Broker Facilitating Transactions Between Clients & NSEL Isn’t Liable to Deduct TDS u/s 194A from Fixed Returns Paid to Investors | ITAT

Case Details: DCIT vs. Anand Rathi Commodities Ltd. - [2024] 169 taxmann.com 73 (Mumbai-Trib.)

Judiciary and Counsel Details

• Amit Shukla, Judicial Member & Renu Jauhri, Accountant Member
• Dharmesh Shah & Ms Mitali Parekh, Advs. for the Appellant.
• Ajay Chandra, CIT-DR & Manoj Kumar Sinha, Sr. DR for the Respondent.

Facts of the Case

The assessee company was acting as a broker in financial markets to facilitate its clients in placing trades and transactions with National Spot Exchange Ltd. (NSEL). All the transactions were in the nature of the purchase/sale of commodities between the clients and NSEL. Regarding the transactions, the profits generated by the clients were considered as paired income from investment in the nature of business income, and the assessee only got its brokerage.

The Assessing Officer (AO) held that the assessee-company accepted deposits from its customer, which were invested so that the returns on investments were assured for the beneficiaries. He, therefore, held that the fixed returns given to the investors by the assessee were nothing but interest payment within the meaning of section 2(28A) on which TDS under section 194A should have been deducted. Accordingly, the AO treated the assessee as an assessee-in-default’ on account of non-deduction of TDS under section 201(1) read with section 201(1A).

On appeal, the CIT(A) reversed the AO’s order and the matter reached before the Mumbai Tribunal.

ITAT Held

The Tribunal held that the assessee was never a counter-party to the transaction and only acted as an agent and intermediary between the client and the exchange. For ready reference, attention was drawn to the enquiry report issued by SEBI in the assessee’s case, which has been incorporated in the assessment order under section 201. The findings and the observations in the enquiry report relied upon by the Assessing Officer also prove that the assessee was admittedly acting as an intermediary for and on behalf of the clients.

Ergo, section 194A is attracted when a person is responsible for payment of interest other than income by way of income and securities. However, in the case of the assessee, the assessee, being a broker of certain exchange, cannot be held to be a person who has been paying any interest to the clients and therefore, it was held that provision of section 194A cannot be invoked in the case of the assessee because it cannot be reckoned as a person responsible for payment of income by way of interest to the clients.

Relying upon few judgments of the Delhi High Court in the case of CIT v. Hardarshan Singh reported in 350 ITR 427 (Del); and CIT v. Cargo Linkers reported in 218 CTR 693(Del), wherein the High Court has held that provision of TDS cannot be applied in case of intermediary/agents acted on behalf of its clients and intermediary cannot be held to be person responsible for TDS provisions. Though these decisions have been rendered in the case of CNF agents, the same principle will apply in the instant case also because the assessee was also an intermediary between the clients and the NSEL and was never a party to any counterparty members.

Accordingly, the appeal was dismissed.

List of Cases Reviewed

• CIT v. Hardarshan Singh reported in 350 ITR 427 (Del)
• CIT v. Cargo Linkers reported in 218 CTR 693 (Del) (para 21) followed.

List of Cases Referred to

• Moons Technologies Ltd. v. UOI Writ Petition No. 2743 of 2014 (para 10)
• National Sport Exchange Ltd. v. State of Maharashtra Writ Petition No. 1403 of 2015 (para 10)
• CIT v. Hardarshan Singh [2013] 30 taxmann.com 245/216 Taxman 283/350 ITR 427 (Delhi) (para 21) and (Del)
• CIT v. Cargo Linkers 218 CTR 693 (Del) (para 21).