Mumbai ITAT: There are no tax withholding obligations from payments on account of brokerage on sale of mutual fund units

Jain Investment v. Income Tax Officer, on 24^th January, 2011

Assessment Year: 2006-07

Question/s before the Hon’ble Tribunal: “Whether or not the CIT(A) was justified in upholding the impugned disallowance of Rs 2,87,409, in respect of sub brokerage paid on sale of mutual fund units, on the ground that the assessee failed to discharge his tax withholding obligations in respect of the payments made for such sub brokerage?”

Relevant facts: During the course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed a deduction of Rs 2,87,409 in respect of the brokerage paid. The Assessing Officer noted that the assessee has not deducted tax at source, as required under section 194H, from these payments. Accordingly, the Assessing Officer invoked section 40(a)(ia) to disallow the payments so made by the assesse.

Upholding the appeal of the assessee, the Hon’ble Tribunal held that:

Para 7: “In view of my findings that there were no tax withholding obligation from payments on account of brokerage on sale of mutual fund units, the very foundation of impugned disallowance ceases to hold good in law. The disallowance u/s.40(a)(ia) can only be made when there is a tax withholding requirement, and assessee fails to comply with the said requirement. That is not the case before me. Accordingly, I uphold the grievance of the assessee and direct the Assessing Officer to delete the impugned disallowance.”

The decision is available here.