No TDS on brokerage paid by agent to sub-broker for dealing on securities


Sub-brokerage paid by an agent to sub-agents for services rendered in connection with securities/mutual funds is outside the purview of section 194H

In the instant case, the assessee-firm, engaged as an agent of post office schemes, PPF, RBI Bonds, LIC, Mutual fund, etc., had claimed expenditure on account of commission paid to sub-brokers in respect of sale and purchase of mutual funds. The AO disallowed the claim as no tax under section 194H was deducted on above payments. According to him only the companies issuing securities were exempted from liability of deduction of tax under section 194H on payment of commission and not the brokers or sub-brokers dealing with the securities. However, on appeal, the CIT (A) deleted the impugned addition. Thus, instant appeal was filed by the revenue.

The Tribunal held in favour of assessee:
1) Commission or brokerage has been defined in the Explanation (i) to section 194H. A bare perusal of such 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 said commission or brokerage would be outside the purview of section 194H;

2) It is evident from clause (h) of section 2 of the Securities Contract Act, 1956 that mutual funds are not outside the ambit of the term 'securities'. The Explanation (i) to section 194H 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. Admittedly, the assessee had paid sub-brokerage in relation to securities (mutual fund) and, therefore, it was outside the ambit of section 194H – ITO V. MITTAL INVESTMENT & CO. [2013] 33 taxmann.com 52 (Delhi - Trib.)
Tags-tds onj securities,tds section 194h,tds on brokerage,tds on mutual funds
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