IDBI CAPITAL MARKET SERVICES LTD, MUMBAI V. DCIT RG 4(1), MUMBAI

ITA 2092/MUM/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3256 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 10-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V S JADHAVDR
• Assessee Lawyers: N C JAIN
• Keywords: Depreciation; Non-deduction of tax; Reasonable cause

Judgement Text

, - , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI , ! ' , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, ITA NO.2092/MUM/2015 ASSESSMENT YEAR: 2011-12 IDBI CAPITAL MARKET SERVICES LTD., 3 RD FLOOR, MAFATLAL CENTER, NARIMAN POINT, MUMBAI-400021 / VS. DCIT, RANGE-4(1), AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400020 / ASSESSEE / REVENUE P.A. NO. AAACI1268F $ % & / ASSESSEE BY SHRI N.C. JAIN $ % & / REVENUE BY SHRI V.S. JADHAV-DR / DATE OF HEARING 18/01/2016 & / DATE OF ORDER: 18/01/2016 & / O R D E R THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 19/01/2015 OF THE LD. FIRST APPELLATE AUTHORI TY, MUMBAI. THE ONLY GROUND ARGUED BY THE LD. COUNSEL F OR THE ASSESSEE, SHRI N.C. JAIN, IS WITH RESPECT TO DISALL OWANCE U/S 40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF TAX O UT OF ITA NO.2092/MUM/2015 IDBI CAPITAL MARKET SERVICES LTD. 2 PAYMENT TO STOCK EXCHANGES. THE LD. COUNSEL CLAIMED THAT THE IMPUGNED ISSUE IS COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 20 10-11, FOR WHICH COPY OF THE ORDER DATED 13/10/2015 (ITA NO.888/MUM/2014) WAS FURNISHED. ON THE OTHER HAND, THE LD. DR, SHRI V.S. JADHAV, DID NOT CONTROVERT THE FA CTUAL MATRIX BY EXPLAINING THAT THE ISSUE MAY BE SENT TO THE FILE OF THE ASSESSING OFFICER AS HAS BEEN DONE BY THE TR IBUNAL. 2. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, I AM REPRODUCING HEREUNDER THE RELEVANT PORT ION FROM AFORESAID ORDER OF THE TRIBUNAL FOR READY REFE RENCE:- THIS APPEAL IS BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-8, MUMBAI, (C IT(A) FOR SHORT) DATED 08.11.2013 FOR THE ASSESSMENT YEAR 20 10-11 .THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEALS. A) THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF RS.37,77,626 MADE UNDER SECTION 40(A)(IA) OF THE AC T BASING HIS DECISION ON THE PRONOUNCEMENT IN CIT V. KOTAK SECUR ITIES LTD.(|ITA NO.3111 OF 2009). B) THE LEARNED CIT(A) WHILE RELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF KOTAK SECU RITIES WHICH HELD SUCH PAYMENTS AS FEE FOR TECHNICAL SERVICES FAILED TO TAKE NOTE OF THE FACT THAT EVEN THOUGH SUCH PAYMENTS AR E HELD TO BE SUBJECTED TO TDS, THE HONBLE HIGH COURT DID NOT AP PROVE DISALLOWANCE U/S 40(1)(IA) ON THE GROUND OF THE DIS PUTED NATURE OF THE ISSUE. C) THE LEARNED CIT(A) FAILED TO TAKE NOTE OF THE FACT THAT THE PROVISION OF SECTION 194J AND 40(1)(IA) ARE TWO DIS TINCT AND ITA NO.2092/MUM/2015 IDBI CAPITAL MARKET SERVICES LTD. 3 INDEPENDENT PROVISIONS AND APPLICATION OF THE TDS P ROVISION DOES NOT NECESSARY INVOLVE APPLICATION OF DISALLOWANCE P ROVISION U/S 40(1)(IA) . BY HOLDING THE PROVISIONS OF SECTION 40 (1)(IA) NOT APPLICABLE TO ASSESSMENT YEAR 2005-06 WHICH WAS THE YEAR BEFORE THEM, THE HONBLE COURT GAVE LEGAL COGNIZANCE AND R ELEVANCE TO THE EXISTENCE OF REASONABLE CAUSE IN MAKING DISALLO WANCE UNDER THE SECTION. D) THE LEARNED CIT(A) FAILED TO TAKE NOTE OF THE FACT THAT THE REASONS WHICH PROMPTED THE COURT TO HOLD THE PROVIS ION INAPPLICABLE TO AY 2005-06 APPLY WITH EQUAL FORCE T O THE YEAR UNDER APPEAL. SUCH PAYMENT AND WERE ALSO TREATED A S NOT OF THE NATURE OF FEES OF TECHNICAL SERVICES AND NOT OBJE CTED TO BY DEPARTMENT FOR SEVERAL YEARS. WHEN THE ISSUE AROSE, THE HONBLE ITAT MUMBAI HELD IT AS NOT THE FEES FOR TECHNICAL SERVICES. IT IS FOR THE TIME IN 2011 THAT THE ISSUE WAS DECIDED DIF FERENTLY BY THE BOMBAY HIGH COURT. E) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE IS SUE WAS HIGHLY CONTENTIOUS AND WAS DECIDED BY THE ITAT IN A SSESSEES FAVOUR WHICH CONSTITUTED A REASONABLE CAUSE FOR NOT DEDUCTING TAX AT SOURCE. EXISTENCE OF SUCH DISPUTE HAS BEEN A CCEPTED BY HONBLE BOMBAY HIGH COURT AS REASONABLE CAUSE JUSTI FYING NON- DEDUCTION OF TAX AND CONSEQUENT NON-APPLICATION OF SECTION 40(1)(IA). 2. THE ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDI ARY OF IDBI BANK LIMITED , ENGAGED IN FULLY INTEGRATED FINANCIAL SERVICES PROVIDER VIZ INVESTMENT BANKING , PORTFOLI O & FUND MANAGEMENT , INSTITUTIONAL BROKING & DISTRIBUTION, RETAIL BROKING & DISTRIBUTION AND MUTUAL FUND ADVISORY SERVICES AN D DISTRIBUTION ETC . 3. DURING COURSE OF ASSESSMENT PROCEEDING , THE ASSESS ING OFFICER OBSERVED THAT THE ASSESSEE COMPANY HAS CLAI MED AN AMOUNT OF RS 37,77,626/- ON ACCOUNT OF TRANSACTION CHARGES PAID TO STOCK EXCHANGES ON WHICH TDS WAS NOT DEDUCTED U/S 194J OF THE INCOME TAX ACT,1961(THE ACT). ON BEING ASKED BY AO, THE ASSESSEE ITA NO.2092/MUM/2015 IDBI CAPITAL MARKET SERVICES LTD. 4 COMPANY EXPLAINED THAT THERE IS NO REQUIREMENT TO D EDUCT TDS ON TRANSACTION CHARGES PAYABLE TO STOCK EXCHANGE. THE ASSESSEE RELIED UPON THE DECISION OF TRIBUNAL IN ITA NO 1955/MUM/08 IN KOTAK SECURITIES LIMITED V. ADDL. CIT WHEREIN SUCH SERVIC ES WERE HELD TO BE NOT TECHNICAL IN NATURE AND THERE IS NO REQUIREM ENT TO DEDUCT TDS. 4. THE ASSESSING OFFICER OBSERVED THAT THE AFORE-STATE D DECISION OF THE TRIBUNAL IS OVER-RULED BY HONBLE B OMBAY HIGH COURT . THE ASSESSING OFFICER RELIED UPON THE DECI SION OF HONBLE BOMBAY HIGH COURT IN KOTAK SECURITIES LIMITED IN IT A NO 3111/2009 DATED 21.10.2011 FOR ASSESSMENT YEAR 2005 -06 BY WHICH JUDGMENT HONBLE BOMBAY HIGH COURT HELD THAT THESE TRANSACTION CHARGES PAYABLE TO STOCK EXCHANGES CONSTITUTE FEES FOR TECHNICAL SERVICES AND ARE COVERED U/S 194J OF THE ACT AND H ENCE TDS IS TO BE DEDUCTED. THEREFORE, THE ASSESSING OFFICER RELYI NG ON THE AFORESAID JUDGMENT OF JURISDICTIONAL HIGH COURT MAD E THE ADDITION U/S 40(1)(IA) OF THE ACT OF RS 37,77,626/- DISALLOW ING THE EXPENSES SO CLAIM ON ACCOUNT OF TRANSACTION CHARGES PAYABLE TO STOCK EXCHANGES FOR FAILURE OF THE ASSESSEE TO DEDUCT TDS U/S 194 J OF THE ACT. 5. AGGRIEVED , THE ASSESSEE FILED FIRST APPEAL WITH CI T(A) AND CONTENDED THAT THE ASSESSEE WAS UNDER BONA-FIDE BEL IEF THAT NO TDS IS TO BE DEDUCTED U/S 194 J AS THE TRANSACTION CHAR GES PAYABLE BY THE ASSESSEE DOES NOT CONSTITUTE THE FEES FOR TECHNICA L SERVICES WHICH VIEW HAS BEEN APPROVED BY TRIBUNAL IN KOTAK SECURIT IES LIMITED (SUPRA) AND THE SAID DECISION OF THE TRIBUNAL IS RE VERSED BY HONBLE BOMBAY HIGH COURT IN KOTAK SECURITIES CASE ONLY IN OCTOBER 2011 WHILE THE IMPUGNED YEAR IS ASSESSMENT YEAR 2010-11 WHICH ENDED ITA NO.2092/MUM/2015 IDBI CAPITAL MARKET SERVICES LTD. 5 ON 31-3-2010 WHICH IS A DATE PRIOR TO JUDGMENT OF H ONBLE BOMBAY HIGH COURT IN KOTAK SECURITIES CASE(SUPRA) . THUS, ASSESSEE CONTENDED THAT IT WAS UNDER BONA-FIDE BELIEF TDS WA S NOT DEDUCTIBLE AND NO DISALLOWANCE BE MADE U/S 40(1)(IA ) AS DURING THE FINANCIAL YEAR VIEW HELD BY TRIBUNAL MUMBAI IN ITA NO 1955/MUM/2008 WILL HOLD THE FIELD THAT TRANSACTION CHARGES DOES NOT CONSTITUTE FEES FOR TECHNICAL SERVICES. THE L D. CIT(A) RESPECTFULLY FOLLOWING JURISDICTIONAL HIGH COURT IN KOTAK SECURITIES(SUPRA) UPHELD THE DECISION OF THE ASSESS ING OFFICER AND CONFIRMED THE ADDITION. 6. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. THE ASSESSEE REITERATED ITS SUBMISSIONS AND CONTENDED THAT THE ASSESSEE WAS UNDER BONA-FIDE BELIEF THAT NO TDS IS TO BE DEDUCTE D U/S 194 J AS THE TRANSACTION CHARGES PAYABLE BY THE ASSESSEE DOE S NOT CONSTITUTE THE FEES FOR TECHNICAL SERVICES WHICH VIEW HAS BE EN APPROVED BY TRIBUNAL IN KOTAK SECURITIES LIMITED (SUPRA) AND TH E SAID DECISION OF THE TRIBUNAL IS OVER-RULED BY HONBLE BOMBAY HIG H COURT IN KOTAK SECURITIES CASE ONLY IN OCTOBER 2011 WHILE TH E IMPUGNED YEAR IS ASSESSMENT YEAR 2010-11 WHICH ENDED ON 31-3 -2010 WHICH IS A DATE PRIOR TO JUDGMENT OF HONBLE BOMBAY HIGH COURT IN KOTAK SECURITIES CASE(SUPRA). THUS, ASSESSEE CONTEN DED THAT IT WAS UNDER BONA-FIDE BELIEF THAT TDS WAS NOT DEDUCTIBLE ON THESE PAYMENTS AND NO DISALLOWANCE BE MADE AS DURING THE FINANCIAL YEAR VIEW HELD BY TRIBUNAL MUMBAI IN ITA NO 1955/MUM/08 WILL HOLD THE FIELD THAT THE TRANSACTION CHARGES DOES NOT CON STITUTE FEES FOR TECHNICAL SERVICES. THE ASSESSEE ALSO CONTENDED TH AT TRIBUNAL HAS GIVEN RELIEF TO THE ASSESSEE IN ITS APPEAL FOR ASSE SSMENT YEAR 2008- 09 IN ITA NO. 618/MUM/2012 DATED 18 TH FEBRUARY 2015 AND ALSO FOR ASSESSMENT YEAR 2009-10 IN ITA NO. 1404/MUM/2013 DA TED 08 TH ITA NO.2092/MUM/2015 IDBI CAPITAL MARKET SERVICES LTD. 6 MAY 2015, AND HENCE THE MATTER IS COVERED IN FAVOUR OF THE ASSESSEE. 7. THE LD DR RELIED ON THE DECISION OF THE AUTHORITIE S BELOW. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE MATERIAL ON RECORD. WE OBSERVE THAT IN THE DECISION BY THE TRIBUNAL IN KOTAK SECURITIES LIMITED V. ADDL. CIT (IN ITA NO 1955/MUM/08), IT HELD THAT SERVICES IN RESPECT OF T RANSACTION CHARGES PAID/ALLOWED BY BROKERS TO A STOCK EXCHANGE DO NOT CONSTITUTE TECHNICAL SERVICES AND, AS SUCH, THERE I S NO REQUIREMENT TO DEDUCT TDS. HOWEVER, THE HONBLE BOMBAY HIGH COUR T IN KOTAK SECURITIES LIMITED IN ITA NO. 3111/2009 DATED 21.10.2011 (FOR ASSESSMENT YEAR 2005-06) HELD THAT THESE TRANSACTI ON CHARGES PAYABLE TO STOCK EXCHANGES CONSTITUTE FEES FOR TEC HNICAL SERVICES, AND ARE COVERED U/S 194J OF THE ACT, AND HENCE TDS IS TO BE DEDUCTED. THE HONBLE BOMBAY HIGH COURT ALSO HELD T HAT SINCE LAST DECADE, I.E., 1995 (WHEN SECTION 194J WAS INTRODUCE D IN THE ACT) TO 2005 (TILL THE IMPUGNED ASSESSMENT YEAR), BOTH THE REVENUE AND THE ASSESSEE HAVE ACCEPTED THE POSITION THAT NO TDS IS PAYABLE. THE HONBLE COURT NOTED THAT FOR THE IMMEDIATE SUCCEEDI NG YEAR, I.E., ASSESSMENT YEAR 2006-07, THE ASSESSEE (KOTAK SECURI TIES) HAD DEPOSITED TDS ON THE TRANSACTION CHARGES, AND ALSO THAT NO PREJUDICE IS CAUSED TO REVENUE FOR NON-DEDUCTION OF TDS AS THE STOCK EXCHANGES MUST HAVE PRESUMABLY INCLUDED THESE CHARGES IN THEIR INCOME. THE HONBLE HIGH COURT DIRECTED THAT NO DISALLOWANCE BE MADE FOR ASSESSMENT YEAR 2005-06, H AVING NOTED THAT IMMEDIATELY SUCCEEDING YEAR ONWARDS, THE ASSES SEE, I.E., KOTAK SECURITIES LTD. , HAD DULY DISCHARGED THE TAX LIABILITY BY DEDUCTIN G TDS U/S 194J ON THESE TRANSACTION CHARGES. ITA NO.2092/MUM/2015 IDBI CAPITAL MARKET SERVICES LTD. 7 9. WE FURTHER OBSERVE THAT THE TRIBUNAL FOR ASSESSM ENT YEARS 2008-09 AND 2009-10 HAS GIVEN THE ASSESSEE RELIEF ON THE GROUND THAT THE TRIBUNAL IN KOTAK SECURITIES LTD. (SUPRA) HAS TAKEN A VIEW THAT THESE TRANSACTION CHARGES DO NOT CONSTITUTE F EES FOR TECHNICAL SERVICES AND TDS IS NOT DEDUCTIBLE U/S194J OF THE ACT, WHICH VIEW OF THE TRIBUNAL HAS SINCE BEEN OVER-RULED BY THE HO NBLE BOMBAY HIGH COURT IN OCTOBER 2011 AND, HENCE, FOR THE TWO ASSESSMENT YEARS 2008-09 AND 2009-10, THE VIEW OF THE TRIBUNAL IN KOTAK SECURITIES LTD. (SUPRA) WILL HOLD THE FIELD. A DEC ISION BY A COURT OF LAW RELATES BACK TO THE YEAR OF ASSESSMENT, IF NOT TO THE YEAR FROM WHICH THE PROVISION(S) BEING INTERPRETED STANDS BRO UGHT ON THE STATUTE. THE DECISION BY HONBLE JURISDICTIONAL HIG H COURT IN KOTAK SECURITIES LTD. (SUPRA) SHALL APPLY TO A.Y. 2005-06 AND THE SUBSEQUENT YEARS. THE HONBLE HIGH COURT HAS HELD THAT TRANSACTION CHARGES PAID TO A STOCK EXCHANGE BY ITS BROKERS IS FEES FOR TECHNICAL CHARGES, LIABLE TO TDS U/S. 194J OF T HE ACT. THE HONBLE HIGH COURT FURTHER OBSERVING THE MATTER TO BE DISPUTED SINCE LONG, I.E., BETWEEN THE ASSESSEE AND THE DEPA RTMENT, DREW AN EXCEPTION FOR A.Y. 2005-06, FURTHER NOTING THAT THE ASSESSEE IN THAT CASE HAD FROM THE SUCCEEDING YEAR, I.E. A.Y. 2006-0 7, ITSELF DEPOSITED THE TAX, WHILE INFERRING THAT FOR A.Y. 20 05-06 IT WOULD HAVE BEEN PAID BY THE STOCK EXCHANGE ITSELF, SO THA T NO PREJUDICE WOULD STAND CAUSED TO THE REVENUE. THE MATTER THUS HAS BEEN TREATED AS DISPUTED UP TO THAT YEAR. THIS WE UNDERS TAND TO BE THE RATIO OF THE SAID DECISION, BINDING ON US. CONTINUI NG FURTHER, THEREFORE, IF THE STOCK EXCHANGE HAS DEPOSITED THE TAX FOR THE CURRENT YEAR, THE PRINCIPLE AS LAID DOWN BY THE HONBLE COU RT, I.E., OF THE SAVING FROM THE PROVISION WHERE NO PREJUDICE IS CAU SED TO THE REVENUE, WOULD HOLD. IN FACT, THE PROVISION STANDS AMENDED BY FINANCE ACT, 2012 W.E.F. 1 ST APRIL, 2013 BY WAY OF SECOND PROVISO ITA NO.2092/MUM/2015 IDBI CAPITAL MARKET SERVICES LTD. 8 TO SECTION 40(A)(IA) OF THE ACT. THE SAID AMENDMENT HAS BEEN HELD AS RETROSPECTIVE BY THE HONBLE DELHI HIGH COURT IN CIT VS. ANSAL LANDMARK TOWNSHIP PVT. LTD. VIDE ITS DECISION IN ITA NO.160 AND 161 OF 2015 DATED 26/08/2015. THIS THEN COINCIDES W ITH OUR UNDERSTANDING OF THE DECISION BY THE HONBLE JURISD ICTIONAL HIGH COURT. WE ACCORDINGLY HOLD THAT NO TAX ON THE TRAN SACTION CHARGES PAID/ALLOWED BY THE ASSESSEE TO THE STOCK EXCHANGE SHALL REQUIRE BEING DEDUCTED FOR TAX AT SOURCE U/S 194J OF THE AC T WHERE THE ASSESSEE IS ABLE TO SHOW THAT TAX ON THE SAME HAS B EEN PAID BY THE PAYEE, I.E., HAS BEEN OFFERED AS INCOME SUBJECT TO TAX. THE ASSESSEE IS OBLIGED TO BRING THE RELEVANT FACTS ON RECORD SO AS TO SATISFY THE ASSESSING OFFICER WITH REGARD TO THE SATISFACTION O F THE CONDITION, I.E., PAYMENT OF TAX ON THE IMPUGNED SUM, SUBJECT T O WHICH ONLY RELIEF STANDS ALLOWED TO THE ASSESSEE. WE DECIDE ACCORDINGLY. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. 2.1. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER, LEADING TO ADDITION MADE TO THE TOTAL INCOME , CONCLUSION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ORDER OF THE TRIBUNAL DATED 13/10/2015, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF KEPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT THE TRIBUNAL IN THE AFORESAID ORDER DATED 13/1 0/2015 HAS DISCUSSED THE DECISION FROM HONBLE JURISDICTIO NAL HIGH COURT IN KOTAK SECURITIES AND BY FOLLOWING THE DECISION FOR A.Y. 2008-09 (ITA NO.618/MUM/2012) ORD ER DATED 18/02/2015 AND ALSO ASSESSMENT YEAR 2009-10 ITA NO.2092/MUM/2015 IDBI CAPITAL MARKET SERVICES LTD. 9 (ITA NO.1404/MUM/2013) ORDER DATED 08/05/2015, ISSUED DIRECTION TO THE LD. ASSESSING OFFICER. THER EFORE, ON THE SAME REASONING, THE APPEAL OF THE ASSESSEE, IS ALLOWED FOR STATISTICAL PURPOSE. 3. GROUND NO.2 WITH RESPECT TO DISALLOWANCE OF DEPRECIATION ON STOCK EXCHANGE CARD WAS NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, IT IS DISMISSED AS NOT PRESSED. FINALLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN IN THE PRESENCE OF LD. REPRESENTATIVE FROM BOTH SIDES AT T HE CONCLUSION OF THE HEARING ON 18/01/2016. SD/- (JOGINDER SINGH) ! ' / JUDICIAL MEMBER MUMBAI; DATED : 18/01/2016 F{X~{T? P.S / ! & $ )!*+ ,&+-* / COPY OF THE ORDER FORWARDED TO : 1. '#$%& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. ) ) * ( '#$ ) / THE CIT, MUMBAI. 4. ) ) * / CIT(A)- , MUMBAI 5. -./ ' , ) '#$ ' 1 , / DR, ITAT, MUMBAI 6. /2 3$ / GUARD FILE. & / BY ORDER, (-# ' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI