ITO 4(1), MUMBAI V. ASSET ALLIANCE SECURITIES P. LTD, MUMBAI

ITA 1488/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1074 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 04-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RA JEEV WAGLAY
• Keywords: Business income; Transactions in derivatives; TDS
• Section: 143(3); 40(a)(ia); 194C; 251

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, A, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI B RAMAKOTAIAH, ACCOUNTANT MEMBER I T A NO: 1488/MUM/2009 (ASSESSMENT YEAR: 2006-07) DEPUTY COMMISSIONER OF INCOME TAX 4(1) APPELLANT MUMBAI VS M/S ASSET ALLIANCE SECURITIES PVT. LTD. RESPOND ENT (PAN: AADCA7663B) APPELLANT BY: SHRI RAJARSHI DWIVEDY RESPONDENT BY: SHRI RAJEEV WAGLAY O R D E R R V EASWAR, PRESIDENT: THIS IS AN APPEAL BY THE REVENUE AND IT RELATES TO THE ASSESSMENT YEAR 2005-06. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND A CORPORATE MEMBER OF THE BOMBAY STOCK EXCHANGE (BSE) AND THE NATIONAL STOCK EXCHANGE (NSE). IT IS ENGAGED IN THE BUSINESS OF BROKING AND TRADING IN SHARES AND SECUR ITIES. THE PRESENT APPEAL ARISES OUT OF THE ASSESSMENT ORDER P ASSED ON 15.04.2008 UNDER SECTION 143(3) OF THE INCOME TAX A CT, 1961. 2. THE FIRST SIX GROUNDS ARE DIRECTED AGAINST THE D ECISION OF THE CIT(A) TO DELETE THE DISALLOWANCE OF RS.28,69,560/- WHILE COMPUTING THE BUSINESS INCOME OF THE ASSESSEE. THE AMOUNT CONSISTS OF THE FOLLOWING CHARGES PAID BY THE ASSES SEE TO THE STOCK EXCHANGE: - (I) ISDN / LEASELINE CHARGES RS. 6,68,744/- (II) STOCK EXCHANGE EXPENSES RS. 3,02,608/- (III) TRANSACTION CHARGES RS.12,73,034/- (IV) VSAT CHARGES RS. 6,25,174/- ------------------ RS.28,69,560/- ------------------ ITA NO: 1488/MUM/2009 2 THE AFORESAID EXPENSES WERE DEBITED TO THE PROFIT & LOSS ACCOUNT AND IT WAS CLAIMED THAT THEY WERE PAYABLE FOR THE S ERVICES PROVIDED BY THE STOCK EXCHANGE WITH REGARD TO TRANSACTIONS I N SECURITIES. THE ASSESSING OFFICER INVOKED SECTION 40(A)(IA) OF THE ACT, UNDER WHICH ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL OR TECHNICAL SERVICES PAYABLE TO A RES IDENT FOR CARRYING OUT ANY WORK, INCLUDING SUPPLY OF LABOUR FOR CARRYI NG OUT ANY WORK SHALL NOT BE ALLOWED AS A DEDUCTION IN COMPUTING TH E BUSINESS PROFITS UNLESS THE TAX IS DEDUCTED FROM SUCH PAYMEN T AND DEPOSITED WITHIN A PARTICULAR TIME LIMIT. ACCORDING TO THE A O THE AFORESAID EXPENSES AMOUNTED TO FEES FOR TECHNICAL SERVICES AN D THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX UNDER SECTION 194J AT TH E PRESCRIBED RATE. SINCE THE ASSESSEE DID NOT DEDUCT THE TAX FR OM THE AFORESAID PAYMENT TO THE STOCK EXCHANGE AS REQUIRED BY SECTIO N 194J, THE AO DISALLOWED THE ENTIRE EXPENSES INVOKING SECTION 40(A)(IA) OF THE ACT. 3. ON APPEAL, THE CIT(A) HELD THAT SO FAR AS THE LE ASELINE CHARGES AND VSAT CHARGES WERE CONCERNED, THEY WERE ACTUALLY IN THE NATURE OF REIMBURSEMENT OF THE EXPENSES INCURRE D BY THE STOCK EXCHANGE IN LIEU OF INFRASTRUCTURE AND TRADING FACI LITIES PROVIDED BY THE EXCHANGE TO THE MEMBERS. THE DEPARTMENT OF TELECOMMUNICATION (DOT) HAS GRANTED LICENSE TO THE STOCK EXCHANGE FOR INSTALLATION AND SETTING UP OF A CLOSE USER GROUP TELECOMMUNICATIONS NETWORK BASED ON VSAT TECHNOLOGY AND LEASED LINES. THE STOCK EXCHANGE IS AUTHORIZED TO COLLECT THE VSAT AND LEASELINE CHARGES FROM THE MEMBERS AND PASS THE M ON TO THE ITA NO: 1488/MUM/2009 3 SERVICE PROVIDER. TAKING NOTE OF THESE FACTS THE C IT(A) HELD THAT THESE TWO PAYMENTS CANNOT BE CONSIDERED AS FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF SECTION 194J, NOR CA N THEY BE CALLED CONSIDERATION FOR ANY WORK DONE BY THE NSE TO THE M EMBER BROKER. HE ACCORDINGLY HELD THAT NO TAX WAS DEDUCT IBLE FROM THESE TWO PAYMENTS. AS REGARDS THE OTHER EXPENSES SUCH A S TRANSACTION CHARGES AND STOCK EXCHANGE EXPENSES, THE CIT(A), FO LLOWING THE ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL IN ITA NO : 1955/MUM/2008 (ASSESSMENT YEAR 2005-06) IN THE CASE OF KOTAK SECURITIES LTD. VS. ADDITIONAL CIT (ORDER DATED 26. 08.2008), HELD THAT THE STOCK EXCHANGE DOES NOT PROVIDE ANY MANAGE RIAL SERVICES TO THE MEMBERS NOR DOES THE FEE PAID BY THE MEMBER REPRESENT FEES FOR ANY TECHNICAL SERVICES. THE CIT(A) ACCORD INGLY HELD THAT NO TAX WAS DEDUCTIBLE FROM THESE TWO PAYMENTS ALSO. S INCE NO TAX WAS DEDUCTIBLE UNDER SECTION 194J FROM ANY OF THE F OUR PAYMENTS MADE BY THE ASSESSEE, HE HELD THAT SECTION 40(A)(IA ) WAS NOT APPLICABLE AND ACCORDINGLY DELETED THE DISALLOWANCE OF RS.28,69,560/-. 4. THE REVENUE IS IN APPEAL TO REITERATE THAT THE P AYMENT MADE TO THE STOCK EXCHANGES REPRESENTED FEES FOR TECHNIC AL SERVICES WITHIN THE MEANING OF SECTION 194J READ WITH EXPLAN ATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9. THIS ISSUE HAS BEEN CONSIDERED IN THE ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL CITED SUPRA, WHICH IS NOW REPORTED IN (2009) 124 TTJ (MUM ) 241 EQUIVALENT TO (2008) 25 SOT 440 EQUIVALENT TO (2009 ) 24 DTR 214. IN THIS CASE IT WAS HELD THAT THE TRANSACTION CHARG ES PAID BY A MEMBER TO THE STOCK EXCHANGE ON THE BASIS OF THE VO LUME OF ITA NO: 1488/MUM/2009 4 TRANSACTIONS IS A PAYMENT FOR THE USE OF THE FACILI TIES PROVIDED BY THE STOCK EXCHANGE AND NOT FOR ANY SERVICES, EITHER TEC HNICAL OR MANAGERIAL, AND THEREFORE THE PROVISIONS OF SECTION 194J AND CONSEQUENTLY SECTION 40(A)(IA) ARE NOT ATTRACTED. IN COMING TO THIS CONCLUSION THE TRIBUNAL HAS RELIED ON THE JUDGMENT OF THE MADRAS HIGH COURT IN SKYCELL COMMUNICATIONS LTD. VS. DCIT (2001) 251 ITR 53 (MAD). THE LEARNED REPRESENTATIVE FOR THE A SSESSEE HAS ALSO DRAWN OUR ATTENTION TO THE JUDGMENT OF THE DEL HI HIGH COURT IN CIT VS. BHARTI CELLULAR LTD. (2009) 319 ITR 139 (DE L) IN WHICH THE IDENTICAL ISSUE HAS BEEN DECIDED BY HOLDING THAT SE CTION 194J READ WITH EXPLANATION 2 BELOW SECTION 9(1)(VII) OF THE A CT IS NOT APPLICABLE TO PAYMENTS MADE BY THE COMPANIES ENGAGED IN PROVID ING CELLULAR TELEPHONE FACILITIES TO THE INTERCONNECTION PROVIDE RS, ACCESS CHARGES AND PORT CHARGES. IN THIS JUDGMENT IT WAS HELD THA T THE SERVICES RENDERED QUA INTERCONNECTION / PORT ACCESS DID NOT INVOLVE ANY HUMAN INTERFACE AND, THEREFORE, THE SERVICES COULD NOT BE REGARDED AS TECHNICAL SERVICES AS CONTEMPLATED BY SECTION 19 4J. IT WAS OBSERVED THAT THOUGH THE FACILITY OF INTERCONNECTIO N AND PORT ACCESS WAS TECHNICAL IN THE SENSE THAT IT MADE USE OF SOPH ISTICATED TECHNOLOGY, BUT THE EXPRESSION TECHNICAL SERVICES IN SECTION 194J WAS NOT TO BE CONSTRUED IN THE ABSTRACT AND GENERAL SENSE BUT IN THE NARROWER SENSE AS CIRCUMSCRIBED BY THE EXPRESSIONS MANAGERIAL SERVICES AND CONSULTANCY SERVICES WHICH APPEAR I N EXPLANATION 2 BELOW SECTION 9(1)(VII) OF THE ACT. THE DELHI HIGH COURT FURTHER WENT ON TO OBSERVE THAT THE EXPRESSION TECHNICAL SERVIC ES WOULD HAVE REFERENCE TO ONLY TECHNICAL SERVICES RENDERED BY A HUMAN BEING BUT WOULD NOT INCLUDE ANY SERVICES PROVIDED BY MACHINES OR ROBOTS. IN ITA NO: 1488/MUM/2009 5 COMING TO THIS CONCLUSION THE DELHI HIGH COURT AGRE ED WITH THE VIEWS EXPRESSED BY THE MADRAS HIGH COURT IN SKYCELL COMMUNICATIONS LTD. (SUPRA). THE DELHI HIGH COURT FURTHER EXAMINED THE QUESTION, WHICH WAS NOT BEFORE THE MAD RAS HIGH COURT, AS TO WHAT WOULD BE THE NATURE OF THE PAYMEN T MADE BY ONE CELLULAR NETWORK PROVIDER TO ANOTHER. IT WAS IN TH IS CONTEXT THAT THE PROVISIONS OF SECTION 194J READ WITH EXPLANATION 2 BELOW SECTION 9(1)(VII) WERE EXAMINED AND THE OBSERVATIONS AS NOT ED EARLIER WERE MADE. 5. HAVING REGARD TO THE ORDER OF THE MUMBAI BENCH O F THE TRIBUNAL SUPRA, WHICH IS BINDING ON US, AS ALSO TO THE JUDGMENTS OF THE MADRAS AND DELHI HIGH COURTS CITED ABOVE AND IN THE ABSENCE OF ANY OTHER ORDER OR JUDGMENT TAKING A CONTRARY VI EW HAVING BEEN BROUGHT TO OUR NOTICE, WE HAVE TO HOLD THAT THE EXP ENSES AGGREGATING TO RS.28,69,560/- CANNOT BE CONSIDERED AS FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF SECTION 19 4J. THE REVENUE HAS NOT DISPUTED THE NATURE AND PURPOSE FOR WHICH THE PAYMENTS WERE MADE BY THE ASSESSEE TO THE STOCK EXC HANGE. WE, THEREFORE, UPHOLD THE DECISION OF THE CIT(A) AND DI SMISS THE FIRST SIX GROUNDS TAKEN BY THE REVENUE. 6. GROUND NOS. 7 TO 10 RELATE TO THE APPLICABILITY OF SECTION 194C OF THE ACT IN RESPECT OF THE PAYMENT MADE BY T HE ASSESSEE TO THE JOBBERS / ARBITRAGERS. THE AO NOTED THAT THE A SSESSEE PAID RS.1,42,24,997/- TO JOBBERS AND RS.19,46,576/- TO A RBITRAGERS. ACCORDING TO HIM THE ASSESSEE OUGHT TO HAVE DEDUCTE D TAX FROM THESE PAYMENTS UNDER SECTION 194C OF THE ACT. THIS SECTION DEALS WITH PAYMENTS TO CONTRACTORS AND PROVIDES THAT ANY PERSON ITA NO: 1488/MUM/2009 6 RESPONSIBLE FOR PAYING ANY SUM TO A CONTRACTOR FOR CARRYING OUT ANY WORK INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT AN Y WORK IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND ANY OTHER ENTITY MENTIONED IN THE SECTION, SHALL, AT THE TIME OF THE CREDIT OF THE SUM TO THE ACCOUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF, WHICHEVER IS EARLIER, DEDUCT TAX AT THE RATE OF ONE PER CENT IN THE CASE OF ADVERTISING CONTRACT AND TWO PER CENT IN TH E CASE OF OTHER CONTRACTS. THE AO APPARENTLY WAS OF THE VIEW THAT THE PAYMENT TO THE JOBBERS AND ARBITRAGERS WAS FOR THE PURPOSE OF CARRYING OUT A WORK IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRAC TOR AND A SPECIFIED PERSON. SINCE NO TAX WAS DEDUCTED BY THE ASSESSEE FROM SUCH PAYMENTS, HE AGAIN INVOKED SECTION 40(A)(IA) A ND DISALLOWED THE ENTIRE PAYMENT. 7. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, IT WOULD APPEAR THAT THE ASSESSEE TOOK A PLEA THAT THERE WAS A JOINT VENTURE WITH THE JOBBER / ARBITRAGER UNDER AGREEMENTS ENTER ED INTO WITH THEM, UNDER WHICH THE ASSESSEE AND THE JOBBER / ARB ITRAGER SHARED THE PROFITS AND LOSSES EQUALLY AND IT WAS ONLY THE NET PROFIT OR LOSS THAT WAS INCORPORATED IN THE ASSESSEES ACCOUNTS AN D THUS THE PROVISIONS OF SECTION 194C WERE NOT IN THE VERY NAT URE OF THINGS ATTRACTED TO THE ASSESSEES CASE. THIS SUBMISSION DOES NOT APPEAR TO HAVE BEEN ACCEPTED BY THE AO WHO WAS OF THE VIEW THAT THE ASSESSEE HAD ENGAGED THE SERVICES OF THE JOBBERS / ARBITRAGERS FOR CARRYING OUT THE WORK WHICH PRIMARILY WAS THE RESPO NSIBILITY OF THE ASSESSEE. 8. ON APPEAL, THE CIT(A) CALLED UPON THE ASSESSEE T O FURNISH THE COPIES OF THE AGREEMENTS WITH THE JOBBERS / ARB ITRAGERS WHICH ITA NO: 1488/MUM/2009 7 THE ASSESSEE COMPLIED WITH. THE ASSESSEE WAS ALSO ASKED TO FURNISH THE ACKNOWLEDGEMENTS FOR FILING OF THE RETU RNS BY THE JOBBERS, APPARENTLY TO VERIFY WHETHER THEY HAD DULY PAID THEIR TAXES. THE CIT(A) ON A PERUSAL OF THE AGREEMENTS AND FOLLO WING HIS OWN ORDER DATED 13.10.2009 IN THE CASE OF M/S PRAKASH K SHAH SHARES AND SECURITIES LTD. FOR THE ASSESSMENT YEAR 2005-06 , HELD THAT THE ROLE OF JOBBERS IS TO TRANSACT BUSINESS ON THE FLOO R OF THE STOCK EXCHANGE, BUT HE DOES NOT DEAL WITH THE PUBLIC AND SERVES ONLY IN THE CAPACITY OF A PRINCIPAL, BUYING AND SELLING FOR HIS OWN ACCOUNT AND DEALING ONLY WITH OTHER JOBBERS AND BROKERS. A CCORDING TO THE CIT(A) THE JOBBER ACTED AS A PRINCIPAL AND THE ASSE SSEES TRANSACTIONS WITH THE JOBBER OR ARBITRAGER WAS ON P RINCIPAL TO PRINCIPAL BASIS. THE JOBBERS TRADED ON THEIR OWN A CCOUNT WITH A VIEW TO MAXIMIZING THEIR PROFITS AND IN VIEW OF THE GROWING VOLUME OF TRANSACTION THEY DO ENTER INTO AGREEMENTS FOR FACIL ITATION OF THEIR TRADE AND MINIMIZING THE MARKET RISKS. THE CIT(A) FURTHER FOUND THAT THE JOBBERS ACT ON THEIR OWN ACCOUNT, DEAL IN SHARES AND SECURITIES AS MUTUALLY DECIDED BETWEEN THEM AND THE BROKERS, AND THE ULTIMATE PROFIT OR LOSS ARISING OUT OF THE JOIN T VENTURE BETWEEN THE JOBBER AND THE BROKER IS SHARED BETWEEN THE TWO. T HUS ACCORDING TO THE CIT(A) THE RELATIONSHIP BETWEEN THE JOBBERS AND THE ASSESSEE WAS THAT OF CO-SHARERS OF PROFIT / LOSS. IN THIS VIEW OF THE MATTER HE HELD THAT SECTION 194C WAS NOT APPLICABLE AND CONSEQUENTLY THE PAYMENT TO JOBBERS / ARBITRAGERS C ANNOT BE DISALLOWED FOR NON DEDUCTION OF TAX UNDER SECTION 4 0(A)(IA). HE DELETED THE DISALLOWANCE OF THE AGGREGATE AMOUNT OF RS.1,61,71,573/-. ITA NO: 1488/MUM/2009 8 9. THE REVENUE IS IN APPEAL. WE HAVE EXAMINED THE FACTS AND THE RIVAL CONTENTIONS. WHEREAS THE LEARNED SENIOR DR STRONGLY RELIED ON THE ORDER PASSED BY THE AO AND THE STATUT ORY PROVISIONS, THE BASIC CONTENTION OF THE ASSESSEE BEFORE US WAS THAT THERE WAS A JOINT VENTURE BETWEEN IT AND THE JOBBERS / ARBITRAG ERS TO SHARE THE PROFITS AND LOSSES ARISING ON ACCOUNT OF THE DEALIN GS BETWEEN THEM, THAT SUCH AN ARRANGEMENT WAS ON PRINCIPAL TO PRINCI PAL BASIS, THAT THEREFORE THE JOBBER / ARBITRAGER CANNOT BE TERMED AS A CONTRACTOR FOR CARRYING OUT ANY WORK FOR THE ASSESSEE AND IN T HESE CIRCUMSTANCES THERE WAS NO QUESTION OF INVOKING SEC TION 194C. IT WAS EXPLAINED THAT THIS WAS A BUSINESS DONE BY THE ASSESSEE ON ITS OWN ACCOUNT IN THE STOCK EXCHANGE AND NOT FOR OR ON BEHALF OF ITS CLIENTS FOR BROKERAGE AND FOR THE PURPOSE OF TRADIN G IN SHARES AND SECURITIES IN THE STOCK EXCHANGE ON ITS OWN ACCOUNT , THE ASSESSEE ENTERED INTO AGREEMENTS WITH SEVERAL JOBBERS / ARBI TRAGERS WITH THE UNDERSTANDING THAT THE ULTIMATE PROFIT OR LOSS IN S UCH TRADE WOULD BE DIVIDED BETWEEN THEM EQUALLY. AT OUR INSTANCE THE LEARNED REPRESENTATIVE FOR THE ASSESSEE HAS FILED COPIES OF THE AGREEMENTS ENTERED INTO WITH THE JOBBERS / ARBITRAGERS. THE A GREEMENTS ARE IN STANDARD FORM. WE MAY REFER TO THE AGREEMENT WITH MR AMIT ZAVERI, WHICH IS AT PAGE 23 OF THE PAPER BOOK. THE PREAMBL E TO THE AGREEMENT STATES THAT MR AMIT ZAVERI HAS SHOWN HIS WILLINGNESS TO ACCEPT THE AGREEMENT FOR DEALING AND TRADING IN THE CASH AND F&O SEGMENT OF NSE IN ACCORDANCE WITH THE RULES PRESCRI BED BY SEBI AND THAT HE HAS ACCEPTED TO SHARE THE PROFIT AND LO SS IN THE TRANSACTIONS MADE BY HIM ON BEHALF OF THE ASSESSEE COMPANY AS MUTUALLY AGREED UPON BY THE PARTIES FROM TIME TO TI ME. CLAUSE 1 OF ITA NO: 1488/MUM/2009 9 THE AGREEMENT SAYS THAT THE ASSESSEE HAS GIVEN TO T HE DEALER (MR AMIT ZAVERI) THE RIGHT TO TRADE IN THE CASH AND F&O SEGMENT OF THE NSE. HOWEVER, THE OVERALL SUPERVISION AND CONTROL WILL BE WITH THE ASSESSEE. CLAUSE 2 PROVIDES THAT MR AMIT ZAVERI IS AUTHORIZED TO TRADE AND OUT OF THE NET PROCEEDS, WHETHER PROFIT O R LOSS, FROM SUCH DEALING OF SHARES AND SECURITIES WILL BE SHARED BET WEEN THE ASSESSEE AND HIM IN THE RATIO OF 50 : 50. CLAUSE 3 PROVIDES THAT ALL TRANSACTIONS, DEALINGS AND OTHER FORMALITIES WILL B E CARRIED OUT IN THE NAME OF THE ASSESSEE ONLY. CLAUSE 4 PROVIDES THAT THE ASSESSEE WILL BE SOLELY ENTITLED TO RECEIVE AND KEEP ANY KIN D OF DIVIDEND, INTEREST AND OTHER CORPORATE BENEFITS DURING THE CO URSE OF TRANSACTIONS CARRIED OUT BY MR AMIT ZAVERI. CLAUSE 5 OBLIGES THE ASSESSEE TO PAY ALL MARGIN MONIES TO THE STOCK EXCH ANGE FOR THE TRANSACTIONS CARRIED OUT BY MR AMIT ZAVERI IN THE N AME OF THE ASSESSEE. MORE IMPORTANTLY IT PROVIDES THAT ALL APPLICABLE EXPENSES WILL BE DEDUCTED / ADDED BEFORE THE DISTRI BUTION OF THE PROFIT / LOSS AS AGREED UPON IN CLAUSE 2 ABOVE . CLAUSE 6 SAYS THAT THE PARTIES WILL ABIDE BY THE RULES PRESCRIBED BY N SE AND SEBI AND CLAUSE 7 PROVIDES FOR DISCONTINUANCE OF THE AGREEME NT BY GIVING ONE DAYS NOTICE. ALL THE AGREEMENTS FILED BEFORE US ARE IDENTICALLY WORDED. IT HAS BEEN ARGUED ON BEHALF OF THE ASSESS EE ON THE BASIS OF THESE AGREEMENTS THAT THERE WAS A JOINT VENTURE BETWEEN IT AND THE JOBBERS OR ARBITRAGERS FOR TRADING IN SHARES AN D SECURITIES IN THE STOCK EXCHANGES ON THE COMPANYS OWN ACCOUNT AND TH E PROFITS OR LOSSES ON SUCH TRADING WERE TO BE DIVIDED EQUALLY B ETWEEN THE ASSESSEE AND THE CONCERNED JOBBER OR ARBITRAGER. I T WAS FURTHER REPRESENTED BEFORE US THAT NO EXPENDITURE OR PAYMEN T MADE TO THE ITA NO: 1488/MUM/2009 10 JOBBER OR ARBITRAGER WAS CLAIMED IN THE ASSESSEES BOOKS OF ACCOUNT FROM WHICH TDS HAD TO BE MADE AND IT WAS ONLY THE N ET INCOME FROM THE JOINT VENTURE THAT WAS ACCOUNTED FOR IN TH E ASSESSEES BOOKS. IN OTHER WORDS, THE SUBMISSION WAS THAT THE PAYMENT TO THE JOBBERS AND ARBITRAGERS WAS NOT DEBITED TO THE ASSE SSEES PROFIT AND LOSS ACCOUNT AT ALL AND THEREFORE THERE WAS NO LIABILITY TO DEDUCT THE TAX. WE CALLED UPON THE ASSESSEE TO PRO VE THIS CLAIM WITH REFERENCE TO THE ACCOUNTS. THE ASSESSEE FILED THE ACCOUNTS AND OTHER DETAILS TO ESTABLISH ITS CLAIM. WE FIND FROM THE PAPERS SUBMITTED BY THE ASSESSEE IN THE FORM OF THREE SEPA RATE PAPER BOOKS THAT ON 11 TH MARCH 2008 THE ASSESSEE HAD EXPLAINED THE TRADING INCOME OF RS.6,91,06,197/- APPEARING IN SCH EDULE G TO THE AUDITED PROFIT AND LOSS ACCOUNT AND IT WAS POINTED OUT THAT OUT OF THE ABOVE TRADING INCOME, JOBBING INCOME AMOUNTED T O RS.1,57,75,393/- AND ARBITRAGE INCOME AMOUNTED TO R S.14,90,112/-. OUT OF THE BALANCE, THE OWN TRADING INCOME, WHICH A ROSE TO THE ASSESSEE APPARENTLY WITHOUT THE HELP OF THE JOBBERS / ARBITRAGERS, AMOUNTED TO RS.3,07,47,989/-. THE BALANCE OF RS.2, 10,92,703/- REPRESENTED SECURITY TRANSACTION TAX COLLECTED BY T HE ASSESSEE. THE TOTAL OF THE TRADING INCOME FORMED PART OF THE FIGURE OF RS.10,38,05,456/- WHICH WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31.03.2006 AS BROKING, TRADING AND DEPOSITORY INCOME. IT WAS THIS FIGURE WHICH WAS E XPLAINED IN SCHEDULE G TO THE ACCOUNTS. THE ASSESSEE AGAIN W ROTE A LETTER DATED 11 TH APRIL 2008 TO THE AO EXPLAINING THE JOBBING / ARBI TRAGE INCOME WHICH WAS INCLUDED IN THE FIGURE OF RS.6,91, 06,196/-. IN THIS LETTER IT WAS SUBMITTED TO THE AO THAT THE JOBBING / ARBITRAGE ACTIVITY ITA NO: 1488/MUM/2009 11 WAS CARRIED OUT BY THE ASSESSEE IN ASSOCIATION WITH THE JOBBERS / ARBITRAGERS IN ACCORDANCE WITH PROFIT SHARING AGREE MENTS ENTERED INTO WITH THEM. IT WAS POINTED OUT IN THIS LETTER THAT THE SHARE OF THE JOBBERS AND ARBITRAGERS WERE GIVEN TO THEM AND THE DETAILS OF SUCH AMOUNTS HAD ALREADY BEEN ENCLOSED IN THE EARLIER DA TED 11 TH MARCH 2008. WE HAVE LOOKED INTO THE DETAILS FILED BY THE ASSESSEE ALONG WITH ITS LETTER DATED 11 TH MARCH 2008 FILED BEFORE THE AO. THE DETAILS HAVE BEEN GIVEN UNDER THE HEAD DETAILS OF JOBBERS / ARBITRAGERS ALONG WITH INCOME EARNED FROM JOBBING A ND ARBITRAGE ACTIVITY. THE ASSESSEE HAS FURNISHED THE NAMES OF THE JOBBERS, THEIR PERMANENT ACCOUNT NUMBERS AND ADDRESSES. SIM ILAR DETAILS HAVE ALSO BEEN GIVEN IN RESPECT OF ARBITRAGERS. TH E GROSS AMOUNT RECEIVED IN RESPECT OF THE BUSINESS CARRIED ON BY T HE ASSESSEE THROUGH THE JOBBERS / ARBITRAGERS IS ALSO GIVEN, JO BBER-WISE AND ARBITRAGER-WISE, FROM WHICH THE SHARE OF THE JOBBER / ARBITRAGER HAS BEEN DEDUCTED AND THE BALANCE HAS BEEN TAKEN AS THE ASSESSEES SHARE OF PROFIT IN THE JOINT VENTURES. THE TOTAL S HARE OF THE JOBBER OUT OF THE GROSS RECEIPTS AND PAID TO THEM COMES TO RS. 1,42,24,997/- AND THE TOTAL SHARE PAID TO THE ARBITRAGERS CAME TO RS.19,46,576/-. THE AGGREGATE OF THE TWO COMES TO RS.1,61,71,573/- WHICH IS THE AMOUNT THAT HAS BEEN DISALLOWED BY THE AO BY INVOKI NG SECTION 194C READ WITH SECTION 40(A)(IA) OF THE ACT. THE F ACTS SHOW THAT THERE WERE SEPARATE JOINT VENTURES ENTERED INTO BY THE ASSESSEE WITH SEVERAL JOBBERS / ARBITRAGERS AND PAYMENTS HAV E BEEN MADE TO THEM UNDER SUCH AGREEMENTS AND THE ASSESSEES SHARE IN THE PROFITS HAS BEEN TAKEN TO THE PROFIT AND LOSS ACCOU NT. IN THESE CIRCUMSTANCES THE PROVISIONS OF SECTION 194C ARE NO T ATTRACTED ITA NO: 1488/MUM/2009 12 BECAUSE IN ESSENCE AND SUBSTANCE THE AMOUNTS PAID T O THE JOBBERS OR ARBITRAGERS DID NOT IN REALITY REPRESENT THE EXP ENSE OF THE ASSESSEE COMPANY BUT REPRESENTED PAYMENT OF THE SHA RE OF THE JOBBERS / ARBITRAGERS UNDER THE AGREEMENT ENTERED I NTO WITH THEM. IN SUCH A CASE THE ASSESSEE IS RIGHT IN SAYING THAT THERE WAS NO QUESTION OF DEDUCTING ANY TAX AT SOURCE. THE ABOVE FACTS ALSO ESTABLISH THAT THE RELATIONSHIP BETWEEN THE ASSESSE E AND THE JOBBERS / ARBITRAGERS WAS NOT OF PRINCIPAL AND AGEN T BUT WAS THAT OF PRINCIPAL TO PRINCIPAL. BOTH HAD AGREED TO EMBARK UPON A JOINT VENTURE TO TRADE IN SHARES AND SECURITIES IN THE ST OCK EXCHANGE AND TO SHARE THE PROFIT / LOSS EQUALLY. WE DO NOT SEE HOW SUCH PAYMENTS CAN BE TERMED AS PAYMENTS TO CONTRACTORS F OR ANY WORK TO BE CARRIED OUT BY THEM. WE THEREFORE UPHOLD THE FINDING OF THE CIT(A) THAT THESE PAYMENTS DO NOT ATTRACT SECTION 1 94C AND THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX THEREFROM. A CCORDINGLY SECTION 40(A)(IA) IS ALSO NOT APPLICABLE. THE PAYM ENTS, IN OUR VIEW, WERE RIGHTLY ALLOWED AS DEDUCTION BY THE CIT(A). T HE GROUNDS 7 TO 10 ARE DISMISSED. 10. GROUND NO.11 IS GENERAL AND REQUIRES NO DECISIO N. 11. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH JULY 2010. SD/- SD/- (B RAMAKOTAIAH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 16 TH JULY 2010 SALDANHA ITA NO: 1488/MUM/2009 13 COPY TO: 1. M/S ASSET ALLIANCE SECURITIES PVT. LTD. NATWAR CHAMBERS, 3 RD FLOOR N M ROAD, FORT, MUMBAI 400 001 2. DCIT 4(1) 3. CIT-4 4. CIT(A)-IV 5. DR A BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI