DCIT -4(1), MUMBAI V. HDFC SECURITIES LTD, MUMBAI

ITA 7036/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7481 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 30-12-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 11-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K PAHWA
• Keywords: Depreciation; TDS
• Section: 40(a)(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI A.L. GEHL OT ,(AM) ITA NO.7036/MUM/2008 ASSESSMENT YEAR : 2005-06 DY. COMMISSIONER OF INCOME TAX -4(1) 6 TH FLOOR, ROOM NO.640 AAYAKAR BHAVAN MUMBAI-400 020. ..( APPELLANT ) VS. M/S. HDFC SECURITIES LTD. TRADE WORLD, C-WING, 1 ST FLOOR KAMALA MILLS COMPOUND SENAPATI BAPAT MARG, LOWER PAREL MUMBAI-400 013. ..( RESPONDENT ) P.A. NO. (AAACH 8215 R) APPELLANT BY : SHRI S.K. PAHWA RESPONDENT BY : SHRI YO GESH THAR O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 1.9.2008 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2005-06. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY IS ENGAGED IN THE BUSINESS OF STOCK BROKING AND IS A MEMBE R OF BSE AND NSE. THE RETURN WAS FILED DECLARING TOTAL INCOME OF RS. 2,46,34,722/-. HOWEVER, THE ASSESSMENT WAS COMPLETED DETERMINING INCOME AT ITA NO.7036/M/08 A.Y:05-06 2 RS.5,87,75,300/- INCLUDING THE DISALLOWANCE OF DEPRECIAT ION ON BSE CARD RS.22,79,429/- AND DISALLOWANCE OF VSAT AND LEASE LINE CHARGES INCLUDED IN THE STOCK EXCHANGE EXPENDITURE U/S.40(A)(IA ) VIDE ORDER DATED 24.12.2007 PASSED U/S.143(3) OF THE IT ACT, 1961( THE ACT). ON APPEAL, THE LD. CIT(A) FOLLOWING THE TRIBUNAL ORDER ALLOWED THE AFORESAID CLAIM OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 4. GROUND NO.1 (I), (II), (III) AND (IV) ARE AGAIN ST THE DELETION OF DISALLOWANCE OF DEPRECIATION ON BSE CARD. 5. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DURING T HE COURSE OF ASSESSMENT PROCEEDING IT WAS OBSERVED BY THE AO THAT THE A SSESSEE HAS CLAIMED DEPRECIATION OF RS.22,79,429/- ON BSE MEMBE RSHIP CARD. THE AO AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE WAS OF THE VIEW THAT THE BSE MEMBERSHIP CARD IS NEITHER A DEPRE CIABLE ASSET NOR AN INTANGIBLE ASSET; RATHER IT IS A PERSONAL RIGHT. HE FURTHER OBSERVED THAT EVEN WITHOUT THE MEMBERSHIP OF STOCK EXCHANGE, S HARE TRADING AND SHARE BROKING IS LEGALLY PERMISSIBLE AND ACCORDINGLY HE DISALLOWED THE CLAIM OF DEPRECIATION OF RS.22,79,429/- ON BSE MEM BERSHIP CARD. ON APPEAL, THE LD. CIT(A) FOLLOWING THE TRIBUNAL OR DER IN ASSESSEE'S ITA NO.7036/M/08 A.Y:05-06 3 OWN CASE IN ITA NO.1305/M/05 DATED 30.4.2007 FOR ASSESSME NT YEAR 2001-02 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 6. AT THE TIME HEARING THE LD. DR SUBMITS THAT THIS I SSUE IS COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY TH E DECISION OF THE HONBLE BOMBAY HIGH COURT, THEREFORE, THE ISSUE MA Y BE DECIDED ACCORDINGLY. 7. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE SUP PORTS THE ORDER OF THE LD. CIT(A). 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE. RECENTLY THE HONBLE JURISDICTION AL HIGH COURT IN CIT VS. TECHNO SHARES AND STOCK LTD.(2009) 184 TAXMANN 103(BOM.) HAS HELD THAT THE BSE CARD DID NOT FALL IN ANY OF TH E CATEGORIES SPECIFIED U/S.32(1)(II), DEPRECIATION COULD NOT BE ALLOW ED ON THE BSE CARD. RESPECTFULLY FOLLOWING THE SAME WE ARE OF THE V IEW THAT THE ASSESSEE IS NOT ENTITLED TO DEPRECIATION ON BSE MEMBERSHIP CARD AND ACCORDINGLY THE ORDER PASSED BY THE LD. CIT(A) IN THIS R EGARD IS REVERSED AND THAT OF AO IS RESTORED. THE GROUNDS TAKEN BY THE REVENUE, ARE THEREFORE ALLOWED. ITA NO.7036/M/08 A.Y:05-06 4 9. GROUND NO.2 TO 9 ARE AGAINST THE DELETION OF DISAL LOWANCE MADE IN RESPECT OF PAYMENT OF V-SAT CHARGES AND LEASELINE CHA RGES. 10. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDING THE ASSESSEE WAS ASKED TO SUBMIT THE DETA ILS OF STOCK EXCHANGE EXPENDITURE OF RS.47,49,141/- AND TDS DEDUCTED THEREON. IN RESPONSE, THE ASSESSEE SUBMITTED THE DETAILS OF EXPENDITURE AND CONFIRMED THAT NO TDS HAS BEEN DEDUCT ED ON THE GROUND THAT THE SAID PAYMENT ARE NOT LIABLE TO DEDUC T TDS U/S.194J OF THE ACT. HOWEVER, THE AO AFTER CONSIDERING THE ASSESSEE'S EX PLANATION WAS OF THE VIEW THAT THESE CHARGES QUALIFY FOR FEES FOR TECHNICAL SERVICES (FTS) AND THEREFORE, LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S.194J OF THE ACT AND SINCE THE ASSESSEE HAS NOT DEDUCTED THE TDS THE AO ADDED THE SAME TO THE INCOME OF THE ASSESSEE U/S.40 (A)(IA) OF THE ACT. ON APPEAL, THE LD. CIT(A) FOLLOWING THE AP PELLATE ORDER IN THE CASE OF M/S. KOTAK SECURITIES LTD. FOR ASSESSMENT YEAR 2005- 06 DATED 3.3.2008 HAS HELD THAT THE PROVISIONS OF SEC. 194J ARE NOT ATTRACTED ON V-SAT AND LEASELINE CHARGES ON THE GROUND THAT THESE CHARGES ARE NOT FOR PROVIDING TECHNICAL SERVICE BUT FOR USE OF INFR ASTRUCTURE FACILITY AND, ACCORDINGLY, HE DELETED THE DISALLOWANCE MADE U/S. 40(A)(IA) OF THE ACT. 11. AT THE TIME OF HEARING THE LD. DR SUPPORTS THE OR DER OF THE AO. ITA NO.7036/M/08 A.Y:05-06 5 12. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE SU BMITS THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIO N OF THE TRIBUNAL IN DCIT VS. ANGEL BROKING LTD. (2010) 35 SO T 457(MUM.). HE, THEREFORE, SUBMITS THAT THE ORDER PASSED BY THE LD. CIT(A) IN DELETING THE DISALLOWANCE BE UPHELD. 13. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND TH AT THE FACTS ARE NOT IN DISPUTE. IN ANGEL BROKING LTD.(SUPRA) RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE IT HAS BEEN HELD BY THE TRIBUNAL IN PARA-10 OF ITS ORDER DATED 9.12.2009 AS UNDER : 10. WE HAVE ALREADY GIVEN NATURE OF VSAT CHARGES A ND LEASE LINE CHARGES, OTHER CHARGES, BOLT CHARGES, DE MAT CHARGES, PAID BY THE ASSESSEE. STOCK EXCHANGES AS MEASURE OF PROVIDING INFRASTRUCTURE TO ITS MEMBERS INSTALLS VSAT, LEASE LINE FACILITIES, BOLT CHARGES AND DEMAT CHARGES TO ITS MEMBERS. FEES COLLECTED IN THI S REGARD IS NOTHING BUT FEE PAID FOR USE OF FACILITIE S PROVIDED BY THE STOCK EXCHANGE. SUCH FACILITIES ARE AVAILABL E FOR USE BY ANY MEMBER. SATELLITE BASED TRADING ENABLES TRADING MEMBER TO TRADE ON EXCHANGE FROM THEIR PLAC E OF WORK ACROSS THE COUNTRY. STOCK EXCHANGE HAS TO GET PERMISSION OF DEPARTMENT OF TELECOMMUNICATION FOR INSTALLING AND SETTING UP VSAT OR LEASE LINE SYSTEM . CHARGES LEVIED BY THE STOCK EXCHANGE ON ITS MEMBERS ARE FOR THE PURPOSE OF RECOVERY OF ITS COST IN PROVIDIN G THESE FACILITIES TO THE MEMBERS. STOCK EXCHANGES DO NOT P ROVIDE ANY TECHNICAL SERVICES BY INSTALLING VSAT NETWORK. IT IS THE FACILITY PROVIDED TO ITS MEMBERS, SUCH PAYMENT CANNOT BE SAID TO BE NATURE OF FEES FOR ANY TECHNICAL SERV ICES RENDERED. STOCK EXCHANGES MERELY PROVIDE FACILITIES FOR ITS MEMBERS TO PURCHASE AND SELL SHARES WITHIN FRAME WO RK ITA NO.7036/M/08 A.Y:05-06 6 OF ITS BYE-LAWS. IT ALSO PROVIDES FOR A MECHANISM F OR SETTLEMENT OF DISPUTE BETWEEN THE BROKERS AND ITS CUSTOMERS. STOCK EXCHANGES DO NOT INVOLVE THEM IN PROVIDING ANY TECHNICAL SERVICES TO ANY OF ITS MEMB ERS. WE ARE OF THE VIEW THAT THIS RATIO OF HON'BLE MADRAS HIGH COURT WILL APPLY TO THE FACTS OF THE PRESENT CASE. THE ASSESSING OFFICER IN COMING TO THE CONCLUSION THAT THE PAYMENT WAS FOR FEE FOR TECHNICAL SERVICES HAS RELI ED ON THE FACT THAT THE SCREEN BASED TRADING IS SOPHISTIC ATED METHOD OF TRADING. THIS BY ITSELF WILL NOT BE SUFFI CIENT TO HOLDING TECHNICAL SERVICES BEING RENDERED. THE ASSE SSING OFFICER HAS ALSO HELD THAT SERVICES ARE NOT AVAILAB LE TO THE PUBLIC AT LARGE BUT ONLY TO REGISTERED MEMBERS, AGA IN THIS BY ITSELF WILL NOT MAKE THE SERVICES IN QUESTION AS TECHNICAL SERVICES. ANOTHER REASON GIVEN BY THE ASS ESSING OFFICER IS THAT SPEED AT WHICH TRANSACTIONS WERE COMPLETED AND THE EASE WITH WHICH TRANSACTIONS ARE DONE IN SCREEN BASED TRADING. THIS AGAIN IS NOT RELEVANT CRITERIA FOR HOLDING THAT THE SERVICES RENDERED WERE TECHNIC AL SERVICES. FACT THAT THE DATA PROVIDED ON SCREEN WIL L PROVIDE BETTER DATA FOR CARRYING OUT TRANSACTION WI LL NOT AGAIN BE SUFFICIENT TO HOLD THAT TECHNICAL SERVICES ARE BEING RENDERED. ALL THE ABOVE FEATURES PRESENT IN S CREEN BASED TRADING SAVES TIME. THIS IS THE RESULT OF IMP ROVED TECHNOLOGY. THAT DOES NOT MEAN THAT STOCK EXCHANGE IS PROVIDING TECHNICAL SERVICES. MEMBERS OF THE STOCK EXCHANGE AND THE PUBLIC AT LARGE ARE BENEFICIARIES OF THESE TECHNICAL IMPROVEMENTS. STOCK EXCHANGES ARE N OT THE OWNER OF THIS TECHNOLOGY TO PROVIDE THEM FOR A FEE TO PROSPECTIVE USE. THEY ARE THEMSELVES CONSUMERS OF T HE TECHNOLOGY. WE ARE THEREFORE OF THE VIEW THAT LEARN ED CIT(A) WAS RIGHT IN HOLDING THAT THE PAYMENT IN QUE STION IS NOT FEE FOR TECHNICAL SERVICES RENDERED. WE THER EFORE CONFIRM THE ORDER OF LEARNED CIT(A) AND DISMISS THI S APPEAL OF THE REVENUE. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT O N RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE ORDER OF THE TR IBUNAL SUPRA, HOLD THAT THE PAYMENT OF V-SAT CHARGES AND LEASELINE CHARGES CANNOT BE CONSIDERED AS FEES FOR TECHNICAL SERVICES RENDERED AND ACCORD INGLY WE ARE INCLINED TO UPHOLD THE ORDER OF THE LD. CIT(A) I N DELETING THE ITA NO.7036/M/08 A.Y:05-06 7 DISALLOWANCE MADE BY THE AO. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJECTED. 14. IN THE RESULT, REVENUES APPEAL STANDS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.3.2010. SD/- SD/- (A.L. GEHLOT) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 19.3.2010. JV. 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. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 12/15.3.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 17.3.10 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 19.3.10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 23.3.10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER