ACIT CIR 4(3), MUMBAI V. J.L. SHAH SECURITIESW P. LTD, MUMBAI

ITA 476/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75253 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 06-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 18-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Keywords: Bonafide belief

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I , MUMBAI BEFORE SHRI D. KARUNAKARA RAO , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 476/M/ 20 11 ASSESSMENT YEAR: 2007 - 08 DY. COMMISSIONER OF INCOME TAX - 4(3), 6 TH FLOOR, AAYAKAR BH AVAN, MUMBAI 20 VS. M/S. J.L. SHAH SECURITIES PVT. LTD. 404/405, A - WING, 4 TH FLOOR, WINSWAY COMPLEX, TELI GALLI, ANDHERI (E), MUMBAI PAN: AAACJ3543J (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI M.L. PERUMAL, D.R. DATE OF HEARING : 06.01.2014 DATE OF PRONOUNCEMENT : 08.01.2014 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THIS AP PEAL HAS BEEN PREFERRED BY THE R EVENUE AGAINST THE ORDER OF THE CIT(A) DATED 25.10.2010 PERT AINING TO A.Y 2007 - 08, CHALLE NGING THE DELETION OF ADDITION WHICH WAS MADE BY THE AO ON ACCOUNT OF DISALLOWANCE MADE U/S. 40(A)(IA) AT RS.11 , 26 , 768 / - & RS.3 , 52 , 000/ - IN RESPECT OF TRANSACTION CHARGES AND VSAT CHARGES PAID TO THE STOCK EXCHANGE. 2. NONE HA S PUT IN APPEARANCE ON BEHALF OF THE ASSESSEE DESPITE DUE SERVICE OF NOTICE . SINCE THE MATTER SEEMS TO BE COVERED WITH EARLIER JUDGMENTS OF THIS TRIBUNAL, WE PROCEED TO DECIDE THE SAME. ITA NO .476/M2011 M/S. J. L. SHAH SECURITIES PVT. LTD. 2 3. THE ASSESSEE COMPANY, ENGAGED IN THE BUSINESS OF SHARE TRADING AND STOCK BROKING, CLAIMED/DEBITED TRANSACTION CHARGES AND VSAT CHARGES OF RS.11 , 26 , 768 / - & RS.3 , 52 , 000/ - RESPECTIVELY WHICH WAS PAID BY IT TO THE STOCK EXCHANGE ON ACCOUNT OF TRANSACTIONS IN SECURITIES MADE BY THE ASSESSEE THROUGH THE STOCK EXCHANGE. THE AO MADE THE DISALLOWANCE TREATING THE SAME AS PAYMENT FOR TECHNICAL SERVICES ON WHICH TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE U/S. 194J OF THE ACT. THE LEARNED CIT(A) DELETED THE ADDITIONS SO MADE PLACING RELIANCE ON THE AUTHORITY OF THE ITAT STYLED AS KO TAK SECURITIES LTD VS. ADDL. CIT, DATED 26.08.2008 IN ITA NO.1955/MUM/2008 FOR A.Y. 2005 - 06 [124 TTJ 241] . 4. IT MAY BE OBSERVED THAT THE R EVENUE HAD FILED AN APPEAL BEFORE THE HON'BLE BOMBAY HIGH COURT AGAINST THE ORDER OF THE ITAT IN THE CASE OF KOTAK SE CURITIES [ CIT VS. KOTAK SECURITIES LTD. 203 TAXMAN 86]. BEFORE THE HON'BLE BOMBAY HIGH COURT, THE R EVENUE DID NOT PRESS THE ISSUE RELATING TO DELETIONS MADE ON ACCOUNT OF VSAT CHARGES AND LEASE LINE CHARGES IN VIEW OF THE LAW LAID DOWN BY THE HON'BLE APEX COURT IN THE CASE OF TECHNO SHARES & STOCKS LTD. V. CIT 327 ITR 323 / 193 TAXMAN 248 AND T.R.F. LTD. V. CIT 323 ITR 397 / 190 TAXMAN 39. HOWEVER, THE HON'BLE HIGH COURT HELD THAT THE TRANSACTION CHARGES PAID BY THE ASSESSEE TO STOCK EXCHANGE CONSTITUTE FE ES FOR TECHNICAL SERVICES U/S. 194J OF THE ACT AND, THEREFORE, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF STOCK EXCHANGE. 5. SIMILAR TYPE OF DISPUTE CAME UP FOR ADJUDICATION BEFORE THE TRIBUNAL IN THE CASE OF FIRST G LOBAL STOCKBROKING PVT. LTD. FOR A.Y. 2006 - 07, AND THE BENCH VIDE ITS ORDER DATED 28.09.2012 MADE THE FOLLOWING OBSERVATIONS: - 'FURTHER, THERE IS NO BIFURCATION OF THE AMOUNTS OF VSAT, LEASE LINE AND TRANSACTION CHARGES. IN THE CASE OF CIT VS. ANGEL BROKING LTD (SUPRA) IN ITA NO.475 OF 2011 ITA NO .476/M2011 M/S. J. L. SHAH SECURITIES PVT. LTD. 3 DATED 28TH JULY, 2011, THE HON'BLE HIGH COURT HELD THAT VSAT AND LEASE LINE CHARGES PAID TO THE STOCK EXCHANGE ARE NOT PAID IN CONSIDERATION OF TECHNICAL SERVICES. THEREFORE, THERE IS NO NEED FOR D EDUCTING TAX. THE SAME PRINCIPLES WERE REITERATED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. STOCK AND BOND TRADING COMPANY IN ITA NO.4117 OF 2010 DATED 14TH OCTOBER,2011 WHEREIN VSAT CHARGES, NSE LEASE LINE CHARGES AND TRANSACTION CHARGES WER E CONSIDERED AND HELD AGAINST THE REVENUE FOLLOWING THE DECISION IN THE CASE OF DCIT VS. ANGEL BROKING LTD (SUPRA). THE SAME PRINCIPLES WERE REITERATED IN THE CASE OF CIT VS. KOTAK SECURITIES LTD 203 TAXMANN 86 (BOM). TO THE EXTENT OF VSAT, LEASE LINE CHAR GES THE REVENUE DID NOT EVEN CONTEST. EVEN THOUGH THE HON'BLE COURT HELD THAT THE TRANSACTION CHARGES PAID TO THE STOCK EXCHANGE CONSTITUTE FEES FOR TECHNICAL SERVICES ON BONAFIDE BELIEF IT WAS CONSIDERED THAT THE DISALLOWANCE CANNOT BE MADE IN THAT YEAR A S THE REVENUE DID NOT PROCEED ON THE FOOTING THAT ASSESSEE IS NOT LIABLE TO DEDUCT THE TAX AT SOURCE AFTER INTRODUCTION OF THE PROVISIONS. SINCE THE CIT (A) HAS ONLY GIVEN PARTIAL RELIEF OF RS.2,50,000/ - , AFTER CONSIDERING THE ITAT ORDERS IN THE CASES OF K OTAK SECURITIES LTD 124 TTJ 241 AND ANGEL BROKING LTD 35 SOT 457 (MUM), WE ARE OF THE OPINION THAT THERE IS NO NEED TO DISTURB THE ORDER OF THE CIT (A). IN VIEW OF THIS, GROUNDS RAISED ARE DISMISSED.' SO IT CAN BE SAFELY HELD THAT NO TAX AT SOURCE WAS REQU IRED TO BE DEDUCTED BY THE ASSESSEE WITH REGARD TO VSAT CHARGES. 6 . SO FAR DISALLOWANCE RELATING TO TRANSACTION CHARGES IS CONCERNED, THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN 'ACIT VS. D ICGC LTD.,' ITA NOS. 2361 & 2524/MUM/2011 (2012) 14 ITR (TRIB . ) 194 (MUMBAI), IN PARA 14 OF THE JUDGMENT HAS OBSERVED AS UNDER: 'THE SECOND PART OF THE ARGUMENT IS THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KOTAK SECURITIES LTD. [SUPRA] HAS OBSERVED IN PARA - 31 THAT BOTH THE PARTIES HAS PROCEEDED ON THE FOOTI NG THAT TAX WAS NOT DEDUCTIBLE U/S.194J FOR THE LAST 10 YEARS, THEREFORE, PROVISIONS OF SEC.40[A][IA] COULD NOT BE INVOKED. IT WAS CONTENDED THAT IN THE LAST MANY YEARS IN THE CASE BEFORE US ALSO NO TAX WAS HELD TO BE DEDUCTIBLE, THEREFORE, ASSESSEE AND DE PARTMENT PROCEEDED ON THE FOOTING THAT NO TAX WAS DEDUCTIBLE. HOWEVER, ON QUERY BY THE BENCH LD. COUNSEL OF THE ASSESSEE ADMITTED THAT IN A.Y 2006 - 07 DISALLOWANCE U/S.40[A][IA] WAS MADE FOR THE FIRST TIME BUT THAT YEAR WAS NOT AVAILABLE BY THE TIME ASSESSM ENT FOR A.Y 2007 - 08 WAS COMPLETED. HOWEVER, THIS DEFENSE IS NOT AVAILABLE IN A.Y 2008 - 09 BECAUSE BY THAT TIME REVENUE HAS ALREADY INVOKED THE PROVISIONS OF SEC.40[A][IA] AND THIS FACT WAS KNOWN TO THE ASSESSEE. THEREFORE, IN OUR OPINION, IN VIEW OF PARA - 31 OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF KOTAK SECURITIES LTD., PROVISIONS OF SEC.40[A]IA] ARE NOT APPLICABLE FOR A.Y 2007 - 08 WHEREAS THE SAME ARE APPLICABLE IN A.Y 2008 - 09. - CIT V. KOTAK SECURITIES LTD. VIDE ITA NO.3111/M/2009, REL IED.' ITA NO .476/M2011 M/S. J. L. SHAH SECURITIES PVT. LTD. 4 7 . IN VIEW OF THE OBSERVATIONS MADE BY THE LEARNED CO - ORDINATE BENCH OF THIS TRIBUNAL, WE REMAND BACK THIS CASE TO THE FILE OF THE AO TO VERIFY WHETHER THE RETURN FOR THE AY 2007 - 08 WAS FILED BY THE ASSESSEE BEFORE THE COMPLETION OF ASSESSMENT PROCE EDINGS FOR THE AY 2006 - 07 AND W HETHER THE ASSESSEE WAS IN BONA FIDE BELIEF IN VIEW OF ASSESSMENT MADE FOR THE EARLIER YEARS, THAT HE WAS NOT LIABLE TO DEDUCT TAX FOR TRANSACTION CHARGES U/S 194J AND IF FOUND SO, HE WILL ALLOW THE DEDUCTIONS FOR TRANSACTION CHARGES ACCORDINGLY. NEEDLESS TO SAY HE WILL PROVIDE PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. THE FINDING OF LEANED CIT(A), IN RESPECT OF VSAT CHARGES IS HERE BY CONFIRMED. 8 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 08.01. 201 4 . SD/ - SD/ - ( D. KARUNAKARA RAO ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 08.01. 201 4 . * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.