DCIT, CIR-7(1), KOLKATA, Kolkata V. M/s Jet Age Securities Pvt. Ltd., Kolkata

ITA 1359/KOL/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4905 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 06-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: MANOJ KATARUKA
• Keywords: Business income; Rule of consistency; Advance ruling; Non-deduction of tax; Speculation loss
• Section: 143(3); 43(5); 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI M.BALAGANESH, AM & HONBLE S HRI S.S.VISWANETHRA RAVI, JM] I.T.A NO. 1359/KOL/20 15 ASSESSMENT YEAR : 2011-1 2 DCIT, CIRCLE-7(1), KOLKATA -VS- M/S JET A GE SECURITIES PVT. LTD. [PAN: AABCJ 0993 R] (APPELLANT) (R ESPONDENT) FOR THE APPELLANT : SHRI SAURABH KUMAR , ADDL. CIT SR. DR FOR THE RESPONDENT : SHRI MANOJ KATARUKA, AD VOCATE DATE OF HEARING : 19.09.2018 DATE OF PRONOUNCEMENT : 26. 10.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE OR DER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-11, KOLKATA [IN SHORT THE LD CI T(A)] IN APPEAL NO.570/CIT(A)- 11/CIRCLE-7/KOL/14-15 DATED 20.08.2015 AGAINST THE ORDER PASSED BY THE DCIT, CIRCLE- 7, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143( 3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 18.03.2014 FOR THE ASSESSM ENT YEAR 2011-12. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DIRECTING THE LD AO TO TREAT THE PROFITS FROM SA LE OF SHARES TO BE TAXED AS SHORT TERM CAPITAL GAINS (STCG) INSTEAD OF BUSINESS INCOME AS DONE BY THE LD AO, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 2 2.1. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASS ESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN STOCK BROKING, TRADING ACTIVITIES AS WEL L INVESTMENT. THE RETURN OF INCOME FOR THE ASST YEAR 2011-12 WAS FILED ON 28.9.2011 DE CLARING TOTAL INCOME OF RS 2,13,73,564/-. THE ASSESSEE COMPANY HAS TURNOVER F ROM OPERATIONS AT RS 2,96,66,907/- AND INCOME FROM INVESTMENT IS RS 2,92,97,473/- ONLY . THIS INVESTMENT INCOME CONSISTS OF DIVIDEND (NET) OF RS 12,33,282/- AND THE BALANCE INCOME IS FROM UNITS OF MUTUAL FUND OF RS 1,49,34,415/- ; PROFIT ON INVESTMENT IN SHARE S OF RS 1,13,56,022/- AND PROFIT FROM GOLD EXCHANGE TRADED FUND OF RS 17,73,752/-. THE A SSESSEE SUFFERED LOSS OF RS 69,97,401/- ON DERIVATIVE TRANSACTIONS. THE ASSESS EE DISCLOSED SHORT TERM CAPITAL GAINS OF RS 1,14,78,523/- WHICH INCLUDED LOSS U/S 94(7) O F THE ACT OF RS 1,22,500/-. FROM THE ANALYSIS OF THE CHART SHOWING THE COMPUTATION OF ST CG, THE LD AO OBSERVED THAT THE ASSESSEE HAD REPEATEDLY PURCHASED SHARES OF FEW COM PANIES IN LARGE QUANTITIES WITH VERY LOW AVERAGE PERIOD OF HOLDING. THE LD AO ACCORDING LY SOUGHT TO TREAT THE SAID GAINS AS INCOME FROM BUSINESS AS AGAINST STCG, FOR WHICH SHO W CAUSE NOTICE WAS ISSUED TO THE ASSESSEE. 2.2. THE ASSESSEE REPLIED THAT IT HAS DUAL PORTFOLI O I.E INVESTMENT AND TRADING IN SHARES AND ACCORDINGLY TWO SEPARATE DEPOSITORY PARTICIPANT (DP IN SHORT) ACCOUNTS WITH HDFC BANK ARE MAINTAINED. AT THE TIME OF PURCHASE OF SEC URITIES, THE ASSESSEE COMPANY DECIDES WHETHER THE SAME IS MEANT FOR INVESTMENT PO RTFOLIO OR TRADING PORTFOLIO AND ACCORDINGLY THE SAID SHARES ON TAKING DELIVERY ARE DEMATTED WITH THE RESPECTIVE DP ACCOUNT. THIS PRACTICE IS FOLLOWED BY THE ASSESSEE CONSISTENTLY OVER THE PAST SEVERAL YEARS AND THERE WAS NO DEVIATION FROM THE EARLIER Y EARS. IT WAS SPECIFICALLY BROUGHT TO THE NOTICE THAT MERE PURCHASE AND SALE OF SHARES AT LARGE WITH MINIMUM PERIOD OF HOLDING OF SHARES IN SOME CASES CANNOT BE THE GROUN D FOR CONSIDERING STCG U/S 111A OF THE ACT AS BUSINESS INCOME ESPECIALLY WHEN THERE IS NO CHANGE IN PATTERN OF INVESTMENT AND TRANSACTION CARRIED OUT BY THE ASSESSEE IN SHAR ES DURING THE YEAR UNDER CONSIDERATION. 3 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 3 IT WAS ALSO SUBMITTED BEFORE THE LD AO THAT PRINCIP LE OF CONSISTENCY IS MAINTAINED BY THE ASSESSEE AND THE LD AO CANNOT TAKE A DIFFERENT VIEW FOR CERTAIN YEAR WHEN CLAIM OF ASSESSEE HAS BEEN ACCEPTED FOR OTHERS. 2.3. THE ASSESSEE ALSO SUBMITTED THAT IN ADDITION T O THE INVESTMENT IN SHARES, IT IS ALSO INVOLVED IN DERIVATIVE ACTIVITIES IN SHARES, TRADIN G AND SPECULATION ACTIVITIES IN SHARES AND INCOME FROM WHICH IS BEING CONSIDERED AS BUSINE SS INCOME. SO WHEN INCOME FROM TRADING SHARES, DERIVATIVES IN SHARES AND SPECULATI ON IN SHARES ARE BEING CONSIDERED AS BUSINESS INCOME , THEN INCOME FROM INVESTMENT ACTIV ITIES IN SHARES CANNOT BE DENIED AS STCG OR LTCG AS THE CASE MAY BE BASED ON THE PERIOD OF HOLDING. 2.4. THE LD AO HOWEVER DISREGARDED THE AFORESAID CO NTENTIONS OF THE ASSESSEE BY STATING THAT THE ASSESSEE COMPANY HAS THE ADVANTAGE OF BEIN G ITSELF THE BROKER,WHERE IT HAS THE ABILITY TO CONTROL THE PACE OF TRANSACTIONS, COUPLE D WITH THE FACT THAT A LARGE INFORMATION BANK AND INFRASTRUCTURE IS AVAILABLE TO IT THROUGH THE NETWORK OF OTHER BROKERS AND CLIENTS, WHICH AN AVERAGE INVESTOR IS LACKING. THE ASSESSEE COMPANY CAN MONITOR THE INVESTMENTS BY MINUTES AND TO TAKE FURTHER POSITION OF EITHER HOLDING IT OR SELLING IT AS PER PREVAILING MARKET CONDITIONS. THE TRANSACTIONS INVOLVING THE SAME SHARE HAVE BEEN EXECUTED IN SMALL LOTS WITHIN A SHORT SPAN OF TIME WITH THE PRECISION AND ACCURACY OF A PROFESSIONAL BROKER AND NOT AS AN AMATEUR INVESTOR. HE STATED THAT SUCH INVESTMENT HAS NOT BEEN DONE WITH AN INTENTION TO EARN DIVIDEND OR LONG /MEDIUM TERM APPRECIATION IN THE VALUE. THE IMMEDIATE MOTIVE IS TO MAKE SOME QU ICK MONEY, WHICH IS CALLED DAY TRADING IN PROFESSIONAL TERMS. ACCORDINGLY HE OBS ERVED THAT THE ASSESSEE HAD DECLARED STCG ONLY TO TAKE ADVANTAGE OF LESSER TAX RATES COM PARED TO THAT OF BUSINESS INCOME WHICH IS TO BE DENIED IN THE INSTANT CASE. THE LD AO WITH THESE OBSERVATIONS BROUGHT THE STCG OF RS 1,14,78,523/- TO TAX UNDER THE HEAD INCO ME FROM BUSINESS AS AGAINST STCG CLAIMED BY THE ASSESSEE. 4 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 4 2.5. THE LD CITA ACCEPTED THE FACT OF DUAL PORTFOLI OS MAINTAINED BY THE ASSESSEE AND ALSO GAVE WEIGHTAGE TO THE FACT THAT THE SAME WAS A CCEPTED BY THE DEPARTMENT IN THE PAST YEARS. HE OBSERVED THAT IN INCOME TAX ASSESSMENT O F EARLIER YEARS, NO FINDING WAS RECORDED BY THE LD AO THAT THE ASSESSEE WAS A DEALE R IN SHARES ALONE AND FOR THAT REASON INCOME WAS ASSESSABLE UNDER THE HEAD BUSINESS. THE BALANCE SHEET OF THE ASSESSEE SHOWED THAT ITS OWN CAPITAL AND RESERVES WERE RS 42 .50 CRORES WHICH WAS SUBSTANTIALLY HIGHER THAN COST OF INVESTMENTS IN SHARES OF RS 29 CRORES. THE INVESTMENTS WERE ACCOUNTED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY AT COST AND NOT BY FOLLOWING THE LOWER OF COST OR MARKET VALUE PRINC IPLE WHICH IS APPLICABLE TO STOCK IN TRADE. HE OBSERVED THAT IN THE PAST ASSESSMENT ALSO , THE ASSESSEE HAD DISCLOSED THE SHARES BY WAY OF INVESTMENTS AND INCOME DERIVED FROM TRANS FER OF SHARES WERE ALWAYS DISCLOSED UNDER THE HEAD CAPITAL GAINS WHICH WAS NOT DISPUTED BY THE REVENUE IN EARLIER YEARS. WITH REGARD TO PRINCIPLE OF RES JUDICATE NOT APPLICABLE TO INCOME TAX PROCEEDINGS, HE HELD THAT PRINCIPLE OF CONSISTENCY IS ONE OF THE JUDICIAL PRINCIPLE WHICH IS REQUIRED TO BE FOLLOWED WHEN FUNDAMENTAL FACTS PERMEATING THROU GH VARIOUS YEARS ARE SAME AND IDENTICAL. HE ALSO PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT REPORTED IN 336 ITR 28 (BOM) . ACCORDINGLY HE DIRECTED THE LD AO TO TREAT THE GAINS OF RS 1,14,78,523/- AS STCG AND NOT AS BUSINESS INCOME. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 2.6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND FROM THE MATERIALS AVAILABLE ON RECORD, THE FOLLOWING FACTS ARE UNDISPUTED AND INDI SPUTABLE :- A) THE ASSESSEE HAS MAINTAINED DUAL PORTFOLIOS I.E INVESTMENT PORTFOLIO AND TRADING PORTFOLIO . B) THIS HAS BEEN MAINTAINED BY THE ASSESSEE FOR PAS T SEVERAL YEARS. C) IN THE EARLIER YEARS, THE ASSESSEE HAD REPORTED PROFITS ON SALE OF SHARES FROM INVESTMENT PORTFOLIO UNDER THE HEAD CAPITAL GAINS AND THAT FROM TRADING PORTFOLIO AS INCOME FROM BUSINESS, WHICH WERE ACCEPTED BY THE REVENUE IN SCRUTINY ASSESSMENTS . 5 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 5 THE RELEVANT SCRUTINY ASSESSMENT ORDERS FOR THE ASS T YEARS 2007-08 , 2008-09 AND 2009- 10 ARE ENCLOSED IN PAGES 67 TO 78 OF PAPER BOOK. D) THE ASSESSEE HAS MAINTAINED TWO SEPARATE DEMAT ACCOUNTS WITH DEPOSITORY PARTICIPANT I.E ONE FOR INVESTMENT PORTFOLIO AND OT HER FOR TRADING PORTFOLIO , TO CLEARLY IDENTIFY THE TREATMENT TO BE GIVEN ON SALE OF RESPE CTIVE SHARES, DEPENDING UPON THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE O F SHARES. THE RELEVANT EVIDENCES ARE ENCLOSED IN PAGES 93 TO 97 OF PAPER BOOK. E) THE ASSESSEE HAD DERIVED INTEREST INCOME OF RS 1 ,42,79,959/- AND INTEREST EXPENDITURE OF RS 82,73,689/-. THE INTEREST EXPENDITURE IS PAI D ON BANK OVERDRAFTS BY PLEDGING FIXED DEPOSITS HELD BY THE ASSESSEE . IN OTHER WORDS, THE INTEREST IS PAID ON LOANS AGAINST FIXED DEPOSITS. F) THE ASSESSEE HAS TAKEN DELIVERY OF SHARES IN RES PECT OF TRANSACTIONS IN SHARES IN INVESTMENT PORTFOLIO AND THE SAME WERE DULY DEMATTE D IN THE RESPECTIVE DP ACCOUNT. G) THE ASSESSEE HAD ALSO OFFERED BUSINESS INCOME IN RESPECT OF SALE OF SHARES WHICH WERE TRANSACTED FROM TRADING PORTFOLIO. 2.6.1. WE FIND THAT THE FOLLOWING CHART WOULD PROVE THE TREATMENT OF GAINS ON SLAE OF SHARES UNDER INVESTMENT PORTFOLIO GIVEN BY THE ASSE SSEE VIS A VIS THE TREATMENT OF THE LD AO :- ASST YEAR OWN CAPITAL STCG OTHER STCG REMAR KS & RESERVES U/S 111A 2006-07 175565350 13524936 1215270 143(3) AND STCG U/S 111A ACCEPTED BY AO 2007-08 203199590 (3814596) 3976627 143(3) AND STCG U/S 111A ACCEPTED BY AO 2008-09 343838436 35219673 3142977 143(3) AND STCG U/S 111A ACCEPTED BY AO 6 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 6 2009-10 361453864 (13083594) 3534942 143(3 ) AND STCG U/S 111A ACCEPTED BY AO FOR ASST YEAR 2010-11 , THE OWN CAPITAL & RESERVES WAS RS 39,95,55,262/- ; STCG OFFERED U/S 111A OF THE ACT WAS RS 1,93,33,138/- AN D OTHER STCG WAS RS 8,93,714/-. ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT WHEREIN STCG CLAIMED U/S 111A OF THE ACT WAS SOUGHT TO BE TAXED AS BUSINESS INCOME BY TH E LD AO. FOR ASST YEAR 2011-12 , THE OWN CAPITAL & RESERVES WAS RS 42,64,37,583/- ; STCG OFFERED U/S 111A OF THE ACT WAS RS 1,13,56,023/- (1 ,14,78,523-1,22,500) AND OTHER STCG WAS RS 45,83,787/-. ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT WHEREIN STCG CLAIMED U/S 111A OF THE ACT WAS SOUGHT TO BE T AXED AS BUSINESS INCOME BY THE LD AO. 2.6.2. WE FIND THAT THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2010-11 IN ITA NO. 1352/KOL/2011 DATED 13.12.2017 IN SIMILAR F ACTS AND CIRCUMSTANCES HAD HELD AS UNDER:- 7. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L AVAILABLE ON RECORD. IT IS NOT DISPUTED THAT TREATMENT OF INCOME FROM SALE OF SHAR ES FROM INVESTMENT PORTFOLIO IS SHORT TERM CAPITAL GAIN FROM A.Y 2006-07 TO 2009-10. WE F IND THAT IN THE A.Y 2006-07 THIS TRIBUNAL HELD THAT THE SAID INCOME IS NOT BUSINESS INCOME, DIRECTED THE AO TO TREAT THE SAME AS SHORT TERM CAPITAL GAIN. THEREBY THE REVENU E HAS BEEN FOLLOWING THE SAME FROM A.Y 2007-08 TO 2009-10, WHICH ARE EVIDENT FROM PAGE S 65-75 OF THE PAPER BOOK-NO. 2. WE FURTHER FIND THAT THE SIMILAR ISSUE WAS DISPOSED BY THE HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF AMITABH SONTHALIA SUPRA, WH EREIN IT WAS HELD THAT THERE IS DISTINCTION BETWEEN THE INVESTMENT AND STOCK IN TRA DE. THE INCOME ARISES OUT OF INVESTMENT HAS TO BE TREATED AS INCOME FROM CAPITAL GAIN. IN THIS REGARD, WE MAY REFER TO THE FOLLOWING OBSERVATION OF THE HONBLE HIGH CO URT OF CALCUTTA, AS BELOW:- WE HAVE HEARD BOTH THE PARTIES AND ARE OF THE OPINI ON THAT NO INTERFERENCE IS CALLED FOR. THE TRIBUNAL IN ITS ORDER UNDER CHALLENGE HELD , INTER ALIA, AS FOLLOWS: ' ONCE THIS IS AN ESTABLISHED POSITION, THAT ASSES SEE MAINTAINED THE DISTINCTION IN BOOKS OF ACCOUNTS BETWEEN HIS INVESTMENTS AND STOCK IN TR ADE AND ALSO MAINTAINED DISTINCTION 7 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 7 OF SHORT TERM INVESTMENTS AS WELL AS LONG TERM INVE STMENT AND SUCH INVESTMENT WERE ACCEPTED BY REVENUE IN EARLIER YEARS ALL LONG, NOW THEY CANNOT TAKE U-TURN AND CHANGE THE HEAD OF INCOME WITHOUT ANY BASIS'. MR. BHOWMICK, LEARNED ADVOCATE APPEARING IN SUPPOR T OF THE APPEAL SUBMITTED THAT THE APPEAL PREFERRED BY THE REVENUE WAS DISMISSED BY TH E TRIBUNAL MERELY BECAUSE THE INCOME IN THE PAST HAD BEEN TREATED TO HAVE ARISEN OUT OF INVESTMENT RATHER THAN A BUSINESS INCOME. MR. MURARKA, LEARNED ADVOCATE APPE ARING FOR THE ASSESSEE SUBMITTED THAT ONE OF THE REASONS ASSIGNED BY THE TRIBUNAL IS THAT THE INCOME HAD EARLIER BEEN TREATED TO HAVE ARISEN OUT OF INVESTMENTS BUT THE O THER REASON GIVEN BY THE TRIBUNAL IS THAT THE ASSESSEE HAS ALWAYS MAINTAINED A DISTINCTI ON IN ITS BOOKS OF ACCOUNTS BETWEEN THE INVESTMENTS AND STOCK IN TRADE AND HAS, THEREFO RE, LED APPROPRIATE EVIDENCE TO SHOW WHICH PART OF THE INCOME AROSE OUT OF INVESTMENTS A ND WHICH PART OF THE INCOME AROSE OUT OF THE BUSINESS. HE DREW OUR ATTENTION TO THE J UDGMENT IN THE CASE OF COMMISSIONER OF INCOME TAX, CALCUTTA VS. ASSOCIATED INDUSTRIAL D EVELOPMENT PVT. LTD. REPORTED IN 82 ITR 586 WHEREIN THE APEX COURT HELD AS FOLLOWS: ' WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOW LEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE I N A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED AN Y DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOCK-IN- TRADE AND THOSE WHICH ARE H ELD BY WAY OF INVESTMENT'. MR. MURARKA SUBMITTED THAT THE ASSESSEE HAS DULY DI SCHARGED HIS BURDEN BY PROVING THAT IT HAS ALWAYS MAINTAINED A DISTINCTION BETWEEN THE INVESTMENT AND THE STOCK-IN- TRADE. THE REVENUE WAS NOT IN A POSITION TO FIND AN Y FAULT WITH THE EVIDENCE ADDUCED BY THE ASSESSEE. HE SUBMITTED THAT THE TRIBUNAL IN THE CIRCUMSTANCES HAD NO OPTION, BUT TO DISMISS THE APPEAL. 8. FURTHER, WE MAY REFER TO THE FINDING OF THE TRIB UNAL IN ASSESSEES ON CASE FOR THE A.Y 2006-07 AND RELEVANT PORTION AT PARA NO. 8, WHICH I S REPRODUCED HEREIN BELOW:- 8. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL PERUSAL OF THE MATERIALS AVAILABLE ON RECORD, KEEPING IN VIEW OF THE FACT TH AT THE ASSESSEE HAS SHOWN THE SHARES AS WELL AS THE UNITS OF THE MUTUAL FUND AS INVESTME NTS SINCE FROM THE INCEPTION AND FURTHER DECLARED THE INCOME FROM SALE OF SUCH SHARE S EITHER LONG- TERM CAPITAL GAINS OR SHORT-TERM CAPITAL GAINS DEPENDING UPON THE PERIOD OF HOLDING, WE FIND NO JUSTIFICATION ON THE PART OF THE AO TO TREAT THE SHORT-TERM CAPIT AL GAINS ARISING TO THE ASSESSEE AS BUSINESS INCOME, THOUGH THE SAID SHARES OF UNITS OF THE MUTUAL FUNDS ARE SHOWN BY THE ASSESSEE AS INVESTMENT. THEREFORE, WE FIND NO INFIR MITY IN THE ORDERS OF THE LD. CIT(A) IN DIRECTING THE AO TO TREAT THE SHORT-TERM CAPITAL GAINS INSTEAD OF BUSINESS INCOME. 9. IN VIEW OF OUR ABOVE DISCUSSION AND THE FINDINGS OF THE HONBLE HIGH COURT IN THE CASE OF SUPRA AND THE TRIBUNAL IN ASSESSEES OWN CA SE FOR THE A.Y 2006-07, WE FIND THAT THE CIT-A WAS JUSTIFIED IN TREATING THE NET PROFIT ON PURCHASE AND SALE OF SHARES AS SHORT TERM CAPITAL GAIN. THEREFORE, THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 8 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 8 2.6.3. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THA T THE LD CITA HAD RIGHTLY DIRECTED THE LD AO TO TREAT THE SUBJECT MENTIONED GAINS ON S ALE OF SHARES AS STCG U/S 111A OF THE ACT INSTEAD OF BUSINESS INCOME, WHICH DOES NOT REQUIRE ANY INTERFERENCE. ACCORDINGLY, THE GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 3. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN ALLOWING THE LOSS ON DERIVATIVES TO BE TREATED A S BUSINESS LOSS INSTEAD OF SPECULATIVE LOSS AND CONSEQUENTIALLY ALLOWING SET OFF OF THE SA ME WITH THE PROFIT FROM THE SHARE TRANSACTIONS, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3.1. THE LD AO FROM SCHEDULE 12 OF THE AUDITED FINA NCIAL STATEMENTS OBSERVED THAT THE ASSESSEE COMPANY HAD SUFFERED A LOSS OF RS 69,97,40 1/- ON DERIVATIVE TRANSACTIONS. THE ASSESSEE SUBMITTED MONTHWISE DETAILS OF TRANSACTION S IN DERIVATIVE SEGMENT. HE OBSERVED THAT ASSESSEE HAS NOT SHOWN ANY SATISFACTO RY REASON AS TO WHY SUCH A LOSS SHOULD NOT BE TREATED AS SPECULATIVE IN NATURE. AC CORDINGLY, HE HELD THAT LOSS OF RS 69,97,401/- AS SPECULATIVE LOSS ELIGIBLE FOR ADJUST MENT WITH SPECULATIVE GAINS OF RS 86,811/-. 3.2. THE ASSESSEE SUBMITTED THAT THE LD AO HAD TREA TED THE DERIVATIVE LOSS INCURRED IN THE SUM OF RS 69,97,401/- AS SPECULATION LOSS CONTRARY TO THE PROVISIONS OF SECTION 43(5) OF THE ACT WHICH EXCLUDES FROM THE PURVIEW OF A SPECU LATIVE TRANSACTION, THE DEALING IN DERIVATIVES AND THEREFORE THE ACTION OF THE LD AO I N TREATING THE DERIVATIVE LOSS AS SPECULATION LOSS IS BAD IN LAW AND ERRONEOUS. IT W AS SUBMITTED THAT ALTERNATIVELY EVEN IF THE LOSS IS CONSIDERED AS SPECULATION LOSS AS PER E XPLANATION TO SECTION 73 OF THE ACT, THE ENTIRE BUSINESS OF PURCHASE AND SALE OF SHARES IS T O BE CONSIDERED AS SPECULATIVE BUSINESS AND THE LOSS ON DERIVATIVES IS TO BE ALLOWED TO BE SET OFF WITH THE BUSINESS INCOME OF PURCHASE AND SALE OF SHARES. 9 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 9 3.3. THE LD CITA OBSERVED THAT THE HONBLE DELHI H IGH COURT IN THE CASE OF CIT VS DLF COMMERCIAL DEVELOPERS LTD REPORTED IN 218 TAXMA N 45 (DEL) HAD LAID DOWN THE PRINCIPLE THAT EXPLANATION TO SECTION 73 OF THE ACT IS INDEPENDENT OF SECTION 43(5) OF THE ACT AND THE LANGUAGE USED IN SECTION 43(5) OF THE A CT CANNOT BE APPLIED TO EXPLANATION TO SECTION 73 OF THE ACT. ON THIS POINT THE LD AO C ORRECTLY HELD THAT EVEN THOUGH THE LOSS ON ACCOUNT OF DERIVATIVES ARE NOT SPECULATIVE BY VI RTUE OF SECTION 43(5) OF THE ACT, AS PER EXPLANATION TO SECTION 73 OF THE ACT, IT IS SPECULA TIVE TRANSACTION AND CAN BE SET OFF AGAINST SPECULATIVE PROFITS. THE LD CITA OBSERVED THAT THE ASSESSEES PLEA THA THE ENTIRE PURCHASE AND SALE OF SHARES IS TO BE CONSIDERED AS SPECULATIVE BUSINESS ALSO FIND MERITS. THE ASSESEEE IS HAVING PROFITS FROM PURCHASE AND SA LE OF SHARES AS BUSINESS INCOME AND LOSS ON DERIVATIVES IS TO BE ALLOWED TO BE SET OFF WITH THE BUSINESS INCOME. HE PLACED RELIANCE IN THIS REGARD ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS BALJIT SECURITIES LTD REPORTED IN 88 CCH 313 (CAL) VIDE ORDER DATED 12.3.2014. ACCORDINGLY, HE DIRECTED THE LD AO TO A LLOW THE LOSS ON DERIVATIVES TO BE SET OFF WITH THE PROFITS FROM THE PURCHASE AND SALE OF SHARES. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 3.4. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE FACT S STATED HEREIN ABOVE REMAIN UNDISPUTED AND HENCE THE SAME ARE NOT REITERATED FO R THE SAKE OF BREVITY. WE FIND THAT THE LD CITA HAD HELD THAT THE EXPLANATION TO SECTIO N 73 OF THE ACT IS INDEPENDENT OF SECTION 43(5) OF THE ACT AND ACCORDINGLY THE LOSS O N DERIVATIVE TRANSACTIONS IS TO BE CONSIDERED AS SPECULATIVE LOSS AND THAT THE SAME WO ULD BE ELIGIBLE TO BE SET OFF WITH THE PROFITS AND GAINS ON SALE OF SHARES TREATING THE SA ME AS SPECULATIVE PROFITS. THIS HAS BEEN DULY CONSIDERED AND APPROVED BY THE HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF CIT VS BALJIT SECURITIES LTD REPORTED IN 368 ITR 470 (CAL) WHEREIN IT WAS HELD AS UNDER:- 10 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 10 2. THE ASSESSEE BASICALLY IS A SHARE BROKER. THE ASSE SSEE ALSO DEALS IN BUYING AND SELLING OF SHARES FOR HIMSELF. THE ASSESSEE IS ALSO DEALING IN DERIVATIVES. DEALING IN DERIVATIVES HAS BEEN EXCLUDED FROM THE AMBIT OF SPECULATIVE TRA NSACTIONS WITH EFFECT FROM ASSESSMENT YEAR 2006-07. WE ARE CONCERNED WITH THE ASSESSMENT YEAR 2005-06. THE QUESTION AROSE WHETHER THE ASSESSEE WAS ENTITLED TO SET OFF THE LO SS ARISING OUT OF BUSINESS IN DERIVATIVES AGAINST THE INCOME ARISING OUT OF PURCHASE AND SALE OF SHARES. THE QUESTION BASICALLY WAS AS REGARDS THE MEANING OF THE EXPRESSION 'SPECULATI VE TRANSACTION'. THE DEFINITION OF THE TERM 'SPECULATIVE TRANSACTION' APPEARING FROM SECTI ON 43(5) OF THE ACT IS AS FOLLOWS: '(5) 'SPECULATIVE TRANSACTION' MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DEL IVERY OR TRANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDI SE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHANTING B USINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT O F THE CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDIS E SOLD BY HIM; OR (B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTERED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDINGS OF ST OCKS AND SHARES THROUGH PRIC E FLUCTUATIONS; OR (C) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWARD MA RKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRANSACTION IN THE NATURE OF J OBBING OR ARBITRAGE TO GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS SUC H MEMBER; [OR] (D) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CLAUSE [(AC)] OF SECTION 2 OF THE SE CURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) CARRIED OUT IN A RECOGNISED STOCK EXCHANGE;] SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION ;' 3. CLAUSE (D) OF SECTION 43 (5) BECAME EFFECTIVE WITH EFFECT FROM 1ST APRIL, 2006. THEREFORE, PRIOR TO 1ST APRIL, 2006 ANY TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHARES WAS PERIODICA LLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMM ODITY OR SCRIP WAS A SPECULATIVE TRANSACTION. SUB-SECTION 1 OF SECTION 73 PROVIDES AS FOLLOWS: '(1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINST PROFI TS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS.' 4. THE RESULTANT EFFECT WAS THAT ANY LOSS ARISING OUT OF SPECULATIVE TRANSACTION COULD ONLY HAVE BEEN SET OFF AGAINST PROFITS ARISING OUT OF SP ECULATIVE TRANSACTION. IN THE PRESENT CASE, THE ASSESSEE, AS ALREADY INDICATED, HAS BEEN DEALIN G IN SHARES WHERE DELIVERY WAS IN FACT 11 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 11 TAKEN AND ALSO IN SHARES WHERE DELIVERY WAS NOT ULT IMATELY TAKEN. IN OTHER WORDS, THE ASSESSEE HAS BEEN DEALING IN ACTUAL SELLING AND BUY ING OF SHARES AS ALSO DEALING IN SHARES ONLY FOR THE PURPOSE OF SETTLING THE TRANSACTION OT HERWISE THAN BY ACTUAL DELIVERY. THE QUESTION AROSE WHETHER THE LOSSES ARISING OUT OF TH E DEALINGS AND TRANSACTION IN WHICH THE ASSESSEE DID NOT ULTIMATELY TAKE DELIVERY OF THE SH ARES OR GIVE DELIVERY OF THE SHARES COULD BE SET OFF AGAINST THE INCOME ARISING OUT OF THE DE ALINGS AND TRANSACTIONS IN ACTUAL BUYING AND SELLING OF SHARES. AN ANSWER TO THIS QUESTION I S TO BE FOUND IN THE EXPLANATION APPENDED TO SECTION 73 WHICH READS AS FOLLOWS: 'EXPLANATION : WHERE ANY PART OF THE BUSINESS OF A COMPANY ([OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS 'INTEREST ON SECURITIES', 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM OTHER SOURCES'], OR A COMPANY THE PRIN CIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND AD VANCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES.' 5. IN ORDER TO RESOLVE THE ISSUE BEFORE US, THE SECTI ON HAS TO BE READ IN THE MANNER AS FOLLOWS: 'EXPLANATION : WHERE ANY PART OF THE BUSINESS OF A COMPANY (** ** **) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHE R COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE C ARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PU RCHASE AND SALE OF SUCH SHARES.' 6. IT WOULD, THUS, APPEAR THAT WHERE AN ASSESSEE, BEI NG THE COMPANY, BESIDES DEALING IN OTHER THINGS ALSO DEALS IN PURCHASE AND SALE OF SHA RES OF OTHER COMPANIES, THE ASSESSEE SHALL BE DEEMED TO BE CARRYING ON A SPECULATION BUS INESS. THE ASSESSEE, IN THE PRESENT CASE, PRINCIPALLY IS A SHARE BROKER, AS ALREADY IND ICATED. THE ASSESSEE IS ALSO IN THE BUSINESS OF BUYING AND SELLING OF SHARES FOR SELF W HERE ACTUAL DELIVERY IS TAKEN AND GIVEN AND ALSO IN BUYING AND SELLING OF SHARES WHERE ACTU AL DELIVERY WAS NOT INTENDED TO BE TAKEN OR GIVEN. THEREFORE, THE ENTIRE TRANSACTION C ARRIED OUT BY THE ASSESSEE, INDICATED ABOVE, WAS WITHIN THE UMBRELLA OF SPECULATIVE TRANS ACTION. THERE WAS, AS SUCH, NO BAR IN SETTING OFF THE LOSS ARISING OUT OF DERIVATIVES FRO M THE INCOME ARISING OUT OF BUYING AND SELLING OF SHARES. THIS IS WHAT THE LEARNED TRIBUNA L HAS DONE. 7. THE APPEAL PREFERRED BY THE REVENUE IS WITHOUT ANY MERIT AND IS, THEREFORE, DISMISSED. RESPECTFULLY FOLLOWING THE SAID JUDICIAL PRECEDENT, WE HOLD THAT THE ORDER OF THE LD CITA IN THIS REGARD REQUIRES NO INTERFERENCE. ACCORDINGL Y, THE GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. 12 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 12 4. THE LAST ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT IN THE SUM OF RS 21,73,664/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASS ESSEE COMPANY PAID RS 2,22,624/- TO ISI EMERGING MARKET (INDIA SERVICES) ; RS 2,00,000/- TO INDUSTRIAL ANALYSIS SERVICES AND RS 21,73,664/- TO BLOOMBERG DATA SERVICES INDIA, TOTA LING TO RS 25,96,288/- WITHOUT DEDUCTION OF TAX AT SOURCE. THE LD AO OBSERVED THA T ALL THESE PAYMENTS ARE LIABLE TO WITHHOLDING TAX U/S 194J OF THE ACT AND ACCORDINGLY DISALLOWED A SUM OF RS 21,73,664 U/S 40(A)(IA) OF THE ACT TREATING THE SAID PAYMENT AS ROYALTY. THE LD CITA DELETED THE SAID DISALLOWANCE BY OBSERVING AS UNDER:- 6.1. DURING THE APPELLATE PROCEEDINGS, THE AR OF T HE APPELLANT SUBMITTED THE CASE OF THE APPELLANT WAS COVERED BY THE DECISION OF THE KO LKATA TRIBUNAL IN THE CASE OF RIGHT FLORIST AND FURTHER SUBMITTED AS UNDER: THE APPELLANT HAD PAID RS. 21,73,664/- TO BLOOMBER G DATA SERVICES INDIA FOR INTERNET BANDWIDTH. IT WAS SUBMITTED TO THE ASSESSI NG OFFICER THAT THERE WAS NO TECHNICAL SERVICES PROVIDED AND THEREFORE THERE WAS NO REQUIREMENT OF DEDUCTION OF TAX AT SOURCE U/S 195 OF THE INCOME TAX ACT. IT WAS FURTHER SUBMITTED THAT THERE WAS NO HUMAN INTERVENTION IN THE SERVICES PRO VIDED AND THEREFORE THE PROVISIONS OF SECTION 9 WAS NOT APPLICABLE AND ALSO PROVISIONS OF SECTION 195 DID NOT APPLY AND AS SUCH THERE WAS NO REQUIREMENT FOR DEDUCTION OF TAX AT SOURCE. THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSI ONS AND MADE DISALLOWANCE OF RS. 21,73,664/- U/S 40A(IA) OF THE IT ACT FOR NO N-DEDUCTION OF TAX AT SOURCE WHICH IS CONTRARY TO THE PROVISIONS OF LAW AND THE ADDITIONS ARE PRAYED TO BE DELETED. 6.2 I HAVE HEARD THE CONTENTIONS RAISED BY THE AR O F THE APPELLANT AND THE FINDINGS OF THE ASSESSING OFFICER. THE ONLY DISPUTE ARISING FRO M THIS GROUND IS WHETHER THE APPELLANT WAS LIABLE TO DEDUCT TAX AT SOURCE ON PAY MENTS MADE TO BLOOMBERG DATA SERVICES INDIA LTD. IN THE CASE OF ITO VS. RIGHT FL ORISTS PVT. LTD. ITA NO.1336/KOL/2011 THE ASSESSEE WAS A FLORIST AND HE USES ADVERTISING ON SEARCH ENGINES, I.E. BY GOOGLE AND YAHOO, TO GENERATE BUSINESS. WHENEVER ANYONE DOES A WEB SEARCH ON THE RESPECTIVE SEARCH ENGINES, IN LOOKING FOR A PARTICULAR WEBSITE , AND USES CERTAIN KEYWORDS, THE ADVERTISEMENT OF THE ASSESSEE IS SHOWN ALONG WITH T HE SEARCH RESULTS. THE ASSESSEE HAD MADE PAYMENTS AGGREGATING TO RS 30,44,166 IN RESPEC T OF ONLINE ADVERTISING TO US BASED ENTITIES, NAMELY GOOGLE IRELAND LIMITED (GOOG LE IRELAND, IN SHORT) AND OVERTURE SERVICES INC USA (YAHOO USA, IN SHORT). HOWEVER, NO TAXES ERE WITHHELD FROM THESE PAYMENTS. THE CRUCIAL QUESTION WAS WHETHER THESE ON LINE ADVERTISING SERVICES, BY 13 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 13 PRODUCING THE SPONSORED RESULTS IN THE SEARCH RESUL TS OR BY WEB BANNERS THROUGH ADSERVERS, COULD BE COVERED BY THE CONNOTATION OF ' TECHNICAL SERVICES' AS SET OUT IN EXPLANATION 2 TO SECTION 9(1 )(VII). IT WAS HELD BY THE TRIBUNAL AS UNDER: 'LET US NOW ONCE AGAIN REVERT TO THE FACTS OF THIS CASE. THE SERVICE WHICH IS RENDERED BY THE GOOGLE IS GENERATION OF CERTAIN TEX T ON THE SEARCH ENGINE RESULT PAGE. THIS IS A WHOLLY AUTOMATED PROCESS. THERE IS NO DISPUTE THAT IN THE SERVICES RENDERED BY THE SEARCH ENGINES, WHICH PROV IDE THESE ADVERTISING OPPORTUNITIES, THERE IS NO HUMAN TOUCH AT ALL. THE RESULTS ARE COMPLETELY AUTOMATED AND, AS EVIDENT FROM THE SCREENSHOTS WE H AVE REPRODUCED EARLIER IN THIS ORDER, THESE RESULTS ARE PRODUCED IN A FRACTIO N OF A SECOND- 0.27 SECONDS IN THE SCREENSHOT REPRODUCED EARLIER. FOR THE REASON T HAT THERE IS NO HUMAN TOUCH INVOLVED IN THE WHOLE PROCESS OF ACTUAL ADVERTISING SERVICE PROVIDED BY GOOGLE, IN THE LIGHT OF THE LEGAL POSITION THAT ANY SERVICE S RENDERED WITHOUT HUMAN TOUCH, EVEN IF IT BE A TECHNICAL SERVICE, IT CANNOT SUCH A TECHNICAL SERVICE WHICH IS COVERED BY THE LIMITED SCOPE OF SECTION 9(1)(VII), THE RECEIPTS FOR ONLINE ADVERTISEMENT BY THE SEARCH ENGINES CANNOT BE TREAT ED AS FEES FOR TECHNICAL SERVICES TAXABLE AS INCOME, UNDER THE PROVISIONS OF THE INCOME TAX ACT, IN THE HANDS OF THE GOOGLE . THE WORDINGS OF EXPLANATION 2 TO SECTION 9(1)(VII) AS ALSO THAT OF THE DEFINITION OF FEES FOR TECHNICAL SERVIC ES UNDER ARTICLE 12(2)(B) BEING SIMILAR IN MATERIAL RESPECTS, THE ABOVE LEGAL PROPO SITION EQUALLY APPLIES TO THE DEFINITION UNDER ARTICLE 12 (2)(B) OF INDIA IRISH T AX TREATY. THE INCOME EARNED BY GOOGLE, IN RESPECT OF ONLINE ADVERTISING REVENUES D ISCUSSED ABOVE AND BASED ON THE FACTS ON RECORD, CANNOT BE BROUGHT TO TAX AS IN COME DEEMED TO ACCRUE OR ARISE UNDER SECTION 9(1)(VII), I.E. LAST LIMB OF SE CTION 9(1), AS WELL.' IT WAS AS OBSERVED BY KOLKATA TRIBUNAL IN THE CASE OF KOTAL SECURITIES LTD VS DCIT (50 SOT 158) THAT: 'THE LOWEST COMMON FACTOR IN 'MANAGERIAL, TECHNICAL AND CONSULTANCY SERVICES' BEING . THE HUMAN INTERVENTION, AS LONG AS THERE IS NO HUMAN INTERVENTION IN. A TECHNICAL SERVICE, IT CANNOT BE TREATED AS A TECHNI CAL SERVICE UNDER SECTION 9(1)(VII) ' THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS BHARTI CELLULAR LIMITED (319 ITR 139 OBSERVED AS FOLLOWS: 'IN THE SAID EXPLANATION [I.E. EXPLANATION 2 TO SEC TION 9(1)(VII)} THE EXPRESSION FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION FOR RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. THE WORD TECHNICAL IS PRECEDED BY THE WORD MANAGERIAL AND SUCCEEDED BY THE WORD CO NSULTANCY. SINCE THE EXPRESSION TECHNICAL SERVICES IS IN DOUBT AND IS UN CLEAR, THE RULE OF NOSCITUR A SOCIIS IS CLEARLY APPLICABLE. THE SAID RULE IS EXPL AINED IN MAXWELL ON THE INTERPRETATION OF STATUTES (TWELFTH EDITION) IN THE FOLLOWING WORDS: - WHERE TWO OR MORE WORDS WHICH ARE SUSCEPTIBLE OF ANALOGOUS ME ANING ARE COUPLED TOGETHER, NOSCITUR A SOCIIS, THEY ARE UNDERSTOOD TO BE USED IN THEIR COGNATE 14 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 14 SENSE. THEY TAKE, AS IT WERE, THEIR COLOUR FROM EAC H OTHER, THE MEANING OF THE MORE GENERAL BEING RESTRICTED TO EL SENSE ANALOGOUS TO THAT OF THE LESS GENERAL. THIS WOULD MEAN THAT THE WORD TECHNICAL WOULD TAKE COLOUR FROM THE WORDS MANAGERIAL AND CONSULTANCY, BETWEEN WHICH IT IS SAN DWICHED. THE WORD MANAGERIAL HAS BEEN DEFINED IN THE SHORTER OXFORD E NGLISH DICTIONARY, FIFTH EDITION AS.- OF PERTAINING TO, OR CHARACTERISTIC OF A MANAGER, ESP. A PROFESSIONAL MANAGER OF OR WITHIN AN ORGANIZATION, BUSINESS, EST ABLISHMENT, ETC. THE WORD MANAGER HAS BEEN DEFINED, INTER ALIA, AS.' - A PERS ON WHOSE OFFICE IT IS TO MANAGE AN ORGANIZATION, BUSINESS ESTABLISHMENT, OR PUBLIC INSTITUTION, OR PART OF ONE; A PERSON WITH THE PRIMARILY EXECUTIVE OR SUPERVISORY FUNCTION WITHIN AN ORGANIZATION ETC, A PERSON CONTROLLING THE ACTIVITI ES OF A PERSON OR TEAM IN SPORTS, ENTERTAINMENT, ETC. IT IS, THEREFORE, CLEAR THAT A MANAGERIAL SERVICE WOULD BE ONE WHICH PERTAINS TO OR HAS THE CHARACTERISTIC OF' A MANAGER. IT IS OBVIOUS THAT THE EXPRESSION MANAGER AND CONSEQUENTLY MANAGE RIAL SERVICE HAS A DEFINITE HUMAN ELEMENT ATTACHED TO IT. TO PUT IT BLUNTLY, A MACHINE CANNOT BE A MANAGER. 14. SIMILARLY, THE WORD CONSULTANCY HAS BEEN DEFINE D IN THE SAID DICTIONARY AS THE WORK OR POSITION OF A CONSULTANT; A DEPARTMENT OF CONSULTANTS. CONSULTANT ITSELF HAS BEEN DEFINED, INTER ALIA, AS A PERSON WH O GIVES PROFESSIONAL ADVICE OR SERVICES IN A SPECIALIZED FIELD. IT IS OBVIOUS THAT THE WORD CONSULTANT IS A DERIVATIVE OF THE WORD CONSULT WHICH ENTAILS DELIBE RATIONS, CONSIDERATION, CONFERRING WITH SOMEONE, CONFERRING ABOUT OR UPON A MATTER. CONSULT HAS ALSO BEEN DEFINED IN THE SAID DICTIONARY AS ASK ADVICE F OR, SEEK COUNSEL OR A PROFESSIONAL OPINION FROM; REFER TO (A SOURCE OF IN FORMATION); SEEK PERMISSION OR APPROVAL FROM FOR A PROPOSED ACTION. IT IS OBVIOUS THAT THE SERVICE OF CONSULTANCY ALSO NECESSARILY ENTAILS HUMAN INTERVEN TION. THE CONSULTANT, WHO PROVIDES THE CONSULTANCY SERVICE, HAS TO BE A HUMAN BEING. A MACHINE CANNOT BE REGARDED AS A CONSULTANT. 15. FROM THE ABOVE DISCUSSION, IT IS APPARENT THAT BOTH THE WORDS MANAGERIAL AND CONSULTANCY INVOLVE A HUMAN ELEMENT. AND, BOTH, MANAGERIAL SERVICE AND CONSULTANCY SERVICE, ARE PROVIDED BY HUMANS. CONSEQ UENTLY, APPLYING THE RULE OF NOSCITUR A SOCIIS, THE WORD TECHNICAL AS APPEARING IN EXPLANATION 2 TO SECTION 9 (1) (VII) WOULD ALSO HAVE TO BE CONSTRUED AS INVOLV ING A HUMAN ELEMENT.' IN THE CASE OF PINSTORM TECHNOLOGIES PVT LTD VS ITO [TS 536 ITAT (2012)MUM] IT WAS HELD AS UNDER: 'WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT A SIMILAR ISSUE HAD COM E UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE CASE OF YAHOO INDIA PVT. LID. AND V IDE ITS ORDER DATED 24TH JUNE, 2011 PASSED IN IT A NO.506/MUM/2008, THE TRIBUNAL DECIDE D THE SAME IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARAGRA PH NO. B OF IT S ORDER: 'B. AS ALREADY NOTED BY US, THE PAYMENT MADE BY ASSESSEE I N THE PRESENT CASE TO YAHOO HOLDINGS (HONG KONG) LID. WAS FOR SERVICES RENDERED FOR UPLOADING AND DISPLAY OF THE BANNER ADVERTISEMENT OF THE DEPARTMENT OF TOURISM O F INDIA ON ITS PORTAL. THE BANNER ADVERTISEMENT HOSTING SERVICES DID NOT INVOLVE USE OR RIGHT TO USE BY THE ASSESSEE ANY 15 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 15 INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT AND NO SUCH USE WAS ACTUALLY GRANTED BY YAHOO HOLDINGS (HONG KONG) LTD. TO ASSESSEE COMPANY . UPLOADING AND DISPLAY OF BANNER ADVERTISEMENT ON ITS PORTAL WAS ENTIRELY THE RESPONSIBILITY OF YAHOO HOLDINGS (HONG KONG) LTD. AND ASSESSEE COMPANY WAS ONLY REQU IRED TO PROVIDE THE BANNER AD TO YAHOO HOLDINGS (HONG KONG) LTD. FOR UPLOADING THE S AME ON ITS PORTAL. ASSESSEE THU S HAD NO RIGHT TO ACCESS THE PORTAL OF YAHOO HOLDINGS (HONG KONG) LTD. AND THERE IS NOTHING TO SHOW ANY POSITIVE ACT OF UTILIZATION OR EMPLOYMENT OF THE PORTAL OF YAHOO HOLDINGS (HONG KONG) LTD BY THE ASSESSE COMPANY. HA VING REGARD TO ALL THESE FACTS OF THE CASE AND KEEPING IN VIEW THE DECISION OF THE AU THORITY OF ADVANCE RULINGS IN THE CASE OF ISRO SATELLITE CENTRE 307 ITR 59 AND DELL I NTERNATIONAL SERVICES (INDIA) P. LTD 305 ITR 37 WE ARE OF THE VIE V THAT THE PAYMENT MAD E BY ASSESSEE TO YAHOO HOLDINGS ( HONG KONG) LTD. FOR THE SERVICES RENDERED FOR UPLOA DING AND DISPLAY OF THE BANNER ADVERT/SEMEN OF THE DEPARTMENT OF TOURISM OF INDIA ON ITS PORTAL WAS NOT IN THE NATURE OF ROYAL Y BUT THE SAME WAS IN THE NATURE OF BUSINE SS PROFIT AND IN THE ABSENCE OF ANY PE OF YAHOO HOLDINGS (HONG KONG) LTD. IN INDIA, IT WAS NOT CHARGEABLE TO TAX IN INDIA. ASSESSEE THUS WAS NOT LIABLE TO DEDUCT TAX AT SOURC E FROM THE PAYMENT MADE TO YAHOO HOLDINGS (HONG KONG) LTD. FOR SUCH SERVICES AND IN OUR OPINION, THE PAYMENT SO MADE CANNOT BE DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40(A) FOR NON-DEDUCTION OF TAX. IN THAT VIEW OF TOE MATTER WE DELETE THE DISAL LOWANCE MADE BY THE A.O AND CONFIRMED BY THE LEARNED CIT (A) U/S 40(A) AND ALLO W THE APPEAL OF THE ASSESSEE.' 7. AS THE ISSUE INVOLVED IN THE PRESENT CASE AS WELL AS A LL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THE CASE OF YAHOO INDIA P. LTD. (SUP RA), WE RESPECTFULLY FOLLOW THE DECISION RENDERED BY THE COORDINATE BENCH OF THIS T RIBUNAL IN THE SAID CASE AND DELETE THE DISALLOWANCE MADE BY THE A. O. AND CONFIRMED BY THE LD. CIT (A) BY INVOKING THE PROVISIONS OF SEC.40(A)(I) HOLDING THAT THE AMOUNT PAID BY THE ASSESSEE TO M/S. GOOGLE IRELAND LTD. FOR THE SERVICES RENDERED FOR UPLOADIN G AND DISPLAY OF BANNER ADVERTISEMENT ON ITS PORTAL WAS IN THE NATURE OF BU SINESS PROFIT ON WHICH NO TAX WAS DEDUCTIBLE AT SOURCE SINCE THE SAME WAS NOT CHARGEA BLE TO TAX IN INDIA IN THE ABSENCE OF ANY PE OF GOOGLE IRELAND LTD. IN INDIA' THE ABOVE DECISION, AS ALSO DECISION IN THE CASE OF YAHOO INDIA PVT. LTD VS DELL (140 TTJ 195) WHICH HAS BEEN RELIED UPON, IS CERTAINLY AN AUTHORI TY IN SUPPORT OF THE PROPOSITION THAT THE PAYMENT BY INDIAN ARM OF FOREIGN OWNER OF SEARCH EN GINE PORTAL, IN CONNECTION WITH ONLINE ADVERTISING SERVICES, IS NOT IN THE NATURE OF ROYAL TY UNDER EXPLANATION 2 TO SECTION 9(1 )(VI) -OF THE INCOME TAX ACT, 1961. IN THE FACTS OF THE APPEL LANT'S CASE IT IS PAYING FEES FOR CIRCUIT CONNECTIVITY ONLY USING THE SERVICES AS PART OF THE SHARE MARKET. THESE PAYMENTS CANNOT BE TERMED AS ROYALTY AND NO HUMAN INTERVENTION IS REQU IRED. RESPECTFULLY FOLLOWING THE CITED DECISIONS THE ADDITIONS MADE BY THE AO U/S 40(A)(I A) STANDS DELETED. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 4.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ASSE SSEE HAD SUBMITTED THAT IT HAD TAKEN CONNECTION OF BLOOMBERG TERMINAL FOR THE PURPOSE OF ITS BUSINESS ACTIVITIES. THIS IS A 16 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 16 PAID TERMINAL AND ACCORDING TO NATURE OF ITS BUSINE SS, IT HAD TO VIEW AND DOWNLOAD INTERNATIONAL DATA RELATED TO STOCK MARKETS AND OTH ER MARKETS AND FOR THIS, IT HAD TO PAY PER VIEW CHARGES, APPRAISAL PORTAL CHARGES ETC ON Q UARTERLY BASIS. IT IS JUST LIKE AN INTERNET CONNECTION WHEREIN IT GETS THE CONNECTION AND CHARGES ARE PAID ON USAGE BASIS. NO DEDUCTION OF TAX AT SOURCE U/S 194J OF THE ACT I S REQUIRED AS THEY ARE NOT PROVIDING ANY PROFESSIONAL OR TECHNICAL SERVICES LIKE LEGAL, MEDICAL, ENGINEERING, ANY MANAGERIAL , TECHNICAL OR CONSULTANCY SERVICES OR SUCH OTHER PRO FESSIONAL AND TECHNICAL SERVICES AS IS NOTIFIED BY THE BOARD. THUS THE PAYMENT TOWARDS NET WORK ACCESS / CIRCUIT CONNECTIVITY AVAILING OF COMMUNICATION FACILITY FOR TRANSMITTING DATA CANNOT BE CONSIDERED AS BEING EITHER IN THE NATURE OF FEES FOR PROFESSIONAL OR TE CHNICAL SERVICES. ACCORDINGLY, IT WAS PLEADED THAT THE PAYMENT MADE TO BLOOMBERG IS NOT C OVERED BY THE PROVISIONS OF SECTION 194J OF THE ACT AS THE ASSESSEE WAS JUST UI TLISING THE PRODUCT OF MODERN TECHNOLOGY SUCH AS USE OF TELEPHONE, CABLE TV, INTE RNET AND SUCH FACILITIES WHEN USED BY THE SUBSCRIBERS ARE NOT CAPABLE OF BEING REGARDED A S TECHNICAL SERVICES. AT THE OUTSET, WE FIND THAT THE LD AO HAD PROCEEDED ON THE PREMISE THAT THE IMPUGNED PAYMENT HAS BEEN MADE TO A NON-RESIDENT SO AS TO BRING THE SAID PAYMENT WITHIN THE AMBIT OF ROYALTY, WHEREAS, IN THE INSTANT CASE, THE PAYMEN T IS MADE TO A RESIDENT. WE FIND THAT THE CASE LAWS RELIED UPON BY THE LD AO WERE IN THE CONTEXT OF PAYMENT MADE TO NON- RESIDENTS AND HENCE THE SAME ARE NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. WE FIND THAT THE PAYMENT TO BLOOMBERG DATA SERVICES INDIA W AS FOR INTERNET BANDWIDTH. THERE WAS NO TECHNICAL SERVICES PROVIDED AND THEREFORE TH ERE WAS NO REQUIREMENT OF DEDUCTION OF TAX AT SOURCE AND THERE WAS NO HUMAN INTERVENTIO N INVOLVED IN THE SERVICES PROVIDED. WE FIND FROM PAGE 102 OF THE PAPER BOOK FILED BEFOR E US A CERTIFICATE ISSUED BY BLOOMBERG STATING NO TAX IS REQUIRED TO BE MADE U/S 194C OR 194J OF THE ACT IN RESPECT OF PAYMENTS MADE TO IT BY THE USERS. IT IS SPECI FICALLY CONFIRMED IN THE SAID CERTIFICATE THAT BLOOMBERG DATA SERVICES INDIA PRIVATE LIMITED HAD DULY INCLUDED ALL THE PAYMENTS MADE BY THE ASSESSEE IN ITS DETERMINATION OF TOTAL INCOME AND RETURN FILED IN INDIA. WE FIND THAT THE ISSUE UNDER DISPUTE IS SQUARELY COVER ED BY THE DECISION OF MUMBAI TRIBUNAL 17 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 17 IN THE CASE OF M/S KITARA CAPITAL PRIVATE LIMITED V S ITO IN ITA NO. 130/MUM/2014 FOR ASST YEAR 2010-11 DATED 21.6.2017 WHEREIN IT WAS HE LD AS UNDER:- 10. WE HAVE HEARD THE PARTIES AND PERUSED MATERIAL PLACED ON RECORD. AFTER ANALYZING THE RELEVANT FACTS WE HAVE NOTED THAT THE SUBSCRIPT ION FEE PAID BY THE ASSESSEE TO M/S BLOOMBERG DATA SERVICES INDIA PVT.LTD DATA SERVICE WAS FOR ACCESSING THE DATABASE AND IS IN THE NATURE OF SUBSCRIPTION OF EMAGAZINE/JOURN AL. THEREFORE, THE PAYMENT MADE CANNOT BE TREATED AS ROYALTY OR FEES PAID FOR TECHN ICAL SERVICES COMING WITHIN THE PURVIEW OF SECTION 194J. NOTABLY, THE AFORESAID VIE W HAS ALSO BEEN EXPRESSED BY THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. INDIA CAPITAL MARKETS P. LTD (SUPRA). EVEN OTHERWISE ALSO, THE LD.DR HAS FAILED TO CONTRO VERT THE CONTENTION OF THE ASSESSEE THAT THE PAYEE HAS OFFERED THE INCOME RECEIVED TOWA RDS SUBSCRIPTION CHARGES AS IN THE RETURN FILED BY IT. IN THE AFORESAID VIEW OF THE MA TTER, NEITHER THERE IS REQUIREMENT FOR THE ASSESSEE TO DEDUCT TAX AT SOURCE ON PAYMENT TOWARDS SUBSCRIPTION CHARGES PAID TO M/S BLOOMBERG DATA SERVICES INDIA PVT.LTD. NOR THE ASSE SSEE CAN BE TREATED AS AN ASSESSEE IN DEFAULT U/S 201(1) READ WITH SEC.40(A)(IA). CONS EQUENTLY, THE DISALLOWANCE MADE U/S 40(A)(IA) CANNOT BE MADE. GROUND RAISED BY THE ASSE SSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE O RDER OF THE LD CITA IN THIS REGARD REQUIRES NO INTERFERENCE. ACCORDINGLY, THE GROUND NO. 3 RAISED BY THE REVENUE IS DISMISSED. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 26.10.2018 SD/- SD/- [S.S. VISWANETHRA RAVI] [ M.BAL AGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 26.10.2018 SB, SR. PS 18 ITA NO.1359/KOL/2015 M/S JET AGE SECURITIES PVT. LTD. A.YR. 2011-12 18 COPY OF THE ORDER FORWARDED TO: 1. DCIT, CIRCLE-7(1), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA- 700069. 2. M/S JET AGE SECURITIES PVT. LTD. 804, SUBHAM, 1, SAROJINI NAIDU SARANI, KOLKATA-17. 3..C.I.T.(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER A SSISTANT REGISTRAR ITAT, KOLKATA BENCHES