TDS on sub-brokerage for mutual fund transactions not attracted where payment related to securities dealings.

Sub-brokerage paid on mutual fund unit transactions was held not liable to disallowance under section 40(a)(ia) because section 194H did not require tax deduction at source on such payments. Mutual fund units were treated as securities, and the statutory definition of "commission or brokerage" excludes transactions in securities. As the payment related to services connected with buying and selling securities and no separate non-securities service was shown, TDS was not attracted. The Revenue's challenge therefore failed, and the assessee's claim on the issue was accepted.

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Issues: Whether sub-brokerage paid in relation to mutual fund transactions was liable to disallowance under section 40(a)(ia) of the Income-tax Act, 1961 for non-deduction of tax at source under section 194H.

Analysis: The sub-brokerage was found to relate to transactions in mutual fund units, which are securities. The definition of "commission or brokerage" under section 194H excludes transactions in securities. As the payment was connected with services rendered in the course of buying and selling securities and no distinct non-securities service was shown, tax deduction at source was not attracted on such sub-brokerage.

Conclusion: The disallowance under section 40(a)(ia) was not sustainable and the Revenue's challenge failed. The assessee succeeded on the issue.

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