ITO 4(2)(1), MUMBAI V. R.R. EQUITY BROKERS P. LTD, MUMBAI

ITA 2358/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59765 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 24-03-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR SR
• Keywords: Bonafide belief

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI BEFORE SHRI D.K. AGARWAL, J.M. AND SHRI T.R. SOOD, A.M. I.T.A. NO.2358/MUM/2011 ASSESSMENT YEAR : 2007-08 I.T.O. 4(2)(1) R.NO.644, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI - 400 020. R.R. EQUITY BROKERS (P.) LTD. 113-A, 13 TH FLOOR, MITTAL TOWER, NARIMAN POINT, MUMBAI 400021. PAN : AACCR7602J (APPELLANT) VS. (RESPONDENT) DATE OF HEARING : 16.01.2012 DATE OF PRONOUNCEMENT : 20.1.2012 APPELLANT BY : SHRI C.G.K. NAIR (SR. AR) RESPONDENT BY : NONE. ORDER PER D.K. AGARWAL (JM ) : THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER DATED 11.01.2011 PASSED BY THE LD CIT(A) FOR THE A. Y. 2007-08. 2. AT THE TIME OF HEARING NONE ATTENDS ON BEHALF OF THE ASSESSEE NOR FILED ANY APPLICATION FOR ADJOURNMENT OF THE CASE. IT WAS, THEREFORE, DECIDED TO DISPOSE OF THE APPEAL EX-PARTE, QUA THE ASSESSEE, ON MERIT AFTER HEARING THE LD D.R. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF SHARE BROKING, FILED RET URN DECLARING TOTAL INCOME AT RS. NIL. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS THE AO I.T.A. NO.2358/MUM/2011 ASSESSMENT YEAR : 2007-08 2 NOTED THAT THE ASSESSEE IN THE P & L A/C HAS DEBITE D. VSAT CHARGES OF RS.2,76,709/- AND LEASE LINE CHARGES OF RS.17,64,2 27/-. ACCORDING TO THE AO THESE CHARGES ARE IN THE NATURE OF TECHNICAL SERVICES, THE ASSESSEE IS LIABLE TO DEDUCT THE TAX AT SOURCE ON IT. ON B EING ASKED, IT WAS SUBMITTED BY THE ASSESSEE THAT VSAT AND LEASE LINE CHARGES ARE NOT IN THE NATURE OF TECHNICAL SERVICES, HENCE THE TDS IS NOT DEDUCTIBLE ON SUCH PAYMENTS AND, THEREFORE, THE ASSESSEE HAS NOT DEDUC TED THE TAX AT THE TIME OF PAYMENT. HOWEVER, THE AO HELD THAT VSAT A ND LEASE LINE CHARGES ARE COVERED UNDER THE PURVIEW OF FEE FOR TE CHNICAL SERVICES AND, THEREFORE, LIABLE FOR DEDUCTION OF TAX U/S.194J AND SINCE THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE WHILE MAKING THE PAY MENTS, HE DISALLOWED VSAT CHARGES RS.2,76,709/-, LEASE LINE CHARGES RS. 17,64,227/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE U/S.40 (A)(IA) OF THE I.T. ACT, 1961 (THE ACT). 4. ON APPEAL, THE LD CIT(A) FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF D.C.I.T. VS. ANGEL BROKING LTD.(35 SOT 457, MUMBAI), DELETED BOTH THE ADDITIONS MADE BY THE AO. 5. BEING AGGRIEVED BY THE ORDER OF THE LD CIT(A) TH E REVENUE IS IN APPEAL BEFORE US CHALLENGING IN ALL THE GROUNDS DEL ETION OF ADDITION OF VSAT CHARGES RS. 2,76,709/- AND LEASE LINE CHARGES RS. 17,64,227/-, DESPITE THE FACT THAT IN SUBSEQUENT YEARS THE BROKE RS STARTED DEDUCTING THE TDS ON SUCH PAYMENTS. 6. AT THE TIME OF HEARING THE LD D.R. SUBMITS THAT THIS ISSUE IS FULLY COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE R EVENUE BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF C.I.T. VS. M/S. KOTAK SECURITIES LTD. IN ITA NO.3111 OF 2009 J UDGMENT DATED 21.10.2011. HE, THEREFORE, SUBMITS THAT THE ORDE R PASSED BY THE LD CIT(A)BE REVERSED AND THAT OF AO BE RESTORED. I.T.A. NO.2358/MUM/2011 ASSESSMENT YEAR : 2007-08 3 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD DR AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE IN AS MUCH AS IT IS ALSO NOT IN DISPUTE THAT THE LD CIT(A) HAS DELETED THE ADDITION FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF ANGEL BROKING LTD.(SUPRA). HOWEVER, WE FIND THAT R ECENTLY HONBLE JURISDICTIONAL HIGH COURT IN KOTAK SECURITIES LTD. (SUPRA) SINCE REPORTED IN {(2011) 203 TAXMAN 86} HAS OBSERVED IN PARA 12 O F THE JUDGMENT AS UNDER: 12) TRANSACTION CHARGES ARE LEVIED BY THE BSE ON T HE MEMBERS WHO ENTER INTO TRANSACTIONS IN SECURITIES / DERIVATIVES THROU GH THE BOLT SYSTEM PROVIDED BY THE BSE. BOLT SYSTEM IS A SCREEN BASED SYSTEM WHERE THE TRADING OPERATIONS ARE MADE INTERACTIVE BY CONNECTI NG THE VARIOUS STOCK BROKERS TO THE STOCK EXCHANGE THOUGH VSAT AND LEASE LINE CONNECTIONS PROVIDED BY THE EXCHANGE TO ITS MEMBERS, THE BOLT S YSTEM PROVIDES ALL THE DATA THAT IS NECESSARY FOR A INTENDING BUYER AND IN TENDING SELLER OF THE RESPECTIVE SECURITIES. WHEN A BEST BUY ORDER IS MAT CHED WITH THE BEST SELL ORDER THE TRANSACTION IS CONCLUDED. UNDER THE BOLT SYSTEM, MEMBERS CAN PROACTIVELY ENTER ORDERS IN THE SYSTEM WHICH IS DIS PLAYED IN THE SYSTEM TILL THE FULL QUANTITY IS MATCHED BY ONE OR MORE OF COUN TER ORDERS AND RESULT INTO A TRANSACTION. IN RESPECT OF THE TRANSACTIONS CARRI ED OUT THROUGH THE BOLT SYSTEM, THE EXCHANGE COLLECTS TRANSACTION CHARGES D EPENDING UPON THE VALUE OF THE TRANSACTIONS. IT HAS BEEN HELD AS UNDER: 32) ACCORDINGLY, WE HOLD THAT THE TRANSACTION CHARG ES PAID BY THE ASSESSEE TO THE STOCK EXCHANGE CONSTITUTE 'FEES FOR TECHNICA L SERVICES' COVERED UNDER SECTION 194J OF THE ACT AND, THEREFORE, THE ASSESSE E WAS LIABLE TO DEDUCT TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES T O THE ACCOUNT OF THE STOCK EXCHANGE. HOWEVER, SINCE BOTH THE REVENUE AND THE A SSESSEE WERE UNDER THE BONAFIDE BELIEF FOR NEARLY A DECADE THAT TAX WAS NO T DEDUCTIBLE AT SOURCE ON PAYMENT OF TRANSACTION CHARGES, NO FAULT CAN BE FOU ND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE IN THE ASSESSMENT Y EAR IN QUESTION AND CONSEQUENTLY DISALLOWANCE MADE BY THE ASSESSING OFF ICER UNDER SECTION 40(A)(IA) OF THE ACT IN RESPECT OF THE TRANSACTION CHARGES CANNOT BE SUSTAINED. WE MAKE IT CLEAR THAT WE HAVE ARRIVED AT THE ABOVE CONCLUSION IN THE PECULIAR FACTS OF THE PRESENT CASE, WHERE BOTH THE REVENUE AND THE ASSESSEE RIGHT FROM THE INSERTION OF SECTION 194J I N THE YEAR 1995 TILL 2005 PROCEEDED ON THE FOOTING THAT THE ASSESSEE IS NOT L IABLE TO DEDUCT TAX A SOURCE AND IN FACT IMMEDIATELY AFTER THE ASSESSMENT YEAR IN QUESTION I.E. FROM AY 2006-07 THE ASSESSEE HAS BEEN DEDUCTING TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXCHANGE. I.T.A. NO.2358/MUM/2011 ASSESSMENT YEAR : 2007-08 4 8. RESPECTFULLY FOLLOWING THE DECISION OF THE HONB LE JURISDICTIONAL HIGH COURT WHICH IS BINDING ON US, AND KEEPING IN V IEW THAT THE CASE IN HAND IS POST 2005 I.E. AY 2007-08, THEREFORE, THE A SSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE ON TRANSACTION CHARGES PAID BY THE ASSESSEE TO STOCK EXCHANGE CONSTITUTES FEES FOR TECHNICAL SERV ICES COVERED U/S.194J OF THE ACT. SINCE THE ASSESSEE HAS FAILED TO DEDU CT TAX AT SOURCE, WE WHILE REVERSING THE ORDER OF THE LD CIT(A) RESTORE THE ORDER OF THE AO IN DISALLOWING VSAT CHARGES RS. 2,76,709 /- AND LEASE LINE CHARGES RS. 17,64,227 /-. THE GROUNDS TAKEN BY THE REVENUE AR E THEREFORE, ALLOWED. 9. IN THE RESULT, REVENUES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 20TH JANUARY, 2012. SD (T.R. SOOD) ACCOUNTANT MEMBER SD (D.K. AGARWAL) JUDICIAL MEMBER MUMBAI, ON THIS 20TH DAY OF JANUARY, 2012. JANHAVI COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, D- BENCH, ITAT, MUMBAI 6. GUARD FILE. BY ORDER TRUE COPY ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI