ADDL CIT RG 4(3), MUMBAI V. KISAN RATILAL CHOKSEY SHARES & SECURITIES P. LTD, MUMBAI

ITA 4347/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1565 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 17-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 37(1); 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI. BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER I.T.A. NO. 4347 /MUM/2009. ASSESSMENT YEAR : 2005-06 ADDL. COMMISSIONER OF INCOME TAX, M/ S KISAN RATILAL CHOKSEY RANGE-4(3), MUMBAI. VS. SHARES & SECURITIES, 1102, STOCK EXCHANGE BUILDING, DALAL STREET, FORT, MUMBAI 400 001. PAN : AAACK4716G APPELLANT RESPONDENT I.T.A. NO. 4033/ MUM/2009. ASSESSMENT YEAR : 2005-06 M/S KISAN RATILAL CHOKSE ADDL. COMMISSIONER OF SHARES & SECURITIES, VS. INCOME TAX, RG.-4(3), MUMBAI. MUMBAI. APPELLANT RESPONDENT. DEPARTMENT BY : SHRI PIYUSH JAIN. ASSESSEE BY : SHRI DEEPAK SHAH. O R D E R PER J. SUDHAKAR REDDY, A.M. THESE ARE CROSS APPEALS DIRECTED AGAINST THE ORDE R OF THE CIT(APPEALS)- XIV, MUMBAI DATED 14-06-2009 FOR ASSE SSMENT YEAR 2005-06. 2 2. THE ASSESSEE IS A BROKER AND ALSO RENDERS OTHER RELATED FINANCIAL SERVICES. THE FIRST ISSUE THAT ARISES IN THESE APPEALS ARE THE DISALLOWANCES ON ACCOUNT OF VSAT CHARGES, LEASE LIN E CHARGES AND TRANSACTION CHARGES U/S 40(A)(IA) OF THE ACT ON THE GROUND THAT TDS HAS NOT BEEN DEDUCTED IN TERMS OF SECTION 194J. THE SEC OND ISSUE IS THE DISALLOWANCE OF DEPRECIATION ON MOTOR VEHICLE ON TH E GROUND THAT THE SAME HAS BEEN REGISTERED IN THE NAME OF THE DIRECTO R AND NOT IN THE NAME OF THE COMPANY. THE THIRD ISSUE IS WHETHER THE EXPL ANATION TO SECTION 37(1) IS APPLICABLE FOR PENALTIES LEVIED BY SEBI FO R BREACH OF CERTAIN OPERATIONAL REGULATIONS. 3. WE HAVE HEARD MR. PIYUSH JAIN, LEARNED DR AND M R. DEEPAK SHAH, LEARNED COUNSEL FOR THE ASSESSEE. 4. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIR CUMSTANCES OF THE CASE AND ON A PERUSAL OF THE PAPERS ON RECORD A ND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED, W E HOLD AS FOLLOWS : 5. GROUND NO. 1 OF THE REVENUE APPEAL IS IN RESPEC T OF DELETION OF AN ADDITION ON ACCOUNT OF VSAT CHARGES. THE FIRS T APPELLATE AUTHORITY HELD THAT NO TAX NEED BE DEDUCTED AT SOURCE FROM VS AT CHARGES BY HOLDING AS FOLLOWS : FROM THE READING OF THE ABOVE EXPLANATION (2) IT IS APPARENT THAT THE TERM FEES FOR TECHNICAL SERVICES HAS WID E IMPORT IN ITS MEANING AS IT INCLUDES RENDERING ANY MANAGERIAL, TE CHNICAL CONSULTANCY SERVICES. NOW IT NEEDS TO BE EXAMINED W HETHER IN THE PRESENT CASE SERVICES RENDERED BY THE STOCK EXCHANG E FALLS WITHIN THE AMBIT OF FEES FOR TECHNICAL SERVICES. AS FAR AS VSAT CHARGES ARE CONCERNED I AM OF THE VIEW THAT THEY WERE IN TH E NATURE OF REIMBURSEMENT CHARGES PAID BY THE MEMBERS OF STOCK EXCHANGE IN LIEU OF INFRASTRUCTURE AND TRADING FACILITIES PROVI DED BY THE STOCK EXCHANGE; TRADING ON THE STOCK EXCHANGE IS FACILITA TED THROUGH 3 STATELLITE BASED COMMUNICATION NETWORK WHICH ENABLE S THE TRADING MEMBER TO TRADE ON EXCHANGE FROM THEIR RESPECTIVE P LACES SPREAD ACROSS THE COUNTRY. THE DOT HAS GRANTED LICENCE TO STOCK EXCHANGE FOR INSTALLING AND SETTING OF CLOSE USER GROUP TELE COMMUNICATION NETWORK BASED ON VSAT AND LEASE LINE. IT MAY ALSO B E NOTED THAT THE STOCK EXCHANGE IS NOT SUPPOSED TO DERIVE ANY PR OFIT ON SUCH VSAT AND LEASELINE CHARGES RECEIVED BY THEM AS THES E CHARGES ARE SIMPLY TO BE PASSED ON TO THE OTHER AGENCIES OR GOV ERNMENT DEPARTMENTS. IN MY OPINION SUCH PAYMENTS CANNOT COM E WITHIN THE AMBIT OF FEE FOR TECHNICAL SERVICES, WITHIN THE M EANING OF DEFINITION GIVEN IN EXPLANATION 2 TO SECTION 9(1)(V II) AS IT IS NEITHER ANY MANAGERIAL NOR TECHNICAL NOR CONSULTANCY SERVIC ES. THEREFORE, I HOLD THAT PROVISIONS OF SECTION 194J ARE NOT ATTRAC TED ON THE VSAT CHARGES AMOUNTING TO RS.1,18,500/-. THEREFORE, NO D ISALLOWANCE COULD BE MADE ON THIS AMOUNT U/S 40A(IA). THUS, THE APPELLANT GETS RELIEF ON THIS LIMITED POINT. THIS DECISION IS IN LINE WITH THE JUDGMENT OF THE H ONBLE MADRAS HIGH COURT IN THE CASE OF SKYCELL COMMUNICATIONS LTD. & ANR. VS. DCIT 251 ITR 53 AS WELL AS THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHARTI CELLULAR LTD. 220 CTR 9 (DEL ) 228. THE MUMBAI D-BENCH OF THE TRIBUNAL IN THE CASE OF PACIFIC INT ERNET (INDIA) (P) LTD. VS. ITO REPORTED IN 27 SOT 523 HELD AS FOLLOWS : THERE IS NO DISPUTE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING INTERNET EXCESS SERVICES TO ITS CORPORATE CLIENTS AND CONSUMERS. FOR PROVIDING THE SALES SERV ICE, THE ASSESSEE NEEDS BANDWIDTH NETWORK OPERATING INFRASTRUCTURE. T HE CONTROVERSY IS WHETHER THE SERVICES ARE FACILITIES AVAILED BY T HE ASSESSEE FROM VSNL/MTNL AND OTHER CONCERNS TOWARDS BANDWIDTH AND NETWORK OPERATING INFRASTRUCTURE CAN BE SAID TO BE TECHNIC AL SERVICES WITHIN THE MEANING OF S. 194J R/W EXPLN. 2 TO CL. ( VII) OF S. 9(1). AS PER PROVISIONS OF S. 194J OF THE ACT (I) THERE SHOU LD BE PAYMENT IN THE NATURE OF FEES AND (II) SAID SHOULD BE FOR AVAI LING THE TECHNICAL SERVICES. AGAIN EXPRESSION TECHNICAL SERVICE HAS NOT BEEN DEFINED IN S. 194J BUT MEANING GIVEN TO THE SAID EXPRESSION HAS BEEN ADOPTED FROM EXPLN. 2 TO CL. (VII) OF S. 9(1). THE ASSESSEE HAS AVAILED THE BANDWIDTH SERVICES AND OTHER INFRASTRUC TURE FOR PROVIDING THE INTERNET EXCESS TO ITS CUSTOMERS. THE SE ARE STANDARD FACILITIES AVAILED BY THE ASSESSEE. THE PAYMENT MAD E BY THE 4 ASSESSEE COMPANY TO VSNL, MTNL AND OTHER CONCERNS F OR AVAILING THE SERVICES OF THE BANDWIDTH NET WORK INF RASTRUCTURE CANNOT BE SAID TO BE TECHNICAL SERVICES WITHIN THE MEANING OF S. 194J R/W EXPLN. 2 TO CL. (VII) OF S. 9(1). THE ORDE R PASSED BY THE AO UNDER S. 201(1) AND 201(1A) IS CANCELLED. CIT VS. ESTEL COMMUNICATIONS (P) LTD. (2008) 217 CTR (DEL) 102 RE LIED ON. 6. APPLYING THE PROPOSITIONS LAID DOWN IN BOTH THE CASES TO THE FACTS OF THIS CASE, WE HAVE TO UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY AS FAR AS VSAT CHARGES ARE CONCERNED. BUT AS FAR AS LEASE-LINE CHARGES AND TRANSACTION CHARGES ARE CONCERNED, THE ORDER OF THE FIRST APPELLATE AUTHORITY HAS TO BE NECESSARILY REVERSED AS THE FINDINGS ARE NOT IN CONSONANCE WITH THE DECISION OF THE TRIBUNAL IN THE CASE PACIFIC INTERNET (INDIA) (P) LTD. (SUPRA) AS WELL AS THE DE CISION OF THE MUMBAI A- BENCH OF THE TRIBUNAL IN THE CASE OF KOTAK SECURITI ES LTD. VS. ADDL. CIT, 25 SOT 440 (MUM), WHEREIN IT IS HELD AS FOLLOWS : SECTION 194J, READ WITH SECTION 40A(IA) OF THE IN COME-TAX ACT, 1961 DEDUCTION OF TAX AT SOURCE TECHNICAL SERVICES FEE ASSESSMENT YEAR 2005-06 PAID TRANSACTION FEES TO VA RIOUS STOCK EXCHANGES AND CLAIMED SAME AS DEDUCTION ASSESSING OFFICER APPLYING SECTION 40(A)(IA) DISALLOWED SAID TRANSACT ION FEE ON GROUND THAT STOCK EXCHANGES WERE PROVIDING TECHNICA L SERVICES TO ASSESSEE, SO TRANSACTION FEE WAS A FEE PAID FOR REN DERING TECHNICAL SERVICES TO IT AND ASSESSEE IN TERMS OF SECTION 194 J OUGHT TO HAVE DEDUCTED TAX AT SOURCE ON SUCH AMOUNTS WHETHER SI NCE STOCK EXCHANGES DO NOT RENDER ANY MANAGERIAL SERVICE NOR DO THEY RENDER ANY TECHNICAL CONSULTANCY SERVICE, TRANSACTION FEE PAID COULD NOT BE SAID TO BE A FEE PAID IN CONSIDERATION OF STOCK EXC HANGE RENDERING ANY TECHNICAL SERVICES TO ASSESSEE HELD, YES WH ETHER, THEREFORE, SECTION 194J WOULD NOT BE APPLICABLE TO SUCH CIRCUM STANCES AND, THEREFORE, DISALLOWANCE MADE WAS TO BE DELETED HE LD, YES. 7. THIS ISSUE OF DISALLOWANCE OF LEASE-LINE CHARGE S AND TRANSACTION CHARGES ON THE GROUND THAT THE ASSESSEE HAS NOT DEDUCTED TDS, ARISES IN THE ASSESSEES APPEAL WHICH WE WILL DEAL AT A LATER STAGE. 5 8. IN THE RESULT, GROUND NO. 1 OF THE REVENUE IS D ISMISSED. 9. COMING TO GROUND NO. 2 OF THE REVENUE, IT IS DI RECTED AGAINST THE DISALLOWANCE OF DEPRECIATION ON MOTOR C AR FOR THE REASON THAT THE SAME IS NOT REGISTERED IN THE NAME OF A COMPANY BUT IS REGISTERED IN THE NAME OF THE DIRECTOR. THE CAR HAS BEEN PURCHASE D WITH THE ASSESSEES OWN FUND AND IS REFLECTED IN THE BALANCE SHEET OF T HE COMPANY. THE AO DOES NOT DISPUTE THESE FACTS. THE ONLY GROUND ON WH ICH THE AO DISALLOWS DEPRECIATION ON MOTOR CAR IS THAT THE REGISTRATION IS NOT DONE IN THE NAME OF THE COMPANY. THIS CONCLUSION OF THE AO IS WRONG. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DILIP SING H SARDARSINGH BAGGA 201 ITR 995 HELD THAT REGISTRATION UNDER THE MOTOR VEHICLES ACT, IS NOT AN ESSENTIAL PREREQUISITE FOR THE ACQUISITI ON OF OWNERSHIP OF THE MOTOR VEHICLE AND THAT AN ASSESSEE PURCHASING A MOT OR VEHICLE FOR VALUABLE CONSIDERATION AND USING THE SAME FOR HIS B USINESS CANNOT BE DENIED BENEFIT OF DEPRECIATION ON THE GROUND THAT T RANSFER WAS NOT RECORDED UNDER MOTOR VEHICLE ACT. THE DELHI A-BENCH OF THE TRIBUNAL IN THE CASE OF USHA RECTIFIER CORPORATION (I) PVT. LTD . VS. IAC 35 TTJ 602 HELD AS FOLLOWS : DEPRECIATION OWNERSHIP REGISTRATION OF VEHICLE UNDER THE MOTOR VEHICLES ACT NOT GRANTED IN THE NAME OF ASSES SEE-COMPANY- REGISTRATION IS NOT AN ESSENTIAL PRE-REQUISITE FOR THE ACQUISITION OF OWNER-SHIP OF A MOTOR VEHICLE, BUT IS AN OBLIGATION CAST UPON THE OWNER OF A VEHICLE FOR THE PURPOSE OF RUNNING A VEH ICLE IN ANY PUBLIC PLACE IN THE PRESENT CASE, CAR WAS PURCHAS ED WITH THE FUNDS OF THE OWNER OF THE CAR, WAS, THEREFORE, ENTITLED T O DEPRECIATION CIT VS. SALKIA TRANSPORT ASSOCIATES (1983) 33 CTR ( CAL) 198 : (1983) 143 ITR 39 (CAL) APPLIED. RESPECTFULLY APPLYING THE PROPOSITIONS LAID DOWN TO THE FACTS OF THE CASE, WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORIT Y AND DISMISS GROUND NO.2 OF THE REVENUE. 6 10. GROUND NO. 3 OF THE REVENUE IS AGAINST THE DEL ETION OF DISALLOWANCE BEING PENALTY OF R.1,77,156/- LEVIED B Y BSE ON THE GROUND THAT THERE ARE CERTAIN VIOLATIONS. VIOLATIONS IN Q UESTION HAVE BEEN BROUGHT OUT AT PAGE 15 OF THE ASSESSMENT ORDER WHICH IS EXT RACTED BELOW FOR READY REFERENCE : THE CHARGES LEVIED RELATE TO NON-MAINTENANCE OF C OMPLETE RECORDS, DELAY IN PAYMENT OF FUNDS AND SECURITIES, INCOMPLETE KYC FORMS, SHORT COLLECTION OF MARGINS ETC. IN OUR CONSIDERED OPINION, THE ISSUE IN QUESTION IS COVERED BY THE DECISION OF THE JURISDICTIONAL TRIBUNAL IN THE CASE OF ITO V S. VRM SHARE BROKING P. LTD. 27 SOT 469 (MUM), F-BENCH WHEREIN IT IS HEL D AS FOLLOWS : HELD-I FROM THE PERUSAL OF VARIOUS NOTIFICATIONS ISSUED BY SEBI, IT WAS APPARENT THAT THEY WERE ISSUED MAINLY IN THE CONTEX T OF THE RISK MANAGEMENT, RATHER THAN AS A PENAL PROVISION FOR PU NISHING THE DEFAULTERS OR DEEMING THE TRANSACTIONS ILLEGAL. IN VIEW OF THE SAME, IT WAS OPINED THAT WITH OR WITHOUT THE PROVISIONS O F THE MARGIN MONEY THE LOSS COULD NOT BE HELD AS ILLEGAL LOSS DE NYING THE BENEFIT OF SET OFF OF SAME AGAINST THE INCOME OR ALLOWING T HE SAME AGAINST THE INCOME OR ALLOWING THE SAME TO CARRY FORWARD TO THE LATER YEARS. THE ORDER OF THE COMMISSIONER (APPEALS) THEREFORE D ID NOT CALL FOR ANY INTERFERENCE. HELD-II THE AMOUNT PAID WAS A PENALTY LEVIED FOR VIOLATION OF THE MARGINS IMPOSED BY THE SEBI ON THE SHARE BROKERS. FROM THE NOTIFICATIONS ISSUED BY THE SEBI, IT WAS FOUND THAT SUCH MARGINS WERE IMPOSED IN ORDER TO REDUCE THE RISK COMPONENTS AND, THEREFO RE, THOSE WERE BASICALLY RISK MANAGEMENT ORIENTED PENALTIES, WHICH WERE ROUTINE IN NATURE. IT WAS ALSO FOUND THAT THOSE VIOLATIONS WERE OFFERED BY PAYMENT OF PENALTY AS IN THE INSTANT CASE. 7 RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDE R OF THE FIRST APPELLATE AUTHORITY AND DISMISS THIS GROUND OF THE REVENUE. 11. COMING TO THE ASSESSEES APPEAL IN ITA NO. 4033/MUM/2009, THE SOLE ISSUE IS THE DISALLOWANCE O F LEASE-LINE CHARGES AND TRANSACTION CHARGES ON THE GROUND THAT NO DEDUC TION OF TAX AT SOURCE HAS BEEN MADE ON PAYMENTS TO BSE AND NSE. IN VIEW O F OUR DISCUSSION IN THE REVENUES APPEAL ON THE VERY SAME ISSUE OF A PPLICABILITY OF SECTION 194J, WE ALLOW THIS GROUND OF THE ASSESSEE. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 4 TH DAY OF JUNE, 2010. SD/- SD/- (D. MANMOHAN) (J. SUDHAKAR REDDY) VICE PRESIDENT. ACCOUNTANT MEMBER. MUMBAI, DATED : 04.06.2010. WAKODE COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, A-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES, MUMBAI.