Popular Mega Motors (India) Ltd, Cochin V. ACIT, Ernakulam

ITA 620/COCH/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81336 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 20-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: A S NARAYANAMURTHY

Judgement Text

1 ITA NO.620/COCH/2013 ACIN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI CHANDRA PO OJARI (AM) I.T.A NO. 620/COCH/2013 (ASSESSMENT YEAR 2008-09) POPULAR MEGA MOTORS (INDIA) LTD VS THE ACIT, CIR. 1(3) KUTTUKARAN CENTRE KOCHI MAMANGALAM, PALARIVATTOM COCHIN 682 025 PAN : AABCP6105H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.S. NARAYANAMURTHY RESPONDENT BY : SHRI M ANIL KUMAR, CIT / SMT. LATHA V KUMAR, JR DR DATE OF HEARING : 05-08-2014 DATE OF PRONOUNCEMENT : 21-10-2014 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF CIT(A)- II, KOCHI DATED 03-07-2013 AND PERTAINS TO ASSESSME NT YEAR 2008-09. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE OF RS. 12,64,056 TOWARDS BANDWIDTH AND ACCESS CHARGES. 2 ITA NO.620/COCH/2013 3. SHRI A.S. NARAYANAMURTHY, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A DEALER OF TATA COM MERCIAL VEHICLE. IN THE COURSE OF BUSINESS, THE ASSESSEE HAS PAID RS.12 ,64,056 FOR ACCESSING CRM SOFTWARE OF TATA MOTORS LTD. THE LD.REPRESENTA TIVE FURTHER SUBMITTED THAT THE MANUFACTURER OF VEHICLE, M/S TATA MOTORS L TD CONTROLS PURCHASE, SALES AND SERVICE OF VEHICLES OF ALL ITS DEALER THR OUGH CRM SOFTWARE. ALL DEALERS ARE EXPECTED TO ACCESS THIS SOFTWARE AND FI LL UP THE DATA RELATING TO PURCHASE, SALES AND SERVICE OF THE VEHICLE. THE LD .REPRESENTTIVE FURTHER SUBMITTED THAT THE PERFORMANCE OF THE DEALER IS MON ITORED BY THE MANUFACTURER BY REVIEWING THE DATA IN CRM SOFTWARE. INCENTIVES AND TRADE DISCOUNTS OF THE DEALERS ARE FINALIZED BY THE MANUFACTURER BY REVIEWING DATA UPLOADED BY THE DEALERS IN THE CRM S OFTWARE. THE MANUFACTURER CHARGES EVERY DEALER FOR BANDWIDTH AND ACCESS FOR USAGE OF CRM SOFTWARE. THEREFORE, ACCORDING TO THE LD.REPRE SENTATIVE, TATA MOTORS IS NOT PROVIDING ANY TECHNICAL SERVICES TO THE ASSE SSEE. HENCE, THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX ON THE ACCESS AND BANDWIDTH CHARGES PAID TO TATA MOTORS FOR USING CRM SOFTWARE. THE LD .REPRESENTATIVE PLACED HIS RELIANCE ON THE DECISION OF MUMBAI BENCH OF THI S TRIBUNAL IN PACIFIC INTERNET (INDIA) (P) LTD VS ITO (2009) 24 DTR (MUMB AI)(TRIB) 543 AND THE DECISION OF THE AMRITSAR BENCH OF THIS TRIBUNAL IN ITA NO.189(ASR)/2011 IN DY.CIT VS M/S C.L. GULATI & SONS P LTD ORDER DATED 30-04-2012, COPY OF WHICH IS AVAILABLE ON PAGE 23 OF THE PAPER BOOK. 3 ITA NO.620/COCH/2013 4. ON THE CONTRARY, SHRI M ANIL KUMAR, THE LD.DR SU BMITTED THAT SOFTWARE AND NETWORK EQUIPMENTS ARE OWNED BY TATA M OTORS. AS PER THE ARRANGEMENT BETWEEN THE ASSESSEE AND TATA MOTORS TH E ASSESSEE HAS TO INSTALL ISDN LINE FROM LOCAL TELECOM SERVICE PROVID ER. THEREFORE, THE PAYMENT MADE BY THE ASSESSEE WITH TATA MOTORS LTD I S A FEE FOR TECHNICAL SERVICE BY THE MANUFACTURING COMPANY AND TDS SHOULD HAVE BEEN MADE U/S 194J. THE ASSESSEE HAS TO PAY ACCESS CHARGES O F RS.105 PER VEHICLE IN ADDITION TO BANDWIDTH CHARGES. ACCORDING TO THE LD.REPRESENTATIVE, THE PAYMENT MADE BY THE ASSESSEE FOR ACCESSING CRM SOFT WARE AND BANDWIDTH CHARGES ARE FOR TECHNICAL SERVICE. THERE FORE, THE CIT(A) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICE R. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NO T IN DISPUTE THAT THE ASSESSEE IS A DEALER FOR SALE OF COMMERCIAL VEHICLE MANUFACTURED BY TATA MOTORS LTD. THE MANUFACTURER, TATA MOTORS LTD CONT ROLS THE PURCHASE, SALES AND SERVICES OF THE VEHICLES THROUGH CRM SOFT WARE. THE DEALER HAS TO UPLOAD THE DATA RELATING TO PURCHASE, SALES AND SERVICES OF VEHICLE. TATA MOTORS LTD, AFTER EVALUATING THE DATA UPLOADED BY T HE DEALERS WOULD DECIDE ABOUT THE INCENTIVES AND TRADE DISCOUNT. TATA MOTO RS CHARGES FOR ACCESSING THE SOFTWARE AS ALSO FOR BANDWIDTH CHARGE S. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER THE PAYMENT MAD E BY THE ASSESSEE FOR 4 ITA NO.620/COCH/2013 ACCESSING THE CRM SOFTWARE AND BANDWIDTH CHARGES AR E IN THE NATURE OF FEE FOR TECHNICAL SERVICES OR NOT? THE CONTENTION OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES WAS THAT IT IS NOT FEE FOR TE CHNICAL SERVICES AS NO HUMAN INTERFERENCE IS REQUIRED; HOWEVER, THE LOWER AUTHORITIES FOUND THAT THE ENTIRE PROCESS OF OPERATION, MAINTENANCE OF CRM SOFTWARE IS DUE TO HUMAN INTERFERENCE, THEREFORE, THE FEE CHARGED BY T ATA MOTORS IS ONLY FEE FOR TECHNICAL SERVICES. 6. WE HAVE ALSO CAREFULLY GONE THROUGH THE DECISION OF THE MUMBAI BENCH OF THIS TRIBUNAL IN PACIFIC INTERNET (INDIA)( P) LTD (SUPRA) AND THE DECISION THE AMRITSAR BENCH OF THIS TRIBUNAL IN C.L . GULATI & SONS P LTD (SUPRA). THE BOMBAY HIGH COURT IN CIT VS KOTAK SEC URITIES LTD (2012) 340 ITR 333 (BOM) HAD AN OCCASION TO CONSIDER AN ID ENTICAL ISSUE. THE CASE BEFORE THE HIGH COURT BOLT SYSTEM WAS INTRODUC ED BY BOMBAY STOCK EXCHANGE IN ORDER TO FACILITATE THE MEMBER BR OKERS TO TRADE IN SECURITIES. TRANSACTION CHARGES ARE LEVIED BY BOMB AY STOCK EXCHANGE ON THE MEMBER BROKER, WHO ENTERS INTO TRANSACTION IN S ECURITIES / DERIVATIVES THROUGH BOLT SYSTEM PROVIDED BY BOMBAY STOCK EXCHAN GE. THE ENTIRE TRADING IN SECURITIES IS MANAGED BY BOMBAY STOCK EX CHANGE THROUGH BOLT SYSTEM PROVIDED BY STOCK EXCHANGE. THERE WAS A DIRECT LINKAGE BETWEEN THE MANAGERIAL SERVICES RENDERED AND THE TR ANSACTION CHARGES LEVIED BY THE STOCK EXCHANGE. THE QUESTION AROSE B EFORE THE BOMBAY 5 ITA NO.620/COCH/2013 HIGH COURT WAS WHETHER THE PAYMENT MADE BY MEMBER B ROKER OF BOMBAY STOCK EXCHANGE IS A FEE FOR TECHNICAL SERVICE OR NO T? THE BOMBAY HIGH COURT, AFTER CONSIDERING THE MATERIALS AVAILABLE ON RECORD HAS OBSERVED AS FOLLOWS AT PAGE 342 OF THE ITR: UNLESS TH STOCK EXCHANGE CONSTANTLY MONITORS THE TRANSACTIONS RELATING TO THE SALE OR PURCHASE OF THE SECURITIES RIGHT FRO M THE STAGE WHEN THE TWO CONTRACTING PARTIES INTERACT THROUGH T HE BOLT SYSTEM, IT WOULD BE IMPOSSIBLE TO ENSURE SAFETY OF THE MARKET. WHEN THERE IS CONSIDERABLE VARIATION IN THE PRICE O F THE SECURITIES OFFERED TO BE SOLD OR PURCHASED THE IN-B UILT SYSTEM ALERTS AND REMEDIAL MEASURE ARE TAKEN IMMEDIATELY S O THAT NO PANIC SITUATION ARISES IN THE STOCK MARKET. WITH A VIEW TO REGULATE THE TRADING IN SECURITIES, THE STOCK EXCHA NGE PROVIDES RISK MANAGEMENT AND SURVEILLANCE TO THE STOCK BROKE RS TO ENSURE THE SAFETY OF THE MARKET. THE SURVEILLANCE FUNCTION INVOLVES PRICE MONITORING, EXPOSURE OF THE MEMBERS, RUMOUR VERIFICATION ON A DAILY BASIS AND TAKE REMEDIAL ACT IONS LIKE REDUCTION OF FILTERS, IMPOSITION OF SPECIAL MARGIN, TRANSFERRING SCRIPS ON A TRADE TO TRADE SETTLEMENT BASIS, SUSPEN SION OF SCRIPS / MEMBERS, ETC. THESE ARE SOME OF HE IDENTI FIED MANAGERIAL SERVICES RENDERED BY THE STOCK EXCHANGE FOR WHICH TRANSACTION CHARGES ARE LEVIED. THE FACT THAT THE BOLT SYSTEM PROVIDED BY THE STOC K EXCHANGE HAS IN-BUILT AUTOMATIC SAFEGUARDS WHICH 6 ITA NO.620/COCH/2013 AUTOMATICALLY GIVES ALERT SIGNAL IF THE FLUCTUATION IN THE PRICES OF THE SECURITIES EXCEED A PARTICULAR LIMIT PRESCRIBED BY THE STOCK EXCHANGE DOES NOT MEAN THAT THE MANAGERIAL SERVICES ARE NOT RENDERED, BECAUSE, FIRSTLY, THE IN-BUILT MECHANISM IN THE BOLT SYSTEM ITSELF IS A PART OF THE MANAGERIAL SERVICE R ENDERED BY THE STOCK EXCHANGE AND, SECONDLY, EVEN THE IN-BUILT MECHANISM PROVIDED IN THE SYSTEM IS VARIED OR ALTER ED BY THE STOCK EXCHANGE DEPENDING UPON THE CIRCUMSTANCES ENCOUNTERED DURING THE COURSE OF RENDERING MANAGERI AL SERVICES. THE ARGUMENT THAT THE BOLT SYSTEM IS LIKE A ATM SYSTEM PROVIDED BY THE BANKS IS ALSO WITHOUT ANY ME RIT, BECAUSE THROUGH THE ATM SYSTEM, NO TRADING ACTIVITY IS CARRIED ON, WHEREAS, THROUGH THE BOLT SYSTEM TRADING ACTIVI TY IS CARRIED ON WHICH IS MONITORED / REGULATED / MANAGED BY THE STOCK EXCHANGE. THEREFORE, IN OUR OPINION, THE TRI BUNAL WAS IN ERROR IN HOLDING THAT NO TECHNICAL OR MANAGERIAL SE RVICES ARE RENDERED BY THE STOCK EXCHANGE BY PROVIDING THE BOL T SYSTEM OF TRADING IN SECURITIES. 7. THE LOWER AUTHORITIES HAD NO OCCASION TO CONSIDE R THIS JUDGMENT OF THE BOMBAY HIGH COURT. THOUGH THE ASSESSEE CLAIMS THAT NO HUMAN INTERFERENCE IS REQUIRED THE FACT REMAINS IS THAT T ATA MOTORS REVIEWS THE DATA UPLOADED BY THE DEALERS FOR THE PURPOSE OF PRO VIDING INCENTIVE AND TRADE DISCOUNT. THEREFORE, THE FACT OF THE CASE IN OUR HAND IS SIMILAR TO THE FACTS DECIDED BY BOMBAY HIGH COURT IN KOTAK SECURIT IES LTD (SUPRA). 7 ITA NO.620/COCH/2013 HOWEVER, THE LOWER AUTHORITIES HAD NO OCCASION TO C ONSIDER THE SAME. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE ASSESSING OFFICER SHALL RECONSIDER THE ISSUE. GIVING ONE MOR E OPPORTUNITY TO THE ASSESSEE WOULD FACILITATE THE ASSESSEE TO EXPLAIN H OW THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF KOTAK SECURITIES L TD (SUPRA) WOULD APPLY / NOT APPLY TO THE FACTS OF THE CASE OF THE ASSESSE E. GIVING SUCH AN OPPORTUNITY MAY NOT PREJUDICE THE INTEREST OF EITHE R PARTY. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET SIDE AND TH E ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSIN G OFFICER SHALL EXAMINE THE MATTER AFRESH IN THE LIGHT OF THE MATERIAL AVAILABL E ON RECORD AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER CONSID ERING THE JUDGMENT OF THE BOMBAY HIGH COURT IN KOTAK SECURITIES LTD (SUPR A). 8. THE ASSESSEE HAS TAKEN ONE MORE GROUND WITH REGA RD TO DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT. SHR I A.S. NARAYANAMURTHY, THE LD.REPRESENTATIVE FOR THE ASSES SEE SUBMITTED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISI ON OF THIS TRIBUNAL. IN VIEW OF THE ABOVE, THE GROUND RELATING TO DISALLOWA NCE OF PROVISION FOR LEAVE ENCASHMENT IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSE. 8 ITA NO.620/COCH/2013 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST OCTOBER, 2014. SD/- SD/- (CHANDRA POOJARI) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 21 ST OCTOBER, 2014 PK/- COPY TO: 1. POPULAR MEGA MOTORS (INDIA) LTD, KUTTUKARAN CENT RE, MAMANGALAM, PALARIVATTOM, COCHIN 682 025 2. THE ACIT, CIR.1(3), KOCHI 3. THE CHIEF COMMISSIONER OF INCOME-TAX, KOCHI 4. THE COMMISSIONER OF INCOME-TAX(A)-II, KOCHI 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH