DCIT 4(1), MUMBAI V. HAVEN FINANCIAL SERVICES P. LTD, MUMBAI

ITA 3008/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7262 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 17-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 08-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KESHAV SAXENA
• Assessee Lawyers: AJAY R SINGH
• Keywords: Non compliance; TDS
• Section: 40(a)(ia); 37(1); 194C; 205; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYA RAGHAVAN (JM) ITA NO. 3008/MUM/2009 ASSESSMENT YEAR-2005-06 THE DY. CIT-4(1), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. HAVEN FINANCIAL SERVICES PVT. LTD., 306/307, SAGAR AVENUE, OPP. SHOPPERS STOP, S.V. ROAD, ANDHERI(W), MUMBAI-400 058 PAN-AAACH 0983Q (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI KESHAV SAXENA RESPONDENT BY: SHRI AJAY R. SINGH O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER DT. 17.2.2009 PASSED BY THE LD. CIT(A)-IV, MUMBAI F OR THE ASSESSMENT YEAR 2005-06. 2. THE FIRST FIVE GROUND OF APPEALS ARE WITH RESPEC T TO DELETION BY THE LD. CIT(A) WITH RESPECT TO THE ADDITION MADE ON ACC OUNT OF PENALTY OF RS. 5,43,800/- PAID TO STOCK EXCHANGE. 3. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 4. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON TH E ORDER OF THE AO. 5. WE HEARD BOTH THE PARTIES. WE FIND THAT IN THE CASE OF KAIRA CAN CO. LTD. VS DY. CIT (MUM) (32 DTR 485), THE ITAT M UMBAI A BENCH HELD AS FOLLOWS: ITA NO. 3008/M/09 2 THE PERUSAL OF THE EXPLANATION TO S. 37(1) SHOWS T HAT IF EXPENDITURE IS INCURRED FOR ANY PURPOSE, WHICH IS E ITHER AN OFFENCE OR IS PROHIBITED BY LAW THEN DEDUCTION CANN OT BE ALLOWED I RESPECT OF SUCH EXPENDITURE. A PERUSAL O F DEFINITIONS IN DICTIONARIES CLEARLY SHOWS THAT IF THERE IS A BR EACH OR VIOLATION OF LAW OR RULE THEN IT IS TO BE TREATED A S OFFENCE. IN THE PRESENT CASE, ADMITTEDLY, THE ASSESSEE IS GOVER NED BY THE PROVISIONS OF SEBI ACT. CERTAIN REGULATIONS WERE M ADE UNDER THIS ACT WHICH ARE CALLED AS SEBI (SUBSTANTIAL ACQU ISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997. UNDER THE SE REGULATIONS, THE ASSESSEE WAS ADMITTEDLY REQUIRED T O MAKE CERTAIN DISCLOSURES AND NON COMPLIANCE OF THE SAME WAS LIABLE TO PENALTY NOT EXCEEDING RS. 5,000 FOR EVERY DAY DU RING WHICH SUCH NON-COMPLIANCE CONTINUED. THE P2ERUSAL OF THE SEBI REGULATION SCHEME, 2002 CLEARLY SHOWS THAT THE OBJE CT WAS TO REGULARIZE THE DEFAULT WHICH WOULD HAVE BEEN BECAU SE OF OVERSIGHT OR LACK OF KNOWLEDGE WHICH IS APPARENT FR OM PARA 3 OF THE RECITAL OF THE SCHEME PARA 4 PROVIDES IN CLE AR TERMS THAT THE SCHEME WAS BEING INTRODUCED TO ENABLE THE DEFAU LTERS TO COMPLY WITH LEGAL REQUIREMENTS UNDER THE REGULATION S OF 1997. ONCE THE PAYMENT PRESCRIBED UNDER THE SCHEME WAS MADE, THE REQUIREMENTS UNDER THE 1997 REGULATIONS A RE TREATED TO BE COMPLIED WITH AND CONSEQUENTLY, THE P ROVISIONS OF SS. 15A AND 24 OF THE SEBI ACT COULD NOT BE ENFO RCED AGAINST SUCH PERSONS. THEREFORE, SUCH PAYMENTS CANN OT BE SAID TO BE PAYMENT FOR VIOLATION OF LAW AND CONSEQ UENTLY, THE SAME CANNOT BE SAID TO BE A PENALTY UNDER S. 15A OF THE SEBI ACT. THEREFORE, THE PROVISIONS OF EXPLANATION TO S . 37 CANNOT BE APPLIED TO THE PRESENT CASE CIT VS AHMEDABAD C OTTON MFG. CO. LTD. & ORS. (1993) 115 CTR (SC) 401 (1994) 205 ITR 163 (SC) RELIED ON. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDI NATE BENCH OF THE TRIBUNAL, WE DISMISS THESE GROUNDS RAISED BY THE RE VENUE. 6. WITH RESPECT TO GROUND NOS. 6 TO 11 THE ISSUE IS THAT THE AO HAD DISALLOWED STOCK EXCHANGE EXPENSES LIKE VSAT, LEASE LINE AND TRANSACTION CHARGES AMOUNTING TO RS. 1,55,706/-. T HE AO HAD DISCUSSED THIS ISSUE AT PARA 6 OF THE ORDER AND HAS HELD THAT THE CHARGES PAID TO STOCK EXCHANGE WERE FOR TECHNICAL SERVICES AND COME WITHIN THE PURVIEW OF SEC. 194J AND 194C OF THE I.T. ACT AND THEREFORE LIABLE FOR ITA NO. 3008/M/09 3 DEDUCTION OF TAX. AS THE ASSESSEE DID NOT DEDUCT T HE TAX, THE AO ADDED THE SUM OF RS. 1,55,706/- 7. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED THA T THE CHARGES PAID TO STOCK EXCHANGE WERE FOR THE USE OF INFRASTRUCTU RE AND THE PROVISIONS OF SEC. 194J WAS NOT APPLICABLE ON THE SAME. THE L D. CIT(A) RELYING ON THE DECISION OF ITAT MUMBAI BENCH A IN THE CASE O F KOTAK SECURITIES LTD. VS ACIT 24 DTR 214 HELD THAT THE FEES PAID BY THE MEMBERS TO THE STOCK EXCHANGE IS NOT FOR ANY TECHNICAL SERVICES R ENDERED AND THEREFORE TDS IS NOT DEDUCTIBLE ON THE SAME. 8. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. WE FIND IN THE CASE OF KOTAK SECURITIES LTD. VS ACIT( 24 DTR 214), IT WAS HELD AS UNDER: TO CALL A PAYMENT AS FEES FOR TECHNICAL SERVICES I T SHOULD HAVE BEEN SAID IN CONSIDERATION FOR RENDERIN G BY THE RECIPIENT OF PAYMENT OF ANY (A) MANAGERIAL SERVICE (B) TECHNICAL OR CONSULTANCY SERVICES; STOCK EXCHANGES MERELY PRO VIDE FACILITY FOR ITS MEMBERS TO PURCHASE AND SELL SHARE S, SECURITIES ETC. WITHIN THE FRAMEWORK OF ITS BYE LAWS. IN THE EVENT OF DISPUTE IT PROVIDES MECHANISM FOR SETTLEMENT OF DIS PUTES. IT REGULATES CONDITIONS SUBJECT TO WHICH A PERSON CAN BE A MEMBER AND WHEN AND IN WHAT CIRCUMSTANCES MEMBERSHI P CAN BE TRANSFERRED , CANCELLED, SUSPENDED. THE EX CHANGE PROVIDES A PLACE WHERE THE MEMBERS MEET AND TRANSAC T BUSINESS. THE TRANSACTION FEE IS NOT PAID IN CONSI DERATION OF ANY SERVICE PROVIDED BY THE STOCK EXCHANGE. IT IS A PAYMENT FOR USE OF FACILITIES PROVIDED BY THE STOCK EXCHANG E AND SUCH FACILITIES ARE AVAILABLE FOR USE BY ANY MEMBER. TH E PROVISION OF S. 194J WHICH CASTS A BURDEN ON A PERSON TO DEDU CT AT SOURCE AND TREAT HIM A DEFAULTER ON FAILURE TO DEDU CT TAX AT SOURCE, NEEDS TO BE INTERPRETED STRICTLY AND IN THE ABSENCE OF A CLEAR OBLIGATION ON THE PART OF A PERSON SPELT OUT IN UNAMBIGUOUS TERMS BY THE PROVISIONS OF S. 194J R/W EXPLN. 2 TO S. 9(1)(VII). SUCH OBLIGATION CANNOT BE IMPLIED OR LEFT TO THE DIXIT OF THE REVENUE AUTHORITIES. THEREFORE TRANS ACTION FEE PAID CANNOT SAID TO BE A FEE PAID IN CONSIDERATION OF THE STOCK EXCHANGE RENDERING A TECHNICAL SERVICES TO THE ASSE SSEE. THE PROVISIONS OF S. 194J ARE THEREFORE NOT ATTRACTED. THEREFORE, ITA NO. 3008/M/09 4 THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE. CONSEQUENTLY, THE PROVISIONS OF S. 40(A)(IA) WERE ALSO NOT ATTRACTED AND THEREFORE THE DISALLOWA NCE MADE DIRECTED TO BE DELETED. TRANSACTION FEE PAID TO STOCK EXCHANGE ON THE BASIS OF VOLUME OF TRANSACTION IS PAYMENT FOR USE OF FACILIT IES PROVIDED BY STOCK EXCHANGE AND NOT FOR ANY SERVICES, EITHER TECHNICAL OR MANAGERIAL, HENCE PROVISIONS OF S. 194J ARE NOT ATT RACTED AND NO DISALLOWANCE CAN BE MADE BY INVOKING 40(A)(IA). RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH OF THE TRIBUNAL, WE DISMISS THESE GROUNDS RAISED BY THE RE VENUE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON THIS DAY OF MARCH, 2010 (PRAMOD KUMAR) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED .. MARCH, 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR H BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 3008/M/09 5 DATE INITIALS 1 DRAFT DICTATED ON: 22.3.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 22.3.2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/ PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______