Case Digest: TDS on Commission and Brokerage under Section 194H of the Income Tax Act

TDS has considered as deduction made by any person while making payment or crediting the account of another person. The object of TDS was to tax collection at source.

The following are some of the important sources of income that fall under purview of tax deducted at source,

• Salary
• Commission/brokerage
• Transfer of immovable property
• Interest on bank deposits
• Payment of rent
• Contractor payments etc.

As per section 194 H of Income Tax Act 1961 defined as commission/ brokerage which described as payment received or accepted by any person, who may be an individual or any agent who acts behalf of any other person or entity.

If payment is made by way of insurance commission as per section 194 D of the Income Tax Act 1961 such commission is not covered under this section.

Section 195 H provided that where the amount of commission or brokerage income the aggregate of the amounts of such income credited or Paid during the financial year of such account or to that payee,doesnot exceed fifity thousand rupees

Further the section says that no deduction shall be made on any commission or brokerage payable by Bharath Sanjar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees

The section also determine that in case of a individual or Hindu Undivided family whose total turnover from the business or profession carried on by him exceed the monetary limit specified under section 44AB (a) or (b) during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income tax under this section.

ITAT deletes the Addition of Rs.1.58 Cr paid as Sub-Brokerage or Commission

The Income Tax Appellate Tribunal (ITAT), Delhi Bench deleted that addition of Rs.1.58 Crores paid as sub-brokerage or Commission.

The ITAT observed that The documentary evidence on record clearly suggest that assessee entered into the genuine business activities with the sub-broker and sub- broker rendered services for the business activity of the assessee. In the Group Case the CIT(A) has already deleted the similar addition finding the commission payment made to the same sub-broker as genuine.

Pre-Operative Expenses for Running Business Operations are Revenue Expenditure: ITAT deletes Disallowance of Advertisement Expenses and Brokerage & Commission 2022 TAXSCAN (ITAT) 1386

Pre-operative expenses incurred for running the business and bringing revenue are revenue expenditures, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) deleted the disallowance of advertisement expenses and brokerage & Commission.

It was observed that there wasa difference between the commencement of the business and the setting off of the business. All the expenses incurred pre-commencement are to be treated as pre-operative expenses and the expenses incurred which do not form part of the “work in progress” (WIP) like office expenses, salaries, advertising, brokerage and commission which are incurred for running the business operationsand to bring revenues to the company are to be treated as revenue expenditure. The bench affirmed the order of the CIT(A) on account of the disallowance of Noida Authority-Interest and Late Registration Charges(LRC) and deleted the disallowance affirmed by the CIT(A) on account of Advertisement Expenses and Brokerage & Commission.

CBDT notifies Form No 26QD for payment of TDS for Professionals, Brokerage, Commission

The Central Board of Direct Taxes (CBDT) has notified the Form No 26QD for the payment of Tax Deduction at Source (TDS) under Section 194M of the Income Tax Act, 1961.

The Notification said that, “any sum deducted under section 194M shall be paid to the credit of the Central Government within a period of thirty days from the end of the month in which the deduction is made and shall be accompanied by a challan-cum statement in Form No. 26QD”.

Commission / Brokerage not Actually Received by Assessee is not Taxable: ITAT

The Delhi bench of ITAT has ruled that, Business of commission and brokerage on real estate transaction not Actually Received by Assessee is not Taxable.

A search and seizure operation held at the premises of Assessee Company, based on that document Assessing Officer made additions in respect of documents relating to Vipul World by observing that brokerage on the cash component on total consideration was already received by the assessee

The bench comprising MS Suchitra kamble, judicial member and SH. Prashant Maharishi, accountant member heard the contention of Revenue that CIT (A) has not considered the seized documents especially when the assessee has raised bills of commission and had not included the same in its income.

Brokerage / Commission paid in Connection with Share Transaction is not subject to TDS: ITAT

Kolkata bench of Income Tax Appellate Tribunal (ITAT) recently held that brokerage or commission paid in connection with share transaction is not liable for Tax Deduction at source under the provisions of the Income Tax Act, 1961.

Division bench comprising of Judicial Member A.T. Varkey and Accountant Member Dr. A.L. Saini objected the findings of lower authorities. The bench held that brokerage/commission paid in connection with the securities was not liable for deduction of tax at source, as mentioned in explanation 1 of section 194H of the Act.

Payment by Oxford University Press towards “School Support Services” for Referring Students constitutes “Brokerage”, TDS Applicable: ITAT 2023 TAXSCAN (ITAT) 204

Income Tax Appellate Tribunal (ITAT), Mumbai Bench recently held that payment by Oxford University press towards school support services for referring students constitute brokerage.
ITAT bench comprising M. Balaganesh (Accountant Member) and Kavitha Rajagopal (Judicial Member) and conclude that the assessee is bound to deduct tax at source, failure of which would be invited with disallowance under section 40(a) (ia) of the Income Tax 1961

Brokerage not part of Income unless Received: ITAT deletes Income Tax Addition 2022 TAXSCAN (ITAT) 188

The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) has deleted the addition holding that the brokerage would not be treated as income unless it was actually received by the assessee.

The Bench of NK Billaiya (Accountant Member) and Kul Bharath (Judicial Member) held that the brokerage could not be treated as income as the evidence had not been produced on actual receival of the brokerage on the sale of the property. The bench further deleted the impugned addition. To Read the full text of the Order CLICK HERE

Forfeited Commission Expenses cannot be disallowed If TDS is Paid: ITAT    2022 TAXSCAN (ITAT) 1886

Income Tax Appellate Tribunal ( ITAT ) bench of Delhi, constituted of Anil Chaturvedi (Accountant Member) and Anubhav Sharma (Judicial Member) held that the forfeited commission expenses cannot be disallowed if Tax Deduction Source ( TDS ) is paid.

The bench noted that Form 16A, given by the assessee, is related to a tax deduction of Rs. 33,27,279 against this sum. The type of payment in question is covered by Section 194H, a clause that unquestionably mandates the deduction of tax from any income received in the form of a commission or brokerage. The tribunal viewed that the CIT(A) in not giving due consideration to the letter dated 24.01.2014 of M/s. Hitkari Potteries Pvt. Ltd which specifically mentioned that the amount lying as security is being forfeited has compensation for loss of commission or short sales. The TDS deduction against the same stands paid by the appellant in the present Financial Year.

TDS u/s 194H not applicable to Commission to Credit Card Company: ITAT 2022 TAXSCAN (ITAT) 730

The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that TDS under section 194H of the Income Tax Act, 1961 is not applicable to the amount of commission paid to a credit card company.

Tribunal held that “In view of the judgment rendered by the Hon’ble Delhi High Court and applied by Co-ordinate Bench, we do not see any reason to take a different view while adjudicating the issue in favour of the assessee. We also notice that the Assessing Officer himself has accepted the aforesaid decision in subsequent Assessment Year 2014-15 passed under Section 143(3) of the Act vide order dated 09.12.2016 wherein Assessing Officer did not dispute the position taken by the assessee for non-deduction of TDS payment of service charges to banks situated in India such as HDFC Bank etc. (except for the credit/debit card charges pertaining to American Express Bank).”

Difference in MRP and Price sold to Stockists do not constitute ‘Commission’, No TDS: ITAT   2022 TAXSCAN (ITAT) 457

The Pune bench of the Income Tax Appellate Tribunal (ITAT), Pune bench has held that the difference between the MRP and the price sold to Stockists, cannot be considered as commission or brokerage paid by the assessee to its Stockists and therefore, TDS provisions under section 194H of the Income Tax Act, 1961 cannot be attracted.
Quashing the order, the Tribunal bench held that “the difference between the MRP and the price sold to Stockists, by no stretch of the imagination, can be considered as commission or brokerage paid by the assessee to its Stockists.

 In order to get covered under section 194H, it is apparent that principal and agent relations must be established. If the transaction is done on a principal-to-principal basis, there can be no scope for payment of commission requiring deduction of tax at source u/s.194H of the Act. Here is a case in which the assessee sold its products to Stockists on a principal-to-principal basis, who, in turn, sold the same products to Retailers again on a principal-to-principal basis for onward sale to customers again on a principal-to-principal basis. In that view of the matter, the relation between the assessee and its stockists cannot be described as that of principal and agent.”

Assessee couldn’t submit Evidence for Payment of Brokerage for Sale of Property: ITAT allows 1% of Sale Consideration  2022 TAXSCAN (ITAT) 417

Bangalore bench of ITAT  has allowed 1% of the sale consideration as brokerage for the sale of the property since the assessee could not prove the evidence for the payment of brokerage for the sale of property to compute the amount of capital gain under the provisions of the Income Tax Act, 1961.

While partly allowing the commission expenses, the Tribunal held that “It is a common practice to pay brokerage while purchase or selling the properties. Since the assessee is in USA, it is quite possible that he would have paid brokerage to the broker who introduced the buyer. Hence, the payment of brokerage by the assessee cannot be discounted altogether and in our view, in the facts of the present case, in the absence of concrete evidences, the genuineness of the payment may be determined on the basis of circumstantial evidences, which are acknowledgement given on the letter pad of the assessee and the bank entries.

Cenvat Credit Allowable for Service Tax paid on Commission on Sale of Flats: CESTAT

The Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) held that the assessee is eligible to get cenvat credit for the amount of service tax paid on commission of sale of flats.

Upholding the first appellate authority’s order favouring the assessee, the Tribunal noted that the Explanation to Rule 2 (l) of Rules 2004 says it in clear terms that there is no bar on availment of Cenvat credit on sales promotion service by way of sale of dutiable goods on commission basis. “During the period from 2008 onwards this issue has been considered by various appellate authorities and the Board has also issued clarification vide Circular dated 29/04/2011 specifically under point No. 5 which contains the wording that “…

Moreover activity of sales promotion is specifically allowed and on many occasion the remuneration for same is linked to actual sale. Reading the provisions harmoniously it is clarified that credit is admissible on the services of sales of dutiable goods on commission basis”. From this clarification itself it is understood that if a commission agent is paid commission on account of sales of goods, his services are qualify to be input service and Cenvat credit of service tax paid on such service is admissible to the recipient of service. I find that the issue stand settled after the said clarification itself.”

Discount on Prepaid Products is ‘Commission’, TDS payable: ITAT

In the Case, M/s Tata Teleservices Ltd vs. Income Tax Officer, Delhi bench of Income Tax Appellate Tribunal (ITAT) recently held that discount on prepaid products is in the nature of commission for which, tax deductible at source ( TDS ) under the provisions of section 194H of the Income Tax Act 1961.

The bench also observed that “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;

Secret Commission’ paid to Doctors for Scanning and Medical Examinations are subject to TDS: ITAT Cochin

In M/s Parco Diagnostics and Research Centre Pvt Ltd v. DCIT(TDS), the Cochin bench of the ITAT held that assessee-company is liable to pay TDS under section 194H of the Income Tax Act in respect of payment of secret commission to doctors for scanning and medical examinations.

The bench noted that the assessee payee while making payments as referral fees to the doctors is not providing any professional services. The payment of referral fees not being in lieu of professional services, the same cannot be excluded from the provisions of section 194H of the Income Tax Act. Dismissing the appeal, the Tribunal said that the payment made by the assessee as referral fees is directly proportionate or percentage of an amount received by the assessee for providing CT scan and MRI scan and such payment comes within the term ‘Commission or Brokerage’. In the light of the above said reasoning and ordinary dictionary meaning of ‘Commission’, the Tribunal upheld the views taken by the lower authorities.

Activity of Arranging Spaces with Shipping Liner is not subject to Service Tax: CESTAT Chennai

In M/s. Indo Lloyd Freight Systems Pvt. Ltd v. Commissioner of Service Tax, Chennai, the Chennai CESTAT held that the activity of arranging spaces with Shipping Liner is not subject to Service Tax.
CESTAT bench  held that the activity of the appellant as a custom house agent is to provide services to importers/exporters and the disputed activity was only a facility arranged by them to their clients. “The appellant has no obligation to arrange transport of cargo through a particular shipping liner. Therefore, the amount received cannot fall within the category of commission so as to be subjected to levy of service tax. Following the decision in the case of Lee & Muir Head Pvt. Ltd. (supra), we hold that the demand is unsustainable.”

No TDS payable as Assessee does not make payment to TSPs: ITAT grants relief to Thyrocare 2022 TAXSCAN (ITAT) 234

In a relief to Thyrocare Technologies, the Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that no TDS payable as assessee does not make payment to Thyrocare Services Providers (TSPs).

The coram of G.S.Pannu and Vikas Awasthi has held that it is unambiguously clear that the case of Revenue was build up on wrong appreciation of facts. The CIT(A) after having examined and appreciating the correct facts in para-5.5 of the impugned order has rightly observed that the TSPs do not receive any payment from the appellant, rather the TSPs make payment to the appellant as per invoices raised by the appellant for the tests done by it. The DR has failed to controvert the above observation of the CIT(A). Since, the substratum for invoking the provisions of section 201 of the Act has collapsed, the appeal of the Revenue is liable to fail. Thus, in view of the facts of the case, we find no merit in the appeal of the Revenue, hence, the same is dismissed being devoid of any merit.

TDS on LTA to Employees: ITAT deletes penalty for failure to deduct TDS against Canara Bank

The Income Tax Appellate Tribunal (ITAT) Bangalore Bench deleted the penalty for failure to deduct tax at source (TDS) against Canara Bank.

The two-member bench headed by the Vice President N.V. Vasudevan deleted the penalty under section 271C of the Act was imposed on the grounds that the tax-deductor- assessee was under a genuine and bona fide belief that it was not under any obligation to deduct tax at source from the home salary paid by the foreign company or HO

No TDS applicable on Discounts given to Distributors of Prepaid SIM Cards: Bombay HC

The Bombay High Court held that TDS provisions under section 194H of the Income Tax Act, 1961 are not attracted on discounts given by the assessee to the distributors of prepaid SIM cards. In the light of the judgment in Commissioner of Income Tax-8, Mumbai v/s. M/s.Reliance Communications Infrastructure Ltd. – Income Tax Appeal No. 702 of 2017 decided on 22.07.2019, Court held that when the transaction is between two persons on principal to principal basis, deduction of tax at source as per Section 194H of the Act would not be made since the payment was not for a commission or for brokerage. The court held that the transaction was between two persons on principal to principal basis, deduction of tax at source as per section 194H of the Act, would not be made since the prepaid SIM Cards payment was not for commission or brokerage.

Payment in relation with Security Transactions by a Sub-Broker not liable to TDS u/s 194H: ITAT

The Kolkata bench of Income Tax Appellate Tribunal ( ITAT ) has held that, Payment in relation with Security Transactions by a Sub-Broker not liable to Tax Deduction at Source ( TDS ) under Section 194H of the Income Tax Act, 1961.

While dismissing the appeal of revenue, the Tribunal bench comprising of Judicial Member S.S Godara and Accountant Member M.Balaganesh has observed that the assessee had paid commission to the remisiers and claimed the same as the deduction.

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