ACIT CIR 4(2), MUMBAI V. STRATCAP SECURITIES (I) P. LTD, MUMBAI

ITA 6026/MUM/2010

• Counselvise Citation: 602619914 RSA 2010
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 12-04-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 04-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Keywords: Rule of consistency; Wholly owned subsidiary; Non-deduction of tax
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M.JAGTAP (A.M) & SHRI N.V.VASUDEVAN( J.M) ITA NO. 6026/MUM/2010(A.Y.2005-06) ITA NO.6027/MUM/2010(A.Y. 2007-08) THE ACIT, CIR.4(2), ROOM NO.642, 6TJ FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI - 400 020. (APPELLANT) VS. M/S. STRATCAP SECURITIES (INDIA) P. LTD., 44, MINT ROAD, FORT, MUMBAI - 400 001. PAN NO.AAACS7113H (RESPONDENT) APPELLANT BY : SHRI D.S.SUNDER SINGH RESPONDENT BY : SHRI VIMAL PUNMIYA DATE OF HEARING : 12/04/2012 DATE OF PRONOUNCEMENT : 20/04/2012 ORDER PER N.V.VASUDEVAN, J.M ITA NO.6026 IS AN APPEAL BY THE REVENUE AGAINST T HE ORDER DATED 10/5/2010 OF CIT(A)-8, MUMBAI RELATING TO THE ASSES SMENT YEAR 2005-06. ITA NO.6027/M/2010 IS ALSO AN APPEAL BY THE REVENU E AGAINST THE ORDER DATED 10/5/2010 RELATING TO THE ASSESSMENT YEAR 20 07-08. 2. FIRST WE SHALL TAKE UP FOR CONSIDERATION ITA NO . 6027/M/2010. THE GROUND NO. 1 RAISED BY THE REVENUE READS AS UNDER: 1.(I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DJSALLOWANCE OF RS . 75,000/- MADE U/S.40(A)(IA) IN RESPECT OF VSAT CHARGES PAID TO ST OCK EXCHANGE, WITHOUT APPRECIATING THE FACTS THAT THESE WERE COMP OSITE CHARGES FOR PROFESSIONAL AND TECHNICAL SERVICES RENDERED BY THE STOCK EXCHANGE TO ITS MEMBERS AND THE ASSESSEE HAS FAILED TO DEDUCT T DS THEREON.. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE 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. ITA NO. 6026/MUM/2010(A.Y.2005-06) ITA NO.6027/MUM/2010(A.Y. 2007-08) 2 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 TECHNOLOGY 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 C ASE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE SERV ICES RENDERED BY THE BROKERS ARE NOT STANDARD SERVICES BUT SERVICES THAT HAS BEEN DEVELOPED TO CATER TO THE NEEDS OF THE BROKER COMMUNITY TO FA CILITATE 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 BROKERS HAVE IN SUBSEQUENT YEARS THEMSELVES STARTED DEDUCTING THE TDS ON SUCH PAYMENTS AND THAT THERE IS NO REASON TO GIVE A DIFFERENT TREATME NT IN THIS YEAR. 3. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN TH E BUSINESS OF STOCK BROKING AND SHARE TRADING. THE GROUND RAISED BY T HE REVENUE IS WITH REGARD TO NON-DEDUCTION OF TAX AT SOURCE IN RESPECT OF PAY MENT OF VSAT, LEASE LINE CHARGES AND TRANSACTION CHARGES BY THE ASSESSEE TO THE STOCK EXCHANGE AND CONSEQUENT DISALLOWANCE OF THE SUMS SO PAID CLAIMED AS DEDUCTION BY THE ASSESSEE WHILE COMPUTING TOTAL INCOME IN VIEW OF TH E PROVISIONS OF SEC.40(A)(IA) OF THE ACT. THE AO ON THE PRESUMPTIO N THAT THE VSAT, LEASE LINE CHARGES AND CONTRACT CHARGES PAID BY THE ASSES SEE TO THE STOCK EXCHANGE WAS IN THE NATURE OF A FEES FOR PROFESSIONAL AND TE CHNICAL SERVICES RENDERED, WAS OF THE VIEW THAT THE ASSESSEE OUGHT TO HAVE DED UCTED TAX AT SOURCE WHILE MAKING PAYMENT TO THE STOCK EXCHANGE. SINCE THE AS SESSEE DID NOT DEDUCT TAX AT SOURCE THE EXPENDITURE ON ACCOUNT OF LEASE L INE CHARGES DEBITED BY THE ASSESSEE IN THE P&L ACCOUNT WAS HELD TO BE NOT DEDU CTIBLE IN COMPUTING THE TOTAL INCOME BY VIRTUE OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD THAT VSAT A ND LEASE LINE CHARGES ARE NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES AN D DELETED THE ADDITION MADE BY THE AO. ITA NO. 6026/MUM/2010(A.Y.2005-06) ITA NO.6027/MUM/2010(A.Y. 2007-08) 3 4. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE HAS PREFERRED GROUND NO.2 BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING IT WAS AGREED BY BOTH THE PARTIES THAT THE ISSUE AS TO WHETHER VSAT AND LEASE LINE CHARGES IS IN TH E NATURE OF FEES FOR PROFESSIONAL AND TECHNICAL SERVICES RENDERED AND A S TO WHETHER PROVISIONS OF SECTION 194J OF THE ACT WOULD APPLY AND CONSEQUENTL Y DISALLOWANCE COULD BE MADE FOR NON DEDUCTION OF TAX AT SOURCE UNDER SECTI ON 40(A)(IA) OF THE ACT COULD BE MADE HAS ALREADY BEEN DECIDED BY THIS TRIB UNAL IN THE CASE OF DCIT VS. ANGEL BROKING LTD. (2010) 35 SOT 457 (MUM). TH E TRIBUNAL IN THE AFORESAID DECISIONS HAS HELD THAT VSAT AND LEASE LI NE CHARGES ARE NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES RENDERED SO A S TO ATTRACT THE PROVISIONS OF SECTION 194J OF THE ACT. THE LD. D.R SUBMITTED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KOTAK SECURITIES LTD., 245 ITR 3(BOM) HAS HELD THAT TRANSACTIONS CHARGES PAID BY THE STOCK BR OKER TO A STOCK EXCHANGE WAS FEES FOR TECHNICAL SERVICES AND TAX HAS TO BE D EDUCTED AT SOURCE BY THE STOCK BROKER WHILE MAKING PAYMENT TO THE STOCK EXCH ANGE. 6. WE HAVE CONSIDERED HIS SUBMISSIONS AND WE FIND THAT V-SAT CHARGES ARE TOTALLY DIFFERENT FROM TRANSACTIONS CHARGES. REGAR DING DEDUCTION OF TAX AT SOURCE FOR V-SAT CHARGES THE HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. M/S. THE STOCK AND BOND TRADING COMPANY IN ITA NO.14117 OF 2010 BY ORDER DATED 14/10/2011 WAS PLEASED TO HOLD THAT V-S AT CHARGES ARE NOT FEES FOR TECHNICAL SERVICES UNDER SECTION 194 J OF THE INCOME TAX ACT, 1961(THE ACT) AND THEREFORE, THERE WAS NO OBLIGATION TO DEDU CT TAX AT SOURCE WHILE MAKING PAYMENT. THE HONBLE BOMBAY HIGH COURT FOLL OWED ITS OWN DECISION IN THE CASE OF CIT VS. ANGEL CAPITAL & DEBIT MARKET LTD. IN IT APPEAL (L) NO.475 OF 2011 DATED 28/7/2011. IN VIEW OF THE ABO VE WE DO NOT FIND ANY MERIT IN GROUND NO.1 RAISED BY THE REVENUE. ITA NO. 6026/MUM/2010(A.Y.2005-06) ITA NO.6027/MUM/2010(A.Y. 2007-08) 4 6. GROUND NO.2 RAISED BY THE REVENUE READS AS FOLLO WS: 2 (I)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON A CCOUNT OF PENALTY OF RS. 1,27,162/- ON VIOLATION OF THE BYE-LAWS OF THE STOCK EXCHANGE, WHICH ARE STATUTORY IN CHARACTER AND THUS AMOUNTED TO INFRINGEMENT OF LAW. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE PENA LTY IS IMPOSED UNDER SEBI [PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PE NALTY BY ADJUDICATING OFFICER] RULES 1995 WHICH HAS A BINDIN G CHARACTER. III. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACTS THAT NON-ADH ERENCE TO STATUTORY PROVISIONS IS NOT AN ALLOWABLE EXPENDITURE IV. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN APPRECIATING THAT IT WAS NOT EN OUGH THAT THE DISBURSEMENT WAS MADE IN THE COURSE OF TRADE, BUT W AS ALSO FOR THE LAWFUL PURPOSE OF TRADE. V. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE PENA LTY WAS IMPOSED BECAUSE THE BUSINESS WAS NOT CONDUCTED WITHIN THE F RAMEWORK OF LAW. 7. AT THE TIME OF HEARING IT WAS AGREED BY BOTH THE PARTIES THAT IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.3671/MUM/2010 FOR AY 06-0. THE FOLLOWING WERE T HE RELEVANT OBSERVATIONS OF THE TRIBUNAL. 5. AS REGARDS THE ISSUE OF PENALTY PAID TO STOCK EXCHANGE, THE SAME IS ALSO COVERED BY THE ORDER DATED 31/12/2010 OF TH IS TRIBUNAL IN CASE OF M/S TOTAL SECURITIES LTD VS DCIT IN ITA NO, 7 123/M/2008 WHEREBY THIS TRIBUNAL HAS DECIDED THE ISSUE AS UND ER: 4. AS REGARDS GROUND NO. 2. IT IS OBSERVED THAT TH E ISSUE INVOLVED THEREIN RELATING TO DISALLOWANCE MODE BY T HE AO AND CONFIRMED BY THE LD, CIT(A) ON ACCOUNT OF PENALTY OF 7445/- PAID BY THE ASSESSEE TO STOCK EXCHANGE IS SQUARELY COVERED IN ITA NO. 6026/MUM/2010(A.Y.2005-06) ITA NO.6027/MUM/2010(A.Y. 2007-08) 5 FAVOUR OF THE ASSESSEE BY SEVERAL DECISIONS OF THE TRIBUNAL. IN ONE OF SUCH DECISIONS RENDERED IN THE CASE OF ITO V S. GDB SHARE & STOCK STOKING SERVICES LTD. 88 TTJ (KOL) 352. I T WAS HELD BY THE TRIBUNAL THAT PENALTY PAID BY THE ASSESSEE AS A REGISTERED BROKER TO THE STOCK EXCHANGE FOR NOT COMPLYING WITH VARIOUS OBLIGATIONS/REQUIREMENTS IS NOT IN THE NATURE OF I NFRINGEMENT OF ANY LAW AS ENVISAGED SO EXPLANATION TO SECTION 37 AND THE SAME IS ALLOWABLE AS DEDUCTION BEING THE EXPENSES W HOLLY AND EXCLUSIVELY INCURRED BY THE ASSASSEE FOR THE PURPO SE OF ITS BUSINESS. A SIMILAR VIEW HAS BEEN TAKEN BY THE CHAN DIGARH BENCH OF ITAT IN THE CASE OF MASTER CAPITAL SERVICE S LTD. VS DCIT 23 SOT 69 (CHD). RESPECTFULLY FOLLOWING THE SAID DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL WE DELET E THE DISALLOWANCE MADE BY THE A.O AND CONFIRMED BY LD. C IT(A) ON ACCOUNT OF PENALTY PAID BY THE ASSESSEE TO STOCK EXCHANGE AND ALLOW GROUND NO 2 OF ASSESSEES APPEAL. 8. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN THE CASE OF KOTAK SECURITIES LTD (SUPRA) AND IN THE CASE OF TOT AL SECURITIES LTD (SUPRA). WE DECIDE THE ISSUE IN FAVOUR OF THE ASS ESSEE; THE ORDER OF THE CIT(A) QUA THIS ISSUE UPHELD. 8. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE ON THE SAME ISSUE, WE ARE OF THE VIEW THAT THE ORDE R OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. CONSEQUENTLY GROUND NO .2 RAISED BY THE REVENUE IS DISMISSED. 9. GROUND NO.3 RAISED BY THE REVENUE READS AS FOLLO WS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 1,15, 17,795/- MADE U/S. 40(A)(IA) OF THE I.T. ACT BY ASSESSING OFFICER. 10. STRATEGIC CAPITAL CORPORATION PVT. LTD. (SCC) I S THE PARENT COMPANY OF THE ASSESSEE (ASSESSEE IS A 100% SUBSIDIARY OF SCC) . SCC HAD SUSPENDED ITS BUSINESS OF INVESTMENT BANKING AND MERCHANT BAN KING ACTIVITIES AND APPLIED FOR AN NBFC LICENCE. AS SCC HAD A READY WO RKFORCE AND OFFICES ITA NO. 6026/MUM/2010(A.Y.2005-06) ITA NO.6027/MUM/2010(A.Y. 2007-08) 6 ACROSS INDIA, THE ASSESSEE DECIDED TO UTILIZE THE S ERVICES, THE INFRASTRUCTURE AND THE WORKFORCE OF SCC FOR INCREASING DEMAND OF T HE ASSESSEE TO MARKET THEIR EQUITY SALES, MUTUAL FUNDS DISTRIBUTION, BOND SALES ETC. A MEMORANDUM OF UNDERSTANDING (MOU) WAS ENTERED WHERE BY ASSESSEE WILL REIMBURSE THE ACTUAL AMOUNT OF EXPENSES INCURRED BY SCC ON BEHALF OF THE ASSESSEE. DURING THE YEAR, THE ASSESSEE HAS MADE P AYMENTS TO SCC OF RS. 1,15,17,795/-. THE PAYMENTS HAD BEEN MADE ON ACCOU NT OF COMMON UTILIZATION OF FACILITIES AND OTHER EXPENDITURE REL ATING TO DIFFERENT HEADS OF INCOME. THE TOTAL REIMBURSEMENT WERE UNDER TWO CAT EGORIES VIZ., OPERATING COST OF RS. 26,32,121/- AND PERSONNEL COST OF RS. 8 8,85,674/-. 11. ACCORDING TO THE AO, THE LIABILITY TO DEDUCT T DS ARISES THE MOMENT ANY SUM IS CREDITED OR PAID TO A PERSON. HE HELD THAT IN ASSESSEES CASE, THE ASSESSEE WAS PAYING TO ITS PARENT COMPANY CERTAIN S UMS WHICH WERE FOR COMMON UTILIZATION OF FACILITIES BASED ON MUTUAL UN DERSTANDING. THE ASSESSEE CANNOT SAY THAT THESE WERE MERE REIMBURSEM ENT OF EXPENSES WHEN THE PARTICULARS BILLS WERE NOT FORWARDED TO IT. TH E ASSESSEE WAS PAYING AMOUNTS TO ITS PARENT COMPANY FOR UTILIZATION OF SE RVICE FOR WHICH THE PARENT COMPANY WAS FORWARDING THE DEBIT NOTES WHICH DID NO T SPECIFY ANY BREAKUP OF EXPENSES. FURTHER THE ABOVE PAYMENTS HAVE BEEN MADE UNDER A CONTRACT. THESE WERE IN NATURE OF SERVICES RENDERED BY THE PA RENTS COMPANY TO ITS SUBSIDIARY IN TERMS OF SUPPLY OF LABOUR AND OTHER S UCH SERVICES. IT IS NOT FOR THE ASSESSEE TO DECIDE THAT HOW MUCH OF THE EXPENDI TURE IS JUST THE COST OF SERVICE AND WHAT IS THE PERCENTAGE OF PROFIT EMBEDD ED IN IT. THE AO FURTHER OBSERVED THAT COURTS HAVE TIME AND AGAIN HELD THAT WHAT IS REQUIRED UNDER THE PROVISIONS WITH REGARD TO TDS IS DEDUCTION OF T AX ON ANY SUM PAID. SINCE, THE ASSESSEE HAS NOT DEDUCTED TDS ON THESE P AYMENTS, THE AO HELD THAT THE EXPENDITURE CANNOT BE ALLOWED IN VIEW OF S ECTION 40(A)(IA) OF THE ACT, WHICH STATES THAT NO DEDUCTION IS TO BE ALLOWED IN RESPECT OF ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PR OFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AM OUNTS PAYABLE TO A ITA NO. 6026/MUM/2010(A.Y.2005-06) ITA NO.6027/MUM/2010(A.Y. 2007-08) 7 CONTRACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR C ARRYING OUT ANY WORK( INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WO RK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DUR ING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIM E PRESCRIBED UNDER SUB- SECTION (1) OF SECTION 200. ACCORDING TO THE AO, IF AT ALL THE ASSESSEE WAS IN DOUBT THE ASSESSEE COULD HAVE APPLIED FOR A LOW DED UCTION CERTIFICATE OR NON DEDUCTION CERTIFICATE. THE PROVISIONS OF WITHHOLDI NG TAX ARE A CODE IN THEMSELVES. THEREFORE, THERE IS VERY LITTLE DISCRE TION WITH THE ASSESSEE IN THESE MATTERS. THEREFORE, BASED ON THE DISCUSSION ABOVE, THE AMOUNT OF RS. 1,15,17,795/- WAS DISALLOWED AND ADDED TO THE INCOM E OF THE ASSESSEE 12. ON APPEAL BY THE ASSESSEE THE CIT(A) DELETED TH E ADDITION MADE BY THE AO BY FOLLOWING CIT(A)S ORDER IN ASSESSEES OWN CA SE DATED 11/12/2009 FOR A.Y 2006-07, WHEREIN IT WAS HELD THAT THE PAYMENT B Y THE ASSESSEE TO PARENT COMPANY CANNOT BE SUBJECT MATTER OF TDS. 13. AT THE TIME OF HEARING IT WAS ACCEPTED BY BOTH THE PARTIES THAT ORDER OF THE CIT(A) FOR A.Y 2006-07 WAS SUBJECT MATTER OF A PPEAL BEFORE THE TRIBUNAL IN ITA NO.3671/M/10 AND THIS TRIBUNAL BY ITS ORDER DATED 29/6/2011 DISMISSED THE REVENUES APPEAL ON IDENTICAL GROUND OBSERVING AS FOLLOWS: 7 GROUND NO.3 REGARDING DELETION OF ADDITION OF RS .68,27,301/- FOR NON DEDUCTION OF TDS ON PARENT COMPANY. 8 WE HAVE HEARD THE LD DR AND THE LD AR OF THE ASS ESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED AND ADJUDICATED BY T HE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.7048/MUM/2008 VIDE OR DER DATED 7.1.2011 AS UNDER: 18. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. WE FIND THAT ITA NO. 6026/MUM/2010(A.Y.2005-06) ITA NO.6027/MUM/2010(A.Y. 2007-08) 8 FOLLOWING ASPECTS HAS BEEN BROUGHT TO OUR NOTICE BY THE LEARNED COUNSEL IN RESPECT OF EXPENDITURE: THERE IS NO RENDERING OF SERVICES BY STRATEGIC CA PITAL CORPORATION PRIVATE LTD. AND THERE IS NO SUCH AGREE MENT BETWEEN US AND STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED. WE HAVE NOT MADE PAYMENTS TO STRATEGIC CAPITAL CORPORATION PRIV ATE LIMITED FOR MAKINGAVAILABLE, FURNISHING OR SUPPLYING THE PERSON NEL/OTHER FACILITIES TO IT. IT WAS AGREED THAT STRATEGIC CAP ITAL CORPORATION PRIVATE LIMITED AND WE WOULD SHARE THE SERVICES OF CERTAIN EMPLOYEES AND OTHER FACILITIES ON COST-TO-COST BASI S AND THUS. WE HAVE REIMBURSED ALL EXPENSES ON ACTUAL BASIS WITHOU T ANY MARK UP. THERE IS NOT COST SHARING AGREEMENT ENTERED INTO BETWEEN US AND SCCPL. THE DEBIT NOTES RAISED BY STRATEGIC CAPITAL CORPO RATION PRIVATE LIMITED ARE ACCOMPANIED BY THE ACTUAL STATEMENT AND SUPPORTING OF THE EXPENSES INCURRED. IN RESPECT OF THE OPERATING EXPENSES, THE SAME WE RE PAID FIRST BY STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED TO THIRD PARTIES AND THEN ON AN AGREED BASIS WERE REIMBURSED BY US, SINC E WE ULTIMATELY AND DIRECTLY UTILIZED THOSE THIRD PARTY SERVICES/BE NEFITED FROM THE THIRD PARTY SERVICES. STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED HAS HAD NO ROLE TO PLAY IN THE SAME. IN RESPECT OF THE PERSONNEL EXPENSES. WE AND STRA TEGIC CAPITAL CORPORATION PRIVATE LIMITED RECOGNIZED THAT THEY WO ULD REQUIRE CERTAIN COMMON HUMAN RESOURCES. WE AGREED THAT INS TEAD OF THESE INDIVIDUALS BEING DULY EMPLOYED, STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED WOULD EMPLOY THEM. HOWEVER, THE SER VICES OF THESE EMPLOYEES WOULD BE AVAILED BY BOTH THE ENTITIES ON NEED BASIS AND COSTS EXPENSES IN RESPECT OF THESE EMPLOYEES (INCLU DING SALARY, INCENTIVES BASED ON TERMS OF APPOINTMENT, MOBILE PH ONE EXPENSES) WERE INITIALLY DISBURSED BY STRATEGIC CAPITAL CORPO RATION PRIVATE LIMITED AFTER DEDUCTING APPROPRIATE TAXES. HOWEVER, TO THE EXTENT THAT THESE PERSONS RENDERED SERVICES TO IT. WE HAVE REIMBURSED THE COSTS TO STRATEGIC CAPITAL CORPORATION PRIVATE LIMI TED AT ACTUALS (COST TO COMPANY BASIS) WITHOUT ANY MARK-UP. STRATEGIC CA PITAL ORPORATION PRIVATE LIMITED DID NOT MAKE AVAILABLE, SUPPLY OR F URNISH THE ERVICES OF THESE PERSONNEL TO US. WHILE WORKING WITH US, THE EMPLOYEES WERE WORKING UNDER THE DIRECT SUPERVISION AND CONTROL FOR THEIR WORK AND T HE INTENTION OF STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED WAS N EVER TO PROVIDE ANY SERVICES TO US. ALL THE EXPENSES CAN BE SUBSTANTIATED BY SUPPLIER S BILLS/EVIDENCES IN RESPECT OF OPERATING EXPENSE AND BY SALARY CERTIFICATES IN CASE OF PERSONNEL EXPENSES. ITA NO. 6026/MUM/2010(A.Y.2005-06) ITA NO.6027/MUM/2010(A.Y. 2007-08) 9 THE TRANSACTION ARE PROPERLY REFLECTED IN THE BOO KS OF ACCOUNTS OF BOTH THE PARTIES E.G. THE AMOUNT ARE CREDITED BY STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED TO RESPECTIVE EXPENSES ACCOUNTS AND NOT AS INCOME. 12.YOUR GOODSELF HAS MENTIONED THAT THE ASSESSEE IS PAYING TO STRATEGIC CAPITAL CORPORATION PRIVATE LIMITED WHICH IS A PARENT COMPANY. HAD IT BEEN IT WAS FOR A THIRD PARTY THEN IT WOULD HAVE BEEN A 100% VIOLATION. FROM THIS VIEW OF THE OFFICE R, IT IS APPARENT THAT ONLY IF THE PARTY INVOLVED WAS A THIRD PARTY, IT WOULD RESULT IN CENT PERCENT VIOLATION. HOWEVER, IN THE INSTANT CAS E, THERE IS NO THIRD PARTY INVOLVED AS BOTH STRATEGIC CAPITAL AND STRARC AP SECURITES ARE SISTER CONCERNS, THE FORMER BEING THE HOLDING COMPA NY AND THE LATTER ITS SUBSIDIARY. NEVERTHELESS, SEPARATE BOOKS OF ACC OUNTS ARE DULY MAINTAINED AND AUDITED; HENCE THE ASSESSEE IS IN TH E POSITION TO BIFURCATE ITS OWN EXPENSES, OUT OF THE TOTAL EXPENS ES INCURRED UNDER VARIOUS HEADS. JUST BECAUSE, STRATEGIC CAPITAL PAID THE WHOLE OF T HE EXPENSES, THE ACCOUNTABILITY OF STRATCAP SECURITIES FOR ITS OWN S HARE OF EXPENSES DOES NOT SHRINK AWAY OR DIMINISH. THAT WHICH IS ITS LIABILITY WILL SOONER OR LATER HAVE TO BE DISCHARGED TO THE EXTENT IT IS LIABLE AND WHICH IT HAS,THE SAME NOT BEING DISPUTED. ALSO, THE QUANTUM OF EXPENSES AND THE SAME BEARING NEXUS TO BUSINESS ACT IVITIES IS NOT DISPUTED. WHAT HOWEVER IS DISPUTED IS THE FAILURE T O DEDUCT TAX ON THE REIMBURSED EXPENSES. HOWEVER, WE SHALL CLARIFY THE AFORESAID SCENARIO SO AS TO ENABLE YOUR GOODSELF TO UNDERSTAN D THAT LAW FOR ALL THE RIGHT REASONS DOES NOT PROVIDE FOR DEDUCTION OF TDS ON REIMBURSED EXPENSES. 19. IN THIS VIEW OF THE MATTER AND IN LIEU OF THE A FORESAID, WE NOW HOLD THAT WHEN TDS HAS ALREADY BEEN DEDUCTED ONCE FROM THE ENTIRE PAYMENT, THEN WHY THE SAME SHOULD BE TAXED FOR THE SECOND TIME, RESULTING IN DOUBLE TAXATION. THE TAX IS NOT TO BE DEDUCTED ON REIMBURSED EXPENSES AS THESE EXPENSES HAVE ALREADY BEEN SUBJECTED TO TAX DEDUCTIONS AT SOURCE WHILE THE PAY MENT WAS BEING ORIGINALLY PAID. THE REVENUE DEPARTMENT IS NOT CONC ERNED WITH THE INTERNAL ARRANGEMENT OF THE PARTNERS AS TO WHO PAID WHAT SHARE AS LONG AS THE DUE TDS HAS BEEN PAID WITHIN THE TIM E CONSTRAINT. 9 TO MAINTAIN THE RULE OF CONSISTENCY, WE FOLLOW TH E ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AND DECIDE THE ISSU E IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 14. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE ON IDENTICAL FACTS, WE HOLD THAT THE CIT(A) WA S RIGHT IN DELETING THE ITA NO. 6026/MUM/2010(A.Y.2005-06) ITA NO.6027/MUM/2010(A.Y. 2007-08) 10 ADDITION MADE BY THE AO. CONSEQUENTLY, GR.NO.3 RAI SED BY THE REVENUE IS ALSO DISMISSED. 15. THE OTHER GROUND OF APPEAL RAISED BY THE REVEN UE ARE GENERAL IN NATURE AND CALLS FOR NO ADJUDICATION. IN THE RESULT, ITA NO.6027/M/2010 IS DISMISSED. ITA NO.6026/M/2010: 16. GROUND NO.1 RAISED BY THE REVENUE READS AS FOL LOWS: 1.(I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DJSALLOWANCE OF RS . 75,000/- MADE U/S.40(A)(IA) IN RESPECT OF VSAT CHARGES PAID TO ST OCK EXCHANGE, WITHOUT APPRECIATING THE FACTS THAT THESE WERE COMP OSITE CHARGES FOR PROFESSIONAL AND TECHNICAL SERVICES RENDERED BY THE STOCK EXCHANGE TO ITS MEMBERS AND THE ASSESSEE HAS FAILED TO DEDUCT T DS THEREON.. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE 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 TECHNOLOGY 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 C ASE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE SERV ICES RENDERED BY THE BROKERS ARE NOT STANDARD SERVICES BUT SERVICES THAT HAS BEEN DEVELOPED TO CATER TO THE NEEDS OF THE BROKER COMMUNITY TO FA CILITATE 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 BROKERS HAVE IN SUBSEQUENT YEARS THEMSELVES STARTED DEDUCTING THE TDS ON SUCH PAYMENTS AND THAT THERE IS NO REASON TO GIVE A DIFFERENT TREATME NT IN THIS YEAR. 17. THIS GROUND OF APPEAL IS IDENTICAL TO GROUND NO .1 RAISED BY THE REVENUE IN ITA NO.6027/M/2010 FOR A.Y 2007-08 FAC TS AND CIRCUMSTANCES UNDER WHICH THE AFORESAID GROUND OF APPEAL ARISES F OR CONSIDERATION IS IDENTICAL TO THE FACTS AND CIRCUMSTANCES AS IT PREV AILED IN A.Y 2007-08. FOR ITA NO. 6026/MUM/2010(A.Y.2005-06) ITA NO.6027/MUM/2010(A.Y. 2007-08) 11 THE REASONS GIVEN WHILE DECIDING THE IDENTICAL GROU ND IN A.Y. 2007-08, WE DISMISS GROUND NO.1 RAISED BY THE REVENUE. 18. THE OTHER GROUNDS OF APPEAL ARE GENERAL IN NAT URE AND CALLS FOR NO ADJUDICATION. IN THE RESULT, ITA NO.6026/M/2010 IS DISMISSED. 19. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 20 TH DAY OF APRIL 2012 SD/- SD/- (P.M.JAGTAP ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 20 TH APRIL 2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RE BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO. 6026/MUM/2010(A.Y.2005-06) ITA NO.6027/MUM/2010(A.Y. 2007-08) 12 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 13/04/2012 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 16/04/2012 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER