in the income tax appellate tribunal ‘c’ bench : chennai · in the income tax appellate...

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : CHENNAI

[BEFORE Dr. O.K.NARAYANAN, VICE PRESIDENT AND

SHRI VIKAS AWASTHY, JUDICIAL MEMBER]

I.T.A. No. 1774/Mds/2012 Assessment year : 2008-09

Sundaram Asset Management Co. Ltd., Sundaram Towers, II Floor, No. 46, Whites Road, CHENNAI – 600 014

Vs

Deputy Commissioner of Income Tax, Large Taxpayer Unit, CHENNAI.

[PAN: AAICS 4257 J] (Appellant)

(Respondent)

Appellant by : Shri R. Parthasarathy, Advocate & Shri Sumeet Khurana, FCA

Respondent by

:

Shri T.N. Betgiri, JCIT

Date of Hearing : 29-05-2013 Date of Pronouncement : 19-07-2013

O R D E R

PER VIKAS AWASTHY, JUDICIAL MEMBER

The appeal has been filed by the assessee against the

order of the Commissioner of Income Tax(Appeals)-XII, Chennai

dated 03-07-2012 relevant to the Assessment Year (AY) 2008-09.

http://www.itatonline.org

I.T.A. No. 1774/Mds/2012

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2. The assessee is engaged in the business of asset

management. For the AY. 2008-09, the assessee filed its return

of income on 26-09-2008 declaring its total income as Rs.

20,86,48,690/- under normal provisions and Rs. 26,12,06,395/-

u/s. 115JB (MAT provisions) of the Income Tax Act, 1961 (herein

after referred to as ‘the Act’). The case of the assessee was

selected for scrutiny and notice u/s. 143(2) was issued to the

assessee on 12-08-2009. The Assessing Officer vide

assessment order dated 24-11-2010 made additions/dis-

allowances in the income returned by the assessee on following

counts:

i. Dis-allowance u/s. 14(a)(i) r.w.rule 8D Rs. 6,28,950/-.

ii. Dis-allowance u/s. 40(a)(i) Rs. 33,48,666/- on account

of non-deduction of tax at source u/s. 195 on the

payments made to M/s. Fund Quest a non-resident

firm.

iii. Dis-allowance u/s. 40(a)(ib) Rs. 85,929/- in respect of

Securities Transaction Tax.


I.T.A. No. 1774/Mds/2012

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iv. Capitalization of expenses on extension and

renovation of building – the assessee had claimed an

amount of Rs. 2,06,61,216/- on account of interior

decoration, extension and renovation of the office

premises as Revenue Expenditure. The Assessing

Officer held the expenditure to be capital in nature

and made addition of Rs. 1,85,95,094/- after allowing

depreciation.

v. Dis-allowance of excess depreciation on UPS. The

assessee had claimed depreciation on UPS @ 60%,

as applicable to computer hardware. The Assessing

Officer allowed depreciation as applicable to Plant &

Machinery i.e., 15%. The Assessing Officer made

addition of Rs. 18,68,338/- after dis-allowing the

excess depreciation.

vi. Investment Management Fee Rs. 15,82,291/- .

vii. Dis-allowance u/s. 40(a)(ia) Rs. 16,41,14,706/- on

payments made to the mutual fund distributors.


I.T.A. No. 1774/Mds/2012

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Apart from the above additions, the Assessing Officer re-

computed book profit under MAT provisions u/s. 115JB and made

addition of Rs. 6,28,950/- u/s. 14A and Rs. 61,50,220/- on

account of Long Term Capital Gains. Aggrieved against the

assessment order, the assessee preferred an appeal before the

CIT(Appeals)-Chennai. The CIT(Appeals) vide impugned order

dt. 03-07-2012 dismissed and appeal of the assessee.

3. Now, the assessee has come in second appeal before the

Tribunal impugning the order of the CIT(Appeals)-XII, Chennai.

The grounds stated in the Appeal are as under:

1. The order of the learned Commissioner of Income-tax(Appeals)

[‘CIT (Appeals)’], to the extent prejudicial to the Appellant, is

contrary to law, facts, and circumstances of the case.

2. The learned CIT (A) has erred in confirming the disallowance

made by the Assessing Officer (‘AO’) of Rs. 6,28,950/- by invoking

the provisions of section 14A of the Income-tax Act (‘the Act’)

ignoring the fact that the Appellant had not incurred any

expenditure for earning dividend income.

3. The learned CIT (A) has erred in confirming the disallowance

made by the AO towards payment of Rs. 33,48,666/- made to Fund

quest by invoking the provisions of section 40(a)(i) of the Act and


I.T.A. No. 1774/Mds/2012

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stating that the payment is in the nature of royalty failing within the

ambit of provisions of section 9 of the act.

4. The learned CIT (A) has erred in upholding the order of the AO in

treating the payment of Rs. 1,85,95,094/- towards renovation of

existing lease building as a capital expenditure ignoring the fact that

the expenditure has neither resulted in any structural change to the

building nor in the creation of new capital asset.

4.1 The learned CIT (A) has erred in not following the principles laid

down in the decision of the Hon’ble Chennai ITAT in the Appellant’s

own case for the Assessment Year (‘AY’) – 2006-07.

5. The learned CIT (A) erred in confirming the order of AO in not

treating UPS as part of computers and adding back Rs. 18,68,338/-

on account of excess depreciation claim.

5.1 The learned CIT (A) erred in rejecting the alternative claim of

Appellant in treating the UPS as energy saving device and claiming

depreciation at the rate of 80 percent on the same.

6. The learned CIT (A) has erred in confirming the order of AO, in

adding back an amount of Rs. 15,82,291/- as income of the

Appellant based on Form 16A ignoring financial statements filed.

7. The learned CIT (A), has erred in upholding the order of the AO,

in disallowing the commission and brokerage payments made

amounting to Rs. 16,41,14,706/- to various distributors of Mutual

Fund schemes by invoking provisions of section 40(a)(ia) of the Act

and erred in concluding that the sum liable to Tax Deducted at

Source (‘TDS’) under section 194J of the Act.


I.T.A. No. 1774/Mds/2012

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7.1 The learned CIT (A) erred in stating that distributors are

involved in preparing prospectus, marketing and advertisement

when no such services were actually received by the appellant.

7.2 The learned CIT (A) erred in stating that payment to distributors

is not in the nature of commission or brokerage without

appreciating the fact that payments made are based purely on the

quantum of units sold, irrespective of level of efforts of the

distributors.

7.3 The learned CIT (A) ought to have appreciated the fact that the

services rendered by the distributors do not fall within the scope of

definitions of professional or technical services.

7.4 The learned CIT (A) ought to have appreciated that the

commission and brokerage paid fall within the ambit of provisions of

section 194H that specifically excludes payments towards

purchase/sale of securities.


action of the learned AO is in contravention to the circular No. 720

dated 30-08-1995, where the Board has clarified that the payment

for any sum shall be liable to deduction of tax under only one

section.


learned AO erred in relying on the information displayed in the

website of a third party who is in the business of Register and

Transfer Agent.


I.T.A. No. 1774/Mds/2012

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8. The learned CIT (A) has erred in confirming the action of AO, in

computing the minimum alternate tax under section 115JB, by

adding a sum of Rs. 6,28,950/- under section 14A of the Act.

9. The learned CIT (A) has erred in remanding back the issue to the

AO to examine the computation of book profit without adjudicating

on the issue himself.

10. On the facts and circumstances of the case, the learned CIT (A)

was not justified and erred in not deleting interest levied under

section 234B and 234D of the Act as the same is bad in law.

4. Shri R. Parthasarathy, Advocate with Shri Sumeet Khurana,

Chartered Accountant appearing on behalf of the assessee

submitted that during the relevant assessment year, the assessee

had not incurred any expenses in earning dividend income. The

assessee being asset management company has thorough

knowledge and understanding of Mutual Funds by virtue of its

business operations. The assessee had not taken any funds

bearing interest, therefore, the assessee has not incurred any

interest cost. The ld. Counsel for the assessee further submitted

that provisions of Rule 8D will not apply to short term investments,

as the capital gain arising there from is taxable. The ld. Counsel

contended that the authorities below have not given any specific

finding while rejecting the contentions of the assessee. The AR in


I.T.A. No. 1774/Mds/2012

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support of his contentions on the issue, relied on the following

decisions:

1. Maxopp Investment Ltd., Vs. CIT reported as 347 ITR

272 (Del)

2. CIT Vs. Hero Cycles Ltd., reported as 323 ITR 518 (P&H)

3. Avshesh Mercantile Pvt. Ltd., Vs. DCIT in ITA No.

5779/Mum/2006 decided on 13-06-2012.

5. The ld. Counsel on ground No. 3 of the appeal submitted

that an amount of Rs. 33,48,666/- was paid to M/s. Fund Quest

for the services rendered abroad. M/s. Fund Quest does not have

PE in India and the services rendered by them were advisory in

nature. The Assessing Officer has erred in come into the

conclusion that the payment is in the nature of ‘Royalty’. The

assessee had not obtained any certificate u/s. 197 of the Act as

assessee had no doubt that the payment is for services and not in

the nature of ‘Royalty’. Since, the said amount is not taxable in

India, the provisions of Section 195 are not applicable.


I.T.A. No. 1774/Mds/2012

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6. On the fourth ground of appeal relating to repair of lease-

hold premises, the ld. Counsel for the assessee submitted that at

Page 42 of the Paper Book, the details of the expenditure have

been given. The expenditure relates to demolition, painting work,

floor work, partition, plumbing, false ceiling, storage, molder work,

electrical work and AC Ducting. The lease period of building is

three years with the option to renew thereafter. As, the premises

is being used for office purpose, the nature of the expenditure is

Revenue. The Assessing Officer has dis-allowed an amount of

Rs. 1,85,95,094/- out of the total expenditure of Rs. 2,06,61,216/-.

The ld. AR in order to support his contentions has relied on the

order of the co-ordinate bench of the Tribunal in the case of M/s.

Sundaram BNP Paribas Asset Management Company Ltd., Vs.

ACIT in ITA No. 518/Mds/2010 decided on 7th January, 2011.

7. On the fifth ground of appeal relating to depreciation on

UPS at 60% as applicable to computers, the ld. Counsel

submitted that UPS is integral part of the computer system,

without which the computers will not be fully operational. Thus,

the depreciation as applicable in the case of computers should be


I.T.A. No. 1774/Mds/2012

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allowed to the assessee. To support his submissions, the

Counsel relied on the following decisions:

i. DCIT Vs. Datacraft India Ltd., reported as 9 ITR (Trib)

712 (Mum-SB);

ii. Haworth (I) P. Ltd., Vs. DCIT in ITA No.

5341/Del/2010 decided on 29-04-2011.

iii. Macawber Engineering Systems (India) P. Ltd., Vs.

ACIT reported as 19 ITR (Trib) 302 (Mum)

8. On the issue of addition made on the basis of TDS

Certificates, the ld. Counsel submitted that the assessee is

managing the funds of Sundaram Mutual Fund Trust. For the

services rendered, assessee receives management fee from the

Trust. The fee is calculated at a specific rate on the quantum of

assets managed and before making the payment, the Trust

deducts tax at source. Tax is deducted at source on the daily

accruals of fee payable by the Trust to the assessee.

Subsequently, it transpired that excess amount was credited to

the assessee. The excess amount was reversed by the assessee

on the basis of audit. Therefore, the difference of Rs. 15,82,291/-


I.T.A. No. 1774/Mds/2012

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is the amount reversed by the assessee after audit of the

accounts. This difference in the TDS has occurred on account of

the amount reversed by the assessee, therefore, the excess TDS

deducted by the trust has to be adjusted. The Assessing Officer

has erred in coming to the conclusion that the assessee has

understated the income received from the Trust. In support of his

contentions, the ld. Counsel relied on the judgment of the Hon’ble

Delhi High Court in the case of CIT Vs. Sudhir Sekhri in ITA No.

438/2010 and 460/2010 decided on 15-04-2010.

9. The seventh ground of appeal relates to the TDS on the

brokerage paid to the distributors of the mutual fund schemes.

The ld. Counsel submitted that the commission/brokerage paid to

brokers for sale of various Mutual Funds are covered under the

provisions of Section 194H. Such commissions paid to the

brokers has been specifically excluded from tax deduction. The

Assessing Officer has erred in applying the provisions of Section

194J relating to managerial and professional services. To support

his contentions, the ld. Counsel relied on the judgment of the

Hon’ble Bombay High Court in the case of CIT Vs. Kotak

Securities reported as 3040 ITR 333 (Bom).


I.T.A. No. 1774/Mds/2012

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10. On the issue of re-computation of book profits u/s. 115JB

the ld. Counsel submitted that the same will not be applicable in

the present case as the net profit is higher than book profits

computed under MAT provisions.

11. On the other hand, Shri T.N. Betgiri, appearing on behalf of

the Revenue strongly supported the order of CIT(Appeals) and

prayed for the dismissal of the appeal of the assessee.

12. We have heard the submissions made by the

representatives of both the sides. We have also perused the

orders of the authorities below as well as the decisions cited by

the ld. AR for the assessee. Our issue-wise findings on the

grounds raised by the assessee are as under:

i. Ground Nos. 1 & 9 are general in nature and therefore are not

taken up for adjudication.

ii. Ground No.2 is with regard to dis-allowance u/s. 14A r.w.r. 8D;

The contentions of the AR is that the assessee has not incurred

any expenditure to earn dividends and hence the authorities


I.T.A. No. 1774/Mds/2012

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below are un-justified in making addition under the provisions of

rule 14A r.w.r. 8D. We are of the considered opinion that in view

of the order of the Tribunal in the case of Cheminvest Ltd., Vs.

ITO reported as 124 TTJ 577 (Del) (SB) wherein it has been

held that if the expenditure is incurred in relation to income

which does not form part of total income it has to suffer dis-

allowance irrespective of the fact whether any income is earned

by the assessee or not. Section 14A does not envisage any

such exception. Thus, in view of the observations made in the

Special Bench of the Tribunal, dis-allowance has to be made

u/s. 14A r.w.r. 8D. It is an admitted fact that the assessee has

made investments. Some of the investments made by the

assessee are short term. Since assessee is paying capital

gains tax on short term investments, the provisions of Rule 8D

will not apply on them. The Assessing Officer is directed to re-

compute dis-allowance u/s. 14A r.w.r. 8D after excluding short

term investments. This ground of appeal of the assessee is

partly allowed in the aforesaid terms.

iii. The third ground in the appeal relates to dis-allowance u/s.

40(a)(ia). The assessee is into investment business. The


I.T.A. No. 1774/Mds/2012

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assessee has entered into an agreement with M/s. Fund Quest

(France) on 13-07-2007, to provide investment advice for the

investments to be carried outside India. M/s. Fund Quest has

been providing advisory services. For the services rendered,

the assessee paid fee in accordance with mutual agreement. In

the course of providing advisory services, M/s. Fund Quest is

providing certain data of the companies which facilitates the

assessee to make investment decisions. The information

provided to the assessee by Fund Quest in the form of database

is published information which is available in public domain.

M/s. Fund Quest has merely compiled the information and

transmitted the same to assessee. The authorities below

termed the payments made by the assessee to M/s. Fund Quest

for the services and data provided as ‘Royalty’.

We are of the considered opinion that such payments cannot

be termed as ‘Royalty’ as defined under the provisions of the

Act. The term ‘Royalty’ has been defined in Explanation (2) to

Section-9, Sub-section-1, Clause-(vi) which is re-produced here

in below:


I.T.A. No. 1774/Mds/2012

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Explanation 2.—For the purposes of this clause, "royalty" means

consideration (including any lump sum consideration but excluding

any consideration which would be the income of the recipient

chargeable under the head "Capital gains") for—

(i) the transfer of all or any rights (including the granting of a

licence) in respect of a patent, invention, model, design,

secret formula or process or trade mark or similar property ;

(ii) the imparting of any information concerning the working of, or

the use of, a patent, invention, model, design, secret formula

or process or trade mark or similar property ;

(iii) the use of any patent, invention, model, design, secret formula

or process or trade mark or similar property ;

(iv) the imparting of any information concerning technical,

industrial, commercial or scientific knowledge, experience or

skill ;

[(iva) the use or right to use any industrial, commercial or scientific

equipment but not including the amounts referred to in section

44BB;]

(v) the transfer of all or any rights (including the granting of a

licence) in respect of any copyright, literary, artistic or scientific

work including films or video tapes for use in connection with

television or tapes for use in connection with radio

broadcasting, but not including consideration for the sale,

distribution or exhibition of cinematographic films ; or

(vi) the rendering of any services in connection with the activities

referred to in sub-clauses (i) to [(iv), (iva) and](v).


I.T.A. No. 1774/Mds/2012

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Thus, a perusal of the term of ‘Royalty’ as defined in the Act

shows that it does not include any information provided in the

course of advisory services. We do not agree with the findings of

the CIT(Appeals) on the issue. Since, payments made to M/s.

Fund Quest are not in the nature of ‘Royalty’ and the services

were rendered abroad, no part of income had accrued or arisen in

India. The assessee is not liable to deduct tax at source on the

payments so made. The findings of the CIT(Appeals) on this

issue are set aside and this ground of appeal of the assessee is

allowed.

iv. The fourth ground of appeal of the assessee relates to repairs of

lease-hold premises. The assessee has placed on record at

Page No. 42 of the Paper Book, the nature of work carried out by

the assessee in the leased office premises. The assessee has

claimed the expenditure on civil work which includes demolition,

painting, flooring and partition etc., amounting to Rs.

2,06,61,216/- as revenue expenditure. The authorities below

have held the same to be capital expenditure. The assessee has

taken office building on lease for the period of three years with an

option to extend with the consent of both parties. An Explanation


I.T.A. No. 1774/Mds/2012

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1 to Section 32(1) clearly spells out that where the business or

provision of the assessee is carried on in a building not owned by

him, in respect of which the assessee holds a lease or other rights

of occupancy, any capital expenditure is incurred by the assessee

for the purpose of the business or profession on the construction

of any structure or doing of any work in or in relation to and by

way of renovation or extension or improvement to the building,

then the provisions of this clause shall apply as if the said

structure or work is building owned by the assessee. However,

the aforesaid provisions are applicable where new asset has

come into existence. The assessee in support of his contentions

has relied on the order of the co-ordinate bench of the Tribunal in

the case of M/s. Sundaram BNP Paribas Asset Management

Company Ltd., Vs. ACIT (supra), the Tribunal in the aforesaid

order has held as under:

5. We have considered the rival submissions. A perusal of the break

up of the expenses which have been disallowed clearly shows that

the expenditures are on the interior decorations and creation of the

office atmosphere. The expenditure has not resulted in any building

coming into existence nor has the existing building been modified or

the structure altered. As the existing building has not been altered

and there is no change to its structure as a result of the expenditure

incurred by the assessee, it cannot be said that the expenditure


I.T.A. No. 1774/Mds/2012

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incurred by the assessee is in the capital field. Further a perusal of

the expenditure clearly shows that it is in the revenue field. In the

circumstances we are of the view that the expenditure on the repairs

and maintenance in the form of electrical fittings, electrification,

cabinet, work station, partition, cupboard, stand etc. are liable to be

treated as a revenue expenditure. In the circumstances, the orders of

the learned CIT(A) and the Assessing Officer are reversed on this

issue and the Assessing Officer is directed to grant the assessee the

claim of revenue expenditure in regard to the said expenditure.

Consequently, the depreciation as allowed by the Assessing Officer

on the said expenditure which has been capitalized would stand

reversed.

Whether the expenditure incurred on renovation of a

building is capital or revenue, is a question of fact. The same has

to be decided on the facts of each case. We find that the facts of

the case of the assessee are similar to the one adjudicated by the

Tribunal mentioned above. The civil work relates to the interior

decoration and creation of the office atmosphere. Respectfully

following the decision of the co-ordinate bench of the Tribunal,

this ground of appeal of the assessee is allowed and the

expenditure incurred by the assessee in modifying the interiors of

a building into office are held to be revenue in nature.

v. The fifth ground of appeal of the assessee relates to the issue of

depreciation on UPS: The assessee has claimed depreciation on


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UPS @ 60% treating the same as part of computer. On the other

hand, the Assessing Officer has considered the UPS at par with

Plant & Machinery and restricted the depreciation to 15%. It has

been repeatedly held in various decisions of the Tribunal that

depreciation @ 60% has to be provided on UPS treating it to be

the part of computer. This issue has been decided by the

Tribunal in the case of Haworth (I) P. Ltd., (supra) and Macawber

Engineering Systems (India) P. Ltd., (supra) wherein it has been

held that UPS is an integral part of the computer. This view has

been consistently followed by the Tribunal in various other

appeals. Accordingly, this ground of appeal of the assessee is

allowed and the assessee is entitled to claim depreciation @ 60%

on UPS.

vi. The sixth ground of appeal of the assessee relates to Investment

Management Fee. The case of the assessee is that the

difference between the TDS and actual tax has occurred as the

excess amount was invoiced to M/s. Sundaram Mutual Fund

Trust (herein after referred to as ‘the Trust’) for whom the

assessee is managing the funds. After audit of the accounts, the

excess amount invoiced was reversed by the assessee. The trust


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made payments on daily accrual basis to the assessee after

deduction of tax. Since excess amount was invoiced to the Trust,

tax was deduced on the said excess amount at the time of

payments, whereas the tax liability of the assessee is on the net

amount after adjustment. The CIT(Appeals) has held that the

assessee is following mercantile system of accounting. As and

when it raises an invoice, the same was accepted by the Trust.

Thus, the income stands accrued to the assessee in the year in

which the said invoice is raised and acknowledged in a particular

assessment year. The income received against those invoices

have to be assessed in that particular assessment year. Any

subsequent re-conciliation resulting in revision or reversal entry in

the subsequent assessment year will not have bearing on the

income accrued in the previous year.

It is a well settled law that the assessee should not be taxed

twice for the same income or taxed for the income which has not

accrued to him. It is evident from records and the impugned order

that certain reversal entries were made to adjust the excess

payments. It is also an admitted fact that tax has been paid on

such excess payments. The income which has not accrued to the


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assessee is not liable to be taxed. In the instant case, the

assessee had raised invoices to the Trust for Rs. 85,83,43,545/-

(including service tax). Whereas the amount actually accounted

in the books was Rs. 85,67,61,254/- (including service tax).

There was net different of Rs. 15,82,291/- after adjustments which

Assessing Officer brought to tax. The error was discovered

during audit which was rectified. By the time the excess amount

was reversed, Form 16A was issued. However, the Trust has

issued confirmation letter regarding excess accrual. It is apparent

from records that tax was deducted on excess invoicing which

was reversed. In our considered opinion, the addition made is

unjustified. The case of the assessee is squarely covered by the

judgment of the Hon’ble Delhi High Court in the case of Sudhir

Sekhri (supra) wherein similar view was taken by the Hon’ble

High Court in the facts of that case. This ground of appeal of the

assessee is accordingly allowed.

vii. The seventh ground of appeal relates to payments made to

mutual fund distributors amounting to Rs. 16,41,14,706/- dis-

allowed u/s. 40(a)(ia). The assessee had not deducted tax at

source on the payment of the brokerage/commission paid to the


I.T.A. No. 1774/Mds/2012

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mutual fund distributors on the ground that commission and

brokerage does not include any payment made directly or

indirectly on securities.

The Revenue has termed the payments made to the

brokers as Fees for Professional & Technical Services and held

that the assessee was liable to deduct tax under the provisions of

Section 194J.

The provisions regarding deduction of tax at source on

commission and brokerage are contained in Section 194H of the

Act. The relevant extract of the section is reproduced herein

below:

194H. Any person, not being an individual or a Hindu undivided

family, who is responsible for paying, on or after the 1st day of

June, 2001, to a resident, any income by way of commission (not

being insurance commission referred to in section 194D) or

brokerage, shall, at the time of credit of such income to the account

of the payee or at the time of payment of such income in cash or by

the issue of a cheque or draft or by any other mode, whichever is

earlier, deduct income-tax thereon at the rate of [ten] per cent :

The terms commission and brokerage and securities are

defined in Explanation to Section 194H. the same are extracted

herein under:


I.T.A. No. 1774/Mds/2012

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Explanation –

i) “commission or brokerage” includes any payment received or

receivable, directly or indirectly, by a person acting on behalf of

another person for services rendered (not being professional

services) or for any services in the course of buying or selling of

goods or in relation to any transaction relating to any asset,

valuable article or thing, not being securities”;

ii) xxxxxxxxxxxxxxxxxxxx

(iii) the expression "securities" shall have the meaning assigned to it in

clause (h) of section 2 of the Securities Contracts (Regulation) Act,

1956 (42 of 1956) ;

(iv) where any income is credited to any account, whether called

"Suspense account" or by any other name, in the books of account

of the person liable to pay such income, such crediting shall be

deemed to be credit of such income to the account of the payee

and the provisions of this section shall apply accordingly.]

Section 2(h) of the Securities Contracts (Regulation) Act, 1956

defines securities as :

“2(h) “securities” include—

(i) shares, scrips, stocks, bonds, debentures, debenture stock or

other marketable securities of a like nature in or of any

incorporated company or other body corporate;

(ia) derivative;

(ib) units or any other instrument issued by any collective

investment scheme to the investors in such schemes;


I.T.A. No. 1774/Mds/2012

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(ic) security receipt as defined in clause (zg) of section 2 of the

Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act,2002;

(id) units or any other such instrument issued to the investors under

any mutual fund scheme;

(ie) xxxxxx”

From the perusal of aforesaid provisions of Section 194H and the

definition of ‘Securities’ as defined under Securities Contract

Regulation Act, it is clearly evident that securities include Mutual

Funds and the provisions of Section 194H excludes commission

or brokerage paid on securities.

The authorities below have held that the assessee should

have deducted tax on commission/brokerage u/s. 194J of the Act

as the services rendered by the brokers are professional and/or

technical services. ‘Professional Services’ are defined in

Explanation(a) to Section 194J as under:

Explanation.—

(a) "professional services" means services rendered by a person in

the course of carrying on legal, medical, engineering or

architectural profession or the profession of accountancy or

technical consultancy or interior decoration or advertising or such

other profession as is notified by the Board for the purposes of

section 44AA or of this section;


I.T.A. No. 1774/Mds/2012

:- 25 -:

A perusal of the above definition makes it abundantly clear that

services rendered by Mutual Fund brokers do not fall within the

term ‘Professional Services’. The services of Mutual Fund

brokers cannot be termed as technical services as well, as the

brokers do not require any special qualification in the field of law,

engineering, accountancy or technical consultancy. Even an

ordinary graduate from humanities group can be a broker. The

brokers do not provide any technical know-how either, thus

services rendered by them cannot be termed as technical

services.

We do not concur with the findings of CIT(Appeals) on the

issue for the aforesaid reasons. Accordingly, this ground of

appeal of the assessee is allowed.

viii. The next ground of appeal relates to re-computation of books

profits u/s. 115JB. The ld. Counsel for the assessee has stated

that since the net profit under normal computation is higher than

book profits computed u/s. 115JB, therefore, this ground of

appeal has become academic. The ld. DR has not controverted

the statement made by the Counsel of the assessee. This ground

of appeal is dismissed accordingly.


I.T.A. No. 1774/Mds/2012

:- 26 -:

ix. The last effective ground of appeal relates to deleting of interest

u/s. 234B & 234D of the Act. Since levy of interest u/s. u/s. 234B

& 234D is consequential in nature, this ground of appeal of the

assessee is dismissed.

Accordingly, the appeal of the assessee is partly allowed in

the aforesaid terms.

Order pronounced on Friday, the 19th July, 2013 at

Chennai.

Sd/- Sd/- (Dr. O.K. NARAYANAN) VICE PRESIDENT

(VIKAS AWASTHY) JUDICIAL MEMBER

Dated: 19th July, 2013 TNMM

Copy to: Appellant/Respondent/CIT(A)/CIT/DR


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