of the CIT(A) on this issue for the year under consideration. The claim of bonafide is accepted only for the year under consideration and shall have no bearing on future years - Against revenue.

Summary

Issues involved:
1. Disallowance on account of transaction charges under section 40(a)(ia) of the Income Tax Act.
2. Contrary nature of the order of the Commissioner of Income Tax(Appeals) to be set aside.

Issue 1: Disallowance on account of transaction charges under section 40(a)(ia) of the Income Tax Act:

The appeal by the revenue challenges the order of the Commissioner of Income Tax(Appeals) for the Assessment Year 2007-08, specifically regarding the disallowance on account of transaction charges under section 40(a)(ia) of the Income Tax Act. The assessee, engaged in share broking, did not deduct tax at source on transaction charges, leading to the disallowance by the Assessing Officer. However, the Commissioner of Income Tax(Appeals) allowed the claim of the assessee based on previous Tribunal orders and the case of M/s Kotak Securities Ltd.

The Tribunal considered the arguments presented by both parties and examined the relevant records. The assessee's representative relied on a decision of the Hon'ble High Court in a similar case and argued that the claim was bona fide. The Tribunal noted that prior to the assessment year 2006-07, there was no disallowance on transaction charges under section 40(a)(ia). The Tribunal referenced the High Court's observation that both parties had operated for nearly a decade without deducting tax at source on transaction charges, and the Revenue had not objected during that period. The Tribunal concluded that the assessee had a genuine belief that tax was not deductible at source under section 194J, supported by the long-standing practice and the High Court's decision.

The Tribunal further emphasized that the issue had been decided in favor of the assessee for the Assessment Year 2006-07, indicating the bona fide nature of the claim. The Tribunal also highlighted that the Assessing Officer disallowed the transaction charges for the first time while passing the assessment order for the Assessment Year 2006-07. Considering the facts, circumstances, and the High Court's decision, the Tribunal found no reason to interfere with the Commissioner of Income Tax(Appeals) order on this issue for the relevant year.

Issue 2: Contrary nature of the order of the Commissioner of Income Tax(Appeals) to be set aside:

The revenue raised a second ground in the appeal, arguing that the Commissioner of Income Tax(Appeals) order was contrary to law and should be set aside, restoring that of the Assessing Officer. However, based on the detailed analysis of the first issue regarding the disallowance on account of transaction charges, the Tribunal dismissed the revenue's appeal. The Tribunal clarified that the acceptance of the claim of bonafide was limited to the year under consideration and would not impact future years.

In conclusion, the Tribunal upheld the Commissioner of Income Tax(Appeals) decision regarding the disallowance on transaction charges under section 40(a)(ia) for the Assessment Year 2007-08, ultimately dismissing the revenue's appeal.

This summary provides a detailed analysis of the judgment, addressing each issue comprehensively while retaining the legal terminology and significant phrases from the original text.