EMKAY SHARE & STOCK BROKERS LTD, MUMBAI V. ADDL CIT RG 4(1), MUMBAI

ITA 6479/MUM/2009

• Counselvise Citation: 647919914 RSA 2009
• Duration Of Justice: 2 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 06-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 17-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Depreciation; Diversion of income; Transactions in derivatives; Speculation loss; Revenue expenditure
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA NO.6479/MUM/2009 ASSESSMENT YEAR : 2006-07 M/S. EMKAY SHARE & STOCK BROKERS LTD. 4D, 4 TH FLOOR, HAMAM HOUSE, AMBALAL DOSHI MARG FORT, MUMBAI-400 023. PAN NO. AAACE 0994 L ADDL. COMMISSIONER OF INCOME TAX , RANGE-4(1) MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI SANJIV M. SHAH RESPONDENT BY : SHRI V.V. SHASTRI DATE OF HEARING : 6.6.2012 DATE OF PRONOUNCEMENT : 20.06.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 16.10.2009 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07. T HE ASSESSEE IN THIS APPEAL HAS RAISED DISPUTES ON FIVE DIFFERENT GRO UNDS WHICH HAVE BEEN DEALT WITH IN SUBSEQUENT PARAS. 2. THE FIRST DISPUTE IS REGARDING DEPRECIATION ON MEMBE RSHIP CARDS OF BSE AND NSE. THE ASSESSEE HAD CLAIMED DEPRECIATION @ 2 5% ITA NO.6479/M/09 A.Y.06-07 2 AMOUNTING TO RS.1,33,558/- ON NSE MEMBERSHIP RIGHTS AN D BSE DERIVATIVES TO MEMBERSHIP RIGHTS. THE AO FOLLOWING THE DECISION IN THE EARLIER YEAR DISALLOWED THE CLAIM OF DEPRECIATION. IN APPEAL CIT(A) FOLLOWING THE JUDGMENT OF HON'BLE HIGH COURT OF BOMB AY IN THE CASE OF CIT VS. TECHNO SHARES & STOCKS LTD. (323 ITR 69), CONFIRM ED THE DISALLOWANCE AGGRIEVED BY WHICH, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.1 BEFORE US, THE LD. AR FOR THE ASSESSEE ARGUED THAT DEPRECIATION ON BSE CARD IS ALLOWABLE IN VIEW OF THE JUDGMENT OF HO N'BLE SUPREME COURT IN THE CASE OF TECHNO SHARES & STOCKS LTD. VS. CIT ( 2010)(193 TAXMAN 248). THE LD. DR ON THE OTHER HAND SUBMITTED THAT THE SAID JUDGMENT OF THE APEX COURT HAD BEEN CONSIDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SINO SECURITIES P. LTD. IN ITA NO.6264/M/09 FOR THE ASSESSMENT YEAR 2006-07 ORDER DATE D 23.11.2011, IN WHICH THE TRIBUNAL DISALLOWED THE CLAI M OF DEPRECIATION. IN REPLY, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT TH E SAID DECISION RELATED TO BSE CARD WHEREAS THE ASSESSEE HAD BOTH BSE CAR D AND NSE MEMBERSHIP CARDS. IT WAS ALSO SUBMITTED THAT DEPRECIATION IN THIS CASE HAD BEEN ALLOWED IN THE EARLIER YEAR AND THEREFORE DEPRECIATION HAS TO BE ALLOWED AND ONLY IN THE YEAR IN WHICH THE ASSET IS SOLD OR DISCARDED, DEMOLISHED, DESTROYED, THE MONEY PAYABLE IN RESPECT OF THE ASSET HAS TO BE REDUCED FROM THE WDV UNDER THE PROVISIONS OF SECTI ON 43(6). IN ITA NO.6479/M/09 A.Y.06-07 3 THE PRESENT CASE, IT WAS POINTED OUT THAT THE CARD WAS N EITHER SOLD NOR DISCARDED NOR DESTROYED/DEMOLISHED AND THEREFORE, DEPRE CIATION HAD TO BE ALLOWED ON THE BASIS OPENING WDV. IT WAS FURTHER SU BMITTED THAT THESE ASPECTS HAD NOT BEEN CONSIDERED BY THE TRIBUNAL IN CASE OF SINO SECURITIES PVT. LTD.(SUPRA) AND, THEREFORE, IT WAS REQU ESTED THAT THE MATTER MAY BE RESTORED TO THE AO FOR EXAMINING ALL A SPECTS RELATING TO THE CASE. 2.2. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATT ER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF DE PRECIATION ON NSE MEMBERSHIP RIGHTS AND BSE DERIVATIVE MEMBERSHIP RIGHTS. IN VIEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF TECHNO SHARES AND STOCK LTD. (193 TAXMANN 248), DEPRECIATION IS ALLOWABL E IN RESPECT OF BSE/NSE MEMBERSHIP CARDS. HOWEVER, THE MUMBAI BENCH OF THE TRIBUNAL IN CASE OF SINO SECURITIES P. LTD. IN ITA NO.6 264/M/09 (SUPRA), AFTER CONSIDERING THE SAID JUDGMENT OF THE APE X COURT HELD THAT AFTER DE-MUTUALIZATION AND CORPORATIZATION OF ST OCK EXCHANGES, ASSESSEES HAVE BEEN ALLOTTED SHARES AGAINST MEMBERSHIP CARDS AND, THEREFORE, THE JUDGMENT WAS NOT APPLICABLE. THE TRIB UNAL AFTER DETAILED EXAMINATION HELD THAT THE SHARES HAVE BEEN ALLOTTED I N THE NEW COMPANY AGAINST BSE CARD AND TRADING RIGHT WAS AGAINST REFUNDABLE DEPOSIT. THEREFORE, VALUE OF TRADING RIGHT WAS NIL AN D THEREFORE, ASSESSEE WHOULD NOT BE ENTITLED FOR DEPRECIATION. THE LD . AR FOR THE ITA NO.6479/M/09 A.Y.06-07 4 ASSESSEE HAS HOWEVER POINTED OUT THAT IN THE PRESENT CASE THERE ARE DISTINCTIVE FEATURES AS THE ASSESSEE WAS HOLDING NSE MEMBER SHIP RIGHTS AND BSE MEMBERSHIP DERIVATIVE RIGHT, WHEREAS T HE CITED CASE RELATED TO BSE MEMBERSHIP CARDS. IT HAS ALSO BEEN POINTE D OUT THAT THE TRIBUNAL HAD NOT CONSIDERED THE PROVISIONS OF SECTION 43(6)(C)(B) AS PER WHICH ONCE WDV HAS BEEN COMPUTED, THE SAME CAN BE R EDUCED ONLY BY THE VALUES OF THE ASSET IN THE YEAR IN WHICH THE SAME IS DISCARDED, DEMOLISHED OR SOLD. IN THE PRESENT CASE NEITHE R THE CARD HAD BEEN SOLD NOR DISCARDED /DEMOLISHED. THEREFORE, DEP RECIATION HAS TO BE ALLOWED AS SAME WAS IN THE EARLIER YEAR ON THE BASIS OF WDV ALREADY DETERMINED. THESE NEW ASPECTS BROUGHT TO OUR NO TICE REQUIRE FRESH EXAMINATION. BOTH PARTIES HAD NO OBJECTION IF TH E ISSUE WAS RESTORED TO THE FILE OF AO. WE, THEREFORE, RESTORE TH E ISSUE TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER EXAMINING ALL ASPECT S AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 3. THE SECOND DISPUTE IS REGARDING DISALLOWANCE OF SOFTWA RE EXPENSES. THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.16,19,800 /- TOWARDS CHARGES FOR CLIENT ACCESS LICENCE OF ODIN FRONT OFFI CE SOFTWARE FOR BSE CASH, NSE CASH AND NSE DERIVATIVE WHIC H HAD BEEN TAKEN FROM FINANCIAL TECHNOLOGIES INDIA LTD. THE ASSESSEE HAD TAKEN 97 SUCH LICENCES WHICH HAD BEEN INSTALLED AT VARIOUS BRANCHE S, ITA NO.6479/M/09 A.Y.06-07 5 FRANCHISEE LOCATIONS AND THE HEAD OFFICE. SIMILARLY, R S.1,56,000/- HAD BEEN CLAIMED ON ACCOUNT OF WEB EDITION OF MONEYWARE IN TEGRA TO PROVIDE ONLINE INFORMATION TO PMS CLIENTS ABOUT THE N AV AND FUND VALUE STATUS AND VARIOUS OTHER RELATED REPORTS. THE ASS ESSEE DURING ASSESSMENT PROCEEDINGS SUBMITTED THAT THE ASSESSEE HAD OBTAINE D LICENSES FOR DIFFERENT SOFTWARES AND THE EXPENDITURE WA S ALLOWABLE AS REVENUE EXPENDITURE. THE AO, HOWEVER, OBSERVED THAT WITH EFFECT FROM ASSESSMENT YEAR 2003-04, SOFTWARE HAD BEEN INCLUDED IN APPENDIX -1 IN INCOME TAX RULES FOR PROVIDING DEPRECI ATION @ 60%. HE THEREFORE, HELD THAT THE EXPENDITURE WAS CAPITAL IN NATURE AND DISALLOWED THE SAME. HE HOWEVER, ALLOWED DEPRECIATION @ 30%. IN APPEAL CIT(A) FOLLOWING THE DECISION IN THE EARLIER Y EAR CONFIRMED THE DISALLOWANCE MADE BY AO, AGGRIEVED BY WHICH, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3.1 BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THA T, EARLIER, SPECIAL BENCH OF THE TRIBUNAL IN CASE OF AMWAY INDIA EN TERPRISES (114 TTJ DEL.(SB) 476) HAD LAID DOWN CERTAIN TESTS TO DETE RMINE THE NATURE OF EXPENDITURE ON ACCOUNT OF SOFTWARE. HOWEVER, THE SAI D DECISION OF THE SPECIAL BENCH HAS NOT BEEN UPHELD BY THE HONBLE HI GH COURT OF DELHI VIDE JUDGMENT DATED 04/11/2011 IN INCOME TAX A PPEAL NO.1344 & 1363 OF 2009 IN THE SAME CASE. THE HONBLE HIGH COURT FOLLOWING THE JUDGMENT DATED 04/11/2011 IN CASE OF CIT VS. M/S. ASAHI INDIA ITA NO.6479/M/09 A.Y.06-07 6 SAFETY GLASS LTD. HELD THAT EXPENDITURE HAS TO BE ALL OWED AS REVENUE EXPENDITURE. THE LD. DEPARTMENTAL REPRESENTATIVE, O N THE OTHER HAND, SUBMITTED THAT THE TRIBUNAL IN ASSESSMENT YEAR 2005-06 I N CASE OF THE ASSESSEE HAD CONFIRMED THE DISALLOWANCE. THE LD. AR FOR T HE ASSESSEE, HOWEVER, POINTED OUT THAT IN ASSESSMENT YEAR 2005-06, T HERE WAS NO DECISION OF THE TRIBUNAL AS ASSESSEE HAD NOT PRESSED THE IS SUE. 3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING THE A LLOWABILITY OF EXPENDITURE ON ACCOUNT OF SOFTWARE AS REVENUE EXPENDI TURE. THE ASSESSEE AS BROKER HAD TAKEN LICENCE OF SOFTWARES IN CONNECTIO N WITH THE BUSINESS. THE AO HAD TREATED THE EXPENDITURE AS CA PITAL EXPENDITURE, WHICH HAD BEEN CONFIRMED BY CIT(A). WE HAVE CAREFULLY CONSIDERED THE VARIOUS ASPECT OF THE MATTER. THE ISSUE W HETHER EXPENDITURE ON SOFTWARE SHOULD BE ALLOWED AS REVENUE E XPENDITURE HAS BEEN A DEBATABLE ISSUE. EARLIER, THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF AMWAY INDIA ENTERPRISES (SUPRA) HAD LAID DOWN C ERTAIN TESTS FOR DECIDING THE TRUE NATURE OF EXPENDITURE ON ACCOUNT OF SOFTWARE. HOWEVER, THE SAID SPECIAL BENCH DECISION HAS NOT BEEN UPH ELD BY THE HONBLE HIGH COURT OF DELHI IN THE JUDGMENT DATED 04/ 11/2011 IN INCOME TAX APPEAL NO.1344 & 1363 OF 2009 IN THE SAME CASE. THE HONBLE HIGH COURT FOLLOWED THE EARLIER JUDGMENT OF T HE SAME DAY IN CASE OF CIT VS. M/S. ASAHI INDIA SAFETY GLASS LTD. IN WHI CH THE HONBLE ITA NO.6479/M/09 A.Y.06-07 7 HIGH COURT NOTED THAT THE ASSESSEE HAD ACQUIRED APPLICATIO N SOFTWARE TO EXECUTE JOBS IN THE FIELD OF INVENTORY MANAGEMENT ETC. WHICH HAD TO BE UPDATED FROM TIME TO TIME BASED ON THE CHANGING NE EDS. THE HONBLE HIGH COURT FOLLOWING THE JUDGMENT OF HON'BLE S UPREME COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD. VS. CIT (177 ITR 377) AND SEVERAL OTHER JUDGMENTS HELD THAT THE EXPENDITUR E WAS ALLOWABLE AS REVENUE EXPENDITURE. FOLLOWING THESE JUDGMENTS, T HE CLAIM OF THE ASSESSEE CANNOT BE DISALLOWED. WE, THEREFORE, SET ASIDE TH E ORDER OF CIT(A) AND ALLOW THE CLAIM OF THE ASSESSEE AS REVENUE EX PENDITURE. 4. THE THIRD DISPUTE IS REGARDING DISALLOWANCE OF REBA TE UNDER 88E OF THE IT ACT. THE AO NOTED THAT THE ASSESSEE HAD SHOWN PROFIT FROM DERIVATIVE TRANSACTIONS AT RS.62,67,650/- AND LOSSES FROM SHARE TRANSACTIONS AT RS.14,78,763/-. THE ASSESSEE HAD CLAIMED THE DEDUCTION ON ACCOUNT OF SECURITY TRANSACTION TAX (STT) A T RS.7,87,431/- FROM GROSS PROFITS. THE AO FOR THE PURP OSE OF ALLOWING REBATE ON ACCOUNT OF STT, COMPUTED INCOME FROM SHARE TRA NSACTIONS AND DERIVATIVE TRANSACTIONS AFTER ALLOCATING EXPENSES TO WARDS THESE TRANSACTIONS. HE THUS COMPUTED PROFIT FROM DERIVATIVE TR ANSACTIONS AT RS.30,89,407/- AND LOSS FROM SHARE TRANSACTION AT RS.22,28 ,624/-. HE ALLOWED REBATE UNDER SECTION 88E @30% ON THE NET INCOM E OF RS.8,60,783/- (30,89,407 - 22,28,624) WHICH CAME TO RS. 2,58,235/- AND BALANCE CLAIM WAS DISALLOWED. IN APPEAL CIT(A) OBT AINED DETAILS ITA NO.6479/M/09 A.Y.06-07 8 OF STT WHICH WAS RS.2,56,449/- IN RESPECT OF DERIVATIVE TRANSACTIONS AND RS.5,30,982/- IN RESPECT OF SHARE TRANSACTION. SINC E THERE WAS LOSS IN RESPECT OF SHARE TRANSACTIONS, CIT(A) HELD THAT REB ATE WITH REFERENCE TO STT OF RS.5,30,982/- WAS NOT ALLOWABLE. IT WAS HELD BY HIM THAT THE REBATE WAS ALLOWABLE AT RS.2,56,449/-. CIT(A), THEREFORE, REDUCED REBATE ALLOWED BY AO BY RS.1,786/-. AGGRIEVE D BY SAID DECISION, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4.1 BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT REBATE UNDER SECTION 88E HAS TO BE ALLOWED WITH RESPECT TO INCO ME FROM SECURITY TRANSACTIONS INCLUDED IN THE TOTAL INCOME AT THE AVERAGE RATE OF INCOME TAX. HE REFERRED TO THE DECISION OF THE TRIBU NAL IN THE CASE OF DY. CIT VS. ASHIKA STOCK BROKING LTD.(2011) (44 SOT 566) IN WHICH IT WAS HELD THAT ONCE THERE WAS NET PROFIT FROM SHARE D EALING IN THE CASH SEGMENT AND F&O SEGMENT, THE REBATE UNDER SECTION 88 E IN RELATION TO STT HAS TO BE ALLOWED. IN THE PRESENT CASE , INCOME FROM DERIVATIVE TRANSACTIONS WAS INCLUDED IN THE TOTAL INCOME AND, THEREFORE, THE REBATE UNDER SECTION 88E HAS TO BE ALLOWED WITH RE FERENCE TO SAID INCOME. THE LD. DR ON THE OTHER HAND PLACED RELIANCE O N THE ORDER OF CIT(A). 4.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING REBATE UNDER SECTION ITA NO.6479/M/09 A.Y.06-07 9 88E IN RESPECT OF SECURITY TRANSACTION TAX(STT). THE ASSESSE E IN THIS CASE HAD TRANSACTIONS IN THE DERIVATIVE SEGMENT AS WELL AS NORMAL SHARE TRANSACTIONS AND HAD PAID TOTAL SECURITY TRANSACTION TAX OF RS.7,87,431/- WHICH HAD BEEN CLAIMED BY THE ASSESSEE AS REB ATE UNDER SECTION 88E. THE SAID SECTION PROVIDES THAT, WHERE THE TOTAL INCOME OF AN ASSESSEE INCLUDES ANY INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION ARISING FRO M TAXABLE SECURITIES TRANSACTIONS, THE ASSESSEE WILL BE ENTITLED TO DE DUCTION FROM THE AMOUNT OF INCOME TAX ON SUCH INCOME AT THE AVERAGE RATE OF INCOME TAX ON SUCH INCOME SUBJECT TO THE LIMIT OF SECURITY TRANSACTION TAX PAID. IN THIS CASE, THE AO HIMSELF HAS CALCULATED IN COME FROM DERIVATIVE TRANSACTIONS AMOUNTING TO RS.30,89,407/- WHI CH IS INCLUDED IN THE TOTAL INCOME. AS REGARDS THE NORMAL SHARE TRANSACT ION, THE AO HAS CALCULATED LOSS WHICH IS NOT INCLUDED IN TOTAL INCOME TH IS YEAR AND HAS BEEN CARRIED FORWARD AS SPECULATION LOSS. THEREFORE, R EBATE HAS TO BE CALCULATED WITH RESPECT TO THE INCOME FROM DERIVATIVE TRANSACTION INCLUDED IN THE TOTAL INCOME @ 30% SUBJECT TO THE LIMIT OF STT ACTUALLY PAID. THE STT PAID IN RESPECT OF DERIVATIVE TRANSACTIO N WAS RS.2,56,449/- AND, THEREFORE, DEDUCTION HAS TO BE LIMI TED TO RS.2,56,449/-. WE, THEREFORE, SEE NO INFIRMITY IN TH E ORDER OF CIT(A) AND THE SAME IS, THEREFORE, UPHELD. ITA NO.6479/M/09 A.Y.06-07 10 5. THE FOURTH DISPUTE IS REGARDING DISALLOWANCE OF CLAIM OF DEDUCTION OF RS.29.36 LACS CLAIMED BY THE ASSESSEE AGAINST TH E SHARE OF PROFIT IN THE BRANCH. THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS EXPLAINED THAT THE ASSESSEE HAD OPENED A BRAN CH AT LOKHANDAWALA, ANDHERI, AND SINCE THE ASSESSEE WAS FINDING IT DIFFICULT TO GET A PERSON AS BRANCH MANAGER WHO COULD TAKE CARE OF THE BUSINESS, THE ASSESSEE ENTERED INTO AN ARRANGEMENT WITH M /S. J.S. FINANCIAL SERVICES (IN SHORT, JSMS) TO MANAGE THE ACTI VITIES OF THE BRANCH. IT WAS SUBMITTED THAT IT WAS ASSESSEES OWN BRANCH WH ERE ALL ASSETS AND EQUIPMENTS BELONGED TO THE ASSESSEE. AS PER THE ARRANGEMENT, ALL POLICY DECISIONS WERE TO BE TAKEN AT HEAD OFFICE AND DAY TO DAY DECISION MAKING WAS LEFT TO JSMS. THE NET P ROFIT AFTER ACCOUNTING ALL EXPENSES OF THE BRANCH BUT BEFORE TAX WAS TO BE SHARED BETWEEN THE ASSESSEE AND JSMS IN THE RATIO OF 65:35. T HE ASSESSEE FURTHER SUBMITTED THAT SUCH TYPE OF PAYMENT WAS NEITHER FEES FOR PROFESSIONAL SERVICES AS PRESCRIBED UNDER SECTION 194J NOT I T WAS COVERED AS BROKERAGE OR COMMISSION UNDER SECTION 194H AND THEREFORE, NO TAX WAS REQUIRED TO BE DEDUCTED FROM SU CH PAYMENT. 5.1 THE AO HOWEVER OBSERVED THAT THE ARRANGEMENT MAD E WITH M/S. JSMS WAS OF THE NATURE OF JOINT VENTURE IN WHICH T HE ASSESSEE WAS PROVIDING INVESTMENT AND DAY TO DAY MANAGEMENT OF TH E BRANCH INCLUDING RATE OF BROKERAGE, OPENING OF BANK ACCOUNT, COLLECTION OF ITA NO.6479/M/09 A.Y.06-07 11 FUNDS FROM CLIENTS, BANKING OPERATIONS ETC WERE BEING HA NDLED BY M/S. JSMS. THE AO ALSO OBSERVED THAT THE CASE WAS SIMILAR TO CIT VS. PANIPAT WOOLEN AND GENERAL MILLS COMPANY LTD. (103 ITR 66), IN WHICH CASE, THE HON'BLE SUPREME COURT HELD THAT IT WAS JOINT VENTURE AND DEDUCTION WAS NOT ALLOWABLE. ALTERNATIVELY, THE AO AL SO OBSERVED THAT THE SERVICES RENDERED BY M/S. JSMS WERE OF THE NATURE O F MANAGERIAL SERVICES, AND THEREFORE TAX WAS REQUIRED TO BE DEDUCTED FROM PAYMENT FOR SUCH SERVICES UNDER THE PROVISIONS OF SECTION 194J AS ASSE SSEE WAS MANAGING DAY TO DAY AFFAIRS OF THE BRANCH ON BEHALF O F THE ASSESSEE, WHICH HAD NOT BEEN DONE. THE AO ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE. 5.2 THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED BEFORE CIT(A) THAT THE CASE OF PANIPAT WOOLEN AND GENERAL MILLS COMPANY LTD. (SUPRA) WAS DISTINGUISHABLE AS IN THAT CASE THERE WA S SHARING OF BOTH PROFIT AND LOSS AND OTHER PARTY HAD MADE SUBSTANT IAL INVESTMENTS. IN THE PRESENT CASE, ALL INVESTMENTS WERE MADE BY THE ASSE SSEE AND ALL POLICY DECISIONS WERE TAKEN BY THE ASSESSEE AND THERE WAS NO SHARING OF LOSSES. THEREFORE, ARRANGEMENT COULD NOT BE CA LLED AS JOINT VENTURE. AS REGARDS APPLICABILITY OF SECTION 194J, IT W AS SUBMITTED THAT M/S. JSMS WHICH WAS PROPRIETARY CONCERN OF K.P. SHROFF WAS ASSISTED BY SIX EMPLOYEES FOR BROKING BUSINESS. THEREFORE, HE WAS NOT RENDERING ANY MANAGERIAL SERVICES. HE WAS ALSO NOT RENDE RING ANY ITA NO.6479/M/09 A.Y.06-07 12 TECHNICAL SERVICES. THEREFORE, SERVICES WERE NOT COVERED BY SECTION 194J. THUS, DISALLOWANCE COULD NOT BE MADE UNDER SECTION 40 A(IA) ON GROUNDS OF NON DEDUCTION OF TAX AT SOURCE. CIT(A) HOWEV ER, WAS NOT SATISFIED BY THE CONTENTIONS RAISED. IT WAS OBSERVED BY H IM THAT PROFIT SHARING IS ESSENTIAL MOTIVE IN FORMATION OF JOINT VENTU RES AND THEREFORE, THE ARRANGEMENT MADE BY THE ASSESSEE WAS OF T HE NATURE OF JOINT VENTURE AND DEDUCTION WAS THEREFORE NOT ALLOWAB LE IN VIEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF CIT VS. P ANIPAT WOOLEN AND GENERAL MILLS COMPANY LTD. (SUPRA), CIT(A) ALSO AG REED WITH THE ALTERNATE FINDING OF AO THAT SHRI K.P. SHROFF WAS MA NAGING THE ENTIRE AFFAIRS OF THE BRANCH WHICH WAS NOTHING BUT MANAGERIAL SERVICES, THEREFORE, PROVISIONS OF SECTION 194J WERE APPLICABLE AN D THE CLAIM WAS ALSO NOT ALLOWABLE UNDER SECTION 40(A)(IA) AS THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE. CIT(A) ACCORDINGLY CONFIRMED THE DISALLOWANCE MADE BY AO, AGGRIEVED BY WHICH, THE ASSESSEE IS IN APPE AL BEFORE THE TRIBUNAL. 5.3 BEFORE US, THE LD. AR FOR THE ASSESSEE REITERATED TH E SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES THAT ARRANGEMENT M ADE WITH M/S. J.S. FINANCIAL SERVICES WAS NOT A JOINT VENTURE AS THE IN VESTMENTS HAD BEEN MADE BY THE ASSESSEE AND POLICY DECISIONS WERE TAKEN B Y THE ASSESSEE. THE CASE WAS, THEREFORE, DIFFERENT FROM THE CASE O F CIT VS. PANIPAT WOOLEN AND GENERAL MILLS COMPANY LTD. (SUPRA) . IT WAS ALSO ITA NO.6479/M/09 A.Y.06-07 13 SUBMITTED THAT, IN CASE, THE ARRANGEMENT WAS TREATED A S JOINT VENTURE, THE INCOME HAS TO BE ASSESSED AS AOP AND PAYMENT MADE TO M /S. JSMS WOULD BE SHARE OF PROFIT WHICH CAN NOT BE ASSESSED I N THE NAME OF THE ASSESSEE. RELIANCE WAS PLACED ON THE JUDGMENT OF HON 'BLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. MALIBU ESTATE P. LTD. (298 ITR 72). IT WAS ALSO POINTED OUT, THAT IN CASE OF JOINT VENTURE , THERE WAS DIVERSION OF INCOME AT SOURCE BY OVERRIDING TITLE AND A MOUNT PAYABLE TO THE JOINT VENTURE PARTNER AS PROFIT COULD NOT BE A SSESSED AS INCOME. AS REGARDS THE APPLICABILITY OF PROVISIONS OF SECTION 194 J, IT WAS SUBMITTED THAT THE SERVICES RENDERED BY M/S. JSMS COULD N OT BE CONSIDERED AS PROFESSIONAL OR MANAGEMENT SERVICES AND THER EFORE NO TAX WAS REQUIRED TO BE DEDUCTED AND NO DISALLOWANCE COUL D BE MADE UNDER SECTION 40(A)(IA). IT WAS FURTHER ARGUED THAT EV EN IF THE PROVISION OF SECTION 40(A)(IA) WERE FOUND APPLICABLE, T HE ASSESSEE HAD PAID THE ENTIRE AMOUNT DURING THE YEAR AND NOTHING WAS FOUND TO BE OUTSTANDING AT THE END OF THE YEAR. THEREFORE, IN SUCH CASES, PROVISIONS OF SECTION 40(A)(IA) COULD NOT BE APPLIED AS H ELD BY SPECIAL BENCH OF THE TRIBUNAL IN CASE OF MERILYN SHIPPING AND TRANSPORTERS VS. ADDL. CIT (16 ITR (TRIB.) 01). THE LD. AR ALSO REFER RED TO THE AMENDMENT MADE BY FINANCE ACT 2012 TO SECTION 40(A)(IA ) W.E.F. 1.4.2013 AS PER WHICH IN CASE TAX HAD BEEN PAID BY THE PAYEE, IT HAD TO BE CONSIDERED AS DEEMED DEDUCTION AND PAYMENT OF TAX ON THE DAY ITA NO.6479/M/09 A.Y.06-07 14 OF FURNISHING OF RETURN OF INCOME BY THE PAYEE . IT W AS FURTHER ARGUED THAT THE SAID AMENDMENT WAS CLARIFICATORY IN NATURE AND WOULD APPLY TO THE PENDING ASSESSMENTS AND, THEREFORE, NO TAX WAS REQ UIRED TO BE DEDUCTED IN CASE OF THE ASSESSEE, AND THUS, NO DISALLOWANCE CO ULD BE MADE. 5.4 THE LD. DR, ON THE OTHER HAND, SUPPORTED THE ORD ERS OF AUTHORITIES BELOW AND PLACED RELIANCE ON THE FINDINGS G IVEN IN THE RESPECTIVE ORDERS. 5.5 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWAB ILITY OF CLAIM OF DEDUCTION OF RS.29.36 LACS ON ACCOUNT OF SHARE OF PROFIT P AID TO M/S. JSMS FOR MANAGING THE LOKHANDAWALA BRANCH. BOTH THE AUTHORITIES BELOW FOLLOWING THE JUDGMENT OF HON'BLE SUPREME COUR T IN THE CASE OF CIT VS. PANIPAT WOOLLEN AND GENERAL MILLS CO. LTD. (103 ITR 66) (SUPRA) HAVE HELD THAT ARRANGEMENT WITH M/S. JSMS WAS A JOINT VENTURE AND THEREFORE PAYMENT MADE TO M/S. JSMS WAS N OT ALLOWABLE AS DEDUCTION. HOWEVER, WE ARE UNABLE TO AGREE WITH THE VIEW TAKEN BY THE AUTHORITIES BELOW. WE AGREE WITH THE SUBMISSION OF THE LD. AR THAT THE CASE OF CIT VS. PANIPAT WOOLLEN AND GENERAL MILLS C O. LTD. (SUPRA), IS DISTINGUISHABLE AS IN THAT CASE THE AGENT HAD ALSO MAD E MOST OF THE INVESTMENTS AND WAS SHARING BOTH PROFITS AND LOSSES WHEREAS IN THIS ITA NO.6479/M/09 A.Y.06-07 15 CASE, THE ASSESSEE WAS ONLY SHARING PROFIT WITH M/S. JSMS WH O WAS MANAGING ONLY DAY TO DAY AFFAIRS OF THE BRANCH WHEREA S POLICY DECISIONS WERE TAKEN BY THE ASSESSEE AND THE ENTIRE INVESTM ENTS HAD ALSO BEEN MADE BY THE ASSESSEE. WE, THEREFORE, HOLD THA T THE ARRANGEMENT WAS NOT A CASE OF JOINT VENTURE. THE AUTHO RITIES BELOW HAVE ALSO DISALLOWED THE CLAIM ON THE GROUND THAT THE PAYMENT MADE TO M/S. JSMS WAS OF THE NATURE OF FEES FOR PROFESSIONA L SERVICES/ TECHNICAL SERVICES ON WHICH TAX WAS REQUIRED TO BE DEDUCTE D UNDER SECTION 194J AND SINCE ASSESSEE HAD NOT DEDUCTED TAX AT SOUR CE, CLAIM WAS NOT ALLOWABLE UNDER SECTION 40(A)(IA). WE AGREE W ITH THE AUTHORITIES BELOW THAT NATURE OF WORK DONE BY M/S. JS MS WAS PROFESSIONAL OR MANAGERIAL IN NATURE AS THEY WERE MANA GING DAY TO DAY WORK OF THE BRANCH BY PROVIDING PROFESSIONAL SERVICE S. THEREFORE, PROVISIONS OF SECTION 194J WERE APPLICABLE. HOWEVER, THE LD. AR FOR THE ASSESSEE HAS BROUGHT TO OUR NOTICE A RECENT DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS VS. ACIT (16 ITR 01), IN WHICH CASE IT HAS BEEN HELD THA T THE WORD PAYABLE USED IN SECTION 40(A)(IA) HAS TO BE GIVEN I TS NATURAL MEANING AND SECTION 40(A)(IA) WOULD BE APPLICABLE ONLY TO EXPE NDITURE WHICH IS PAYABLE AS ON MARCH 31 OF EVERY YEAR AND CAN NOT BE IN VOKED TO DISALLOW AMOUNT WHICH HAVE ALREADY BEEN PAID DURING T HE PREVIOUS YEAR. THE LD. AR SUBMITTED THAT NO AMOUNT REMAINED P AYABLE ON ITA NO.6479/M/09 A.Y.06-07 16 ACCOUNT OF M/S. JSMC AT THE END OF THE YEAR. THEREFOR E, PROVISION OF SECTION 40(A)(IA) WERE NOT APPLICABLE. WE, THEREFORE, FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS (SUPRA), SET ASIDE THE ORDER OF CIT(A) AND ALLOW THE CLAIM OF THE ASSESSEE SUBJECT TO VERIFICATION OF THE CLAIM THAT NO AMOUNT REMAINED OUTSTANDING AT THE END OF THE YEA R. WE DO NOT CONSIDER IT NECESSARY TO GO INTO OTHER ARGUMENTS ADVANCED BY THE LD. AR AS THE CLAIM HAS BEEN ALLOWED. 6. THE NEXT GROUND IS REGARDING CHARGING OF INTEREST U NDER SECTION 234B AND 234C. THE LD. AR SUBMITTED THAT THIS GROUND WAS ONLY CONSEQUENTIAL. WE, THEREFORE, DIRECT THE AO TO RE-COMPU TE THE INTEREST AT THE TIME OF GIVING EFFECT TO THIS ORDER. 7. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 20.06.2012 SD/- SD/- (D. MANMOHAN ) VICE PRESIDENT (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 20.06.2012. JV. ITA NO.6479/M/09 A.Y.06-07 17 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.