ACIT COR 4(2), MUMBAI V. OHM STOCK BORKERS P. LTD, MUMBAI

ITA 455/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75210 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 07-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 17-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARMINDER
• Assessee Lawyers: S C TIWARI; NATASHA MANGAT
• Keywords: Bonafide belief; Earning of tax free income; Reason to believe
• Section: 14A

Judgement Text

, LH LHLH LH IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL C CC C BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , . , . , ! ! ! ! '# '# '# '# BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & & & & SHRI SHRI SHRI SHRI D. KARUNAKARA RAO D. KARUNAKARA RAO D. KARUNAKARA RAO D. KARUNAKARA RAO, AM , AM , AM , AM ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.455/M/2011 455/M/2011 455/M/2011 455/M/2011 ( $% $% $% $% & & & & / ASSESSMENT YEAR :2007-08) ACIT, CIR. 4(2), ROOM NO. 642, 6 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020 % % % % / VS. M/S OHM STOCK BROKERS PVT. LTD., 155-C, MITTAL TOWER, NARIMAN POINT, MUMBAI-400021 #' ! ./ ( ./ PAN/GIR NO. :AAACO3526E ( ') / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( *+') / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) $% $%$% $% ,- ,- ,- ,- . / . / . / . / /ASSESSEE BY : SHRI S. C. TIWARI & MS. NATASHA MANGAT # # # # . / . / . / . / / REVENUE BY : SMT. PARMINDER % % % % . .. . -! -! -! -! / DATE OF HEARING : 7 TH JANUARY 2014 01& 01& 01& 01& . .. .-! -! -! -! /DATE OF PRONOUNCEMENT: 10 TH JANUARY 2014 ' 2 / O R D E R PER : , . . / VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 4.11.2010 OF COMMISSIONER OF INCOME TAX(APPEALS) FO R THE ASSESSMENT YEAR 2007-08. 2. THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS IN THIS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE O F ` 1,02,99,158/- MADE IN RESPECT OF VSAT, LEASELINE AN D TRANSACTION CHARGES U/S 40(A)(IA), WITHOUT APPRECIA TING THE FACTS THAT THESE WERE COMPOSITE CHARGES FOR PROFESSIONAL AND TECHNICAL SERVICES RENDERED BY THE STOCK EXCHANGE TO ITS MEMB ERS AND THE ASSESSEE HAS FAILED TO DEDUCT TDS THEREON. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF ` 10,65,080/- MADE UNDER SECTION 14A UNDER RULE 8D. ITA NO.455/M/2011 OHM STOCK BORKERS P. LTD. 2 3. GROUND NO. 1 REGARDING DISALLOWANCE U/S 40(A)(IA ) IN RESPECT OF VSAT, LEASELINE AND TRANSACTION CHARGES. WE HAVE HE ARD THE LD. D.R AS WELL AS LD. A.R AND CONSIDERED THE RELEVANT MATERIA L ON RECORD. AS REGARDS, THE VSAT AND LEASELINE CHARGES ARE CONCERN ED THIS ISSUE IS COVERED BY THE VARIOUS DECISIONS OF THIS TRIBUNAL A S WELL AS HONBLE HIGH COURT WHEREIN IT HAS BEEN HELD THAT THESE PAYMENTS ARE NOT SUBJECTED TO TDS U/S 194J THEREFORE, NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA). THE CIT(A) HAS DECIDED THIS ISSUE IN PARA 2.1 AS UNDER: 2.1 THE ISSUE RAISED IN THIS GROUND OF APPEAL HAS BEEN DECIDED IN VARIOUS DECISIONS (KOTAK SECURITIES LTD., SONAL SHARES & STOCK BROKERS PVT. LTD. AND ANGEL BROKING LTD.) (SUPRA), IN WHICH IT HAS BEEN HELD THAT TRANSACTION, VSAT AND LEASELINE CHAR GES CANNOT BE CONSIDERED AS PAYMENT FOR RENDERING OF PROFESSIO NAL OR TECHNICAL SERVICES AND HENCE, NO DISALLOWANCE CAN B E MADE U/S 40(A)(IA) FOR THE REASON THAT TAX REQUIRED TO BE DE DUCTED U/S 194J HAD NOT BEEN DEDUCTED. RESPECTFULLY FOLLOWING THE S AME, I HOLD THAT NO DISALLOWANCE U/S 40(A)(IA) CAN BE MADE IN R ESPECT OF TRANSACTION CHARGES, VSAT CHARGES AND LEASELINE CHA RGES. THE ADDITION OF ` 1,01,05,556/- BEING MADE ON ACCOUNT O F TRANSACTION CHARGES, ` 1,10,000/- BEING VSAT CHARGES AND ` 83,6 02/- BEING LEASELINE CHARGES TOTALLING TO ` 1,02,99,158/- IS, THEREFORE, DELETED. THE APPEAL ON THIS GROUND IS ALLOWED. 4. THUS, IT IS CLEAR THAT SO FAR AS THE PAYMENT OF VSAT AND LEASELINE CHARGES ARE CONCERNED NO DISALLOWANCE CAN BE MADE U /S 40(A)(IA) AS THE ISSUE IS SETTLED BY THE VARIOUS DECISIONS OF THIS T RIBUNAL AS REFERRED BY THE CIT(A). HOWEVER, THE PAYMENTS OF TRANSACTION CHARGE S ARE HELD TO BE FEE FOR TECHNICAL AND MANAGERIAL SERVICES AND THEREFORE , THE SAME ARE SUBJECTED TO TDS U/S 194J AS HELD BY THE HONBLE HI GH COURT IN CASE OF CIT VS KOTAK SECURITIES LTD. 340 ITR 333. THE LD. A.R O F THE ASSESSEE HAS SUBMITTED THAT THIS IS THE FIRST YEAR WHEN THE DISA LLOWANCE U/S 40(A)(IA) HAS BEEN MADE BY THE REVENUE ON THIS PAYMENTS AND I N VIEW OF THE ITA NO.455/M/2011 OHM STOCK BORKERS P. LTD. 3 DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN CA SE OF CIT VS KOTAK SECURITIES LTD. (SUPRA) THE NON-DEDUCTION OF TDS IS UNDER BONAFIDE BELIEF AND THEREFORE NO DISALLOWANCE CAN BE MADE. HE HAS F URTHER SUBMITTED THAT THERE WAS NO DISALLOWANCE OF SUCH CLAIM IN THE EARLIER YEARS AND THEREFORE, THE REVENUE WAS NOT CLEAR ABOUT NATURE O F PAYMENT AND REQUIREMENT OF TDS. 5. THOUGH ON PRINCIPLE THE ISSUE OF TRANSACTION CHA RGES HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE HONBLE HIGH CO URT IN CASE OF CIT VS KOTAK SECURITIES LTD. (SUPRA), HOWEVER, WHEN THERE IS NO DISPUTE THAT PRIOR TO THE YEAR UNDER CONSIDERATION THERE WAS NO DISALL OWANCE ON ACCOUNT OF TRANSACTION CHARGES U/S 40(A)(IA) THEN THE ASSESSEE HAD BONAFIDE REASON TO BELIEVE THAT TAX WAS NOT DEDUCTIBLE AT SOURCE FR OM THE PAYMENT OF TRANSACTION CHARGES U/S 194J. EVEN OTHERWISE PRIOR TO THE DECISION OF HONBLE HIGH COURT IN CASE OF KOTAK SECURITIES LTD. (SUPRA) THIS TRIBUNAL HAS BEEN CONSISTENTLY HOLDING THAT THE PAYMENTS OF TRANSACTION CHARGES ARE NOT SUBJECTED TO TDS U/S 194J. FURTHER THE REVE NUE WAS ALSO PROCEEDING WITH THE VIEW THAT NO TDS IS DEDUCTIBLE IN RESPECT OF PAYMENT OF TRANSACTION CHARGES. ACCORDINGLY, BY FOLLOWING T HE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN CASE OF KOTAK SECURITI ES LTD. ON THE GROUND OF BONAFIDE CLAIMS OF THE ASSESSEE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE CIT(A) QUA THIS ISSU E. 6. GROUND NO. 2 REGARDING DISALLOWANCE U/S 14A. THE ASSESSEE HAS EARNED TAX FREE DIVIDEND INCOME OF ` 1,49,552/- AND LONG TERM CAPITAL GAIN WHICH HAS BEEN CLAIMED AS EXEMPT. THE A.O NOTED THA T THE ASSESSEE HAS ITA NO.455/M/2011 OHM STOCK BORKERS P. LTD. 4 NOT ALLOCATED ANY EXPENDITURE FOR EARNING OF TAX FR EE INCOME. ACCORDINGLY, THE A.O DISALLOWED AN EXPENDITURE OF ` 10,65,080/- CALCULATED AS PER RULE 8D. SINCE RULE 8D IS NOT APPLICABLE FOR THE ASSESSM ENT YEAR UNDER CONSIDERATION AS HELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS DCIT 328 I TR 81, THEREFORE, THE CIT(A) DIRECTED THE A.O TO DETERMINE THE QUANTUM OF SUCH EXPENDITURE BY APPLYING RATIO AS MENTIONED IN THE IMPUGNED ORDER. 7. WE HAVE HEARD THE LD. D.R AS WELL AS LD. A.R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ISSUE HAS BEEN DEC IDED BY THE CIT(A) IN PARA 4.4 AND 4.5 AS UNDER: 4.4 THE ASSESSEE HAD NOT SEPARATELY MAINTAINED THE DETAILS OF EXPENSES INCURRED FOR UNDERTAKING TRANSACTIONS WHIC H HAD YIELDED DIVIDEND AND CAPITAL GAIN INCOME WHICH WAS CLAIMED AS EXEMPT. IN VIEW OF THIS, A REASONABLE BASIS OR METH ODOLOGY HAS TO BE ADOPTED TO ASCERTAIN THE QUANTUM OF SUCH EXPE NDITURE WHICH RELATES TO EARNING OF THE EXEMPT INCOME TO EN FORCE THE PROVISIONS OF SECTION 14A, AS HAS BEEN DECIDED BY T HE HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA). I FIND THAT IT WILL BE REASONABLE TO DETERMINE THE QUANTUM OF THE AMOUNT OF EXPENDITURE INCURRED FOR EARNING OF EXEMPTED INCOME AT THE RATIO OF THE TOTAL EXPENDITURE DEBITED TO P & L ACCOUNT IN PROPORTION THAT THE VALUE OF TRANSACTION IN SHARES WHICH HAS YIELDED EXEMPT I NCOME BEARS TO THE VALUE OF TOTAL TRANSACTIONS IN SHARE AS UNDE R:- AMOUNT OF EXPENDITURE ALLOWABLE TO EARNING OF EXEMP T INCOME= TOTAL EXPENDITURE DEBITED TO P & L A/C (DIRECT & IN DIRECT) X VALUE OF TRANSACTION IN SHARE YIELDING EXEMPT INCOME ___________________________________________________ _______________ VALUE OF TOTAL TRANSACTIONS IN SHARE. 4.5 THE AMOUNTS SO DETERMINED SHALL BE DISALLOWED A S PER THE PROVISIONS OF SECTION 14A, BEING EXPENDITURE INCURR ED FOR EARNING OF EXEMPT INCOME. THE A.O IS DIRECTED TO DETERMINE THE QUANTUM OF SUCH EXPENDITURE BY APPLYING THE RATIO AS MENTIO NED ABOVE AND DISALLOW THE SAME AS PER THE PROVISIONS OF SECT ION 14A. THE APPEAL ON THIS GROUND IS ACCORDINGLY, DISPOSED OF W ITH THESE ITA NO.455/M/2011 OHM STOCK BORKERS P. LTD. 5 DIRECTIONS. THE DISALLOWANCE MADE BY THE A.O BY APP LYING RULE 8D AT ` 10,65,080/- IS THUS, DELETED IN RESPECTFUL COMPLIANCE OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF M/S GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA). THE APPEAL ON THIS GROUND IS TREATED AS PARTLY ALLOWED, FOR STATI STICAL PURPOSE. 8. IT IS CLEAR FROM THE FINDINGS OF THE CIT(A) THAT HE HAS DIRECTED TO THE A.O TO DETERMINE OF QUANTUM OF EXPENDITURE AS PER T HE FORMULA GIVEN IN THE IMPUGNED ORDER. RULE 8D IS NOT APPLICABLE FOR T HE YEAR UNDER CONSIDERATION. THEREFORE, IN THE ABSENCE OF ANY FAC T OR MATERIAL BROUGHT BEFORE US TO POINT OUT ANY ERROR OR DEFECT IN THE F ORMULA/RATIO SUGGESTED BY THE CIT(A) WE DO NOT FIND ANY REASON TO INTERFER E WITH THE ORDER OF THE CIT(A) QUA THIS ISSUE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF JANUARY 2014 SD/- SD/- ( . ) ! '# (D. KARUNAKARA RAO) ACCOUNTANT MEMBER ( ) $ '# (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 10 TH JANUARY 2014 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI