DCIT 4(1), MUMBAI V. HDFC SECURITIES, MUMBAI

ITA 4874/MUM/2010

• Counselvise Citation: 487419914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 05-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 11-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: KRUPA R GANDHI
• Section: 40(a)(ia); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI P.M. JAGTAP, ACCOUNTANT MEMBER I.T.A. NO. 4874/MUM/2010. ASSESSMENT YEAR : 2007-08. ASSTT. COMMISSIONER OF INCOME TAX, HD FC SECURITIES LTD., 4(1), MUMBAI. VS. TRADE WORLD, C-WING, 1 ST FLOOR, KAMALA MILLS COMPOUND, SENAPATI BAPAT MARG, LOWER P AREL, MUMBAI 400 13. PAN AAACH 8215R APPELLANT. RESPONDENT. APPELLANT BY : SHRI V.V. SHASTRI RESPONDENT BY : SHRI KRUPA R. GANDHI. DATE OF HEARING : 05-09-2011 DATE OF PRONOUNCEMENT : O R D E R. PER P.M. JAGTAP, A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LEARNED CIT(APPEALS)-8, MUMBAI DATED 26-03-2010. 2. IN GROUND NO.1, THE REVENUE HAS CHALLENGED THE A CTION OF THE LEARNED CIT(APPEALS) IN DELETING THE DISALLOWANCE MADE BY T HE AO IN RESPECT OF TRANSACTION CHARGES, VSAT CHARGES AND LEASE LINE CH ARGES U/S 40(A)(IA). 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF SHARE AND STOCK BROKING. THE RETURN OF INCOME FOR THE YEAR UNDER 2 ITA NO. 4874/MUM/2010 ASSESSMENT YEAR : 2007-08. CONSIDERATION WAS FILED BY IT ON 29-03-2008 DECLARI NG TOTAL INCOME OF RS.9,22,22,769/-. IN THE PROFIT & LOSS ACCOUNT FILE D ALONG WITH THE SAID RETURN, PAYMENT MADE TO STOCK EXCHANGE ON ACCOUNT OF TRANSA CTION CHARGES AMOUNTING TO RS.86,24,480/-, VSAT CHARGES AMOUNTING TO RS.4,74,0 00/- AND LEASE LINE CHARGES AMOUNTING TO RS.66,000/- WAS DEBITED BY THE ASSESS EE. ACCORDING TO THE A.O., THE SAID CHARGES PAID BY THE ASSESSEE TO THE STOCK EXCH ANGE WERE FOR THE SERVICES OF TECHNICAL AND MANAGERIAL NATURE. HE, THEREFORE, HEL D THAT DEDUCTION OF TAX AT SOURCE SHOULD HAVE BEEN MADE BY THE ASSESSEE COMPANY FROM THE PAYMENTS MADE TO THE STOCK EXCHANGE FOR THE SAID SERVICES AS PER PROVISI ONS OF SECTION 194 J AND SINCE NO SUCH DEDUCTION WAS MADE BY THE ASSESSEE, HE HELD TH AT THE AMOUNT PAID FOR THE SAID SERVICES WITHOUT DEDUCTION OF TAX AT SOURCE WAS LIA BLE TO BE DISALLOWED U/S. 40(A)(IA). THE MATTER WAS CARRIED BEFORE THE LD. C IT(A) WHO HELD AFTER EXAMINING ALL THE ASPECTS OF THE MATTER THAT LEASELINE CHARGE S AND V. SAT CHARGES PAID BY THE ASSESSEE COMPANY TO STOCK EXCHANGE WERE IN THE NATU RE OF REIMBURSEMENT OF CHARGES PAID BY THE MEMBERS OF STOCK EXCHANGE IN LI EU OF INFRASTRUCTURE AND TRADING FACILITIES PROVIDED BY THE STOCK EXCHANGE. HE WAS, THEREFORE, OF THE OPINION THAT IT WAS NOT IN THE NATURE OF FEES FOR TECHNICAL OR MANAGERIAL SERVICES ATTRACTING DEDUCTION OF TAX AT SOURCE U/S. 194J. ACCORDINGLY, THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF LEASE LINE CHARGES AND V-SAT CHA RGES BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) WAS DELETED BY THE LD. CIT(A). HE HOWEVER, HELD THAT THE AMOUNT PAID BY THE ASSESSEE TO STOCK EXCHA NGE ON ACCOUNT OF TRANSACTION CHARGES WAS IN THE NATURE OF FEES PAID FOR TECHNICA L OR MANAGERIAL SERVICES AND TAX AT SOURCE THEREFORE WAS LIABLE TO BE DEDUCTED THERE FROM U/S. 194J. HE, THEREFORE, CONFIRMED THE DISALLOWANCE MADE BY THE A.O. ON ACCO UNT OF TRANSACTION CHARGES U/S.40(A)(IA) AS NO TAX WAS ADMITTEDLY DEDUCTED BY THE ASSESSEE COMPANY FROM THE PAYMENT THEREOF. 3 ITA NO. 4874/MUM/2010 ASSESSMENT YEAR : 2007-08. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ISSUE INVOLVED IN GROUND NO. 1 OF THE REVENUES APPEAL RELATING TO DISALLOWANCE ON ACCOUN T OF LEASELINE CHARGES AND V. SAT CHARGES MADE U/S. 40(A)(IA) IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF KOTAK SECURITIES LIMITED REPORTED IN 25 SOT 440 WHEREIN IT WAS HELD THAT STOCK EXCHANGES DID NOT RENDER ANY MANAGERIAL OR TE CHNICAL SERVICES AND THEREFORE FEES PAID TO THEM CANNOT BE SUBJECTED TO DEDUCTION OF TAX AT SOURCE U/S. 194J. IT WAS HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) T HEREFORE COULD NOT BE INVOKED TO DISALLOW ANY PAYMENT MADE TO STOCK EXCHANGE FOR THE SERVICES RENDERED BY IT. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE TRI BUNAL IN THE CASE OF KOTAK SECURITIES LTD. (SUPRA), WE UPHOLD THE IMPUGNED ORD ER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GR OUND NO. 1 OF REVENUES APPEAL. 5. IN GROUND NO.2, THE REVENUE HAS CHALLENGED THE A CTION OF THE LEARNED CIT(APPEALS) IN DELETING THE DISALLOWANCE OF RS.10, 46,794/- MADE BY THE AO ON ACCOUNT OF PENALTY IMPOSED BY THE STOCK EXCHANGE. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT A SIMILAR ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ITO VS. V.R.M. SHARE BROKING PVT. LTD., 27 SOT 469 WHEREIN IT WAS HELD THAT THE PENALTY FOR FAILURE OF MARGINS IMPOSED BY SEBI ON SHARE BRO KERS BY VARIOUS NOTIFICATIONS BEING RISK MANAGEMENT ORIENTED, PAYMENT TOWARDS SUC H PENALTY DOES NOT ATTRACT PROVISO TO SECTION 37(1) WHICH IS AIMED AT PROVIDIN G DETERRENCE FOR INFRACTION OF LAWS OF THE COUNTRY. TO THE SIMILAR EFFECT IS THE DECISION OF CHANDIGARH BENCH OF THE ITAT IN THE CASE OF MASTER CAPITAL SERVICES LTD . VS. DCIT, 108 TTJ 389 4 ITA NO. 4874/MUM/2010 ASSESSMENT YEAR : 2007-08. WHEREIN IT WAS HELD THAT FINES AND PENALTIES PAID B Y THE ASSESSEE TO NSE FOR TRADING BEYOND EXPOSER LIMIT, LATE SUBMISSIONS OF MARGIN CE RTIFICATES AND DELAY IN MAKING DELIVERIES OF SHARES DUE TO DEFICIENCIES ARE PAYMEN TS MADE IN REGULAR COURSE OF BUSINESS AND NOT FOR INFRACTION OF LAW AS ENVISAGED IN PROVISO TO SECTION 37(1). IN OUR OPINION, THESE DECISIONS OF THE TRIBUNAL ARE SQ UARELY APPLICABLE TO THE ISSUE UNDER CONSIDERATION AND RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE M ADE BY THE A.O. ON ACCOUNT OF PENALTY PAID BY THE ASSESSEE TO BSE ON VIOLATION OF THE BYE LAWS OF THE STOCK EXCHANGE. GROUND NO. 2 OF REVENUES APPEAL IS ACCO RDINGLY DISMISSED. 7. GROUND NO. 3 AND 4 RAISED BY THE REVENUE IN THIS APPEAL ARE GENERAL IN NATURAL SEEKING NO SPECIFIC DECISION FROM US. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON THIS 9 TH DAY OF SEPT. , 2011. SD/- SD/- (R.V. EASWAR) (P.M. J AGTAP) PRESIDENT. ACC OUNTANT MEMBER MUMBAI, DATED: 9 TH SEPT., 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, H-BENCH. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES, MUMB AI. WAKODE