PRAYAS SECURITIES P.LTD, MUMBAI V. ACIT /OSD 2(2) CIR 2(2), MUMBAI

ITA 4731/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54829 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 08-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALEXANDER CHANDY
• Assessee Lawyers: SANJIV M SHAH
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, C, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI B RAMAKOTAIAH, ACCOUNTANT MEMBER I T A NO: 4731/MUM/2010 (ASSESSMENT YEAR: 2006-07) PRAYAS SECURITIES PVT. LTD., MUMBAI APPELLANT (PAN: AACCP2892C) VS ASSISTANT COMMISSIONER OF INCOME TAX (OSD) RESPON DENT CIRCLE 2(2), MUMBAI ASSESSEE BY: MR SANJIV M SHAH REVENUE BY: MR ALEXANDER CHANDY DATE OF HEARING: 2 ND AUGUST 2011 DATE OF PRONOUNCEMENT: 10 TH AUGUST 2011 O R D E R R V EASWAR, PRESIDENT: THIS APPEAL BY THE ASSESSEE RELATES TO THE ASSESSM ENT YEAR 2006-07. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS AS NSE SHARE-BROKER. THE APPEAL ARISES OUT OF THE ASS ESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, ON 24 TH NOVEMBER 2008. 2. THE FIRST GROUND IS DIRECTED AGAINST THE DISALLO WANCE OF NSE CHARGES OF ` 1,79,470/- AND VSAT CHARGES OF ` 2,27,350/- UNDER SECTION 40(A)(IA) OF THE ACT. THE ASSESSING OFFICE R HAS TAKEN THE VIEW THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX F ROM THESE PAYMENTS UNDER SECTION 194H OF THE ACT, WHICH REQUI RES AN ITA NO: 4731/MUM/2010 2 ASSESSEE TO DEDUCT TAX FROM COMMISSION OR BROKERAGE PAID TO A RESIDENT. THE ASSESSEE WOULD APPEAR TO HAVE POINTE D OUT THAT UNDER EXPLANATION (III) BELOW SECTION 194H READ WIT H SECTION 2(H)(I) OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956, SECURITIES INCLUDE SHARES, SCRIPS, STOCKS, BONDS, DEBENTURES O R OTHER MARKETABLE SECURITIES OF A LIKE NATURE IN ANY INCOR PORATED COMPANY OR OTHER BODY CORPORATE, AND THAT THE ASSESSEE HAS AVAILED THE SERVICES OF VARIOUS SUB-BROKERS WHO WERE MOBILIZING BUSINESS OF BUYING AND SELLING SHARES THROUGH THE ASSESSEES NE TWORK AND THAT THE PAYMENT OF BROKERAGE TO SUB-BROKERS WAS MADE FO R MOBILIZING BUSINESS FOR SECURITIES TRANSACTION AND THEREFORE T HE PAYMENT WAS OUTSIDE THE PURVIEW OF SECTION 194H OF THE ACT. OB JECTION WAS ALSO TAKEN BY THE ASSESSEE TO THE PROPOSED DISALLOWANCE OF THE VSAT CHARGES. THE OBJECTIONS WERE OVERRULED BY THE ASSE SSING OFFICER, WHO DISALLOWED BOTH THE PAYMENTS. THE DISALLOWANCE WAS CONFIRMED BY THE CIT(A) AND HENCE THE PRESENT GROUN D. 3. AT THE TIME OF THE HEARING THE LEARNED COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE PAYMENT OF VSAT CHARGES CANNOT BE DISALLOWED ON THE GROUND THAT THE ASSESSEE DID NOT DEDUCT TAX THEREFROM AS HELD BY THE MUMBAI BENCH OF THE TRIBUN AL IN THE CASE OF DCIT VS. ANGEL BROKING LTD. (2010) 134 TTJ (MUM) 681. A COPY OF THE SAID ORDER WAS FILED, FROM WHICH WE FIND THA T THE TRIBUNAL HAS DISCUSSED IN DETAIL THE NATURE OF VSAT CHARGES AND HELD THAT THESE CHARGES CANNOT BE CONSIDERED AS FEES FOR PROFESSION AL SERVICES OR FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF S ECTION 194J OF THE ACT. A PERUSAL OF THE ASSESSMENT ORDER IN THE PRES ENT CASE SHOWS ITA NO: 4731/MUM/2010 3 THAT THE ASSESSING OFFICER HAS NOT REFERRED TO SECT ION 194J SPECIFICALLY, SO FAR AS VSAT CHARGES ARE CONCERNED; HOWEVER WE PROCEED ON THE ASSUMPTION THAT IT WAS THIS SECTION THAT THE ASSESSING OFFICER HAD IN MIND. BE THAT AS IT MAY, SINCE THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID ORDER OF THE TRIBUNAL, RESPECTFULLY FOLLOWING THE SAME WE HOLD T HAT THE PAYMENT OF VSAT CHARGES DOES NOT AMOUNT TO PAYMENT OF FEES FOR PROFESSIONAL OR TECHNICAL SERVICES AND THEREFORE SE CTION 194J IS NOT APPLICABLE. CONSEQUENTLY, WE HOLD THAT THE DISALLO WANCE MADE UNDER SECTION 40(A)(IA) IS NOT CORRECT. 4. SO FAR AS THE PAYMENT OF NSE CHARGES IS CONCERNE D, IT APPEARS TO US THAT SECTION 194H WHICH IS REFERRED T O IN THE ASSESSEES REPLY DATED 19.11.2008 TO THE ASSESSING OFFICER (REPRODUCED IN PAGE 2 OF THE ASSESSMENT ORDER) IS N OT APPLICABLE SINCE THEY ARE ONLY PAYMENTS TO THE SUB-BROKERS FOR MOBILIZING BUSINESS FOR THE ASSESSEE, WHO IS ACTUALLY THE BROK ER OF NSE. THE PAYMENT IS FOR THE SERVICES OF THE SUB-BROKERS IN R ELATION TO THE SECURITIES. EXPLANATION (I) BELOW SECTION 194H EXC LUDES FROM THE PURVIEW OF COMMISSION OR BROKERAGE ANY PAYMENT MA DE FOR SERVICES RENDERED IN THE COURSE OF BUYING OR SELLIN G OR IN RELATION TO ANY TRANSACTION RELATING TO SECURITIES AND THE WORD SECURITIES IS DEFINED IN EXPLANATION (III) TO HAVE THE SAME MEANI NG ASSIGNED TO IT UNDER THE SECURITIES CONTRACTS (REGULATION) ACT, 19 56, WHICH WE HAVE ALREADY REFERRED TO. THE EFFECT OF THESE PROV ISIONS IS THAT ANY PAYMENT OF COMMISSION OR BROKERAGE MADE IN RESPECT OF A TRANSACTION IN SECURITIES IS NOT COVERED BY THE REQ UIREMENT OF TAX ITA NO: 4731/MUM/2010 4 DEDUCTION UNDER SECTION 194H OF THE ACT. THEREFORE , THE ASSESSEE WHICH HAS PAID COMMISSION OR BROKERAGE TO THE SUB-B ROKERS FOR MOBILIZING BUSINESS IN SECURITIES WAS NOT REQUIRED TO DEDUCT THE TAX. IN THIS VIEW OF THE MATTER THE DISALLOWANCE MADE UN DER SECTION 40(A)(IA) IN RESPECT OF NSE CHARGES IS ALSO NOT JUS TIFIED. 5. THUS BOTH THE DISALLOWANCES ARE DELETED AND THE FIRST GROUND IS ALLOWED. 6. THE SECOND GROUND RELATES TO THE DISALLOWANCE OF TRAVELLING EXPENSES OF ` 34,690/- AND MISCELLANEOUS EXPENSES OF ` 27,062/- ON THE GROUND THAT THE ASSESSEE COULD NOT PRODUCE A LL THE VOUCHERS. THE ASSESSING OFFICER HAS ESTIMATED THE DISALLOWANC E AT 10% OF THE EXPENDITURE. AFTER HEARING BOTH THE SIDES AND AFTER GOING THROUGH THE RECORDS WE FIND THAT THE DISALLOWANCE I S SOMEWHAT ON THE HIGHER SIDE AND THEREFORE THE SAME IS REDUCED T O 5% OF THE TOTAL EXPENDITURE. THE GROUND IS PARTLY ALLOWED. 7. GROUND NOS: (3) AND (4) ARE GENERAL AND REQUIRE NO DECISION. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH AUGUST 2011. SD/- SD/- (B RAMAKOTAIAH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI, DATED 10 TH AUGUST 2011 SALDANHA ITA NO: 4731/MUM/2010 5 COPY TO: 1. PRAYAS SECURITIES PVT. LTD. 16, KHATAU BUILDING 44, BANK STREET, FORT MUMBAI 400 001 2. ACIT (OSD), CIRCLE 2(2), MUMBAI 3. CIT-2, MUMBAI 4. CIT(A)-5, MUMBAI 5. DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI