By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi
Chartered Accountants
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Section 40(a)(ia), section 194H — Hedging transactions of commodities, if in the nature of derivatives transactions, do not attract the provisions of section 194H.
Facts:
The assessee was engaged in export, import and wholesale trade of agro products. Since the assessee had not deducted tax at source from payments of Rs. 4,61,769 made towards brokerage on commodities hedging transactions, the AO disallowed the same u/s.40(a)(ia).
Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the order of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The Tribunal noted that the payment towards commission or brokerage in respect of transactions in ‘securities’ is not covered by the scope of tax deduction at source requirements and as per Explanation (iii) to section 194H the meaning assigned to the expression ‘securities’ is the same as assigned to it in clause (h) of section 2 of Securities Contracts (Regulations) Act, 1956 which covers transactions of derivatives. It held that hedging transactions of commodities, if in the nature of derivatives transactions, will be outside the ambit of transactions on which TDS requirements come into play. Since this aspect of the matter was not clear from the material on record, the Tribunal remitted the matter to the file of the AO for fresh adjudication in the light of the abovementioned observations. The Tribunal also clarified that except in the abovementioned situation, commission paid on transactions of sales and purchases of commodities through commodities exchange are clearly covered by the scope of section 194H.
