DCIT, Cirlce-2(1), Hyd, Hyderabad V. Karvy Computer Share Pvt.Ltd., Hyderabad

ITA 413/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6139 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 28-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: P MURALIKRISHNA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.413/HYD/2016 ASSESSMENT YEAR 2009-2010 DCIT, CIRCLE-2(1) HYDERABAD. VS. M/S. KARVY COMPUTER SHARE P. LTD., HYDERABAD. PAN AACCK2193D (APPELLANT) (RESPONDENT) FOR REVENUE : MR. A. SITARAMA RAO FOR ASSESSEE : MR. P. MURALI KRISHNA DATE OF HEARING : 18.10.2016 DATE OF PRONOUNCEMENT : 21.10.2016 ORDER PER D. MANMOHAN, V.P. THE ONLY GROUND URGED BY THE REVENUE, IN THE APPEAL ARISING OUT OF THE ORDER PASSED BY THE CIT(A)-11, HYDE RABAD, READS AS UNDER : IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHE R THE CIT(A) IS CORRECT IN ALLOWING THE GROUND OF THE ASS ESSEE THAT PROVISIONS OF SECTION 40(A)(IA) NOT APPLICABLE BY F OLLOWING THE DECISION OF THE VIZAG SPECIAL BENCHS DECISION IN T HE CASE OF M/S. MERYLIN SHIPPING P. LTD., WHEN THE SAID DECISI ON WAS SUSPENDED BY THE HONBLE HIGH COURT OF A.P. 2 ITA.NO.413/HYD/2016 M/S. KARVY COMPUTER SHARE PVT. LTD., HYDERABAD. 2. IN ORDER TO APPRECIATE THE ISSUE UNDER CONSIDERATI ON IT MAY BE NECESSARY TO BRIEFLY RECORD THE FACTS OF THE CAS E. THE ASSESSEE-COMPANY IS INCORPORATED FOR THE PURPOSE OF C ARRYING ON THE BUSINESS AS REGISTRARS AND SHARE TRANSFER AGENTS. FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE-COMPANY DECLAR ED TOTAL INCOME OF RS.23.88 CRORES. THE CASE WAS TAKEN-UP FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSES SING OFFICER NOTICED THAT THE ASSESSEE DEBITED AN AMOUNT OF RS.1,34,20,078 UNDER THE HEAD SETTLEMENT AND CUSTODY F EES. WHEN THE ASSESSEE WAS ASKED AS TO WHETHER TDS WAS MADE ON THE SAID FEES, IT WAS REPLIED THAT AS PART OF THE BUSINE SS IT UNDERTAKES THE PUBLIC ISSUE ACTIVITY OF VARIOUS COMPAN IES. ON ALLOTMENT OF SHARES IN A PUBLIC ISSUE IT REQUESTS THE NS DL/CDSL TO CREDIT THE SHARES TO THE ACCOUNT OF THE RESPECTIVE SHARE HOLDERS. FOR CARRYING ON THE INSTRUCTION OF REGISTRARS IN CREDI TING THE SHARES TO THE INVESTORS ACCOUNT AND FOR PROVIDING THE FA CTUAL DATA PERTAINING TO THE SHAREHOLDERS, HOLDING THE SHARES IN DEMAT FORMAT ETC., THE ASSESSEE NEEDS TO MAKE PAYMENT TO NATION AL SECURITY DEPOSIT LIMITED (NSDL)/CENTRAL DEPOSITORY SERV ICES LTD., (CDSL). IN OTHERWORDS, THE ACTIVITY OF NSDL/CDSL IS ONLY IN THE FORM OF PROVIDING DATA BASE AND IT IS NOT IN THE NA TURE OF PROVIDING PROFESSIONAL/TECHNICAL SERVICES, IN WHICH EVENT THE PAYMENT DO NOT ATTRACT TDS. 3. THE ASSESSING OFFICER REJECTED THE CONTENTION OF TH E ASSESSEE INASMUCH AS HE IS OF THE OPINION THAT THE PAY MENT MADE TO NSDL/CDSL IS IN THE NATURE OF PROFESSIONAL SERVICES AND THEREBY, PROVISIONS OF SECTION 194J WERE ATTRACTED. SIN CE THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE, THE EXPENDITURE CLAIMED 3 ITA.NO.413/HYD/2016 M/S. KARVY COMPUTER SHARE PVT. LTD., HYDERABAD. WAS DISALLOWED BY APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE I.T. ACT, 1961. 4. AGGRIEVED BY THE ACTION OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHERE IN IT WAS CONTENDED THAT THE PAYMENTS TO NSDL/CDSL WAS TERMED AS BENPOS CHARGES. THE ASSESSEE UNDERTAKES TO FURNISH ITS CLIENTS, INFORMATION ON SHAREHOLDERS AND EXTENT OF THEIR HOLDING IN THE RESPECTIVE CLIENT COMPANIES AND FOR THAT PURPOSE THE WEBSITE OF NSDL IS ACCESSED AND ASSESSEE-COMPANY PA YS AN UPFRONT FEE WHICH IS CALCULATED ON A FLAT RATE DEPENDI NG ON NUMBER OF RECORDS REQUESTED. UPON RECEIPT OF THE FEES NSDL PERMITS ACCESS TO THE ASSESSEE FOR DOWNLOADING THE REL EVANT INFORMATION. THUS THE PAYMENT MADE BY THE ASSESSEE IS N OT TOWARDS PROFESSIONAL SERVICES RENDERED BY NSDL. IN F ACT INFORMATION IS FURNISHED BY THE NSDL ON A CASH AND C ARRY BASIS. RELIANCE WAS ALSO PLACED UPON THE DECISION OF ITAT I N THE CASE OF MERILYN SHIPPING AND TRANSPORTS VS. ADDL. CIT (2012) 16 ITR (TRIB.) 1 TO SUBMIT THAT WHERE THERE IS NO OUTSTANDING TO WARDS PAYMENT OF BENPOS CHARGES THERE CANNOT BE ANY DISALL OWANCE UNDER SECTION 40(A)(IA) OF THE ACT. 5. AN ADDITIONAL GROUND WAS RAISED STATING THAT THE PAYMENT IN QUESTION HAS BEEN ACCOUNTED FOR AS INCOME B Y THE PAYEE AND THEREFORE, CANNOT BE DISALLOWED UNDER SECTIO N 40(A)(IA) OF THE ACT IN VIEW OF THE AMENDMENT BROUGHT BY FINANCE A CT, 2012 AND IN THIS REGARD RELIANCE WAS PLACED UPON THE DECISION OF THE ITAT IN THE CASE OF A.P. INDUSTRIAL INFRASTRUCTURE CORPORATION (ITA.NO.1806 & 1807/HYD/2013 DATED 04.09.2015) WHER EIN IT WAS HELD THAT IN THE WAKE OF DETAILS OF THE RESPECTIVE TAX RETURN 4 ITA.NO.413/HYD/2016 M/S. KARVY COMPUTER SHARE PVT. LTD., HYDERABAD. FILED BY THE PAYEE THE SAME AMOUNT DOES NOT SURVIVE FOR TAXATION UNDER SECTION 40(A)(IA) OF THE ACT IN THE HANDS OF THE A SSESSEE. 6. THE LD. CIT(A) ACCEPTED THE CONTENTION OF THE ASSES SEE AND SET-ASIDE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 7. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE PLACED BEFORE US A COPY OF THE ORDER OF THE ITAT A BENCH, HYDERABAD IN ASSESSEES OWN CASE FOR THE A.Y. 2007-2008 (ITA.NO.1301/HYD/201 4) WHEREIN THE BENCH OBSERVED THAT THERE IS NO HUMAN ELEME NT INVOLVED, SERVICES BEING FULLY AUTOMATED, APART FROM THE FACT THAT THERE IS NO EXCLUSIVITY OF SERVICES RENDERED BY NSDL /CDSL TO THE ASSESSEE IN WHICH EVENT THE SETTLEMENT AND CUSTODY FEES PAID CANNOT BE SAID TO BE COVERED BY THE PROVISIONS OF SEC TION 194J OF THE ACT BY TREATING IT AS TECHNICAL SERVICES. THE BENCH F URTHER OBSERVED THAT THESE COMPANIES HAVE ALSO TREATED THESE AM OUNTS AS INCOMES AND OFFERED TO TAX IN WHICH EVENT THE AMEN DMENT BROUGHT TO PROVISIONS OF SECTION 40(A)(IA) DO APPLY TO THE FACTS OF THE CASE AS WELL. THUS ON BOTH THE COUNTS THE DISALLO WANCES MADE BY THE ASSESSING OFFICER WAS SET ASIDE BY THE TRI BUNAL. 8. THE LD. D.R. ON THE OTHER HAND, STRONGLY RELIED U PON THE ORDER PASSED BY THE ASSESSING OFFICER. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IN THE LIGHT OF DECISION OF T HE ITAT IN ASSESSEES OWN CASE FOR THE A.Y. 2008-2009, WE ARE O F THE VIEW THAT THE PAYMENT MADE BY THE ASSESSEE CANNOT BE TREATED AS A PAYMENT TOWARDS TECHNICAL SERVICES AND, AT ANY RATE, TH E COMPANIES HAVING TREATED THIS AMOUNT AS INCOME AND OFF ERED TO 5 ITA.NO.413/HYD/2016 M/S. KARVY COMPUTER SHARE PVT. LTD., HYDERABAD. TAX THE PROVISIONS OF SECTION 40(A)(IA) DO NOT APPLY T O THE FACTS OF THE CASE. UNDER THESE CIRCUMSTANCES, WE UPHOLD THE ORD ER OF THE LD. CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENU E. ORDER PRONOUNCED IN THE OPEN COURT ON 21.10.2016. SD/- SD/- (B. RAMAKOTAIAH) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRES IDENT HYDERABAD, DATED 21 ST OCTOBER, 2016 VBP/- COPY TO 1. THE DCIT, CIRCLE-2(1), 8 TH FLOOR, B BLOCK, I.T. TOWERS, A.C. GUARDS, HYDERABAD. 2. M/S. KARVY COMPUTER SHARE PVT. LTD., NO.46, AVENUE NO.4, KARVY HOUSE, STREET NO.1, ROAD NO.10, BANJARA HILLS, HYDERABAD. 3. CIT(A)-11, HYDERABAD. 4. PR. CIT-2, HYDERABAD. 5. D.R. I.T.A.T. A BENCH, HYDERABAD. 6. GUARD FILE