DCIT 4(1), MUMBAI V. CREDIT SUISSE SECURITIES ( i) P.LTD, MUMBAI

ITA 407/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4036 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 14-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI , ! ! ! ! '! !, $ BEFORE SHRI SANJAY ARORA, A. M. AND SHRI VIJAY PAL RAO, J. M. ./ I.T.A. NO.407/MUM/2011 ( ' ( !)( ' ( !)( ' ( !)( ' ( !)( / / / / ASSESSMENT YEAR: 2007-08) ASST. CIT-4(1), 6 TH FLOOR, ROOM NO.640, AAYAKAR BHAVAN, MUMBAI-400 020 ' ' ' ' / VS. CREDIT SUISSE SECURITIES (INDIA) PVT. LTD. 9 TH FLOOR, CEEJAY HOUSE, PLOT F, SHIVSAGAR ESTATE, DR. ANNIE BESANT RAOD, WORLI, MUMBAO-400 018 * ./ + ./ PAN/GIR NO. AAACC 4388 G ( *, / APPELLANT ) : ( -.*, / RESPONDENT ) *, / / APPELLANT BY : SHRI RAJARSHI DWIVEDY -.*, 0 / / RESPONDENT BY : SHRI FARROKH V. IRANI '! 0 12 / // / DATE OF HEARING : 25.06.2013 3) 0 12 / DATE OF PRONOUNCEMENT : 26.07.2013 4 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-10, MUMBAI (CIT(A) FOR SH ORT) DATED 28.10.2010, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2007-08 VIDE ORDER DATED 30.11.2009. 2 ITA NO.407/MUM/2011 (A.Y. 2007-08) ASST. CIT VS. CREDIT SUISSE SECURITIES (INDIA) PVT. LTD. 2. WE SHALL PROCEED IN THE MATTER GROUND-WISE; THE REVENUES APPEAL RAISING THREE GROUNDS. THE FIRST IS IN RESPECT OF THE DISALLOWANC E IN THE SUM OF RS.56,26,975/- U/S.40(A)(IA) IN RESPECT OF LEASE LINE, VSAT AND TR ANSACTION CHARGES PAID BY THE ASSESSEE- COMPANY, A STOCK BROKER, TO NATIONAL STOCK EXCHANGE (NSE) AND BOMBAY STOCK EXCHANGE (BSE), I.E., ON ACCOUNT OF ADMITTED NON-DE DUCTION OF TAX AT SOURCE THEREON. THE SAME STOOD DELETED IN APPEAL BY THE LD. CIT(A) FOLL OWING THE DECISION BY THE TRIBUNAL, AMONG OTHERS, IN THE CASE OF KOTAK SECURITIES VS. ADDL. CIT [2008] 25 SOT 440 (MUM). 3. EVEN AS WAS THE ADMITTED POSITION DURING HEARING , THE MATTER STANDS SINCE RESOLVED, AT LEAST IN SO FAR AS THE STATE OF MAHARASHTRA IS C ONCERNED, WITH THE HONBLE JURISDICTIONAL HIGH COURT HOLDING NON-APPLICATION OF SECTION 194J, I.E., WITH REFERENCE TO WHICH OBLIGATION TO DEDUCT TAX AT SOURCE IS BEING STATED BY THE REVENUE, IN RESPECT OF THE LEASE LINE AND VSAT CHARGES, PER ITS DECISIONS IN THE CAS E OF ITO VS. ANGEL CAPITAL & DEBIT MARKET LTD. (IN ITA(L) NO.475 OF 2011 DATED 28.07.2011/COPY ON RECORD) AND CIT VS. CITI GROUP GLOBAL MARKETS INDIA PVT. LTD. (IN ITA NO.265 OF 2012 DATED 04.04.2012/COPY ON RECORD). FURTHER, PER ITS DECISI ON IN THE CASE OF KOTAK SECURITIES [2012] 340 ITR 333 (BOM), THE HONBLE HIGH COURT HA S CONFIRMED THE LIABILITY TO TDS U/S.194J IN RESPECT OF THE TRANSACTION CHARGES. SO, HOWEVER, IT HAS FURTHER CLARIFIED THAT THE REVENUE AS WELL AS THE ASSESSEES HAVING PROCEEDED F OR NEARLY A DECADE ON THE BASIS THAT SECTION 194J IS NOT APPLICABLE TO THE TRANSACTION C HARGES, THE HONBLE COURT MADE AN EXCEPTION FOR THE APPLICATION OF SECTION 40(A)(IA) FOR THE FIRST YEAR, I.E., A.Y. 2005-06; THE PROVISION OF SECTION 40(A)(IA) HAVING BEEN INSERTED ON THE STATUTE BY FINANCE (NO.2) ACT, 2004, W.E.F. 01.04.2005. THE SAID DECISION, HOWEVER , HAVING BEEN RENDERED ONLY ON 21.10.2011 , PRIOR TO WHICH THE CONSISTENT AND THE PREDOMINANT VIEW WAS IN FAVOUR OF NON DEDUCTION OF TAX ON SUCH PAYMENTS, IT WAS PLEADED B Y THE LD. AR, DRAWING SUPPORT FROM THE EXCEPTION LAID DOWN FOR A.Y. 2005-06 BY THE HON BLE HIGH COURT IN THE CASE OF KOTAK SECURITIES (SUPRA), THAT THE SAID EXCEPTION BE EXTENDED FOR T HE CURRENT YEAR AS WELL IN THE ASSESSEES CASE. THIS IS FOR THE REASON THAT ITS OP ERATIONS WERE SUSPENDED FOR AN EXTENDED PERIOD OF TIME, AND WHICH STOOD COMMENCED ONLY IN T HE CURRENT YEAR, WHICH WOULD BE 3 ITA NO.407/MUM/2011 (A.Y. 2007-08) ASST. CIT VS. CREDIT SUISSE SECURITIES (INDIA) PVT. LTD. APPARENT FROM THE FACT OF THE TRANSACTION CHARGES B EING PAID AT A NOMINAL SUM OF RS.72,605/- FOR THE CURRENT YEAR. THE TAX AT SOURCE HAS BEEN DEDUCTED BY THE ASSESSEE FROM THE FOLLOWING YEAR, I.E., A.Y. 2008-09, ONWARD S, AND IN SUPPORT OF WHICH THE ASSESSMENT ORDER U/S.144C(13) R.W.S 143(3) OF THE A CT DATED 23.10.2012 WAS PLACED BY HIM ON RECORD, TO EXHIBIT THAT NO DISALLOWANCE U/S. 40(A)(IA) STANDS MADE IN ASSESSMENT FOR THAT YEAR. A REASONABLE GROUND, THUS, EXISTS. THE M ATTER, IN ANY CASE, COULD BE RESTORED TO THE A.O. FOR VERIFICATION OF THE ASSESSEES CLAIM I N THIS REGARD, IN VIEW OF THE SAID CONTENTIONS BEING RAISED FOR THE FIRST TIME BEFORE THE TRIBUNAL. THIS SUMS UP THE ASSESSEES CASE, EVEN AS THE LD. DR WOULD SUBMIT THAT THE EXCE PTION DRAWN BY THE HONBLE COURT COULD NOT BE EXTENDED BEYOND A.Y. 2005-06, I.E., TH E FIRST YEAR OF APPLICATION OF SECTION 40(A)(IA). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE NO N DEDUCTION OF TAX AT SOURCE FOR LEASE LINE AND VSAT CHARGES STANDS SINCE CONFIRMED BY THE HONBLE JURISDICTIONAL HIGH COURT. AS REGARDS THE TRANSACTION CHARGES, NOMINALI TY OF THE AMOUNT PAID, WITH REFERENCE TO WHICH THE ASSESSEE PLEADS ITS CASE BEFORE US, CO ULD NOT BY ITSELF BE A GROUND FOR NOT COMPLYING WITH THE PROVISION. IN FACT, DEDUCTIBILIT Y OR OTHERWISE OF TAX AT SOURCE ON ALL THE THREE CHARGES UNDER REFERENCE HAD BEEN A SUBJEC T MATTER OF DISPUTE BETWEEN THE ASSESSEES AND THE REVENUE SINCE AY 2005-06, AND WHI CH ISSUE GETS FINALLY RESOLVED BY THE DECISIONS, AS INDICATED ABOVE (PARA 3), BY THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA). ACCORDINGLY, SECTION 40(A)(IA) WOULD STAND ATTRACTE D IN RESPECT OF TRANSACTION CHARGES FOR THE CURRENT YEAR. WE DECIDE ACCORDINGLY. 5. GROUND NO. 2 BY THE REVENUE ASSAILS THE RESTRICT ION OF THE DISALLOWANCE U/S.14A BY THE LD. CIT(A) TO RS.2,45,063/-, AS AGAINST RS.3,96 ,315/- EFFECTED BY THE A.O. WITH REFERENCE TO RULE 8D. 6. BEFORE US, THE CASES OF BOTH THE PARTIES WERE MU CH THE SAME; EACH RELYING ON THE ORDER OF THE AUTHORITY BELOW AS FAVORABLE TO IT. RU LE 8D IS ADMITTEDLY NOT MANDATORY FOR THE CURRENT YEAR. UNDER THESE CIRCUMSTANCES, THE LD . CIT(A), FOLLOWING THE MANDATE OF THE 4 ITA NO.407/MUM/2011 (A.Y. 2007-08) ASST. CIT VS. CREDIT SUISSE SECURITIES (INDIA) PVT. LTD. DECISION BY THE HONBLE JURISDICTIONAL HIGH COURT I N GODREJ AND BOYCE MFG. CO. LTD. V S. DY. CIT [2010] 328 ITR 81 (BOM), RESTRICTED THE DISALLOWAN CE U/S.14A(1) ONLY TO INDIRECT (ADMINISTRATIVE) EXPENSES AT 0.5% OF THE AVERAGE VA LUE OF INVESTMENT. IN HIS VIEW, THE ASSESSEE HAVING ADEQUATE FUNDS AVAILABLE WITH IT, N O PRESUMPTION AS TO THE BORROWINGS HAVING BEEN APPLIED, EVEN TO THE PROPORTIONATE EXTE NT, IN FUNDING THE TAX EXEMPT INVESTMENTS, WOULD ARISE, DRAWING SUPPORT FROM THE DECISION IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. [2009] 313 ITR 340 (BOM). THE LD. DR WAS NOT ABLE T O BRING OUT ANY INFIRMITY IN THE IMPUGNED CURTAILMENT BY THE LD. CIT(A). UNDER THESE CIRCUMSTANCES, THEREFORE, WE FIND THE SAID RESTRICT ION BY THE LD. CIT(A) AS REASONABLE, AND CONFIRM THE SAME. THE REVENUES GROUND WOULD STAND DISMISSED IN RESULT. 7. THE THIRD AND THE FINAL GROUND BY THE REVENUE IS IN RESPECT OF A DISALLOWANCE QUA MEMBERSHIP EXPENSES INCURRED AND CLAIMED BY THE ASS ESSEE AT RS.53.84 LACS. THE BASIS OF THE REVENUES CLAIM IS THAT THE SAME BEING ENTRANCE FEES TO THE DIFFERENT CLUBS (FOR OBTAINING MEMBERSHIP IN THE NAME OF THE ASSESSEE) R EPRESENTS A CAPITAL EXPENDITURE INASMUCH AS THE SAME YIELDS AN ADVANTAGE OF ENDURIN G NATURE, SO THAT IT IS IN THE CAPITAL FIELD AND, THEREFORE, COULD NOT BE ALLOWED AS A REV ENUE EXPENDITURE U/S.37(1), PLACING RELIANCE ON THE DECISION IN THE CASE OF FRAMATONE CONNECTOR OEN LTD. VS. DY. CIT [2007] 294 ITR 559 (KER). THE FIRST APPELLATE AUTHORITY HO WEVER PREFERRED TO FOLLOW THE LATER DECISION BY THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. SAMTEL COLOR LTD. [2010] 326 ITR 425 (DEL.); THE SAME HAVING BEEN RENDERED A FTER CONSIDERING THE DECISION BY THE KERALA HIGH COURT IN THE CASE OF FRAMATONE CONNECTOR OEN LTD. (SUPRA). THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE EXPORT CORPORATION LTD. VS. CIT [1994] 209 ITR 649 (GUJ.) HAD EARLIER HELD LIKEWISE, CONFI RMING THE DEDUCTIBILITY OF EXPENDITURE ON ENTRANCE FEES PAID TO A SPORTS CLUB. 8. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD, INCLUDING THE DECISIONS CITED. DURING THE COURSE OF THE HEARING, THE LD. AR, PLACING A COPY OF THE RECENT DECISION BY THE THREE-MEMBER BENCH OF THE HONBLE P UNJAB & HARYANA HIGH COURT IN CIT VS. GROZ BECKERT ASIA LIMITED (IN ITA NO.366 OF 2008 DATED 24.01.2013), SUBMITTED THAT 5 ITA NO.407/MUM/2011 (A.Y. 2007-08) ASST. CIT VS. CREDIT SUISSE SECURITIES (INDIA) PVT. LTD. THE ISSUE STANDS THOROUGHLY REVIEWED BY THE HONBLE COURT ON THE DIVISION BENCH EXPRESSING A DOUBT AS TO THE CORRECTNESS OF THE VIE W OF THE SAID COURT IN THE CASE OF CIT VS. MAJESTIC AUTO LIMITED (IN ITA NO.448 OF 2007 DATED 11.09.2008). IT, AFTER A REVIEW OF THE JUDICIAL PRECEDENTS, INCLUDING THE DECISION BY THE KERALA HIGH COURT IN THE CASE OF FRAMATONE CONNECTOR OEN LTD. (SUPRA) RELIED UPON BY THE REVENUE, HELD THAT CLUB MEMBERSHIP EXPENSES DOES NOT REPRESENT A CAPITAL EX PENDITURE AS NO ASSET OR ADVANTAGE OR BENEFIT OF AN ENDURING NATURE TO THE TRADE ARISES B Y VIRTUE OF THE SAID EXPENDITURE. THE SAME ONLY GIVES RISE TO A PRIVILEGE TO USE THE FACI LITIES OF THE CLUB, AND IN MOST CASES FOR A LIMITED PERIOD, SO THAT IT COULD NOT, ON FIRST PRIN CIPLES, BE TREATED AS A CAPITAL ASSET. IN THIS VIEW OF THE MATTER, THE RELIANCE BY THE HONBLE KER ALA HIGH COURT IN FRAMATONE CONNECTOR OEN LTD. (SUPRA) ON THE DECISION BY THE APEX COURT IN THE C ASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. VS. CIT [1997] 225 ITR 792 (SC) WAS NOT CONSIDERED AS APPOSITE IN THE FACTS AND CIRCUMSTANCES OF THE CASE ; THE SAID CASE BEING IN RESPECT OF ENHANCEMENT OF CAPITAL. ON A QUERY BY THE BENCH, IT WAS FURTHER CLARIFIED BY HIM THAT THE CLUB MEMBERSHIP, AS OBTAINED BY THE ASSESSEE, IS NO T TRANSFERRABLE AS PER THE BYE LAWS AND THE RULES OF THE RELEVANT CLUBS, AND TOWARD WHICH H E WOULD PLACE MATERIAL ON RECORD. IN VIEW OF THE FOREGOING, WE HAVE NO HESITATION IN ACCEPTING THE ASSESSEES CLAIM, DIRECTING A DELETION IN RESPECT OF THE IMPUGNED EXP ENDITURE. THE CLUB MEMBERSHIP PAID IN THE NORMAL COURSE OF BUSINESS HAS ALREADY BEEN CLAR IFIED BY THE APEX COURT IN THE CASE OF CIT VS. UNITED GLASS MGF LTD. (IN CIVIL APPEAL NO.6447 OF 2012 DATED 12.09.2012) AS BEING A PURELY BUSINESS EXPENSES, DEDUCTIBLE U/S. 3 7(1) OF THE ACT. QUA THE ENTRANCE FEES, WE HAVE FOUND THE JUDICIAL PRECEDENTS TO BE IN FAVO UR OF THE ASSESSEES VIEW, SO THAT THE CLUB MEMBERSHIPS DOES NOT YIELD ANY ADVANTAGE OF EN DURING NATURE SO AS TO BE CONSTRUED AS A CAPITAL EXPENDITURE, AS INFERRED BY THE REVENU E. WE DECIDE ACCORDINGLY, DISALLOWING THE REVENUES RELEVANT GROUND. 6 ITA NO.407/MUM/2011 (A.Y. 2007-08) ASST. CIT VS. CREDIT SUISSE SECURITIES (INDIA) PVT. LTD. 9. IN THE RESULT, THE REVENUES APPEAL IS PARTLY AL LOWED. 5 16 ! 0 4 !71 0 1 89 ORDER PRONOUNCED IN THE OPEN COURT ON JULY 26, 2013 SD/- SD/- (VIJAY PAL RAO) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; :' DATED : 26.07.2013 !.'. ./ ROSHANI , SR. PS 4 0 -1' ;')1 4 0 -1' ;')1 4 0 -1' ;')1 4 0 -1' ;')1/ COPY OF THE ORDER FORWARDED TO : 1. *, / THE APPELLANT 2. -.*, / THE RESPONDENT 3. < ( ) / THE CIT(A) 4. < / CIT CONCERNED 5. '!?@ -1' , , / DR, ITAT, MUMBAI 6. @A( B / GUARD FILE 4' 4' 4' 4' / BY ORDER, C CC C/ // / 8 8 8 8 (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI