ADDL CIT 4(1), MUMBAI V. H.J. SECURITIES P. LTD, MUMBAI

ITA 5379/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55670 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 18-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 01-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIVAS RAO
• Assessee Lawyers: NATASHA MANGAT
• Keywords: Non-deduction of tax
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER, A ND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 5379/MUM./2010 (ASSESSMENT YEAR : 2007-08 ) ASSTT. COMMISSIONER OF INCOME TAX RANGE-4(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S H.J. SECURITIES PVT. LTD. 24, 26, CAMA BUILDING DALAL STREET, FORT MUMBAI 400 023 PAN AAACH5600E .... RESPONDENT REVENUE BY : MR. GOLI SRINIVAS RAO ASSESSEE BY : MISS NATASHA MANGAT DATE OF HEARING 18.10.2011 DATE OF ORDER 21.10.2011 O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE REVENUE, IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 22 ND APRIL 2010, PASSED BY THE COMMISSIONER (APPEALS)-VIII, MUMBAI, FOR ASSESSMENT YEAR 2007-08 , ON THE FOLLOWING GROUNDS:- 1(I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION U/S. 40(A)(IA) OF RS. 3,27,77,693/- MADE ON ACCOUNT OF PAYMENTS TO ARBITR AGERS/JOBBERS FOR NON DEDUCTION OF TDS. H.J. SECURITIES PVT. LTD. ITA NO. 5379/MUM./2010 2 (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THE RELATIONSHIP BE TWEEN MEMBER BROKER AND JOBBER AS A PRINCIPAL TO PRINCIPAL RELAT IONSHIP AND THEREFORE, NOT ELIGIBLE FOR TAX DEDUCTION U/S. 194C OF THE I.T .ACT. (III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THAT SHARIN G OF PROFITS IS NOT AN LEGAL ARRANGEMENT AND THE ENTIRE EXERCISE WAS WI TH A VIEW TO AVOID LEGITIMATE TAXES. 2(I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE O F RS. 3,88,318/- MADE U/S.40(A)(IA) IN RESPECT OF VSAT AND LEASELINE CHARGES PAID TO STOCK EXCHANGE, WITHOUT APPRECIATING THE FACTS THAT THESE WERE COMPOSITE CHARGES FOR PROFESSIONAL AND TECHNICAL SE RVICES RENDERED BY THE STOCK EXCHANGE TO ITS MEMBERS AND THE ASSESSEE HAS FAILED TO DEDUCT TDS THEREON. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THESE SE RVICES ARE ESSENTIAL IN NATURE AS THEY CAN ONLY BE AVAILED BY MEMBERS OF ST OCK EXCHANGE. (III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACTS THAT USE OF TECHNOLOR AND ALGORITHMIC BASED PROGRAMS HAVE CONVERTED AN ERSTWH ILE PHYSICAL MARKET INTO A DIGITALLY OPERATED MARKET. (IV) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE SERVICES RENDERED BY THE BROKERS ARE NOT STANDARD SERVICES BUT SERVICES THAT HAS BEEN DEVELOPED TO CATER TO THE NEEDS OF THE BROKER COMMU NITY TO FACILITATE TRADING. (V) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS OVERLOOKED THE FACT THAT THE BRO KERS HAVE IN SUBSEQUENT YEARS THEMSELVES STARTED DEDUCTING THE T DS ON SUCH PAYMENTS AND THAT THERE IS NO REASON TO GIVE A DIFF ERENT TREATMENT IN THIS YEAR. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE IMPUGNED ORDER OF THE LD.CIT(A) IS CONTRARY TO LAW TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED.. 2. LEARNED DEPARTMENTAL REPRESENTATIVE, MR. GOLI SRINI VAS RAO, ON BEHALF OF THE REVENUE AND LEARNED COUNSEL, MISS NATASHA MA NGAT, ON BEHALF OF THE ASSESSEE, AGREE BEFORE US THAT THE ISSUES ARE COVER ED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE DECISION OF MU MBAI H BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITAS NO. 260 AND 2457/MUM./2009, ORDER DATED 28 TH SEPTEMBER 2011, FOR ASSESSMENT YEARS 2005-06 AND 2 006-07. IN VIEW OF THESE SUBMISSIONS, WE HOLD AS FOLLOWS:- H.J. SECURITIES PVT. LTD. ITA NO. 5379/MUM./2010 3 3. GROUND NO.1, IS AGAINST DELETION OF DISALLOWANCE MA DE UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ), ON THE GROUND THAT TDS HAS NOT BEEN MADE ON THE PAYMENTS TO ARBIT RAGERS / JOBBERS. THIS ISSUE HAS BEEN DISCUSSED IN PARAS-5, 6 AND 7 OF THE ORDER PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR S 2005-06 AND 2006-07 CITED SUPRA, WHICH READ AS FOLLOWS:- 5. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD S. THE LD. COUNSEL SUBMITS THAT THE ARRANGEMENT BETWEEN THE AS SESSEE AS A BROKER AND THE JOBBER IS ON THE PRINCIPAL TO PRINCI PAL BASIS AND JOBBER TAKES AWAY THE SHARE OF PROFIT IN THE BUSINESS DONE BY USING THE INFRASTRUCTURE OF THE ASSESSEE. HE SUBMITS THAT THI S ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE ITAT MUMBAI BENCH IN THE CASE OF DY. CIT VS. M/S. ASSET ALLIANC E SECURITIES P. LTD. IN ITA NO.1488/MUM/2009 DATED 18.07.2010 (2010) TIO L-460-ITAT- MUM. WE HAVE ALSO HEARD THE LD. D.R. 6. WE FIND THAT THE NATURE OF THE PAYMENTS MADE BY THE SHARE BROKERS TO THE JOBBERS HAS BEEN CONSIDERED BY THE I TAT MUMBAI BENCH IN THE CASE OF M/S. ASSET ALLIANCE SECURITIES PVT. LTD. (SUPRA) AND IT IS HELD AS UNDER:- THE FACTS SHOW THAT THERE WERE SEPARATE JOINT VENT URES ENTERED INTO BY THE ASSESSEE WITH SEVERAL JOBBERS/ARBITRAGERS AN D PAYMENTS HAVE BEEN MADE TO THEM UNDER SUCH AGREEMENTS AND THE ASS ESSEES SHARE IN THE PROFITS HAS BEEN TAKEN TO THE PROFIT AND LOS S ACCOUNT. IN THESE CIRCUMSTANCES THE PROVISIONS OF SECTION 194C ARE NO T ATTRACTED BECAUSE IN ESSENCE AND SUBSTANCE THE AMOUNTS PAID T O THE JOBBERS OR ARBITRAGERS DID NOT IN REALITY REPRESENT THE EXPENS E OF THE ASSESSEE COMPANY BUT REPRESENTED PAYMENT OF THE SHARE OF THE JOBBERS/ ARBITRAGERS UNDER THE AGREEMENT ENTERED INTO WITH T HEM. IN SUCH A CASE THE ASSESSEE IS RIGHT IN SAYING THAT THERE WAS NO QUESTION OF DEDUCTING ANY TAX AT SOURCE. THE ABOVE FACTS ALSO E STABLISH THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE JOBBERS/A RBITRAGERS WAS NOT OF PRINCIPAL AND AGENT BUT WAS THAT OF PRINCIPAL TO PRINCIPAL. BOTH HAD AGREED TO EMBARK UPON A JOINT VENTURE TO TRADE IN S HARES AND SECURITIES IN THE STOCK EXCHANGE AND TO SHARE THE P ROFIT / LOSS EQUALLY. WE DO NOT SEE HOW SUCH PAYMENTS CAN BE TERMED AS PA YMENTS TO CONTRACTORS FOR ANY WORK TO BE CARRIED OUT BY THEM. WE THEREFORE UPHOLD THE FINDING OF THE CIT (A) THAT THESE PAYM ENTS DO NOT ATTRACT SECTION 194C AND THE ASSESSEE WAS NOT LIABLE TO DED UCT TAX THEREFROM. ACCORDINGLY SECTION 40(A)(IA) IS ALSO NOT APPLICABL E. THE PAYMENTS, IN OUR VIEW, WERE RIGHTLY ALLOWED AS DEDUCTION BY THE CIT (A). THE GROUNDS 7 TO 10 ARE DISMISSED. 7. WE, THEREFORE, FOLLOWING THE DECISION OF THE CO- ORDINATE BENCH IN THE CASE OF M/S. ASSET ALLIANCE SECURITIES PVT. LTD . (SUPRA) CONFIRM THE ORDER OF THE LD. CIT (A) IN BOTH THE ASSESSMENT YEA RS AND THE H.J. SECURITIES PVT. LTD. ITA NO. 5379/MUM./2010 4 RESPECTIVE I.E. NOS. 1, 2 & 3, TAKEN BY THE REVENUE IN THE A.Y. 2005-06 AND GROUNDS 1 & 2 IN THE A.Y. 2005-06 ARE DISMISSED . 4. KEEPING IN VIEW THE AFORESAID DECISION OF THE TRIBU NAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2005-06 AND 2006-07 C ITED SUPRA, WE DISMISS THIS GROUND OF THE REVENUE. 5. GROUND NO.2, IS ON THE ISSUE OF DELETION OF DISALLO WANCE MADE UNDER SECTION 40(A)(IA) OF THE ACT, IN RESPECT OF PAYMENT S MADE TO NATIONAL STOCK EXCHANGE AND BOMBAY STOCK EXCHANGE FOR V-SAT AND LE ASELINE CHARGES WITHOUT DEDUCTING TAX AT SOURCE. 6. WE FIND THAT THIS ISSUE IS ALSO COVERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBU NAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2005-06 AND 2006-07 CITED SUPR A, WHEREIN THE TRIBUNAL AT PARAS-10 AND 11, FOLLOWED THE DECISION OF MUMBAI A BENCH OF THE TRIBUNAL IN KOTAK SECURITIES LTD. V/S ACIT, 124 TTJ 241 (MUM.), AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. PARAS- 10 AND 11, OF THAT ORDER, READ AS FOLLOWS:- 10. WE HAVE HEARD THE PARTIES PERUSED THE RECORDS A ND GONE THROUGH THE DECISIONS RELIED UPON BY THE PARTIES. W E FIND THAT THIS ISSUE STANDS FAIRLY COVERED IN FAVOUR OF THE ASSESS EE BY THE DECISION OF THE ITAT MUMBAI A BENCH IN THE CASE OF KOTAK SECU RITIES LTD. (SUPRA). THE OPERATIVE PART OF THE SAID DECISION IS AS UNDER:- 28. TO CALL A PAYMENT AS FEES FOR TECHNICAL SERVICE S IT SHOULD HAVE BEEN PAID IN CONSIDERATION FOR RENDERIN G BY THE RECIPIENT OF PAYMENT OF ANY (A) MANAGERIAL SERV ICE (B) TECHNICAL OR CONSULTANCY SERVICES; STOCK EXCHANGES MERELY PROVIDE FACILITY FOR ITS MEMBERS TO PURCHASE AND SE LL SHARES, SECURITIES ETC., WITHIN THE FRAMEWORK OF IT S BYE LAWS. IN THE EVENT OF DISPUTE IT PROVIDES MECHANISM FOR SETTLEMENT OF DISPUTES. IT REGULATES CONDITIONS SUB JECT TO WHICH A PERSON CAN BE A MEMBER AND WHEN AND IN WHAT CIRCUMSTANCES MEMBERSHIP CAN BE TRANSFERRED, CANCEL LED, SUSPENDED, ETC. THE EXCHANGE PROVIDES A PLACE WHERE THE MEMBERS MEET AND TRANSACT BUSINESS. THE TRANSACTION FEE PAID IS ON THE BASIS OF VOLUME OF TRANSACTION EFFEC TED BY A MEMBER. THE STOCK EXCHANGES DO NOT RENDER ANY MANAGERIAL SERVICE NOR DO THEY RENDER ANY TECHNICAL CONSULTANCY SERVICE. THE TRANSACTION FEE IS NOT PAI D IN CONSIDERATION OF ANY SERVICE PROVIDED BY THE STOCK EXCHANGE. IT IS A PAYMENT FOR USE OF FACILITIES PRO VIDED BY H.J. SECURITIES PVT. LTD. ITA NO. 5379/MUM./2010 5 THE STOCK EXCHANGE AND SUCH FACILITIES ARE AVAILABL E FOR USE BY ANY MEMBER. THE PROVISIONS OF S. 194J WHICH CASTS A BURDEN ON A PERSON TO DEDUCT AT SOURCE AND TREAT HIM A DEFAULTER ON FAILURE TO DEDUCT TAX AT SOURCE, NEEDS TO BE INTERPRETED STRICTLY AND IN THE ABSENCE OF A CLEAR OBLIGATION ON THE PART OF A PERSON SPELT OUT IN UNAMBIGUOUS TERMS BY THE PROVISIONS OF S. 194J R/W EXPLN. 2 TO S. 9(1)(VII) OF THE ACT, SUCH OBLIGATIO N CANNOT BE IMPLIED OR LEFT TO THE IPSI DIXIT OF THE REVENUE AUTHORITIES. WE THEREFORE HOLD THAT TRANSACTION FEE PAID CANNOT BE SAID TO BE A FEE PAID IN CONSIDERATION OF THE STOCK EXCHANGE RENDERING ANY TECHNICAL SERVICES TO THE ASSESSEE. THE PROVISIONS OF S. 194J ARE THEREFORE N OT ATTRACTED. THEREFORE, THERE WAS NO OBLIGATION ON TH E PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE. CONSEQUENT LY, THE PROVISIONS OF S. 40(A)(IA) WERE ALSO NOT ATTRAC TED AND THEREFORE THE DISALLOWANCE MADE IS DIRECTED TO BE DELETED. 11. WE FIND NO REASON TO INTERFERE IN THE ORDER OF THE LD. CIT (A) IN BOTH THE ASSESSMENT YEARS ON THIS ISSUE. WE, ACCORDINGLY, CO NFIRM THE SAME AND DISMISS RESPECTIVE GROUNDS TAKEN BY THE REVENUE IN BOTH THE APPEALS. 7. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CO MMISSIONER (APPEALS) WHO HAS FOLLOWED THE ORDER OF THE TRIBUNA L CITED ABOVE. THUS, WE DISMISS THE GROUND RAISED BY THE REVENUE. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OCTOBER 2011 SD/- VIJAY PAL RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 21 ST OCTOBER 2011 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, H BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI