DCIT CIR 4(2), MUMBAI V. THE STOCK AND BOND TRADING CO, MUMBAI

ITA 6440/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7878 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 10-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3); 37(1)

Judgement Text

I.T.A NO.6440/ MUM/2009 THE STOCK AND BOND TRADING CO 1 IN THE INCOME TAX APPELLATE TRIBUNAL, H BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, PRESIDENT AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER I.T.A NO.6440/ MUM/2009 ASSESSMENT YEAR: 2006-07 DCIT, CIRCLE 4(2) .. APPELLANT 642, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. VS THE STOCK AND BOND TRADING CO. ,. RESPONDENT 12, ORICON HOUSE, 7 TH FLOOR, 14 K, DUBASH MARG, KALAGHODA, FORT, MUMBAI. PA NO.AAAFT 1171 F APPEARANCES: R.S.SRIVASTAV, FOR THE APPELLANT PRAKASH JHUNJHUNWALA, FOR THE RESPONDENT O R D E R 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HA S CALLED INTO QUESTION CORRECTNESS OF CIT(A)S ORDER DATED 18 TH SEPTEMBER, 2009, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE IN COME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2006-07. 2. IN GROUND NO.1, THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCE: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE DISALLOWANCE M ADE IN RESPECT OF VSAT LEASELINE AND TRANSACTION CHARGES U/S.40(A)(IA), WITHOUT APPRECIATING THE FACTS THAT THESE WERE I.T.A NO.6440/ MUM/2009 THE STOCK AND BOND TRADING CO 2 COMPOSE CHARGES FOR PROFESSIONAL AND TECHNICAL SERV ICES RENDERED BY THE STOCK EXCHANGE TO ITS MEMBERS AND T HE ASSESSEE HAS FAILED TO DEDUCT TDS THEREON. 2. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAS DEBITED TRADE/TRANSACTION CHARGES, VSAT CHARGES AND LEASE LINE CHARGES OF ` .8,77,501, ` .95,789 AND ` .51,458, RESPECTIVELY. THESE CHARGES WERE PAID TO STOCK EXCHANGE ON ACCOUNT OF SERVICES PROVIDED BY THE STOCK EXCHANGE WITH REGARD TO THE TRANSACTIONS IN SECURIT IES THROUGH THE EXCHANGE. THE AO FURTHER NOTED THAT IN TERMS OF TH E REQUIREMENT OF SECTION 40(A)(IA), NO DEDUCTION IS TO BE ALLOWED IN RESPECT OF, INTER ALIA, FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT O N WHICH TAX IS DEDUCTIBLE UNDER CHAPTER XVII-B AND TAX HAS NOT BEEN DEDUCTED. IT WAS IN THIS BACKDROP THAT THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE PAYMENTS MADE TO STOCK EXCHANGE FOR LEASE LINE, VSAT AND TRA NSACTION CHARGES SHOULD NOT BE TREATED AS FEE FOR TECHNICAL SERVICES AND THUS LIABLE FOR TAX DEDUCTION AT SOURCE AND ALSO TO EXPLAIN THAT SINCE TAX HAD NOT BEEN DEDUCTED SO, AS TO WHY THE PAYMENTS SHOULD NOT BE D ISALLOWED UNDER SECTION 40(A)(IA) OF THE ACT. IT WAS EXPLAINED BY THE ASSESSEE THAT THE EXPENSES ON ACCOUNT OF VSAT, LEASE LINE NET WORK AR E ESSENTIALLY IN THE NATURE OF RECOVERY OF COSTS ON ACCOUNT EXPENSES INC URRED IN RESPECT OF THE SAME BY THE STOCK EXCHANGE. THE ABOVE EXPLANATION OF THE ASSESSEE DID NOT FIND FAVOUR OF THE ASSESSING OFFICER. HE WAS O F THE OPINION THAT THE PAYMENTS MADE TO THE STOCK EXCHANGE WERE FOR THE SE RVICES OF TECHNICAL NATURE FALLING WITH THE PURVIEW OF SECTION 194J AND , THEREFORE, LIABLE FOR DEDUCTION OF TAX. HE, ACCORDINGLY DISALLOWED ` .10,24,748 ON ACCOUNT OF TRADE/TRANSACTION CHARGES, VSAT CHARGES AND LEASE L INE CHARGES. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE CIT (A). THE CIT (A), INTER ALIA, OBSERVED THAT THE VSAT AND LEASE LINE CHARGES ARE NOT PAYMENTS WHICH COME WITHIN THE DOMAIN OF FEE F OR TECHNICAL SERVICES AND THEY ARE ALSO NOT FOR ANY WORK DONE BY NSE FO R THE MEMBER BROKER. ACCORDINGLY, BOTH THE DISALLOWANCES WERE DELETED BY THE CIT (A). AS REGARDS TO THE TRANSACTION CHARGES, THE CIT (A) FOL LOWING THE DECISION OF I.T.A NO.6440/ MUM/2009 THE STOCK AND BOND TRADING CO 3 THE ITAT IN THE CASE OF KOTAK SECURITIES V ACIT, (2 5 SOT 440), WHEREIN, IT WAS HELD THAT THE STOCK EXCHANGE DOES NOT PROVIDE M ANAGERIAL SERVICES AND THE FEES PAID BY THE MEMBER TO THE STOCK EXCHAN GE IS NOT FOR ANY TECHNICAL SERVICES RENDERED, CONCLUDED THAT NO TAXE S WERE REQUIRED TO BE DEDUCTED FROM SUCH PAYMENTS. ACCORDINGLY, DISALLOW ANCE UNDER SECTION 40(A)(IA) WAS DELETED. AGGRIEVED, THE ASSESSING OF FICER IS IN APPEAL BEFORE US. 3. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE FIND THAT THE ISSUE IS SQUARELY COVER ED BY THE DECISION OF A CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OW N CASE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.6459/M/08 ORDER D ATED 11 TH FEBRUARY, 2010, WHEREIN, IT WAS HELD AS FOLLOWS: WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBS ERVED THAT THE ISSUE INVOLVED IN GROUND NO.1 TO 7 OF THE REVEN UES APPEAL RELATING TO DISALLOWANCE ON ACCOUNT OF LEASE LINE C HARGES AND VSAT CHARGES MADE U/S.40(A)(IA) IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY T HE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN T HE CASE OF KOTAK SECURITIES LIMITED REPORTED IN 25 SOT 440 WHE REIN, IT WAS HELD THAT STOCK EXCHANGES DID NOT RENDER ANY MA NAGERIAL OR TECHNICAL SERVICES AND THEREFORE FEES PAID TO TH EM CANNOT BE SUBJECTED TO DEDUCTION OF TAX AT SOURCE U/S.194J . IT WAS HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) THERE FORE COULD NOT BE INVOKED TO DISALLOW ANY PAYMENT MADE TO STOC K EXCHANGE FOR THE SERVICES RENDERED BY IT. RESPECTF ULLY FOLLOWING THE SAID DECISION OF THE TRIBUNAL IN THE CASE OF KOTAK SECURITIES LTD (SUPRA), WE UPHOLD THE IMPUGNE D ORDERS OF THE LD CIT (A) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO.1 TO 7 OF REVENUES APPEAL. 4. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH, AND WE ARE I N CONSIDERED AGREEMENT WITH THE SAME. SINCE THE LD CIT (A) HAS MERELY FOLLOWED THE DECISION OF THE ITAT IN THE CASE OF KOTAK SECURITIE S (SUPRA) AND WE ARE IN CONSIDERED AND RESPECTFUL AGREEMENT WITH THE VIEW S O TAKEN BY THE CO- I.T.A NO.6440/ MUM/2009 THE STOCK AND BOND TRADING CO 4 ORDINATE BENCH, WE SEE NO NEED TO INTERFERE WITH HI S CONCLUSIONS,. WE APPROVE THE SAME AND DECLINE TO INTERFERE IN THE MA TTER. 5. GROUND NO.1 IS THUS DISMISSED. 6. IN GROUND NO.2, THE ASSESSING OFFICER IS AGGRIEV ED THE ACTION OF THE CIT (A) IN DELETING THE PENALTY OF RS.41,725 MADE O N VIOLATION OF THE BYE LAWS OF THE STOCK EXCHANGE. 7. THE DISALLOWANCE OF ` .41,275 WAS MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE SAID PAYMENT WAS IN THE NATURE OF PENALTY FOR VIOLATING THE LAW AND, ACCORDINGLY, IN VIEW OF PROV ISO TO SECTION 3791), SUCH PAYMENTS CANNOT BE ALLOWED AS DEDUCTION. THE ASSESSEES EXPLANATION THAT THE PAYMENT OF ` .41,725 TO STOCK EXCHANGE WAS NOT HIT BY EXPLANATION TO SECTION 37(1) SINCE BYE LAWS OF STOC K EXCHANGES AND NOTIFICATION OF SEBI DO NOT CONSTITUTE LAW, WAS REJ ECTED. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T (A) WHO REVERSED THE STAND OF THE ASSESSING OFFICER BY OBSERVING AS FOLL OWS: THE STOCK EXCHANGES ARE NOT GOVERNMENT OR SEMI-GOV ERNMENT BODIES BUT THEY ARE COMPANIES. THE PAYMENTS MADE T O STOCK EXCHANGE FOR VIOLATION OF THEIR REGULATION ARE NOT EXPENDITURE WHICH ARE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WH ICH IS PROHIBITED BY LAW, HENCE INVOCATION OF EXPLANATION TO SE.37 TOWARDS PAYMENT MADE TO STOCK EXCHANGES AND DISALLOWANCE IS NOT CORRECT. THE ADDITION IS DELETED AND GROUND NO.2 IS ALLOWED. 8. AGGRIEVED BY THE STAND SO TAKEN BY THE CIT(A), T HE ASSESSING OFFICER IS IN APPEAL BEFORE US. 9. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE SEE NO REASONS TO INTERFERE IN THE OR DER OF THE CIT(A). WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION B EFORE A CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN IM MEDIATELY PRECEDING YEAR, WHEREIN, THE TRIBUNAL FOLLOWING THE DECISION OF THE ITAT IN THE CASE OF ITO VS. V.R. SHARE BROKING PVT LTD., 27 SOT 469 AND ALSO THE DECISION OF THE ITAT CHANDIGARH IN THE CASE OF MASTER CAPITAL S ERVICES LTD V. DCIT, 108 I.T.A NO.6440/ MUM/2009 THE STOCK AND BOND TRADING CO 5 TTJ 389, UPHELD THE ORDER OF THE CIT (A) IN DELETIN G THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF PENALTY PAID BY THE ASSESSE E TO BSE ON VIOLATION OF THE BYE-LAWS OF THE STOCK EXCHANGE. RESPECTFUL LY FOLLOWING THE SAID DECISION WITH WHICH WE ARE IN CONSIDERED AND RESPEC TFUL AGREEMENT, WE APPROVE THE ACTION OF THE CIT (A) IN DELETING THE D ISALLOWANCE ON ACCOUNT OF PENALTY, AND DECLINE TO INTERFERE IN THE MATTER. 10. GROUND NO.2 IS ALSO THUS DISMISSED. 11. IN THE RESULT, APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 18 TH MARCH, 2011 SD/- (R.V.EASWAR) PRESIDENT SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 18 TH MARCH, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),3, MUMBAI 4. COMMISSIONER OF INCOME TAX, 11 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH H, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI