2012 (12) TMI 1059 - AT - Income Tax

Summary

Issues involved:
The issues involved in the judgment are disallowance of commission expenses paid to a Hindu Undivided Family (HUF) u/s 40(a)(ia) for non-deduction of tax, admission of additional evidence by the assessee under Rule 46A before ld. CIT(A), and the applicability of TDS provisions u/s 194H on commission payments made by the assessee.

Disallowance of commission expenses paid to HUF u/s 40(a)(ia):
The Assessing Officer disallowed the commission expenses paid to the HUF, stating that the HUF could not perform services for earning commission as it involved rendering of actual services. Additionally, a disallowance of &8377; 19,11,317/- u/s 40(a)(ia) was made for non-deduction of tax. The ld. CIT(A) admitted additional evidence submitted by the assessee and after considering submissions, deleted the addition. The ld. CIT(A) observed that the HUF is a separate legal entity capable of conducting business through its Karta and other members, and as services rendered by an individual were accepted, there was no reason to reject services rendered by the Karta of the HUF.

Admission of additional evidence under Rule 46A:
The assessee filed an application under Rule 46A before ld. CIT(A) for admission of additional evidence related to commission payments to the HUF. The ld. CIT(A) forwarded the submissions to the AO for comments, and after considering the remand report, admitted the additional evidence as the AO did not object to its admission. The assessee argued that TDS on commission expenses was not applicable as the commission was paid in respect of sale and purchase of mutual funds to sub-brokers, which are considered securities under the Securities Contract (Regulation) Act, 1956.

Applicability of TDS provisions u/s 194H:
The Department contended that the assessee did not deduct TDS on commission expenses paid, leading to an appeal. The Department's appeal was based on the argument that TDS should have been deducted on the entire commission amount, questioning the breakdown of commission paid relating to securities and other transactions. The Tribunal analyzed the provisions of section 194H and the definition of commission or brokerage, concluding that commission paid in connection with securities, such as mutual funds, falls outside the purview of section 194H. The Tribunal upheld the ld. CIT(A)'s decision to delete the addition, as the commission paid by the assessee related to securities and was not subject to TDS requirements.