ACIT 4(2), MUMBAI V. TWIN EARTH SECURITIES P. LTD, MUMBAI

ITA 6442/MUM/2009

• Counselvise Citation: 644219914 RSA 2009
• Duration Of Justice: 1 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 12-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revenue expenditure; TDS
• Section: 40(a)(ia); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI R.S. PADVEKAR, J.M. AND SHRI B. RAMAKOT IAH, A.M. ITA NO. : 6442/MUM/2009 ASSESSMENT YEAR : 2006-07 ACIT 4(2) R.NO.642, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI VS. M/S. TW IN EARTH SECURITIES P. LTD. 301/302, PRIME PLAZA, 38-A, S.V. ROAD, SANTACRUZ (W), MUMBAI PAN NO: AABCT3066F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PAVAN VED RESPONDENT BY : S MT. SHRUTI ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 01.09.2009 OF THE CIT(A)-IV, MUMBAI RELATING TO ASS ESSMENT YEAR 2006-07. 2. THE REVENUE IN ITS APPEAL HAS RAISED TWO ISSUES. THE GROUND NO.1 PERTAINS TO THE ISSUE OF PAYMENT OF RS.1,05,000/- S TATED TO BE PENALTY FOR VIOLATION OF THE BYE-LAWS OF THE STOCK EXCHANGE, WH ICH THE A.O. CONSIDERED AS STATUTORY IN CHARACTER AND THUS AMOUNTED TO INFR INGEMENT OF LAW. THE LD. CIT(A) DELETED THE ADDITION HOLDING THAT THE ST OCK EXCHANGE ARE NOT GOVERNMENT OR SEMI-GOVERNMENT BODIES BUT THEY ARE C OMPANIES AND THE PAYMENTS MADE TO THE STOCK EXCHANGE FOR VIOLATION O F THEIR REGULATIONS ARE NOT PROHIBITED BY THE LAW AND, THEREFORE, INVOKING THE EXPLANATION TO SEC.37 WAS NOT CORRECT. 2 3. THIS ISSUE IS COVERED BY THE DECISIONS IN THE CA SE OF ASHOK KUMAR DAMANI [2011-TIOL-10-ITAT-MUM], CLASSIC SHARES & ST OCK BROKING SERVICES LTD. VS. DCIT [11 SOT 377 (MUM)]. IT WAS H ELD THAT PAYMENTS MADE TO THE STOCK EXCHANGE ON ACCOUNT OF PAYMENT OF MARGIN MONEY AND VIOLATION OF THE BYE-LAWS OF THE STOCK EXCHANGE ARE COMPENSATORY PAYMENTS AND ARE ALLOWABLE AS REVENUE EXPENDITURE, AS THE SA ME IS NOT FOR INFRINGEMENT OF LAW. RESPECTFULLY FOLLOWING THE PRE CEDENT ON THE ISSUE, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE REVENUES GROUND. 4. THE ISSUE IN GROUND NO. 2 IS WITH REFERENCE TO T HE DELETING THE ADDITION ON ACCOUNT OF PAYMENT TO JOBBERS/ARBITRAGE RS OF RS.1,99,82,204/- U/S.40(A)(IA) OF THE I.T. ACT. THE A.O. INVOKING TH E ABOVE PROVISION DISALLOWED THE CLAIM OF EXPENDITURE TO JOBBERS/ARBI TRAGERS STATING THAT THE PROVISIONS OF SECTION 194C ARE ATTRACTED, AND SINCE THE TDS WAS NOT MADE, THE ABOVE AMOUNT CANNOT BE ALLOWED. THE LD. CIT(A) FOLLOWING THE DECISION IN THE CASE OF M/S. PRAKASH K. SHAH SHARE & SECURIT IES PVT. LTD. PASSED BY HIM HELD THAT TRANSACTIONS WAS ON PRINCIPLE TO PRIN CIPLE BASIS AND THE RELATIONSHIP BETWEEN THE JOBBERS/ARBITRAGERS AND TH E ASSESSEE COMPANY IS THAT OF CO-SHAREER OF PROFIT/LOSS AND, THEREFORE, P ROVISION OF SEC.194C ARE NOT ATTRACTED. CONSEQUENTLY, DISALLOWANCE U/S.40(A) (IA) WAS HELD TO BE IMPROPER. 5. THIS ISSUE IS ALSO COVERED BY THE CO-ORDINATE BE NCH DECISION IN THE CASE OF DCIT VS. M/S. ASSET ALLIANCE SECURITIES PVT . LTD IN ITA NO.1488/MUM/2009 DATED 16.07.2010, WHEREIN THIS ISS UE WAS ELABORATELY DISCUSSED AND HELD AS FOLLOWS :- ON PERUSAL OF THE FACTS, IT IS SEEN THAT THERE WER E SEPARATE JOINT VENTURES ENTERED INTO BY THE ASSESSEE WITH SEVERAL JOBBERS/ARBITRAGERS AND PAYMENTS HAVE BEEN MADE TO THEM UNDER SUCH AGREEMENTS AND THE ASESSEES SHARE IN TH E PROFITS HAS BEEN TAKEN TO THE P & L ACCOUNT. IN THESE CIRCU MSTANCES THE PROVISIONS OF SECTION 194C ARE NOT ATTRACTED BECAUS E IN ESSENCE 3 AND SUBSTANCE THE AMOUNTS PAID TO THE JOBBERS OR AR BITRAGERS DID NOT IN REALITY REPRESENT THE EXPENSE OF THE ASS ESSEE 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 W AS NO QUESTION OF DEDUCTING ANY TAX AT SOURCE; THE FACTS OF THE CASE ALSO ESTABLISH THAT THE RELAT IONSHIP BETWEEN THE ASSESSEE AND THE JOBBERS/ARBITRAGERS WAS NOT OF PRINCIPAL AND AGENT BUT WAS THAT OF PRINCIPAL TO PRINCIPAL. B OTH 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. THERE IS NO REASON AS TO HOW SUCH PAYMENTS CAN BE TERMED AS PAYMENTS TO CONTRACTORS FOR ANY WORK TO B E CARRIED OUT BY THEM. THEREFORE, THE TRIBUNAL UPHELD THE FIN DING OF THE CIT(A) THAT THESE PAYMENTS DO NOT ATTRACT SECTION 1 94C AND THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX THEREFROM. AC CORDINGLY, SECTION 40(A)(IA) IS ALSO NOT APPLICABLE. 6. RESPECTFULLY FOLLOWING THE ABOVE, WE HOLD THAT T HE PROVISIONS OF 194C ARE NOT ATTRACTED TO THE PAYMENTS MADE TO JOBBERS/A RBITRAGERS ON A PRINCIPLE TO PRINCIPLE BASIS. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). ACCORDINGLY, THE GROUN D NO. 2 IS DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON THE 16 TH DAY OF MAY, 2011. S D/ - SD/ - ( R. S. PADVEKAR ) ( B. RAMAKOTIAH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 16 TH MAY 2011 4 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, H- BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI