ITO 4(2)(3), MUMBAI V. SUBHAKAM STOCK & SHARES LTD ( NOW KNOWN AS M.S, SUBHKAM STOCKS & SHARES P. LTD), MUMBAI

ITA 855/MUM/2011

• Counselvise Citation: 85519914 RSA 2011
• Duration Of Justice: 2 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2007-2008
• Appeal Filed On: 31-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Keywords: Transactions in derivatives
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'H' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO. 855/MUM/2011 (ASSESSMENT YEAR: 2007-08) ACIT, CIRCLE 4(2) M/S. SUBHAKAM STOCK & SHARES LTD. ROOM NO. 647, 6TH FLOOR ( NOW SUBHKAM STOCKS & SHARES PVT. LTD.) AAYAKAR BHAVAN, M.K. ROAD VS. 15, ONLOOKER BLDG., 2ND FLOOR MUMBAI 400020 SIR P M ROAD, FORT, MUMBAI 400001 PAN - AAACM7389K APPELLANT RESPONDENT APPELLANT BY: SHRI PITAMBAR DAS RESPONDENT BY: NONE DATE OF HEARING: 30.09.2013 DATE OF PRONOUNCEMENT: 30.09.2013 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-8, MUMBAI AND IT PERTAINS TO A.Y. 2007-08. 2. THE FOLLOWING GROUNDS WERE URGED BEFORE US: - 1. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE O F RS.2,14,832/- MADE IN RESPECT OF TRANSACTION CHARGES, LEASELINE C HARGES OF ` 7,835/- AND VSAT CHARGES OF ` 82,575/- U/S. 40(A)(IA), WITHOUT APPRECIATING THE FACTS THAT THESE WERE COMPOSITE CH ARGES FOR PROFESSIONAL AND TECHNICAL SERVICES RENDERED BY THE STOCK EXCHANGE TO ITS MEMBERS AND THE ASSESSEE HAS FAILED TO DEDUCT TDS THEREON. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THES E SERVICES ARE ESSENTIAL IN NATURE AS THEY CAN ONLY BE AVAILED BY MEMBERS OF THE STOCK EXCHANGE. III. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE FACTS THAT USE OF TECHNOLOGY AND ALGORITHMIC BASED PROGRAMS HAVE CONVERTED AN ER STWHILE PHYSICAL MARKET INTO A DIGITALLY OPERATED MARKET. ITA NO. 855/MUM/2011 M/S. SUBHAKAM STOCK & SHARES LTD. 2 IV. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS OVERLOOKED THE FACT THAT THE BRO KERS HAVE IN SUBSEQUENT YEARS THEMSELVES STARTED DEDUCTING THE T DS ON SUCH PAYMENTS AND THAT THERE IS NO REASON TO GIVE A DIFF ERENT TREATMENT IN THIS YEAR. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.7,9 8,513/- MADE IN RESPECT OF MARK TO MARKET LOSSES OF OPEN INTEREST I N DERIVATIVE TRANSACTIONS AT THE END OF THE YEAR RELYING UPON TH E SUPREME COURT OF INDIA IN THE ASSESSEE OF CIT VS WOODWARD G OVERNOR INDIA P. LTD. 312 ITR 254 (SC). 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW AND CONSEQUENTLY MERITS TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. AT THE TIME OF HEARING IT WAS NOTICED THAT THE NOTI CE SENT TO THE ASSESSEE AT THE ADDRESS GIVEN IN FORM NO. 36 WAS RE TURNED UNSERVED WITH POSTAL REMARKS LEFT. WE HAVE ALSO NOTICED THAT TH E ISSUES URGED BEFORE US ARE SQUARELY COVERED BY THE ORDERS PASSED BY THE HO N'BLE BOMBAY HIGH COURT/ITAT AND, IN FACT, THE LEARNED CIT(A) MERELY RELIED UPON THOSE ORDERS AND THE REVENUE WAS NOT ABLE TO CONTROVERT THE FIND INGS OF THE LEARNED CIT(A). 4. WE HAVE HEARD THE LEARNED D.R. AND CAREFULLY PERUSE D THE RECORD. AS REGARDS GROUND NO. 1 URGED BY THE REVENUE, THE FACT S IN SHORT ARE THAT THE AO WAS OF THE VIEW THAT THE VSAT AND LEASELINE CHAR GES PAID BY THE ASSESSEE TO THE EXCHANGE SHOULD BE TREATED AS FEES FOR TECHNICAL SERVICES IN WHICH EVENT TAX HAS TO BE DEDUCTED AT SOURCE AND IN THE EVENT OF DEFAULT PROVISIONS OF SECTION 40(A) ARE APPLICABLE. IN THE CASE OF FIRST GLOBAL STOCKBROKING P. LTD. (ITA NO. 8105/MUM/2010 DATED 2 8 TH SEPTEMBER, 2012) THE TRIBUNAL FOLLOWED THE EARLIER DECISION OF THE I TAT AS WELL AS THE HON'BLE BOMBAY HIGH COURT TO OBSERVE THAT THE AMOUNT PAID T O THE EXCHANGE CANNOT BE TREATED AS FEES FOR TECHNICAL SERVICES AND HENCE THERE IS NO NEED TO DEDUCT TAX AT SOURCE. CONSEQUENTLY NO DISALLOWAN CE CAN BE MADE UNDER SECTION 40(A)(IA) OF THE ACT. SINCE THE VIEW TAKEN BY THE LEARNED CIT(A) IS IN CONFORMITY WITH THE VIEW TAKEN THEREIN AND IN THE A BSENCE OF ANY CONTRARY ITA NO. 855/MUM/2011 M/S. SUBHAKAM STOCK & SHARES LTD. 3 DECISION BROUGHT TO OUR NOTICE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LEARNED CIT(A). ACCORDINGLY GROUND NO . 1 IS DISMISSED. 5. THE FACTS REGARDING GROUND NO. 2 ARE THAT WHILE PRE PARING BOOKS OF ACCOUNT THE ASSESSEE COMPUTED ITS F&O PROFITS AFTER BOOKING A LOSS OF ` 7,98,513/- IN RESPECT OF THE DIFFERENCE IN VALUATIO N, WHICH WAS EXPLAINED BY THE ASSESSEE, VIDE ITS LETTER DATED 15.12.2009 AS U NDER: - REGARDING PROPOSED DISALLOWANCE OF RS.7,98,513/- A S ON 31.3.2007 OF MARK TO MARKET LOSS IN RESPECT OF OPEN CONTRACTS OF THE DERIVATIVES WE WOULD LIKE TO DRAW YOUR KIND ATTENTION IN THE CA SE OF CIT VS. WOODWARD GOVERNOR INDIA P. LTD. WHEREIN THE HON'BLE SUPREME COURT OF INDIA HAS HELD THAT LOSS SUFFERED BY ASSESSEE ON ACCOUNT OF FLUCTUATION OF FOREIGN EXCHANGE AS ON THE DATE OF B ALANCE SHEET IS AN ITEM OF EXPENDITURE U/S. 37(1) OF THE I.T. ACT, 196 1. THE MARKET MARK LOSS IN CASE OF EQUITY INDEX/STOCK FUTURE AS ON BAL ANCE SHEET DATE IS ALSO ON ACCOUNT OF FLUCTUATION OF PRICES HENCE WE R EQUEST YOU TO KINDLY CONSIDER THE SAME AND ALLOW MARK TO MARKET L OSS AND OBLIGE. 6. THE AO, HOWEVER, DID NOT ACCEPT THE CONTENTION OF T HE ASSESSEE FOR THE REASONS MENTIONED IN THE ASSESSMENT ORDER FOR A.Y. 2006-07 IN ASSESSEES OWN CASE. ON AN APPEAL FILED BY THE ASSESSEE THE LE ARNED CIT(A) ACCEPTED THE PLEA OF THE ASSESSEE BY FOLLOWING THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR A.Y. 2005-06 (ITA NO. 1941/MUM/2009 DATED 25 TH JUNE, 2010). 7. THE LEARNED D.R. COULD NOT PLACE BEFORE US ANY CONT RARY DECISION ON THIS ISSUE. WE, THEREFORE, DO NOT FIND ANY INFIRMIT Y IN THE ORDER PASSED BY THE LEARNED CIT(A). ACCORDINGLY WE REJECT GROUND NO. 2 OF THE REVENUE. 8. GROUND NO. 3 AND 4 ARE GENERAL IN NATURE AND NEED N OT TO BE CONSIDERED INDEPENDENTLY. 9. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2013. SD/- SD/- (RAJENDRA) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 30 TH SEPTEMBER, 2013 ITA NO. 855/MUM/2011 M/S. SUBHAKAM STOCK & SHARES LTD. 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VIII, MUMBAI 4. THE CIT III, MUMBAI CITY 5. THE DR, H BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.