IDBI CAPITAL MARKET SERVICES LTD, MUMBAI V. DCIT RG 4(1), MUMBAI

ITA 888/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2969 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 07-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: N C JAIN
• Keywords: Reasonable cause

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUM BAI , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ./ I.T.A. NO. 888/MUM/2014 ( / ASSESSMENT YEAR: 2010-11) IDBI CAPITAL MARKET SERVICES LIMITED, 3 RD FLOOR,MAFATLAL CENTER, NARIMAN POINT, MUMBAI 400 021 / VS. DEPUTY COMMISSIONER OF INCOME TAX, RANGE 4(1), AAYKAR BHAWAN, M K MARG, MUMBAI-400020 ! ./ ./PAN/GIR NO. AAACI1268F ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !# & / APPELLANT BY : SHRI N C JAIN $%!#& / RESPONDENT BY : SHRI GANESH BARE ( )*&+ , / DATE OF HEARING : 21/07/2015 -&+ , / DATE OF ORDER: 13/10/2015 -/ O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER.: THIS APPEAL IS BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-8, MUMB AI, (CIT(A) FOR SHORT) DATED 08.11.2013 FOR THE ASSES SMENT YEAR 2 ITA NO. 888/MUM/2014 (A.Y. 2010-11) IDBI CAPITAL MARKET SERVICES LIMITED V. DCIT 2010-11 .THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEALS. A) THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF RS.37,77,626 MADE UNDER SECTION 40(A)(IA) OF THE AC T BASING HIS DECISION ON THE PRONOUNCEMENT IN CIT V. KOTAK SECUR ITIES LTD.(|ITA NO.3111 OF 2009). B) THE LEARNED CIT(A) WHILE RELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF KOTAK SECU RITIES WHICH HELD SUCH PAYMENTS AS FEE FOR TECHNICAL SERVICES FAILED TO TAKE NOTE OF THE FACT THAT EVEN THOUGH SUCH PAYMENTS ARE HEL D TO BE SUBJECTED TO TDS, THE HONBLE HIGH COURT DID NOT APPROVE DISA LLOWANCE U/S 40(1)(IA) ON THE GROUND OF THE DISPUTED NATURE OF T HE ISSUE. C) THE LEARNED CIT(A) FAILED TO TAKE NOTE OF THE FACT THAT THE PROVISION OF SECTION 194J AND 40(1)(IA) ARE TWO DIS TINCT AND INDEPENDENT PROVISIONS AND APPLICATION OF THE TDS P ROVISION DOES NOT NECESSARY INVOLVE APPLICATION OF DISALLOWANCE P ROVISION U/S 40(1)(IA) . BY HOLDING THE PROVISIONS OF SECTION 40 (1)(IA) NOT APPLICABLE TO ASSESSMENT YEAR 2005-06 WHICH WAS THE YEAR BEFORE THEM, THE HONBLE COURT GAVE LEGAL COGNIZANCE AND R ELEVANCE TO THE EXISTENCE OF REASONABLE CAUSE IN MAKING DISALLOWANC E UNDER THE SECTION. D) THE LEARNED CIT(A) FAILED TO TAKE NOTE OF THE FACT THAT THE REASONS WHICH PROMPTED THE COURT TO HOLD THE PROVIS ION INAPPLICABLE TO AY 2005-06 APPLY WITH EQUAL FORCE TO THE YEAR UN DER APPEAL. SUCH PAYMENT AND WERE ALSO TREATED AS NOT OF THE NATURE OF FEES OF TECHNICAL SERVICES AND NOT OBJECTED TO BY DEPARTME NT FOR SEVERAL YEARS. WHEN THE ISSUE AROSE, THE HONBLE ITAT MUMBA I HELD IT AS NOT THE FEES FOR TECHNICAL SERVICES. IT IS FOR THE TI ME IN 2011 THAT THE ISSUE WAS DECIDED DIFFERENTLY BY THE BOMBAY HIGH CO URT. E) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE IS SUE WAS HIGHLY CONTENTIOUS AND WAS DECIDED BY THE ITAT IN A SSESSEES FAVOUR WHICH CONSTITUTED A REASONABLE CAUSE FOR NOT DEDUCT ING TAX AT SOURCE. EXISTENCE OF SUCH DISPUTE HAS BEEN ACCEPTED BY HONBLE BOMBAY HIGH COURT AS REASONABLE CAUSE JUSTIFYING NO N-DEDUCTION OF TAX AND CONSEQUENT NON-APPLICATION OF SECTION 40(1) (IA). 3 ITA NO. 888/MUM/2014 (A.Y. 2010-11) IDBI CAPITAL MARKET SERVICES LIMITED V. DCIT 2. THE ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDI ARY OF IDBI BANK LIMITED , ENGAGED IN FULLY INTEGRATED FINANCIAL SERVICES PROVIDER VIZ INVESTMENT BANKING , PORTFOLI O & FUND MANAGEMENT , INSTITUTIONAL BROKING & DISTRIBUTION, RETAIL BROKING & DISTRIBUTION AND MUTUAL FUND ADVISORY SER VICES AND DISTRIBUTION ETC . 3. DURING COURSE OF ASSESSMENT PROCEEDING , THE ASSESS ING OFFICER OBSERVED THAT THE ASSESSEE COMPANY HAS CLAI MED AN AMOUNT OF RS 37,77,626/- ON ACCOUNT OF TRANSACTION CHARGES PAID TO STOCK EXCHANGES ON WHICH TDS WAS NOT DEDUCT ED U/S 194J OF THE INCOME TAX ACT,1961(THE ACT). ON BEIN G ASKED BY AO, THE ASSESSEE COMPANY EXPLAINED THAT THERE IS NO REQUIREMENT TO DEDUCT TDS ON TRANSACTION CHARGES PA YABLE TO STOCK EXCHANGE. THE ASSESSEE RELIED UPON THE DECISI ON OF TRIBUNAL IN ITA NO 1955/MUM/08 IN KOTAK SECURITIES LIMITED V. ADDL. CIT WHEREIN SUCH SERVICES WERE HELD TO BE NOT TECHNICAL IN NATURE AND THERE IS NO REQUIREMENT TO DEDUCT TDS . 4. THE ASSESSING OFFICER OBSERVED THAT THE AFORE-STATE D DECISION OF THE TRIBUNAL IS OVER-RULED BY HONBLE B OMBAY HIGH COURT . THE ASSESSING OFFICER RELIED UPON THE DECI SION OF HONBLE BOMBAY HIGH COURT IN KOTAK SECURITIES LIMIT ED IN ITA NO 3111/2009 DATED 21.10.2011 FOR ASSESSMENT YEAR 2 005-06 BY WHICH JUDGMENT HONBLE BOMBAY HIGH COURT HELD TH AT THESE TRANSACTION CHARGES PAYABLE TO STOCK EXCHANGES CONS TITUTE FEES FOR TECHNICAL SERVICES AND ARE COVERED U/S 194J OF THE ACT AND 4 ITA NO. 888/MUM/2014 (A.Y. 2010-11) IDBI CAPITAL MARKET SERVICES LIMITED V. DCIT HENCE TDS IS TO BE DEDUCTED. THEREFORE, THE ASSESSI NG OFFICER RELYING ON THE AFORESAID JUDGMENT OF JURISDICTIONAL HIGH COURT MADE THE ADDITION U/S 40(1)(IA) OF THE ACT OF RS 37 ,77,626/- DISALLOWING THE EXPENSES SO CLAIM ON ACCOUNT OF TRA NSACTION CHARGES PAYABLE TO STOCK EXCHANGES FOR FAILURE OF T HE ASSESSEE TO DEDUCT TDS U/S 194 J OF THE ACT. 5. AGGRIEVED , THE ASSESSEE FILED FIRST APPEAL WITH CI T(A) AND CONTENDED THAT THE ASSESSEE WAS UNDER BONA-FIDE BEL IEF THAT NO TDS IS TO BE DEDUCTED U/S 194 J AS THE TRANSACTION CHARGES PAYABLE BY THE ASSESSEE DOES NOT CONSTITUTE THE FE ES FOR TECHNICAL SERVICES WHICH VIEW HAS BEEN APPROVED BY TRIBUNAL IN KOTAK SECURITIES LIMITED (SUPRA) AND THE SAID DECIS ION OF THE TRIBUNAL IS REVERSED BY HONBLE BOMBAY HIGH COURT I N KOTAK SECURITIES CASE ONLY IN OCTOBER 2011 WHILE THE IMPU GNED YEAR IS ASSESSMENT YEAR 2010-11 WHICH ENDED ON 31-3-2010 WHICH IS A DATE PRIOR TO JUDGMENT OF HONBLE BOMBAY HIGH COURT IN KOTAK SECURITIES CASE(SUPRA) . THUS, ASSESSEE CONTE NDED THAT IT WAS UNDER BONA-FIDE BELIEF TDS WAS NOT DEDUCTIBLE A ND NO DISALLOWANCE BE MADE U/S 40(1)(IA) AS DURING THE FI NANCIAL YEAR VIEW HELD BY TRIBUNAL MUMBAI IN ITA NO 1955/MUM/200 8 WILL HOLD THE FIELD THAT TRANSACTION CHARGES DOES NOT C ONSTITUTE FEES FOR TECHNICAL SERVICES. THE LD. CIT(A) RESPECTFULL Y FOLLOWING JURISDICTIONAL HIGH COURT IN KOTAK SECURITIES(SUPRA ) UPHELD THE DECISION OF THE ASSESSING OFFICER AND CONFIRMED THE ADDITION. 5 ITA NO. 888/MUM/2014 (A.Y. 2010-11) IDBI CAPITAL MARKET SERVICES LIMITED V. DCIT 6. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. THE ASSESSEE REITERATED ITS SUBMISSIONS AND CONTENDED THAT THE ASSESSEE WAS UNDER BONA-FIDE BELIEF THAT NO TDS IS TO BE DEDUCTED U/S 194 J AS THE TRANSACTION CHARGES PAYAB LE BY THE ASSESSEE DOES NOT CONSTITUTE THE FEES FOR TECHNICA L SERVICES WHICH VIEW HAS BEEN APPROVED BY TRIBUNAL IN KOTAK S ECURITIES LIMITED (SUPRA) AND THE SAID DECISION OF THE TRIBUN AL IS OVER- RULED BY HONBLE BOMBAY HIGH COURT IN KOTAK SECURIT IES CASE ONLY IN OCTOBER 2011 WHILE THE IMPUGNED YEAR IS ASS ESSMENT YEAR 2010-11 WHICH ENDED ON 31-3-2010 WHICH IS A DA TE PRIOR TO JUDGMENT OF HONBLE BOMBAY HIGH COURT IN KOTAK S ECURITIES CASE(SUPRA). THUS, ASSESSEE CONTENDED THAT IT WAS U NDER BONA- FIDE BELIEF THAT TDS WAS NOT DEDUCTIBLE ON THESE P AYMENTS AND NO DISALLOWANCE BE MADE AS DURING THE FINANCIAL YEA R VIEW HELD BY TRIBUNAL MUMBAI IN ITA NO 1955/MUM/08 WILL HOLD THE FIELD THAT THE TRANSACTION CHARGES DOES NOT CONSTIT UTE FEES FOR TECHNICAL SERVICES. THE ASSESSEE ALSO CONTENDED TH AT TRIBUNAL HAS GIVEN RELIEF TO THE ASSESSEE IN ITS APPEAL FOR ASSESSMENT YEAR 2008-09 IN ITA NO. 618/MUM/2012 DATED 18 TH FEBRUARY 2015 AND ALSO FOR ASSESSMENT YEAR 2009-10 IN ITA NO . 1404/MUM/2013 DATED 08 TH MAY 2015, AND HENCE THE MATTER IS COVERED IN FAVOUR OF THE ASSESSEE. 7. THE LD DR RELIED ON THE DECISION OF THE AUTHORITIE S BELOW. 6 ITA NO. 888/MUM/2014 (A.Y. 2010-11) IDBI CAPITAL MARKET SERVICES LIMITED V. DCIT 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE MATERIAL ON RECORD. WE OBSERVE THAT IN THE DECI SION BY THE TRIBUNAL IN KOTAK SECURITIES LIMITED V. ADDL. CIT (IN ITA NO 1955/MUM/08), IT HELD THAT SERVICES IN RESPECT OF T RANSACTION CHARGES PAID/ALLOWED BY BROKERS TO A STOCK EXCHANGE DO NOT CONSTITUTE TECHNICAL SERVICES AND, AS SUCH, THERE I S NO REQUIREMENT TO DEDUCT TDS. HOWEVER, THE HONBLE B OMBAY HIGH COURT IN KOTAK SECURITIES LIMITED IN ITA NO. 3111/2009 DATED 21.10.2011 (FOR ASSESSMENT YEAR 2005-06) HEL D THAT THESE TRANSACTION CHARGES PAYABLE TO STOCK EXCHANGE S CONSTITUTE FEES FOR TECHNICAL SERVICES, AND ARE C OVERED U/S 194J OF THE ACT, AND HENCE TDS IS TO BE DEDUCTED. T HE HONBLE BOMBAY HIGH COURT ALSO HELD THAT SINCE LAST DECADE, I.E., 1995 (WHEN SECTION 194J WAS INTRODUCED IN THE ACT) TO 20 05 (TILL THE IMPUGNED ASSESSMENT YEAR), BOTH THE REVENUE AND THE ASSESSEE HAVE ACCEPTED THE POSITION THAT NO TDS IS PAYABLE. THE HONBLE COURT NOTED THAT FOR THE IMMEDIATE SUCCEEDING YEAR, I.E., ASSESSMENT YEAR 2006-07, THE ASSESSEE (KOTAK SECURI TIES) HAD DEPOSITED TDS ON THE TRANSACTION CHARGES, AND ALSO THAT NO PREJUDICE IS CAUSED TO REVENUE FOR NON-DEDUCTION OF TDS AS THE STOCK EXCHANGES MUST HAVE PRESUMABLY INCLUDED THESE CHARGES IN THEIR INCOME. THE HONBLE HIGH COURT DIRECTED TH AT NO DISALLOWANCE BE MADE FOR ASSESSMENT YEAR 2005-06, H AVING NOTED THAT IMMEDIATELY SUCCEEDING YEAR ONWARDS, THE ASSESSEE, I.E., KOTAK SECURITIES LTD. , HAD DULY DISCHARGED THE TAX LIABILITY BY DEDUCTING TDS U/S 194J ON THESE TRANSACTION CHAR GES. 7 ITA NO. 888/MUM/2014 (A.Y. 2010-11) IDBI CAPITAL MARKET SERVICES LIMITED V. DCIT 9. WE FURTHER OBSERVE THAT THE TRIBUNAL FOR ASSESSM ENT YEARS 2008-09 AND 2009-10 HAS GIVEN THE ASSESSEE RELIEF ON THE GROUND THAT THE TRIBUNAL IN KOTAK SECURITIES LTD. (SUPRA) HAS TAKEN A VIEW THAT THESE TRANSACTION CHARGES DO NOT CONSTITUTE FEES FOR TECHNICAL SERVICES AND TDS IS NOT DEDUCT IBLE U/S194J OF THE ACT, WHICH VIEW OF THE TRIBUNAL HAS SINCE BE EN OVER-RULED BY THE HONBLE BOMBAY HIGH COURT IN OCTOBER 2011 AN D, HENCE, FOR THE TWO ASSESSMENT YEARS 2008-09 AND 200 9-10, THE VIEW OF THE TRIBUNAL IN KOTAK SECURITIES LTD. (SUPR A) WILL HOLD THE FIELD. A DECISION BY A COURT OF LAW RELATES BAC K TO THE YEAR OF ASSESSMENT, IF NOT TO THE YEAR FROM WHICH THE PROVI SION(S) BEING INTERPRETED STANDS BROUGHT ON THE STATUTE. THE DECI SION BY HONBLE JURISDICTIONAL HIGH COURT IN KOTAK SECURITIES LTD. (SUPRA) SHALL APPLY TO A.Y. 2005-06 AND THE SUBSEQU ENT YEARS. THE HONBLE HIGH COURT HAS HELD THAT TRANSACTION CH ARGES PAID TO A STOCK EXCHANGE BY ITS BROKERS IS FEES FOR TECH NICAL CHARGES, LIABLE TO TDS U/S. 194J OF THE ACT. THE HONBLE HI GH COURT FURTHER OBSERVING THE MATTER TO BE DISPUTED SINCE L ONG, I.E., BETWEEN THE ASSESSEE AND THE DEPARTMENT, DREW AN EX CEPTION FOR A.Y. 2005-06, FURTHER NOTING THAT THE ASSESSEE IN THAT CASE HAD FROM THE SUCCEEDING YEAR, I.E. A.Y. 2006-07, IT SELF DEPOSITED THE TAX, WHILE INFERRING THAT FOR A.Y. 2005-06 IT W OULD HAVE BEEN PAID BY THE STOCK EXCHANGE ITSELF, SO THAT NO PREJU DICE WOULD STAND CAUSED TO THE REVENUE. THE MATTER THUS HAS BE EN TREATED AS DISPUTED UP TO THAT YEAR. THIS WE UNDERSTAND TO BE THE RATIO OF THE SAID DECISION, BINDING ON US. CONTINUING FUR THER, 8 ITA NO. 888/MUM/2014 (A.Y. 2010-11) IDBI CAPITAL MARKET SERVICES LIMITED V. DCIT THEREFORE, IF THE STOCK EXCHANGE HAS DEPOSITED THE TAX FOR THE CURRENT YEAR, THE PRINCIPLE AS LAID DOWN BY THE HON BLE COURT, I.E., OF THE SAVING FROM THE PROVISION WHERE NO PRE JUDICE IS CAUSED TO THE REVENUE, WOULD HOLD. IN FACT, THE PR OVISION STANDS AMENDED BY FINANCE ACT, 2012 W.E.F. 1 ST APRIL, 2013 BY WAY OF SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT. THE SAID AMENDMENT HAS BEEN HELD AS RETROSPECTIVE BY THE HON BLE DELHI HIGH COURT IN CIT VS. ANSAL LANDMARK TOWNSHIP PVT. LTD. VIDE ITS DECISION IN ITA NO.160 AND 161 OF 2015 DATED 26 /08/2015. THIS THEN COINCIDES WITH OUR UNDERSTANDING OF THE D ECISION BY THE HONBLE JURISDICTIONAL HIGH COURT. WE ACCORDIN GLY HOLD THAT NO TAX ON THE TRANSACTION CHARGES PAID/ALLOWED BY T HE ASSESSEE TO THE STOCK EXCHANGE SHALL REQUIRE BEING DEDUCTED FOR TAX AT SOURCE U/S 194J OF THE ACT WHERE THE ASSESSEE IS AB LE TO SHOW THAT TAX ON THE SAME HAS BEEN PAID BY THE PAYEE, I. E., HAS BEEN OFFERED AS INCOME SUBJECT TO TAX. THE ASSESSEE IS OBLIGED TO BRING THE RELEVANT FACTS ON RECORD SO AS TO SATISFY THE ASSESSING OFFICER WITH REGARD TO THE SATISFACTION OF THE COND ITION, I.E., PAYMENT OF TAX ON THE IMPUGNED SUM, SUBJECT TO WHIC H ONLY RELIEF STANDS ALLOWED TO THE ASSESSEE. WE DECIDE ACCORDINGLY. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. 9 ITA NO. 888/MUM/2014 (A.Y. 2010-11) IDBI CAPITAL MARKET SERVICES LIMITED V. DCIT THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVE OF BOTH SIDES, AT TH E CONCLUSION OF HEARING ON 27/07/2015. SD/- SD/ - ( SANJAY ARORA ) (JOGINDER SINGH) !'# / ACCOUNTANT MEMBER !'# / JUDICIAL MEMBER ( MUMBAI; / ) DATED : 13/10/2015 F{X~{T? P.S/. ).. '$%&'()*)' / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( 0+ ( ) / THE CIT(A) 4. ( 0+ / CIT - CONCERNED 5. 3*4$+)5 , ,5 7 , ( / DR, ITAT, MUMBAI 6. 9: / GUARD FILE '$ ! / BY ORDER, /! (DY./ASSTT. REGISTRAR) , ( / ITAT, MUMBAI