ADDL CIT RG 4(3), MUMBAI V. KOTAK INVESTMENT ADVISORS LTD, MUMBAI

ITA 1988/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6577 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2006-2007
• Appeal Filed On: 10-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SINHA
• Assessee Lawyers: CHETAN KAKKU
• Keywords: Rule of consistency
• Section: 14A

Judgement Text

J IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI SANJAY GARG, JM ./I.T.A. NO.19 88 /M/2011 ( / ASSESSMENT YEAR: 2006 - 200 7 ) DCIT 4(3), 6 TH FLOOR, R.NO.649, AAYAKAR BHAVAN, MUMBAI - 20. / VS. M/S. KOTAK INVESTMENT ADVISORS LTD., 13 TH FLOOR, BVAKTHAWAR, 229, NARIMAN POINT, MUMBAI - 21. ./ PAN : AAACK 5933 H ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI D.K. SINHA, DR / RESPONDENT BY : SHRI FARROKH IRANI & MR. CHETAN KAKKU / DATE OF HEARING : 09 .04.2014 / DATE OF PRONOUNCEMENT : 07.05 .2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 10.3.2011 IS AGAINST THE ORDER OF THE CIT (A) - 10, MUMBAI DATED 2.12.2010 FOR THE ASSESSMENT YEAR 2006 - 2007. 2. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. I . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE DISALLOWANCE OF RS. 3,75,365/ - IN RESPECT OF VSAT CHARGES AND RS. 6,82,057/ - ON ACCOUNT OF TRANSACTION CHARGES MADE U/S 40(A)(IA ) PAID TO STOCK EXCHANGE, WITHOUT APPRECIATING THE ACTS THAT THESE WERE COMPOSITE CHARGES FOR PROFESSIONAL AND TECHNICAL SERVICES RENDERED BY THE STOCK EXCHANGE TO ITS MEMBERS AND THE ASSESSEE HAS FAILED TO DEDUCT TDS THEREON. II. ON THE FACTS AND IN T HE CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT (A) ERRED IN IGNORING THE FACT THAT THESE SERVICES ARE ESSENTIAL IN NATURE AS THEY CAN ONLY BE AVAILED BY MEMBERS OF STOCK EXCHANGE. III. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE L D CIT (A) ERRED IN IGNORING THE FACTS THAT USE OF TECHNOLOGY AND ALGORITHMIC BASED PROGRAMS HAVE CONVERTED AN ERSTWHILE PHYSICAL MARKET INTO A DIGITALLY OPERATED MARKET. IV. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) E RRED IN IGNORING THE FACT THAT THE SERVICES RENDERED BY THE BROKERS ARE NOT STANDARD SERVICES BUT SERVICES THAT HAS BEEN DEVELOPED TO CATER TO THE NEEDS OF THE BROKER COMMUNITY TO FACILITATE TRADING. V. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS OVERLOOKED THE FACT THAT THE BROKERS HAVE IN SUBSEQUENT YEARS THEMSELVES 2 STARTED DEDUCTING THE TDS ON SUCH PAYMENTS AND THAT THERE IS NO REASON TO GIVE A DIFFERENT TREATMENT IN THIS YEAR. 2. ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE ADDITION OF RS. 2,64,521/ - MADE U/S 14A READ WITH RULE 8D OF THE INCOME TAX ACT BY ASSESSING OFFICER. 3. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION AND MENTIONED THAT THE ASSESSEES APPEAL FOR THE AY 2006 - 2007 WAS HEARD AND ADJU DICATED BY THE ITAT, MUMBAI I BENCH ON 26.6.2013 AND FILED COPY OF THE SAME BEFORE US . FURTHER, WHEN THE BENCH RAISED THE QUESTION OF FAILURE ON THE PART OF THE ASSESSEE TO INFORM ABOUT THE EXISTENCE OF THE CROSS APPEAL BY THE REVENUE, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT AT THE RELEVANT POINT OF TIME THE ASSESSEE W A S NOT AWARE ABOUT THE EXISTENCE OF THE REVENUES APPEAL AND IT IS FOR THE FIRST TIME THE NOTICE WAS REC EIVED BY THE ASSESSEE IN CONNECTION WITH THE REVENUES APPEAL ONLY AFTER THE TRIBUNALS ORDER IN THE ASSESSEES OWN CASE WAS RECEIVED. FURTHER, REFERRING TO THE ISSUES RAISED IN THE GROUNDS RAISED BY THE REVENUE, LD COUNSEL MENTIONED THAT GROUND NO. 2 RELA TING TO THE DISALLOWANCE U/S 14A READ WITH RULE - 8D WAS WRONGLY RAISED BY THE REVENUE WHEN THE CIT (A) DISMISSED THE RELEVANT GROUND OF THE ASSESSEE . IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO THE PARA 2.3.6 OF THE IMPUGNED ORDER AND READ OUT THE SAME WHICH IS AS UNDER: 2.3.6. THEREFORE, THE DISALLOWANCE U/S 14A IS CONFIRMED AT RS. 2,64,521/ - AS AGAINST THE DISALLOWANCE OF RS. 2,64,521/ - MADE BY THE AO. THIS GROUND OF APPEAL IS THEREFORE, DISMISSED . 4. READING THE ABOVE, LD COUNSEL MENTIONED THAT THE CIT (A) HAS FACTUALLY CONFIRMED THE ADDITION MADE BY THE AO AND THEREFORE, LOGICALLY THE REVENUE SHOULD NOT HAVE RAISED THIS GROUND AT ALL AS WHATEVER DISALLOWED BY THE AO WAS EVENTUALLY CONFIRMED BY THE CIT (A). 5. ON THE OTHER HAND, LD DR FAIR L Y ADMITTED THE ERROR CREPT IN A RISING THE GROUNDNO.2 BEFORE THE TRIBUNAL. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES IN THIS REGARD. ON HEARING BOTH THE PARTIES AND CONSIDERING THE PATENT ERROR CREPT IN, WE ARE OF THE OPINION THAT THE GROUND NO.2 RAISED BY THE REVENUE SHOULD BE DISMISSED . A S S U C H , R E L E V A N T I S S U E R E L A T I N G T O D I S A L L O W A N C E U / S 1 4 A I S A L R E A D Y D E C I D E D B Y T H E T R I B U N A L I N A S S E S S E E S A P P E A L . ACCORDINGLY, THE SAID GROUND IS DISMISSED AS INFRUCTUOUS. 3 7. FURTHER, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO GROUND NO.1, WHICH CONTAINS 5 SUB - GROUNDS (I) TO (V) AN D MENTIONED THAT ALL THE GROUNDS REVOLVE AROUND THE DISALLOWANCE OF RS. 3,75,365/ - IN RESPECT OF VSAT CHARGES AND RS. 6,82,057/ - ON ACCOUNT OF TRANSACTION C HARGES . THESE AMOUNTS WERE PAID BY THE ASSESSEE WITHOUT AFFECTING THE TDS. THEREFORE, THE AO M ADE A DISALLOWANCE INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ON THESE ISSUES, LD COUNSEL FOR THE ASSESSEE FILED VARIOUS DECISIONS AND MENTIONED THAT BOTH THE ISSUES ARE COVERED IN FAVOUR OF THE ASSESSEE AND BROUGHT OUR ATTENTION TO THE DISC USSION GIVEN IN THE IMPUGNED ORDER IN THIS REGARD . ON PERUSAL OF THE SAME, WE FIND THE ISSUE ON VSAT CHARGES IS COVERED BY THE BINDING JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. ANGEL CAPITAL & DEBIT MARKET LTD VIDE INCOME TAX APPEAL (L) NO.475 OF 2011 DATED 28 TH JULY, 2011. PARA 2 OF THE SAID JUDGMENT OF THE HIGH COURT (SUPRA) IS RELEVANT HERE AND THE SAME READS AS UNDER: 2. AS REGARDS FIRST TWO QUESTIONS ARE CONCERNED, THE FINDINGS OF FACT RECORDED BY THE ITAT IS THAT VSAT AND LEASE LINE CHARGES PAID BY THE ASSESSEE TO STOCK EXCHANGE WERE MERELY REIMBURSEMENT OF THE CHARGES PAID / PAYABLE BY THE STOCK EXCHANGE TO THE DEPARTMENT OF TELECOMMUNICATION. SINCE, THE VSAT AND LEASE LINE CHARGES PAID BY THE ASSESS EE DO NOT HAVE ANY ELEMENT OF INCOME, DEDUCTING TAX WHILE MAKING SUCH PAYMENT DO NOT ARISE. HENCE, QUESTION NOS. (A) AND (B) CANNOT BE ENTERTAINED. 8. SIMILARLY, REGARDING TRANSACTION CHARGES , LD COUNSEL BROUGHT OUR ATTENTION TO THE PARA14 OF THE ORDER OF THE TRIBUNAL IN THE CASE OF ACIT VS. DICGC LTD VIDE ITA NOS. 2361 & 2524/M/2011 (AYS 2007 - 08 & 2008 - 09), ORDER DATED 3.2.2012 . HE ALSO FILED ANOTHER DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. TWENTY FIRST CENTURY SHARES & SECURITIES LTD [2013] 3 9 TAXMANN.COM 176 (MUMBAI - TRIB.) AND READ OUT THE CONTENTS OF PARA 7 OF THE SAID ORDER WHICH READS AS UNDER: 7. SO FAR DISALLOWANCE RELATING TO TRANSACTION CHARGES IS CONCERNED, THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN ASSTT. CIT V. DICGC LTD.[2013] 33 TAXMANN.COM 634 (MUM) , IN PARA 15 OF THE JUDGMENT HAS OBSERVED AS UNDER (PAGE 200) : 'THE SECOND PART OF THE ARGUMENT IS THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. KOTAK SECURITIES LTD.[2012] 340 ITR 333 (BOM) HAS OBSERVED IN PARA 31 THAT BOTH PARTIES HAS PROCEEDED ON THE FOOTING THAT TAX WAS NOT DEDUCTIBLE UNDER SECTION 194J FOR THE LAST 10 YEARS, THEREFORE, THE PROVISIONS OF SECTION 40(A)(IA) COULD NOT BE INVOKED. IT WAS CONTENDED THAT IN THE LAST MANY YEARS IN THE CASE BEFORE US ALSO NO TAX WAS HELD TO BE DEDUCTIBLE, THEREFORE, THE ASSESSEE AND THE DEPARTMENT PROCEEDED ON THE FOOTING THAT NO TAX WAS DEDUCTIBLE. HOWEVER, ON QUERY BY THE BENCH LEARNED COUNSEL OF THE ASSESSEE ADMITTED THAT IN ASSESSMENT YEAR 2006 - 07 DISALLOWANCE UNDER SECTIO N 40(A)(IA) WAS MADE FOR THE FIRST TIME BUT THAT YEAR WAS NOT AVAILABLE BY THE TIME ASSESSMENT FOR THE ASSESSMENT YEAR 2007 - 08 WAS COMPLETED. HOWEVER, THIS DEFENCE IS NOT AVAILABLE IN THE ASSESSMENT YEAR 2008 - 09 BECAUSE BY THAT TIME, THE REVENUE HAS ALREAD Y INVOKED THE PROVISIONS OF SECTION 40(A)(IA) AND THIS FACT WAS KNOWN TO THE ASSESSEE. THEREFORE, IN OUR OPINION, IN VIEW OF PARA 31 OF THE 4 DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF KOTAK SECURITIES LTD. [2012] 340 ITR 333 (BOM) , THE PROVISI ONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE FOR THE ASSESSMENT YEAR 2007 - 08 WHEREAS THE SAME ARE APPLICABLE IN THE ASSESSMENT YEAR 2008 - 09. - CIT V. KOTAK SECURITIES LTD. VIDE ITA NO. 3111/M/2009 [2012] 340 ITR 333 (BOM) , RELIED.' THUS, GRANTED RELIEF TO T HE ON ACCOUNT OF TRANSACTION CHARGES TOO RELYING ON THE DECISION IN THE CASE OF DICGC (SUPRA) AND ALSO TWENTY FIRST CENTURY SHARES & SECURITIES LTD (SUPRA). 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED DECISIONS MENTIONED ABOVE. ON PERUSAL OF THE ORDER OF THE CIT (A) IN GENERAL, PARA 1.3 IN PARTICULAR WE FIND THAT THE CIT (A) HAS DECIDED THE APPEAL BASING ON THE ABOVE CITED DECISIONS AND THE SAME IS RELEVANT HERE WHICH READS AS UNDER: 1.3. I HAVE CONSIDERED THE FACTS AND PEUSED THE MATERIAL ON RECORD. VSAT CHARGES AND LEASE LINE CHARGES ARE PAID BY THE MEMBERS OF STOCK EXCHANGE IN LIEU OF INFRASTRUCTURE AND TRADING FACILITIES PROVIDE BY THE STOCK EXCHANGE. THE VSAT AND LEASE LINE CHARGES ARE NOT PAYMENTS, WHICH COME IN WITHIN THE DOMAIN OF FEES FOR TECHNICAL SERVICES AND THEY ARE ALSO NOT FOR ANY WORK DONE BY THE BSE OR BSE FOR THE MEMBER BROKER. THE STOCK EXCHANGE DOES NOT PROVIDE ANY MANAGERIAL SERVICES AND THE FEES PAID BY THE MEMBER T O THE STOCK EXCHANGE IS NOT FOR ANY TECHNICAL SERVICES RENDERED, THEREFORE, TDS IS NOT REQUIRED TO BE MADE ON SUCH PAYMENTS. THIS VIEW IS SUPPORTED WITH DECISION IN THE CASE OF KOTAK SECURITIES VS. ADDL. CIT (2008) 25 SOT 440 (MUM) DCIT VS. ANGEL BROKING L TD [2010] 41 DTR (MUM) (TRIB) 296 AND DCIT VS. SONAL SHARES & STOCK BROKERS PVT LTD [2010] 28 SOT 150 (MUM). IN THE LIGHT OF THESE FACTS, THIS GROUND OF APPEAL IS ALLOWED. 10. FROM THE ABOVE, WE FIND THAT THE CIT (A) HAS RIGHTLY ADJUDICATED THE ISSUE UNDER CONSIDERATION BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF ANGEL BROKING LTD (SUPRA). IN RESPECT OF VSAT CHARGES, WE ALSO FIND THE CLAIM OF TRANSACTION CHARGES IS ALLOWABLE CONSIDERING THE OTHER DECISIONS (SUPRA). NO ADVERSE CASES OR DE CISIONS ARE CITED BY THE REVENUE. CONSIDERING THE SAME AS WELL AS FOLLOWING THE PRINCIPLE OF CONSISTENCY, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT (A) AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.1 WITH ITS SUB - GRO UNDS RAISED BY THE REVENUE IS DISMISSED . 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNC ED IN THE OPEN COURT ON 0 7 T H M A Y , 2014. S D / - S D / - (SANJAY GARG) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 0 7 . 0 5 .2014 5 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI