Krishna Commodities, Delhi V. ACIT, Delhi

ITA 3617/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65823 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 10-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHUMANA JAIN
• Assessee Lawyers: S B GARG S
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.3617/DEL/2012 ASSESSMENT YEAR : 2007-08 M/S KRISHNA COMMODITIES, ACIT, A-1/1, PRASHANT VIHAR, CIRCLE-21(1), NEW DELHI. V. NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAIFK AAIFK AAIFK AAIFK- -- -2313 2313 2313 2313- -- -F FF F APPELLANT BY : SHRI ACHIN GARG & SHRI S.B. GARG, ADVOCATES. RESPONDENT BY : SMT. SHUMANA JAIN, DR. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD CIT(A) DATED 1.5.2012. THE GROUNDS OF APPEALS TAKEN BY THE ASSESSEE ARE AS UNDER:- 1. THE LD CIT(A) XI ERRED IN UPHOLDING THE ADDITION O N ACCOUNT OF MEMBERSHIP FEES OF ` .16,02,000/-. 2. THE LD CIT(A) XI ERRED IN DISALLOWING DEPRECIATION O F ` .1,60,200/- WHICH WAS ALLOWED BY THE LD ASSESSING OFFICER PARTICULA RLY WITHOUT PROVIDING ANY OPPORTUNITY OF HEARING TO THE APPELLANT. 3. THE OBSERVATIONS AS WELL AS THE ADDITION MADE BY THE LD ASSESSING OFFICER AS WELL AS BY THE LD CIT(A) ARE AGAINST THE FACTS ITA NO3617/DEL/2012 2 AS WELL AS LAW AND ARE WITHOUT PROVIDING PROPER OPPOR TUNITY OF HEARING TO THE APPELLANT. 4. THE ORDERS OF THE ASSESSING OFFICER AS WELL AS THE LD CIT( A) ARE AGAINST THE FACTS OF THE CASE AND LAW. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND IS A MEMBER OF MULTI COMMODITY EXCHANGE OF INDIA (MCX) AND NATIONAL COMMODITY AND DERIVATIVE EXCHANGE (NCDX) A ND IS DOING BUSINESS OF ARBITRAGE, HEDGING ETC. AS PER ASSESSMENT ORDE R THE FIRM CAME INTO EXISTENCE ON 3 RD AUGUST, 2006 AND THEREFORE THE YEAR UNDER CONSIDERATION IS THE FIRST YEAR OF OPERATION. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. DURING ASSESSMENT PROCEEDINGS, T HE ASSESSING OFFICER NOTED THAT ASSESSEE HAD DEBITED AN AMOUN T OF ` .16,02,000/- AS MEMBERSHIP ASSOCIATION FEES. ON BEING Q UESTIONED, THE ASSESSEE REPLIED THAT THE EXPENDITURE OF ` .16,02,000/- CONSISTED OF PAYMENT OF ADMISSION FEE PAID TO MCX ` .10 LAKHS, NCDEX ` ,5 LAKHS AND NMCE ` .1 LAKH AND COST OF APPLICATION FORM ` .2,000/-. THE ASSESSEE FURTHER SUBMITTED THE PAYMENT OF ADMISSION FEE WAS NEC ESSARILY REVENUE EXPENDITURE BECAUSE PAYMENT OF THE SAME ENTIT LED THE ASSESSEE FIRM TO CARRY ON THE BUSINESS ACTIVITY AND PAYMEN TS MADE TO EXCHANGES WAS NON REFUNDABLE AND HENCE THEREFORE CLA IMED THAT ADMISSION FEE WAS AN INTEGRAL PART OF PROFIT EARNING P ROCESS. RELIANCE WAS PLACED ON THE FOLLOWING CASES: 1. PEERLESS SECURITY LTD. V. JCIT 95 ITD 89 2. PARESH B. GANDHI V. ACIT 142 TAXMANN 33 (MUM.). 3. ACIT V. MARBLE EQUITY PVT. LTD. 3. ON THE BASIS OF ABOVE JUDGMENTS, THE ASSESSEE CLAIMED T HAT THE ADMISSION FEE PAID WAS IN THE NATURE OF REVENUE EXPEND ITURE. THE ITA NO3617/DEL/2012 3 ASSESSING OFFICER, HOWEVER, DID NOT AGREE WITH THE CONT ENTIONS OF ASSESSEE AND HELD THAT THE PAYMENTS WERE IN THE NATURE W HOSE BENEFITS WERE GOING TO BE ENJOYED BY THE ASSESSEE OVER A LONG PERIOD OF TIME. HE DISTINGUISHED THE CASE LAW RELIED UPON BY THE ASSESSEE RELATING TO PEERLESS SECURITIES LTD. 95 ITD 89 AND IN RESPECT OF REMAINING CASE LAWS RELIED UPON BY THE ASSESSEE, HE DID N OT OFFER ANY COMMENT IN VIEW OF ASSESSEES NOT GIVING ANY CITATION. THEREFORE, HE MADE AN ADDITION OF ` .16,02,000/-. HOWEVER, TREATING THE ADDITION ON ACCOUNT OF CAPITAL EXPENDITURE HE ALLOWED DEPRECIAT ION OF ` .1,60,200/- @ 10%. 4. DISSATISFIED WITH THE ORDER, THE ASSESSEE FILED APPEAL BEFORE THE LD CIT(A) AND SUBMITTED AS UNDER:- I) THAT THE PAYMENT OF ADMISSION FEE WAS NECESSARILY REV ENUE EXPENDITURE BECAUSE THE PAYMENT OF THE SAME ENTITLED THE ASSESSEE FIRM TO CARRY ON THE BUSINESS ACTIVITY AND THE PA YMENTS MADE TO EXCHANGES WAS A NON REFUNDABLE AND HENCE ADMI SSION FEE WAS AN INTEGRAL PART OF PROFIT EARNING PROCESS. RE LIANCE WAS PLACED ON THE FOLLOWING JUDGMENTS:- 1. NESET HOLDINGS (P) LTD. V. CIT 282 ITR 601 (DEL.) . 2. CIT V. S. VENKATASUBRAMANIAM 207 CTR 88 (MAD.). 3. PEERLESS SECURITIES PVT. LTD. 98 ITD 89 & 4. PARESH B. GANDHI V. ACIT 142 TAXMNN 33. II) THAT THE ASSESSING OFFICER HAS NOT AT ALL DISCUSSED OR EXPLAINED AS TO HOW THE FACTS OF THE CASE RELIED UPON BY THE ASSESSEE ARE DIFFERENT FROM THE FACTS OF THE CASE OF THE ASSESSEE. ITA NO3617/DEL/2012 4 5. THE LD CIT(A) AFTER GOING THROUGH THE SUBMISSIONS UP HELD THE ADDITION MADE BY THE ASSESSING OFFICER AND IN FACT HE F URTHER INCREASED THE AMOUNT OF ADDITION BY AN AMOUNT OF ` .16,02,000/- BEING DEPRECIATION ALLOWED BY THE ASSESSING OFFICER. THE LD CIT(A) HELD THAT MEMBERSHIP ADMISSION FEE WAS NOT AN ALLOWABLE DEDUCTIO N AND RELIANCE WAS PLACED ON THE ORDER OF BOMBAY BENCH OF THE ITAT IN THE CASE OF PHOENIX SHARES & STOCK BROKERS (P) LTD. WHEREI N IT WAS HELD THAT DEPRECIATION ON BSE CARD WAS NOT AN ALLOWABLE D EDUCTION. 6. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THIS TRIB UNAL. 7. AT THE OUTSET, THE LD AR INVITED OUR ATTENTION TO PAGE 1 TO 13 OF PAPER BOOK WHEREIN COPIES OF JUDGMENTS IN THE CASE OF NESET HOLDINGS (P) LTD. AND CIT V. S. VENAKATASUBRAMANIAM (SUPRA) W ERE PLACED. HE ARGUED THAT IN THE FIRST CASE DECIDED BY THE HON'BLE DELHI HIGH COURT THE HIGH COURT HELD THAT PAYMENT OF ONE TIME NON RE FUNDABLE FEE THOUGH ESSENTIAL FOR OBTAINING DEALERSHIP FOR OTC WAS N OT AN EXPENDITURE THAT RESULTS IN AN ENDURING BENEFIT. IN V IEW OF THAT THE HON'BLE COURT HAD HELD THAT EXPENDITURE IN QUESTION OUGHT TO BE TREATED AS REVENUE EXPENDITURE. SIMILARLY, OUR ATTEN TION WAS INVITED TO JUDGMENT OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT V. S.VENKATASUBRAMANIAM PLACED AT PAPER BOOK PAGE 6 WH EREIN IT WAS HELD THAT ADMISSION FEE PAID TO BECOME A MEMBER OF STO CK EXCHANGE WAS CONDITION PRECEDENT TO ACQUIRE THE MEMBERSHIP CAR D AND BY INCURRING THESE EXPENDITURE THE ASSESSEE HAD ACQUIRED A RIGHT OF TRADING IN SHARES AND SECURITIES AT THE TERMINAL OF STOC K EXCHANGE AND HENCE SUCH PAYMENT WAS NECESSARY FOR THE ASSESSEE TO CARRY ON THE BUSINESS. THE HON'BLE COURT FURTHER HELD THAT SINCE TH E ASSESSEE DID NOT BECOME THE OWNER OF ANY OF THE ASSETS IN THE STOCK EXCHANGE, IT CANNOT BE SAID THAT ANY ENDURING BENEFIT HAD ACCRUED TO HIM. ITA NO3617/DEL/2012 5 THEREFORE, THE AMOUNT PAID TOWARDS ADMISSION FEE WAS HE LD TO BE OF REVENUE EXPENDITURE. 8. THE LD DR, ON THE OTHER HAND, ARGUED THAT BOTH T HE CASE LAWS RELIED UPON BY LD AR WERE OF DIFFERENT STOCK EXCHANG ES AND THEREFORE THE FACTS AND CIRCUMSTANCES OF THE CASE LAW RELIED UPON BY THE LD AR ARE NOT SIMILAR WITH THE FACTS OF THE PRESENT CASE. TH E LD DR PUT RELIANCE ON THE JUDGMENT OF MUMBAI TRIBUNAL IN THE CASE OF DCIT V. KHONDWALA FINANCE LTD REPORTED AT 121 TTJ 66 WHEREI N IT WAS HELD THAT MEMBERSHIP RIGHT HELD BY A MEMBER OF STOCK EXCHANGE WAS A CAPITAL ASSET CAPABLE OF BEING TRANSFERRED AND TRANSMITTED. 9. IN HIS REJOINDER, THE LD AR SUBMITTED THAT WORKING OF ALL EXCHANGES ARE SIMILAR AND THEREFORE THE ADMISSION FEE P AID BY THE ASSESSEE IN ALL THE EXCHANGES SHOULD BE GIVEN SIMILAR TREA TMENT. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PA RTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT ADMISSION FEE PAID BY THE ASSESSEE IN RESPECT OF THREE EXC HANGES NAMELY MCX, NCDEX NMCE WERE NECESSARY EXPENDITURE WHI CH HAD GIVEN THE ASSESSEE A RIGHT TO CARRY ON THE BUSINESS AS BROK ER. WITHOUT PAYMENT OF THESE SO-CALLED ADMISSION FEE, THE ASSESSEE WOUL D NOT HAVE BEEN ENTITLED TO CARRY ON THE BUSINESS. BY INCUR RING THESE EXPENDITURE, THE ASSESSEE HAD ACQUIRED RIGHT OF TRADING . IT IS AN ADMITTED FACT THAT STOCK EXCHANGES ALLOW ONLY THEIR MEMBERS TO CARRY ON THEIR BUSINESS ON THE FLOOR OF THE STOCK EXCHANGE. A S PER RULES, A MEMBER CANNOT CARRY ON BUSINESS UNLESS HE PAYS THE ADMISSIO N FEE AND OTHER CHARGES AS APPLICABLE FROM TIME TO TIME. S O PAYMENTS WERE NECESSARY FOR THE ASSESSEE TO CARRY ON THE BUSINESS. BY BECO MING A MEMBER, THE ASSESSEE BECAME ENTITLED TO THE BENEFIT OF USING ALL THE ITA NO3617/DEL/2012 6 FACILITIES OF STOCK EXCHANGE AND ASSESSEE DID NOT BECOME OWNER OF ANY OF THE ASSETS OF THE STOCK EXCHANGE. THEREFORE, IT CANN OT BE SAID THAT ANY ENDURING BENEFIT HAD ACCRUED TO THE ASSESSEE. IN TH E CASE OF THE ASSESSEE NO NEW ASSET HAS BEEN CREATED AND THERE IS NO INCR EASE IN THE PROFIT MAKING OPERATUS OF THE ASSESSEE. PAYMENT OF A DMISSION FEE IS LIKE A LICENSE FEE AND IT IS PAID ONLY FOR CARRYING ON THE BUSINESS. THEREFORE, IF THE PAYMENT IS MADE FOR THE PURPOSE OF RUNNING BUSINESS EFFECTIVELY AND NECESSARILY THEN IT IS ONLY A REVENUE EXPENDITURE. THE CASE LAW RELIED UPON BY LD DR RELATES TO THE YEAR 199 5-96 WHEN THERE WAS A SYSTEM OF TRANSFER OF MEMBERSHIP AND AT THAT POIN T OF TIME IT WAS NECESSARILY AN ITEM OF CAPITAL NATURE. THE WEB SITE S OF ABOVE EXCHANGES STATES THAT BESIDES REFUNDABLE SECURITY DEPOSI TS AN APPLICANT HAS TO PAY ADMISSION FEE ALSO TO BECOME A MEM BER AND AT THE TIME OF SURRENDER OF MEMBERSHIP ONLY REFUNDABLE SE CURITY DEPOSITS ARE REFUNDED THAT TOO AFTER A PARTICULAR PERIOD WHI CH AT PRESENT AS PER NCDX WEBSITE IS 3 YEARS. IT FOLLOWS FROM THE ABOVE THA T ADMISSION FEE IS NOT REFUNDABLE AND THIS FACT IS PARTICULARLY MENTIO NED ON THE WEBSITE OF MCX. THEREFORE, FOLLOWING THE JUDICIAL RULINGS RE LIED UPON BY THE ASSESSEE AND ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE AMOUNT PAID B Y THE ASSESSEE AS ADMISSION FEE TO VARIOUS EXCHANGES AND COST OF APPLICATI ON FORM WAS A REVENUE EXPENDITURE. 11. IN VIEW OF THE ABOVE, GROUND NO.1 OF THE APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE. 12. GROUND NO.2,3 & 4 IN VIEW OF ABOVE HAS BECOME I NFRUCTUOUS AND THEREFORE DO NOT NEED ANY ADJUDICATION. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED. ITA NO3617/DEL/2012 7 14. ORDER PRONOUNCED IN THE OPEN COURT ON 31ST DAY O F OCTOBER, 2012. SD/- SD/- (U.B.S. BEDI) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT.31.10.2012. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 11.9.2012 DATE OF DICTATION 30.10.2012 DATE OF TYPING 31.10.2012 DATE OF ORDER SIGNED BY 31.10.2012 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET & SENT TO THE BENCH CONCERNED.