a)The assessee received certain amount from Mutual fund houses and paid commission to TPL on account of brokerage for motivating potential investors to invest through the assessee in Mutual funds. According to agreement entered into by the assessee, TPL canvassed and marketed various Mutual fund schemes to potential investors after collecting details from the assessee.
b)The Joint Commissioner passed an order under section 144A directing disallowance of the commission paid to TPL.
c)The Assessing Officer disallowed the commission paid by the assessee to TPL under section 40(a)(ia) on the ground that tax was liable to be deducted at source under section 194H, but had not been deducted.
d)On appeal, the CIT(A) set aside the disallowance holding that services rendered in relation to securities are excluded from the express definition of 'brokerage or commission' and, thus, excluded from the purview of section 194H. Further, the Tribunal upheld the order of the CIT(A). The aggrieved- revenue filed the instant appeal.
The High Court held in favour of assessee:
1)The Joint Commissioner was in error in holding that while TPL had motivated investors to subscribe to Mutual Funds, it had no connection whatsoever with 'securities' as defined in Explanation to section 194-H. Explanation (iii) to section 194-H specifically states that the expression 'securities' will have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulations) Act, 1956.
2)Once it was an admitted position that TPL had motivated potential investors to invest through the assessee in Mutual Funds, it had to be held that these services were rendered in relation to a transaction in 'securities' and would be excluded from the definition of 'brokerage or commission' under section 194-H.
3)The CIT(A) was justified in coming to the conclusion that the services were rendered by TPL were in relation to 'securities'. Consequently, the disallowance under section 40(a)(ia) was not warranted.
4) Thus, there was no reason to hold that the Tribunal was in error. The appeal by the revenue had not given rise to a substantial question of law - CIT V. TANDON & MAHENDRA  45 taxmann.com 183 (Allahabad)