DCIT 4(1), MUMBAI V. DANI FINANCIAL PRODUCTS LTD, MUMBAI

ITA 3613/MUM/2010

• Counselvise Citation: 361319914 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 10-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 06-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALEXANDER CHANDY
• Assessee Lawyers: SANJAY R PARIKH
• Section: 143(3); 14A; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, D, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND PRAMOD KUMAR (A.M ) ITA NO. 3613/MUM/2010 (ASSESSMENT YEAR: 2006-07) DY. COMMISSIONER OF INCOME TAX 4(1), R.NO.640, 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 M/S DANI FINANCIAL PRODUCTS LTD. 12 ORICON HOUSE, 7 TH FLOOR, 14, K.DUBASH MARG, FORT, MUMBAI-400001. PAN: AABCD2382C APPELLANT V/S RESPONDENT DATE OF HEARING : 10.10.2011 DATE OF PRONOUNCEMENT : 14.10.2011 APPELLANT BY : SHRI ALEXANDER CHANDY RESPONDENT BY : SHRI SANJAY R.PARIKH O R D E R PER D.K.AGARWAL (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 10.02.2010 PASSED BY THE LD .CIT(A) FOR THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE A SSESSEE COMPANY IS A NON-BANKING FINANCIAL COMPANY ENGAGED IN THE BUSINESS OF SHARE BROKING, TRADING, INVESTMENT , JOBBING AND ARBITRAGE ACTIVITIES. IT FILED RETURN DECLARING TOTAL INCOME AT RS.1,15,24,240/-. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAS D EBITED ITA NO. 3613/MUM/2010 (ASSESSMENT YEAR: 2006-07) 2 ARBITRAGE PROFIT PAID AMOUNTING TO RS.68,72,826/- T O ARBITRAGERS AT SHARING PERCENTAGE OF 42.23. OUT OF THE PROFIT ON OPERATIONS INCLUDING THE ARBITRAGE CHARGE S. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE ARBITR AGE PAYMENTS SHOULD NOT BE DISALLOWED UNDER SECTION 40( A)(IA). THE AO AFTER CONSIDERING THE ASSESSEES EXPLANATION DISCUSSED THE ISSUE AT PAGES 2 TO 7 OF THE ASSESSM ENT ORDER AND OBSERVED THAT THE COMPANY HAS ENLISTED THE SER VICE OF JOBBERS FOR CARRYING OUT OF THE WORK WHICH PRIMARIL Y BELONGS TO THE COMPANY, THE PAYMENT MADE ARE IN LIEU OF S ERVICES RENDERED IN CARRYING OUT CERTAIN WORK AND THE PAYM ENT MADE THEREIN FALL WITHIN THE PURVIEW OF SECTION 194C O F THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). IT IS THE ASSE SSEE WHO HAS TO CARRY ON THE WORK OF JOBBING THROUGH ONE SET OF JOBBERS OR ANOTHER YEAR AFTER YEAR. THE WORK CAN ONLY BE SAID TO BE BELONGING TO THE ASSESSEE IN WHOS PROPRIETARY ACCO UNT THIS WORK IS BEING CARRIED OUT AND WHO HAS HIRED THESE P ERSONS, IRRESPECTIVE OF THE TERMS OF CONTRACT AND COMPENSAT ION PAID. THEREFORE, THE ASSESSEE WAS BOUND TO DEDUCT TAX ON THE PAYMENTS MADE IN RESPECT OF THE SERVICES OFFERED BY THE JOBBERS. THE AO AFTER RELYING ON THE RATIO LAID DOW N IN CIT V/S PANIPAT WOOLEN AND GENERAL MILLS COMPANY LTD., REPORTED IN 103 ITR 66 (SC) DISALLOWED THE CLAIM OF DEDUCTION OF RS.68,72,826/- AND ADDED TO THE INCO ME OF THE ASSESSEE. THE AO AFTER MAKING ANOTHER DISALLOWANCE UNDER ITA NO. 3613/MUM/2010 (ASSESSMENT YEAR: 2006-07) 3 SECTION 14A OF RS.46,052/- COMPLETED THE ASSESSMEN T AT AN INCOME OF RS.1,84,43,120/- VIDE ASSESSMENT ORDER DA TED 31.12.2008 PASSED UNDER SECTION 143(3) OF THE ACT. ON APPEAL, THE LD. CIT(A) FOLLOWING THE DECISION OF TH E TRIBUNAL IN THE CASE OF MR.PRAKASH K.SHAH SHARES & SECURIT IES PVT.LTD. FOR AY 2005-06 DATED 13.10.2008 DELETED TH E DISALLOWANCE OF RS.68,72,826/- MADE BY THE AO. 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT( A), THE REVENUE IS IN APPEAL BEFORE US CHALLENGING IN ALL T HE GROUNDS THE DELETION OF DISALLOWANCE OF RS. RS.68,72,826/- MADE BY THE AO UNDER SECTION 40(A)(IA) OF THE ACT. 4. AT TIME OF HEARING, THE LD. DR SUPPORTS THE ORDE R THE AO. 5. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN M/S T OTAL SECURITIES LTD. V/S DY.CIT AND VICE VERSA 2011-TIO L-338- ITAT-MUM, THEREFORE, THE ISSUE MAY BE DECIDED ACCOR DINGLY. HE ALSO PLACED ON RECORD THE COPY OF THE SAID ORDE R OF THE TRIBUNAL. 6. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECO RD WE FIND THAT THE FACTS ARE NOT IN DISPUTE. WE FURTHER FIND THAT THE ITA NO. 3613/MUM/2010 (ASSESSMENT YEAR: 2006-07) 4 ISSUE IS SQUARELY COVERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRI BUNAL IN M/S TOTAL SECURITIES LTD. (SUPRA), WHEREIN THE TR IBUNAL AFTER FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V/S ASSET ALLIANCE SECURITIES P VT.LTD., 2010-TIOL-460-ITAT-MUM HAS UPHELD THE ORDER OF THE LD.CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE AO. IN ASSET ALLIANCE SECURITIES PVT.LTD. (SUPRA), THE TR IBUNAL ON THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE, HA S HELD VIDE PARAGRAPH 9 OF ITS ORDER AS UNDER : 9. .....THE FACTS SHOW THAT THERE WERE SEPARATE J OINT VENTURES ENTERED INTO BY THE ASSESSEE WITH SEVERAL JOBBERS/ARBITRAGERS AND PAYMENTS HAVE BEEN MADE TO THEM UNDER SUCH AGREEMENTS AND THE ASSESSEE'S SHARE IN THE PROFITS HAS BEEN TAKEN TO THE PROFIT AND LOS S ACCOUNT. IN THESE CIRCUMSTANCES THE PROVISIONS OF SEC.194C ARE NOT ATTRACTED BECAUSE IN ESSENCE AND SUBSTANCE THE AMOUNTS PAID TO THE JOBBERS OR ARBITRAGERS DID NOT IN REALITY REPRESENT THE EXPENS E OF THE ASSESSEE COMPANY BUT REPRESENTED PAYMENT OF THE SHARE OF THE JOBBERS/ARBITRAGERS UNDER THE AGREEMEN T ENTERED INTO WITH THEM. IN SUCH A CASE THE ASSESSE E IS RIGHT IN SAYING THAT THERE WAS NO QUESTION OF DEDUC TING ANY TAX AT SOURCE. THE ABOVE FACTS ALSO ESTABLISH THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE JOBBERS/ARBITRAGERS WAS NOT OF PRINCIPLE AND AGENT BUT WAS THAT OF PRINCIPLE TO PRINCIPLE. BOTH HAD AGREE D TO EMBARK UPON A JOINT VENTURE TO TRADE IN SHARES AND SECURITIES IN THE STOCK EXCHANGE AND TO SHARE THE PROFIT/LOSS EQUALLY. WE DO NOT SEE HOW SUCH PAYMEN TS CAN BE TERMED AS PAYMENTS TO CONTRACTORS FOR ANY WO RK TO BE CARRIED OUT BY THEM. WE THEREFORE UPHOLD THE FINDING OF THE CIT(A) THAT THESE PAYMENTS DO NOT AT TRACT SECTION 194C AND THE ASSESSEE WAS NOT LIABLE TO DED UCT TAX THEREFROM. ACCORDINGLY SECTION 40(A)(IA) IS AL SO NOT APPLICABLE. THE PAYMENTS, IN OUR VIEW , WERE RIGHT LY ALLOWED AS DEDUCTION BY THE CIT(A)........ ITA NO. 3613/MUM/2010 (ASSESSMENT YEAR: 2006-07) 5 7. THE TRIBUNAL IN ASSESSEES OWN CASE IN ACIT V/ S M/S DANI FINANCIAL PRODUCTS LTD. IN ITA NO. 4863/MUM/20 10 (AY: 2007-08) DATED 26.8.2011 FOLLOWING THE ABOVE DECISI ON HAS ALSO TAKEN THE SIMILAR VIEW. 8. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BRO UGHT ON RECORD BY THE LD. DR WE RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL HOLD THAT THESE PAYMENTS ARE P RINCIPLE TO PRINCIPLE WHICH DO NOT ATTRACT THE APPLICABILITY OF SECTION 194C AND, HENCE, THE PROVISIONS OF SECTION 40(A)(IA ) ARE NOT APPLICABLE AND ACCORDINGLY WE ARE INCLINED TO UPHO LD THE FINDING OF THE LD. CIT(A) IN DELETING THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER. THE GROUNDS TAKEN BY THE RE VENUE ARE, THEREFORE, REJECTED. 9. IN THE RESULT, THE REVENUES APPEAL STANDS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14TH OCT., 2011. SD SD ( PRAMOD KUMAR ) (D.K.AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 14 OCTOBER, 2011 SRL: ITA NO. 3613/MUM/2010 (ASSESSMENT YEAR: 2006-07) 6 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI