DCIT CIR 4(2), MUMBAI V. STRATCAP SECURITIES P. LTD, MUMBAI

ITA 3671/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49428 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2006-2007
• Appeal Filed On: 07-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIMAL PUMMIYA
• Keywords: Rule of consistency; Non-deduction of tax
• Section: 37

Judgement Text

1 ITA NO. 3671/MUM/2010 (ASST YEAR2006-07) IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI PRAMOD KUMAR, AM & SHRI VIJAY PAL RAO, JM ITA NO. 3671/MUM/2010 (ASST YEAR2006-07) THE ASST COMMR OF INCOME TAX CIR 4(2), MUMBAI VS M/S STRATCAP SECURITIES P LTD 44 MINT ROAD, FORT MUMBAI (APPELLANT) (RESPONDENT) PAN NO.AAACS7113H A SSESSEE BY SHRI VIMAL PUMMIYA REVENUE BY SHRI S KSINGH PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 11.2.2009 OF THE CIT(A) FOR THE ASSESSMENT YEAR 2006-07. 2 THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GRO UNDS IN THIS APPEAL: 1 ) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 81,559/- MADE U/S 40(A)(IA) IN RESPECT OF TRANSACTION CHARGES PAID TO STOCK EXCHANGE , WITHOUT APPRECIATING THE FACTS THAT THESE WERE COMPOSITE CHARGES FOR PROFES SIONAL AND TECHNICAL SERVICES RENDERED BY THE STOCK EXCHANGE TO ITS MEMBER S AND THE ASSESSEE HAS FAILED TO DEDUCT TDS THEREON. II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF P ENALTY OF RS. 85,092/- LEVIED BY NSE & BSE ON VIOLATION OF THE BYLAWS OF T HE STOCK EXCHANGE, WHICH ARE STATUTORY IN CHARACTER AND THUS AMOUNTED TO INFRI NGEMENT OF LAW. III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A) ERRED IN DELETING THE ADDITION OF RS. 68,27,301 FOR NON-DEDUCTION OF TDS ON PARENT COMPANY. 3 GROUND NOS 1 & 2 REGARDING DISALLOWANCE OF RS.81, 559/- MADE U/S 40(A)(IA) IN RESPECT OF TRANSACTION CHARGES PAID TO STOCK EXCHAN GE AND THE PENALTY OF RS. 85,092/- LEVIED BY NSE & BSE ON VIOLATION OF TH E BYELAWS OF THE STOCK EXCHANGE. 2 ITA NO. 3671/MUM/2010 (ASST YEAR2006-07) 4 WE HAVE HEARD THE LD DR AND THE LD AR OF THE ASSE SSEE AND PERUSED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THIS ISSUE OF DISALLOWANCE U/S 40(A)(IA) HAS BEEN CONSIDERED AND ADJUDICATED BY TH E TRIBUNAL IN THE CASE OF KOTAK SECURITIES LTD REPORTED IN 25 SOT 440. WE FURTHER NOTE THAT THE TRIBUNAL HAS BEEN REGULARLY FOLLOWING THE SAID DECISION WHILE DECIDIN G THIS ISSUE. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL READS AS UNDER: 23. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE RELEV ANT PROVISIONS OF LAW MAY BE REFERRED TO FOR THE PURPOSE OF CLARITY. '194J. FEES FOR PROFESSIONAL OR TECHNICAL SERVICES. (1) ANY PERSON, NOT BEING AN INDIVIDUAL OR AN HUF, WHO IS RESPONSIBLE F OR PAYING TO A RESIDENT ANY SUM BY WAY OF (A) FEES FOR PROFESSIONAL SERVICES, OR (B) FEES FOR TECHNICAL SERVICES, SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO FIVE PER CENT OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THEREIN: EXPLANATION: FOR THE PURPOSES OF THIS SECTION, (A) PROFESSIONAL SERVICES MEANS SERVICES RENDERED BY A PERSON IN THE COURSE OF CARRYING ON LEGAL, MEDICAL, ENGINEERING O R ARCHITECTURAL PROFESSION OR THE PROFESSION OF ACCOUNTANCY OR TECH NICAL CONSULTANCY OR INTERIOR DECORATION OR ADVERTISING OR SUCH OTHER PROFESSION AS IS NOTIFIED BY THE BOARD FOR THE PURPOSES OF S. 44AA O R OF THIS SECTION; (B) FEES FOR TECHNICAL SERVICES SHALL HAVE THE SA ME MEANING AS IN EXPLN. 2 TO CL. (VII) OF SUB-S. (1) OF S. 9.' THE PROVISIONS OF S. 9(1)(VII) EXPLN. 2 IS AS FOLLO WS : 'EXPLANATION 2 : FOR THE PURPOSES OF THIS CLAUSE, FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUDING ANY LU MP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SE RVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERAT ION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDE RTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD SALARIES.' 24. AS CAN BE SEEN FROM EXPLN. 2, THE FEE FOR TECHN ICAL SERVICES MEANS ANY CONSIDERATION FOR RENDERING ANY TECHNICAL SERVI CE. THE EXPLANATION 3 ITA NO. 3671/MUM/2010 (ASST YEAR2006-07) DOES NOT BY ITSELF THROW ANY LIGHT ON WHAT IS A TEC HNICAL SERVICE. TWO THINGS ARE, HOWEVER, CLEAR FROM THE SETTING OF S. 9 (1)(VII) R/W EXPLN. 2, VIZ., (I) THAT THERE SHOULD BE AN AGREEMENT TO ENGAGE/UTI LISE TECHNICAL SERVICE AND A PERSON UNDERTAKING TO RENDER THEM; (I I) IF THERE IS A CONTRACT OF EMPLOYMENT AND THE EMPLOYEE RENDERS TEC HNICAL SERVICE UNDER A CONTRACT OF EMPLOYMENT THEN THE PAYMENT OF REMUNERATION FOR SUCH SERVICES ARE OUTSIDE THE PURVIEW OF 'FEES FOR TECHNICAL SERVICES'. 25. THE HONBLE MADRAS HIGH COURT IN THE CASE OF SK YCELL COMMUNICATIONS LTD. VS. DY. CIT (2001) 170 CTR (MAD ) 238 : (2001) 251 ITR 53 (MAD) HAD AN OCCASION TO EXAMINE THE DEFINIT ION OF 'FEE FOR TECHNICAL SERVICES' IN THE CONTEXT OF PAYMENT OF FE ES BY A CELLULAR/MOBILE PHONE SUBSCRIBER TO THE OPERATOR OF THE CELLULAR/MOBILE PHONE FACILITY. THE FOLLOWING WERE ITS OBSERVATIONS : 'THUS WHILE STATING THAT TECHNICAL SERVICE WOULD INCLUDE MANAGERIAL AND CONSULTANCY SERVICE, THE LEGISLATURE HAS NOT SE T OUT WITH PRECISION AS TO WHAT WOULD CONSTITUTE TECHNICAL SERVICE TO RENDER IT TECHNICAL SERVICE. THE MEANING OF THE WORD TECHNICAL AS GI VEN IN THE NEW OXFORD DICTIONARY IS ADJECTIVE : 1. OF OR RELATING TO A PARTICULAR SUBJECT, ART OR CRAFT OR ITS TECHNIQUES : TECHNICAL TERMS (E SPECIALLY OF A BOOK OR ARTICLE) REQUIRING SPECIAL KNOWLEDGE TO BE UNDERSTO OD : A TECHNICAL REPORT. 2. OF INVOLVING, OR CONCERNED WITH APPLIED AND INDUSTRIAL SCIENCES: AN IMPORTANT TECHNICAL ACHIEVEMENT. 3 RES ULTING FROM MECHANICAL FAILURE: A TECHNICAL FAULT. 4. ACCORDING TO A STRICT APPLICATION OR INTERPRETATION OF THE LAW OR THE RUL ES: THE ARREST WAS A TECHNICAL VIOLATION OF THE TREATY. HAVING REGARD TO THE FACT THAT THE TERM IS REQUIRED TO BE UNDERSTOOD IN THE CONTEXT IN WHICH IT IS USED, FEE FOR TECHNICAL SERVICES COULD ONLY BE MEANT TO COVER SUCH THINGS TECHNICAL AS ARE CAPABLE OF BEING PROVIDED BY WAY OF SERVICE FOR A FEE. THE POPULAR MEANING AS SOCIATED WITH TECHNICAL IS INVOLVING OR CONCERNING APPLIED AND INDUSTRIAL SCIENCE. IN THE MODERN DAY WORLD, ALMOST EVERY FACET OF ONE S LIFE IS LINKED TO SCIENCE AND TECHNOLOGY INASMUCH AS NUMEROUS THINGS USED OR RELIED UPON IN EVERYDAY LIFE IS THE RESULT OF SCIENTIFIC A ND TECHNOLOGICAL DEVELOPMENT. EVERY INSTRUMENT OR GADGET THAT IS USE D TO MAKE LIFE EASIER IS THE RESULT OF SCIENTIFIC INVENTION OR DEVELOPMEN T AND INVOLVES THE USE OF TECHNOLOGY. ON THAT SCORE, EVERY PROVIDER OF EVE RY INSTRUMENT OR FACILITY USED BY A PERSON CANNOT BE REGARDED AS PRO VIDING TECHNICAL SERVICE. WHEN A PERSON HIRES A TAXI TO MOVE FROM ONE PLACE T O ANOTHER, HE USES A PRODUCT OF SCIENCE AND TECHNOLOGY, VIZ., AN AUTOM OBILE. IT CANNOT ON THAT GROUND BE SAID THAT THE TAXI DRIVER WHO CONTRO LS THE VEHICLE, AND MONITORS ITS MOVEMENT IS RENDERING A TECHNICAL SERV ICE TO THE PERSON WHO USES THE AUTOMOBILE. SIMILARLY, WHEN A PERSON T RAVELS BY TRAIN OR IN AN AEROPLANE, IT CANNOT BE SAID THAT THE RAILWAYS O R AIRLINESS RENDERING A TECHNICAL SERVICE TO THE PASSENGER AND, THEREFORE, THE PASSENGER IS UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE TO THE RAILWAY OR THE AIRLINE FOR HAVING USED IT FOR T RAVELLING FROM ONE 4 ITA NO. 3671/MUM/2010 (ASST YEAR2006-07) DESTINATION TO ANOTHER. WHEN A PERSON TRAVELS BY BU S, IT CANNOT BE SAID THAT THE UNDERTAKING WHICH OWNS THE BUS SERVICE IS RENDERING TECHNICAL SERVICE TO THE PASSENGER AND, THEREFORE, THE PASSEN GER MUST DEDUCT TAX AT SOURCE ON THE PAYMENT MADE TO THE BUS SERVICE PR OVIDER, FOR HAVING USED THE BUS. THE ELECTRICITY SUPPLIED TO A CONSUME R CANNOT, ON THE GROUND THAT GENERATORS ARE USED TO GENERATE ELECTRI CITY, TRANSMISSION LINES TO CARRY THE TRANSFORMERS TO REGULATE THE FLO W OF CURRENT, METERS TO MEASURE THE CONSUMPTION, BE REGARDED AS AMOUNTING T O PROVISION OF TECHNICAL SERVICES TO THE CONSUMER RESULTING IN THE CONSUMER HAVING TO DEDUCT TAX AT SOURCE ON THE PAYMENT MADE FOR THE PO WER CONSUMED AND REMIT THE SAME TO THE REVENUE.' THE COURT FINALLY CONCLUDED AS FOLLOWS: 'INSTALLATION AND OPERATION OF SOPHISTICATED EQUIPM ENTS WITH A VIEW TO EARN INCOME BY ALLOWING CUSTOMERS TO AVAIL OF THE B ENEFIT OF THE USER OF SUCH EQUIPMENT DOES NOT RESULT IN THE PROVISION OF TECHNICAL SERVICE TO THE CUSTOMER FOR A FEE. WHEN A PERSON DECIDES TO SUBSCRIBE TO A CELLULAR TE LEPHONE SERVICE IN ORDER TO HAVE THE FACILITY OF BEING ABLE TO COMMUNI CATE WITH OTHERS, HE DOES NOT CONTRACT TO RECEIVE A TECHNICAL SERVICE . WHAT HE DOES AGREE TO IS TO PAY FOR THE USE OF THE AIRTIME FOR W HICH HE PAYS A CHARGE. THE FACT THAT THE TELEPHONE SERVICE PROVIDE R HAS INSTALLED SOPHISTICATED TECHNICAL EQUIPMENT IN THE EXCHANGE T O ENSURE CONNECTIVITY TO ITS SUBSCRIBER, DOES NOT ON THAT SC ORE, MAKE IT PROVISION OF A TECHNICAL SERVICE TO THE SUBSCRIBER. THE SUBSC RIBER IS NOT CONCERNED WITH THE COMPLEXITY OF THE EQUIPMENT INST ALLED IN THE EXCHANGE, OR THE LOCATION OF THE BASE STATION. ALL THAT HE WANTS IS THE FACILITY OF USING THE TELEPHONE WHEN HE WISHES TO, AND BEING ABLE TO GET CONNECTED TO THE PERSON AT THE NUMBER TO WHICH HE DESIRES TO BE CONNECTED. WHAT APPLIES TO CELLULAR MOBILE TELEPHON E IS ALSO APPLICABLE IN FIXED TELEPHONE SERVICE. NEITHER SERV ICE CAN BE REGARDED AS TECHNICAL SERVICE FOR THE PURPOSE OF S. 194J OF THE ACT...' '....AT THE TIME THE IT ACT WAS ENACTED IN THE YEAR 1961, AS ALSO AT THE TIME WHEN EXPLN. 2 TO S. 9 (1)(VII) WAS INTR ODUCED BY THE FINANCE (NO. 2) ACT, W.E.F. 1ST APRIL, 1977, THE PR ODUCTS OF TECHNOLOGY HAD NOT BEEN IN SUCH WIDE USE AS THEY AR E TODAY. ANY CONSTRUCTION OF THE PROVISIONS OF THE ACT MUST BE IN THE BACKGROUND OF THE REALITIES OF DAY-TO-DAY LIFE IN W HICH THE PRODUCTS OF TECHNOLOGY PLAY AN IMPORTANT ROLE IN MA KING LIFE SMOOTHER AND MORE CONVENIENT. SEC. 194J, AS ALSO EX PLN. 2 IN S. 9(1)(VII) OF THE ACT WERE NOT INTENDED TO COVER THE CHARGES PAID BY THE AVERAGE HOUSEHOLDER OR CONSUMER FOR UTILISIN G THE PRODUCTS OF MODERN TECHNOLOGY, SUCH AS, USE OF THE TELEPHONE FIXED OR MOBILE, THE CABLE T.V., THE INTERNET, THE AUTOMOBILE, THE RAILWAY, THE AEROPLANE, CONSUMPTION OF ELECTRICAL E NERGY, ETC. SUCH FACILITIES WHICH WHEN USED BY INDIVIDUALS ARE NOT CAPABLE OF BEING REGARDED AS TECHNICAL SERVICE CANNOT BECOM E SO WHEN USED BY FIRMS AND COMPANIES. THE FACILITY REMA INS THE 5 ITA NO. 3671/MUM/2010 (ASST YEAR2006-07) SAME WHOEVER THE SUBSCRIBER MAY BE, INDIVIDUAL, FIR M OR COMPANY. TECHNICAL SERVICE REFERRED IN S. 9(1)(VII) CONTEM PLATES RENDERING OF A SERVICE TO THE PAYER OF THE FEE. MERE COLLEC TION OF A FEE FOR USE OF A STANDARD FACILITY PROVIDED TO ALL THOS E WILLING TO PAY FOR IT DOES NOT AMOUNT TO THE FEE HAVING BEEN RECEI VED FOR TECHNICAL SERVICES.' 26. THE ABOVE OBSERVATIONS OF THE HONBLE MADRAS HI GH COURT ARE CLEARLY APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE LEA RNED CIT(A) IN COMING TO THE CONCLUSION THAT TRANSACTION CHARGES ARE IN THE NATURE OF FTS HAS HELD THAT THE FUNCTIONS PERFORMED BY THE STOCK EXCHANGES ARE OF A MANAGERIAL NATURE. THE FUNCTIONS LISTED BY LEARNED CIT(A) IN TH IS REGARD ARE : '(A) STOCK EXCHANGES PROVIDE SERVICES FOR RISK MANAGEME NT AND SURVEILLANCE TO THE MEMBER TRADER. THIS REASONING OF LE ARNED CIT(A) IN OUR VIEW IS NOT PROPER. THE ASSESSEE IN HIS CAPACITY AS A STOCKBROKER DOES NOT BEAR ANY RISK HIMSELF AS HE TRADES ONLY ON B EHALF OF HIS CLIENT. (B) STOCK EXCHANGE KEEPS MARGIN MONEY FROM MEMBERS TO ENSURE THAT TRANSACTIONS MADE THROUGH STOCK EXCHANGE ARE HONOURED FULLY. THIS FUNCTION IN OUR VIEW IS ONLY TO ENSURE THAT THE ULT IMATE BUYER OR SELLER OF SHARES IS NOT PUT TO LOSS. WE FAIL TO SEE AS TO HOW THIS CAN BE SAID TO BE A SERVICES RENDERED BY A STOCK EXCHANGE TO ITS MEMBER. (C) SETTLEMENT OF ACCOUNTS OF BUYERS AND SELLER OF S TOCK IS ALSO THE STOCK EXCHANGES RESPONSIBILITY. THIS IS AGAIN NOT A SERVICE RENDERED TO THE MEMBERS WHICH IS IN THE NATURE OF A TECHNICAL SE RVICE. THIS IS MERELY PROVIDING DATA TO ENABLE SETTLEMENT OF ACCOUNT. (D) THE NATURE OF SERVICE PROVIDED IS SPECIALIZED K NOWLEDGE, EXPERIENCE AND SKILL IN THE FIELD OF SHARE TRADING. T HIS STATEMENT BY THE LEARNED CIT(A) IS A GENERAL STATEMENT WITHOUT REFERE NCE TO PARTICULAR TYPE OF SERVICE. WE ARE OF THE VIEW THAT STOCK EXCHAN GE REGULATES THE MANNER OF TRADING IN SHARES. (E) THE FINAL CONCLUSION OF THE AO IS THAT ALL THE ABOVE ARE NOTHING BUT RENDERING MANAGERIAL SERVICE TO A MEMBER. A MEMBER MAN AGES HIS OWN BUSINESS AND STOCK EXCHANGES DO NOT HAVE ANY CO NTROL OVER THE SAME. A MEMBER IS EXPECTED TO FOLLOW THE RULES AND RE GULATIONS OF THE STOCK EXCHANGE. THAT DOES NOT MEAN THAT THE STOCK E XCHANGES MANAGE THE BUSINESS OF THE ASSESSEE OR PROVIDE MANAG ERIAL SERVICES. FROM WHAT IS STATED IN (A) TO (D) ABOVE THERE CAN BE NO REFERENCE THAT STOCK EXCHANGE RENDER MANAGERIAL SERVICES TO ITS MEMBE RS. THE FACT THAT THE STOCK EXCHANGE SUPERVISE, CONTROL, SETTLE B Y ARBITRATION DISPUTES CANNOT BE THE BASIS TO SAY THAT THEY PROVID E MANAGERIAL SERVICES TO ITS MEMBERS. IT IS A CASE WHERE CERTAIN FACILITIES AND RIGHTS ARE CONFERRED ON MEMBERS TRANSACTING BUSINESS AND TH E FEE PAID IS ONLY FOR USE OF SUCH FACILITIES AND RIGHTS AND NOT FOR ANY TECHNICAL SERVICES RENDERED.' 6 ITA NO. 3671/MUM/2010 (ASST YEAR2006-07) 27. THE LEARNED CIT(A) IN THE LATER PART OF HIS ORDER ON THIS ISSUE HAS EXPRESSED THE VIEW THAT TRANSACTION FEE MAY NOT BE STRICTLY F EES FOR TECHNICAL SERVICES. THE LEARNED CIT(A) FURTHER HAS GONE ON TO HOLD THAT E VEN IF A DOUBT EXISTS BY WAY OF ABUNDANT CAUTION TDS SHOULD HAVE BEEN MADE. THIS IN OUR VIEW IS NOT A PROPER APPROACH. THE LIABILITY TO DEDUCT TAX AT SO URCE IN GIVEN FACTS AND CIRCUMSTANCES EITHER EXISTS OR DOES NOT EXIST. THERE CA NNOT BE ANY LEGAL OBLIGATION BY WAY OF ABUNDANT CAUTION. 28. TO CALL A PAYMENT AS FEES FOR TECHNICAL SERVICES IT SHOULD HAVE BEEN PAID IN CONSIDERATION FOR RENDERING BY THE RECIPIENT OF P AYMENT OF ANY (A) MANAGERIAL SERVICE (B) TECHNICAL OR CONSULTANCY SERVI CES; STOCK EXCHANGES MERELY PROVIDE FACILITY FOR ITS MEMBERS TO PURCHASE AND SELL SHARES, SECURITIES ETC., WITHIN THE FRAMEWORK OF ITS BYE LAWS. IN THE EVENT OF DISPUTE IT PROVIDES MECHANISM FOR SETTLEMENT OF DISPUTES. IT REGULATES C ONDITIONS SUBJECT TO WHICH A PERSON CAN BE A MEMBER AND WHEN AND IN WHAT CIRCUMSTANCES MEMBERSHIP CAN BE TRANSFERRED, CANCELLED, SUSPENDED, ETC. THE EXCHANGE PROVIDES A PLACE WHERE THE MEMBERS MEET AND TRANSACT BUSINESS. THE TRANSACTION FEE PAID IS ON THE BASIS OF VOLUME OF TRA NSACTION EFFECTED BY A MEMBER. THE STOCK EXCHANGES DO NOT RENDER ANY MANAGE RIAL SERVICE NOR DO THEY RENDER ANY TECHNICAL CONSULTANCY SERVICE. THE TRA NSACTION FEE IS NOT PAID IN CONSIDERATION OF ANY SERVICE PROVIDED BY THE STOCK EXCHANGE. IT IS A PAYMENT FOR USE OF FACILITIES PROVIDED BY THE STOCK E XCHANGE AND SUCH FACILITIES ARE AVAILABLE FOR USE BY ANY MEMBER. THE PROVISIONS OF S. 194J WHICH CASTS A BURDEN ON A PERSON TO DEDUCT AT SOURCE AND TRE AT HIM A DEFAULTER ON FAILURE TO DEDUCT TAX AT SOURCE, NEEDS TO BE INTER PRETED STRICTLY AND IN THE ABSENCE OF A CLEAR OBLIGATION ON THE PART OF A PERSO N SPELT OUT IN UNAMBIGUOUS TERMS BY THE PROVISIONS OF S. 194J R/W E XPLN. 2 TO S. 9(1)(VII) OF THE ACT, SUCH OBLIGATION CANNOT BE IMPLIED OR LEFT TO THE IPSI DIXIT OF THE REVENUE AUTHORITIES. WE THEREFORE HOLD THAT TRANSACTI ON FEE PAID CANNOT BE SAID TO BE A FEE PAID IN CONSIDERATION OF THE STOCK EXCHANGE RENDERING ANY TECHNICAL SERVICES TO THE ASSESSEE. THE PROVISIONS OF S. 194J ARE THEREFORE NOT ATTRACTED. THEREFORE, THERE WAS NO OBLIGATION ON THE P ART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE. CONSEQUENTLY, THE PROVISIONS OF S. 40(A)(IA) WERE ALSO NOT ATTRACTED AND THEREFORE THE DISALLOWANCE MADE IS DIRECTED TO BE DELETED. 5 AS REGARDS THE ISSUE OF PENALTY PAID TO STOCK EXC HANGE, THE SAME IS ALSO COVERED BY THE ORDER DATED 31.12.2010 OF THIS TRIBU NAL IN CASE OF M/S TOTAL SECURITIES LTD VS DCIT IN ITA NO. 7123/M/2008 WHEREBY THIS TRI BUNAL HAS DECIDED THE ISSUE AS UNDER: 4. AS REGARDS GROUND NO. 2, IT IS OBSERVED THAT THE ISSUE INVOLVED THEREIN RELATING TO DISALLOWANCE MADE BY THE A.O. AND CONFIRM ED BY THE LD. CIT(A) ON ACCOUNT OF PENALTY OF 7445/- PAID BY THE ASSESSE E TO STOCK EXCHANGE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY SEVERAL DECISIONS OF THE TRIBUNAL. IN ONE OF SUCH DECISIONS RENDERED IN THE CAS E OF ITO VS. GDB SHARE & 7 ITA NO. 3671/MUM/2010 (ASST YEAR2006-07) STOCK BROKING SERVICES LTD. 88 TTJ (KOL) 352, IT WAS HELD BY THE TRIBUNAL THAT PENALTY PAID BY THE ASSESSEE AS A REGISTERED BROKER TO THE STOCK EXCHANGE FOR NOT COMPLYING WITH VARIOUS OBLIGATIONS/REQUIREMENTS IS NOT IN THE NATURE OF INFRINGMENT OF ANY LAW AS ENVISAGED IN EXPLANATION TO SECTION 37 AND THE SAME IS ALLOWABLE AS DEDUCTION BEING THE EXPENSES W HOLLY AND EXCLUSIVELY INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINE SS. A SIMILAR VIEW HAS BEEN TAKEN BY THE CHANDIGARH BENCH OF ITAT IN THE CA SE OF MASTER CAPITAL SERVICE LTD. VS. DCIT 23 SOT 69 (CHD.) RESPECTFULLY FOLLOWING THE SAID DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL, WE DELETE THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOU NT OF PENALTY PAID BY THE ASSESSEE TO STOCK EXCHANGE AND ALLOW GROUND NO. 2 OF ASSESSEES APPEAL. 6 RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUN AL IN THE CASE OF KOTAK SECURITIES LTD (SUPRA) AND IN THE CASE OF TOTAL SEC URITIES LTD (SUPRA), WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE; THE ORDER OF THE C IT(A) QUA THIS ISSUE UPHELD. 7 GROUND NO.3 REGARDING DELETION OF ADDITION OF RS. 68,27,301/- FOR NON DEDUCTION OF TDS ON PARENT COMPANY. 8 WE HAVE HEARD THE LD DR AND THE LD AR OF THE ASS ESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED AND ADJUDICATED BY THE TRIBUNAL IN ASSES SEES OWN CASE IN ITA NO.7048/MUM/2008 VIDE ORDER DATED 7.1.2011 AS UNDER : 18. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT FOLLOWING ASPECTS HAS BEEN BROUGHT TO OUR NOTICE BY THE LEARN ED COUNSEL IN RESPECT OF EXPENDITURE: THERE IS NO RENDERING OF SERVICES BY STRATEGIC CAPI TAL CORPORATION PRIVATE LTD. AND THERE IS NO SUCH AGREE MENT BETWEEN US AND STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED. WE HAVE NOT MADE PAYMENTS TO STRATEGIC CAPITAL CORPORATION PRIVATE L IMITED FOR MAKING AVAILABLE, FURNISHING OR SUPPLYING THE PERSONNEL/OT HER FACILITIES TO IT. IT WAS AGREED THAT STRATEGIC CAPITAL CORPORATION PRIVA TE LIMITED AND WE WOULD SHARE THE SERVICES OF CERTAIN EMPLOYEES AND O THER FACILITIES ON COST-TO-COST BASIS AND THUS. WE HAVE REIMBURSED ALL EXPENSES ON ACTUAL BASIS WITHOUT ANY MARK UP. THERE IS NOT COST SHARING AGREEMENT ENTERED INTO BE TWEEN US AND SCCPL. 8 ITA NO. 3671/MUM/2010 (ASST YEAR2006-07) THE DEBIT NOTES RAISED BY STRATEGIC CAPITAL CORPORA TION PRIVATE LIMITED ARE ACCOMPANIED BY THE ACTUAL STATEMENT AND SUPPORTING OF THE EXPENSES INCURRED. IN RESPECT OF THE OPERATING EXPENSES, THE SAME WERE PAID FIRST BY STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED TO THIRD PARTIES AND THEN ON AN AGREED BASIS WERE REIMBURSED BY US, SINC E WE ULTIMATELY AND DIRECTLY UTILIZED THOSE THIRD PARTY SERVICES/BE NEFITED FROM THE THIRD PARTY SERVICES. STRATEGIC CAPITAL CORPORATION PRIVA TE LIMITED HAS HAD NO ROLE TO PLAY IN THE SAME. IN RESPECT OF THE PERSONNEL EXPENSES. WE AND STRATE GIC CAPITAL CORPORATION PRIVATE LIMITED RECOGNIZED THAT THEY WO ULD REQUIRE CERTAIN COMMON HUMAN RESOURCES. WE AGREED THAT INSTEAD OF T HESE INDIVIDUALS BEING DULY EMPLOYED, STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED WOULD EMPLOY THEM. HOWEVER, THE SERVICES OF THESE EMPLOYEES WOULD BE AVAILED BY BOTH THE ENTITIES ON NEED BASIS AND COSTS EXPENSES IN RESPECT OF THESE EMPLOYEES (INCLU DING SALARY, INCENTIVES BASED ON TERMS OF APPOINTMENT, MOBILE PH ONE EXPENSES) WERE INITIALLY DISBURSED BY STRATEGIC CAPITAL CORPO RATION PRIVATE LIMITED AFTER DEDUCTING APPROPRIATE TAXES. HOWEVER, TO THE EXTENT THAT THESE PERSONS RENDERED SERVICES TO IT. WE HAVE REIMBURSED THE COSTS TO STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED AT AC TUALS (COST TO COMPANY BASIS) WITHOUT ANY MARK-UP. STRATEGIC CAPIT AL CORPORATION PRIVATE LIMITED DID NOT MAKE AVAILABLE, SUPPLY OR F URNISH THE SERVICES OF THESE PERSONNEL TO US. WHILE WORKING WITH US, THE EMPLOYEES WERE WORKING U NDER THE DIRECT SUPERVISION AND CONTROL FOR THEIR WORK AND T HE INTENTION OF STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED WAS N EVER TO PROVIDE ANY SERVICES TO US. ALL THE EXPENSES CAN BE SUBSTANTIATED BY SUPPLIERS BILLS/EVIDENCES IN RESPECT OF OPERATING EXPENSE AND BY SALARY CERTIFICATES IN CASE OF PERSONNEL EXPENSES. THE TRANSACTION ARE PROPERLY REFLECTED IN THE BOOKS OF ACCOUNTS OF BOTH THE PARTIES E.G. THE AMOUNT ARE CREDITED BY STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED TO RESPECTIVE EXPENSES ACCOUNTS AND NOT AS INCOME. 12.YOUR GOODSELF HAS MENTIONED THAT THE ASSESSEE IS PAYING TO STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED WHICH IS A PARENT COMPANY. HAD IT BEEN IT WAS FOR A THIRD PARTY THEN IT WOULD HAVE BEEN A 100% VIOLATION. FROM THIS VIEW OF THE OFFICER, IT IS APPARENT THAT ONLY IF THE PARTY INVOLVED WAS A THIRD PARTY, IT WO ULD RESULT IN CENT PERCENT VIOLATION. HOWEVER, IN THE INSTANT CASE, TH ERE IS NO THIRD PARTY INVOLVED AS BOTH STRATEGIC CAPITAL AND STRARCAP SEC URITES ARE SISTER CONCERNS, THE FORMER BEING THE HOLDING COMPANY AND THE LATTER ITS SUBSIDIARY. NEVERTHELESS, SEPARATE BOOKS OF ACCOUNT S ARE DULY MAINTAINED AND AUDITED; HENCE THE ASSESSEE IS IN TH E POSITION TO BIFURCATE ITS OWN EXPENSES, OUT OF THE TOTAL EXPENS ES INCURRED UNDER VARIOUS HEADS. JUST BECAUSE, STRATEGIC CAPITAL PAID THE WHOLE OF T HE EXPENSES, THE ACCOUNTABILITY OF STRATCAP SECURITIES FOR ITS OWN S HARE OF EXPENSES DOES 9 ITA NO. 3671/MUM/2010 (ASST YEAR2006-07) NOT SHRINK AWAY OR DIMINISH. THAT WHICH IS ITS LIAB ILITY WILL SOONER OR LATER HAVE TO BE DISCHARGED TO THE EXTENT IT IS LIA BLE AND WHICH IT HAS, THE SAME NOT BEING DISPUTED. ALSO, THE QUANTUM OF E XPENSES AND THE SAME BEARING NEXUS TO BUSINESS ACTIVITIES IS NOT DI SPUTED. WHAT HOWEVER IS DISPUTED IS THE FAILURE TO DEDUCT TAX ON THE REIMBURSED EXPENSES. HOWEVER, WE SHALL CLARIFY THE AFORESAID S CENARIO SO AS TO ENABLE YOUR GOODSELF TO UNDERSTAND THAT LAW FOR ALL THE RIGHT REASONS DOES NOT PROVIDE FOR DEDUCTION OF TDS ON REIMBURSED EXPENSES. 19. IN THIS VIEW OF THE MATTER AND IN LIEU OF THE A FORESAID, WE NOW HOLD THAT WHEN TDS HAS ALREADY BEEN DEDUCTED ONCE FROM THE EN TIRE PAYMENT, THEN WHY THE SAME SHOULD BE TAXED FOR THE SECOND TIME, R ESULTING IN DOUBLE TAXATION. THE TAX IS NOT TO BE DEDUCTED ON REIMBURS ED EXPENSES AS THESE EXPENSES HAVE ALREADY BEEN SUBJECTED TO TAX DEDUCTI ONS AT SOURCE WHILE THE PAYMENT WAS BEING ORIGINALLY PAID. THE REVENUE DEPARTMENT IS NOT CONCERNED WITH THE INTERNAL ARRANGEMENT OF THE PART NERS AS TO WHO PAID WHAT SHARE AS LONG AS THE DUE TDS HAS BEEN PAID WIT HIN THE TIME CONSTRAINT. 9 TO MAINTAIN THE RULE OF CONSISTENCY, WE FOLLOW TH E ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 10 IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 28 TH DAY OF JUNE 2011. SD/- SD/- ( PRAMOD KUMAR ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 29 TH JUNE 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI