DR. VIVEK G. BHARTU, MUMBAI V. ITO 7(3)(1), MUMBAI

ITA 914/MUM/2012

• Counselvise Citation: 91419914 RSA 2012
• Duration Of Justice: 2 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 06-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 10-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Speculation loss; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 32; 28; 14A; 260A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI , BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 168/MUM/2011 (ASSESSMENT YEAR: 2007-08) M/S MOTILAL OSWAL SECURITIES LTD, 2 ND FLOOR, PALM SPRING CENTRE, NEXT TO DMART, NEW LINK ROAD, MALAD(W), MUMBAI -400 064 .: PAN: AAACD 3654 Q VS DY. COMMISSIONER OF INCOME TAX CC 22, AAYAKAR BAHVAN, M K ROAD, MUMBAI -400 020 (APPELLANT) ! (RESPONDENT) ITA NO. : 1029/MUM/2011 (ASSESSMENT YEAR: 2007-08) ASST. COMMISSIONER OF INCOME TAX CC 22, ROOM NO. 403, AAYAKAR BAHVAN, M K ROAD, MUMBAI -400 020 VS M/S MOTILAL OSWAL SECURITIES LTD, MUMBAI -400 064 .: PAN: AAACD 3654 Q (APPELLANT) ! (RESPONDENT) APPELLANT-ASSESSEE BY : SHRI VIJAY MEHTA RESPONDENT-REVENUE BY : SMT ABHAKALA CHANDA SHRI PAVAN KUMAR BEERLA /DATE OF HEARING : 17-11-2014 / DATE OF PRONOUNCEMENT : 21-01-2015 ORDER PER VIVEK VARMA, JM: CROSS APPEALS HAVE BEEN FILED BY THE ASSESSEE AND THE DEPARTMENT AGAINST THE ORDER OF CIT(A) 39, MUMBAI, DATED 29.11.2010. ITA NO. : 168/MUM/2011 : ASSESSEE APPEAL : 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: BEING AGGRIEVED BY THE ORDER OF THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS) -39, MUMBAI, T HIS APPEAL PETITION IS SUBMITTED ON THE FOLLOWING GROUN DS WHICH IT IS PRAYED MAY BE CONSIDERED INDEPENDENTLY WITHOUT PREJUDICE TO ONE ANOTHER; M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 2 1. DISALLOWANCE OF DEPRECIATION ON BSE CARD RS. 24, 58,957/- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRING IN CONFIRMING DISALLOWANCE OF RS. 24,58,957/- RELATING TO DEPRECIATION OF BSE CARD WITHOUT APPRECIATING THAT IN THE ABSENCE OF MONEYS PAYABLE TO THE APPELLANT WITHIN THE MEANING OF EXPLANATION 4 TO SECTION 43(6 ) ON DEMUTUALIZATION OF STOCK EXCHANGE, THERE IS NO CESSATION OF THE BLOCK OF ASSET PERTAINING TO THE B SE CARD. THE DISALLOWANCE BEING BAD IN LAW THE SAME NEEDS TO BE DELETED. 2. DISALLOWANCE OF RS. 24,149/- BEING FOREIGN EXCHANGE LOSS ON FOREX ON HAND AS ON 31.3.2007 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRING IN CONFIRMING DISALLOWANCE OF FOREIGN EXCHANGE LOSS OF RS. 24,149/- BY TREATING IT AS CONTINGENT IN NATURE BY NOT APPRECIATING THAT THE SAID LOSS IS ACTUALLY INCURRE D AS ON 31.3.2007 ON ACCOUNT OF CHANGE IN THE FOREIGN EXCHANGE RATE ON THE UNUTILIZED FOREIGN CURRENCY FORMING PART OF THE WORKING CAPITAL. THE LOSS BEING A BUSINESS EXPENDITURE U/S 37(1), THE SAME NEEDS TO BE ALLOWED. 2.02 WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT ALLOWING THE SAID LOSS AS BUSIN ESS LOSS U/S 28. 3. DISALLOWANCE OF NON COMPETE FEES OF RS.6,53,57,094/ - 3.01 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN TREATING NON COMPETE FEES OF RS. 6,53,57,094/- AS CAPITAL EXPENDITURE BY NON APPRECIATING THAT IT DID NOT RESULTED INTO ANY ACQUISITION OF CAPITAL ASSET AND THE ADVANTAGE OBTAINED BY THE APPELLANT COMPANY IS IN THE COMMERCIAL / REVENUE FIELD. THUS THE DISALLOWANCE BEING BAD-IN-LAW NEEDS TO BE DELETED. 3.02 WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS A ND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT ALLOWING THE SAID EXPENSE OVER THE PERIOD OF ONE YEAR OF THE RESTRICTIVE COVENANT. 4. DISALLOWANCE OF DEPRECIATION OF RS. 1,70,88,082 ON CUSTOMER RIGHTS. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF DEPRECIATION OF RS. 1,70,88,082/- O N CUSTOMER RIGHTS WITHOUT APPRECIATING THAT IT COME S WITHIN THE PURVIEW OF BUSINESS OR COMMERCIAL RIGHT S OF SIMILAR NATURE THEREBY MAKING IT ELIGIBLE FOR DEPRECIATION U/S 32. THE DISALLOWANCE BEING BAD-IN- LAW NEEDS TO BE DELETED. 5. THE APPELLANT COMPANY CRAVES LEAVE TO ADD, TO AMEND, ALTER/DELETE AND/OR MODIFY THE ABOVE GROUNDS OF APPEAL ON OR BEFORE THE FINAL HEARING. M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 3 3. GROUND NO. 1 PERTAINS TO DISALLOWANCE OF DEPRECIATION OF RS. 24,58,957/- ON BSE CARD. 4. THE FACTS ARE THAT THE ASSESSEE IS A STOCK BROKER HAVING MEMBERSHIP WITH BOMBAY STOCK EXCHANGE (BSE) AND NATIONAL STOCK EXCHANGE (NSE). 5. IN THE ACCOUNTS, AS FILED BY THE ASSESSEE ALONG WITH R OI, THE ASSESSEE CLAIMED DEPRECIATION OF RS. 24,58,957/- ON BSE CARD, WHICH WAS DISALLOWED BY THE AO. BEFORE THE CIT(A), TH E ASSESSEE PLACED RELIANCE ON VARIOUS DECISIONS OF COORDINA TE BENCHES. 6. THE ASSESSEE AMONGST OTHER DECISIONS PLACED RELIANCE ON KOTAK SECURITIES LTD. VS ACIT, REPORTED IN 25 SOT 440 (M UM) AND ALSO ON THE CASE OF RM VALLIAPPAN VS ACIT, REPORTED IN 104 TTJ 756 (MAD-SB), WHEREIN IT WAS HELD THAT TRANSFER OF MEMBERSHIP OF STOCK EXCHANGE CARD IS TRANSFER OF CAPITAL A SSET, LIABLE TO CAPITAL GAINS. 7. THE ISSUE IN QUESTION HAS CHANGED, THAT BSE WAS CORPORATIZED IN FINANCIAL YEAR 2005-06, WHEREIN ITS MEMBERS WERE ALLOTTED 10000 BSE SHARES OF FACE VALUE OF RE L/-, WH ICH MEANS THAT NOW THE ASSESSEE WAS HOLDING SHARES, ACQUIR ED AS A RESULT OF DEMUTUALIZATION. 8. THE AR, AT THE TIME OF HEARING FAIRLY SUBMITTED THAT TH E ISSUE OF DEMUTUALIZATION HAS BEEN HELD AGAINST THE ASSESSEE, TAKING IN VIEW THE DECISION OF SINO SECURITIES (P) LTD. VS ITO, REPORTED IN 134 ITD 321 (MUM). 9. KEEPING IN VIEW THAT NOW IT IS A CASE OF DEMUTUALIZATION , AS RESULT OF CORPORATIZATION OF BSE, THE ISSUE IS COVERED FR OM BOTH THE ANGLES AGAINST THE ASSESSEE, WE, THEREFORE, RES PECTFULLY M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 4 FOLLOWING THE DECISION, SUSTAIN THE ORDERS OF THE REVENUE AUTHORITIES. 10. GROUND NO. 1 IS THEREFORE, REJECTED. 11. GROUND NO. 2 PERTAINS TO DISALLOWANCE OF RS. 24,149/-, BEING THE FOREIGN EXCHANGE LOSS ON FOREX. 12. AT THE TIME OF HEARING, THE AR SUBMITTED THAT THE IS SUE IS COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR INDIA PVT LTD REPORTED IN 31 2 ITR 254. THE DR ACCEPTED THE FACT, BUT NONE THE LESS SUPPOR TED THE ORDERS OF THE REVENUE AUTHORITIES. 13. AFTER HEARING BOTH THE SIDES, AND CONSIDERING THE ACC EPTED FACT THAT THE HONBLE SUPREME COURT HAS DECIDED THE ISS UE IN FAVOUR OF THE ASSESSEE, WE, THEREFORE, FOLLOWING THE RATIO LAID DOWN BY THE SUPREME COURT, SET ASIDE THE ORDER OF THE CIT(A) ON THE ISSUE AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 24,149 /-. 14. GROUND NO. 2 IS THUS ALLOWED. 15. GROUND NO. 3 PERTAINS TO DISALLOWANCE OF NON COMPETE FEE OF RS. 6,53,57,094/- AND GROUND NO. 4 PERTAINS TO DISALLOWANC E OF RS. 1,70,88,082/- ON CUSTOMER RIGHTS. 16. THE FACTS ARE THAT DURING THE YEAR, THE ASSESSEE A CQUIRED CUSTOMER RIGHTS/ASSETS FROM M/S PENINSULAR CAPITAL MARKETS LTD (PCML) CAPITAL DEAL STOCK & SHARES BROKERS (CDSSB) AND MANI STOCK BROKERS LTD. (MSBL). IN ITS ACCOUNTS, THE ASSESSEE PAID CONSIDERATION TO THE ABOVE CONCERNS, IN THE FORM OF (I) CUSTOMERS RIGHTS; (II) FIXED ASSETS; M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 5 (III) GOODWILL AND (IV) NON-COMPETE FEE. OUT OF THESE, THE ASSESSEE TREATED THE FIRST THREE ITEM S AS CAPITAL EXPENDITURE, AND TREATED THE PAYMENT OF NON-COMPETE FEE AS REVENUE EXPENDITURE. 17. WHEN THE EXPLANATION WAS CALLED FOR, THE ASSESSEE SUBMITTED BEFORE THE REVENUE AUTHORITIES THAT SINCE NON COMPETE FEE WAS ONLY FOR ONE YEAR AND THERE WOULD NOT BE ANY E NDURING BENEFIT ATTACHED TO IT, THE EXPENSE IS REVENUE IN NATURE AND THAT THE NON COMPETE FEE WAS ONLY FOR THE PURPOSE OF FACILITATIN G THE BUSINESS OPERATIONS. 18. THE REVENUE AUTHORITIES DENIED THE CLAIM OF THE ASS ESSEE AND HELD THE PAYMENT TO BE IN CAPITAL FIELD. ON THE OTHER HAND, THE AO TREATED THE PAYMENT OF RS. 1,70,88,082/- AS SHAM AND THEREFORE, DISALLOWED THE DEPRECIATION AS CLAIMED. 19. THE ASSESSEE IS NOW BEFORE THE ITAT ON THE TWO ISSUES. 20. BEFORE US, THE AR SUBMITTED THAT IN SO FAR AS NON CO MPETE FEE IS CONCERNED SINCE THE ASSESSEE HAD ACQUIRED BUSINES S AND CUSTOMER RIGHTS, JUST FOR ONE YEAR AND THAT TOO FOR FACILIT ATING THE BUSINESS OPERATION, THE EXPENDITURE HAS TO BE TREATED A S REVENUE IN NATURE. THE AR SUBMITTED THAT SIMILAR ISSUE AROSE BEFORE THE COORDINATE BENCH OF THE ITAT IN THE CASE OF HIDELBERG CE MENT INDIA LTD. VS ADD. CIT, REPORTED IN 31 DTR 582, THE MUMB AI ITAT CONSIDERING THE PERIOD TO BE ONE YEAR, ALLOWED THE S AME TO BE REVENUE. THE AR ALSO RELIED ON THE DECISION OF CIT VS E VEREST ADVERTISING IN ITA NO. 6539 OF 2010, THE HONBLE BOMBAY HIG H COURT CONSIDERING THE NON-COMPETE FEE FOR THREE YEARS A LLOWED THE EXPENSE TO BE REVENUE IN NATURE. 21. THE DR PLACED RELIANCE ON THE DECISIONS OF THE REVEN UE AUTHORITIES. M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 6 22. WE HAVE HEARD THE ARGUMENTS AND HAVE PURSUED TH E CASES CITED BEFORE US. AN EXPENSE MAY BE CAPITAL IN NATURE OR R EVENUE IN NATURE, BUT, TO ASCERTAIN THE NATURE, THERE IS NO FIXED CRITERIA. BUT THE JUDICIAL FORA HAS TAKEN ONE MANNER TO ASCERTAIN THE DISTINCTION. IF THE EXPENSE IS FOR SHORT TERM BENEFIT, IT COUL D BE ALLOWED AS A REVENUE EXPENDITURE THAT IS THE VIEW WHICH H AS BEEN TAKEN BY THE HONBLE BOMBAY HIGH COURT IN THE CAS E OF CIT VS EVEREST ADVERTISING ( SUPRA ) AND ALSO BY THE MUMBAI ITAT IN THE CASE OF HIDELBERG CEMENT INDIA LTD. ( SUPRA ) OR AN EXPENSE IS MADE TO ACQUIRE AN ASSET GIVING ENDURING BENEFIT TO THE ASSESSEE, IN WHICH CASE, IT WOULD BE CAPITAL IN NATURE. 23. FOLLOWING THE RATIOS LAID DOWN, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE DESERVES THE ALLOWANCE OF RS. 6,53,57,094/-. 24. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON TH IS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 6,53,57,094/-. 25. GROUND NO. 3 IS THEREFORE, ALLOWED. 26. REVERTING TO GROUND NO. 4, THE FACT THAT THE ASSESS EE ACQUIRED CUSTOMERS RIGHTS WHEN IT ACQUIRED THE BUSINESS, THE ASSESSEE CLAIMED THE EXPENDITURE TO BE CAPITAL IN NATURE AND CLAIMED DEPRECIATION. THE REVENUE AUTHORITIES DENIED THE CLA IM OF DEPRECIATION HOLDING THE TRANSACTION OF ACQUIRING CUSTOME RS RIGHTS TO BE SHAM. 27. BEFORE US, THE AR PLACED RELIANCE ON THE DECISION OF I) HIDELBERG CEMENT INDIA LTD. VS ADDL. CIT -31 D TR 582(MUM) IN THIS CASE NON-COMPETE FEES WAS PAID F OR A PERIOD OF 1 YEAR AND THE SAME WAS ALLOWED AS REVENU E EXPENDITURE. II) CIT V EVEREST ADVERTISING (BOMBAY HIGH COURT) IN THIS CASE NON-COMPETE FEES WAS PAID FOR A PERIOD OF 3 M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 7 YEARS AND THE SAME WAS ALLOWED AS REVENUE EXPENDITURE. SR. NO. CASE LAW CITATION I INDIA CAPITAL MARKETS P LTD. V DCIT 56 SOT 32(MUM) II SKS MICRO FINANCE LTD V DCIT 145 ITD 111(HYD) III DCIT V WEIZMAN FOREX LTD 51 SOT 525 (MUM) IV JYOTI (INDIA) METAL INDUSTRIES P LTD VS ASST. CIT ITA NO.181/M/2008 AND IN THE CASE OF INDIA CAPITAL MARKETS (P) LTD. ( SUPRA ), IT HAS BEEN HELD, A PERUSAL OF THE PROVISION OF SECTION 32(1)(II) SU GGESTS THAT CERTAIN INTANGIBLE ASSETS ON WHICH DEPRECIATIO N COULD BE CLAIMED ARE: KNOW-HOW, PATENTS, COPYRIGHTS , TRADEMARKS, LICENSES, FRANCHISE OR ANY OTHER BUSINE SS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. THIS EXPRESSIO N 'ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATU RE' BY ITSELF WOULD MEAN TO INCLUDE ALL KINDS OF COMMERCIA L RIGHTS. THE LANGUAGE IN SECTION 32(1)(II) CLEARLY INVITES T HE APPLICATION OF THE RULE OF EJUSDEM GENERIS WHICH ME ANS THAT WORDS OF A GENERAL NATURE FOLLOWING SPECIFIC AND PARTICULAR WORDS SHOULD BE CONSTRUED AS LIMITED TO THINGS WHICH ARE OF SAME NATURE AS THOSE SPECIFIED. THE SPECIFIC WORDS IN SECTION 32 REVEAL THE SIMILAR ITY IN THE SENSE THAT ALL THE INTANGIBLE ASSETS SPECIFIED ARE TOOLS OF THE TRADE WHICH FACILITATES THE ASSESSEE T O CARRY ON THE BUSINESS. THEREFORE, THE EXPRESSION ANY OTH ER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE WO ULD INCLUDE SUCH RIGHTS WHICH CAN BE USED AS A TOOL TO CARRY ON THE BUSINESS. [PARA 13] IT CANNOT BE DENIED THAT BY GETTING A RIGHT OVER 37 09 CLIENTS OF COMPANY AFC, SUCH RIGHT IS USED AS A T OOL TO CARRY ON THE BUSINESS BY THE ASSESSEE. MERELY BECAU SE THE ASSESSEE SHOWED THE PAYMENT TO BE ON ACCOUNT OF GOODWILL IN THE BOOKS OF ACCOUNT, NO ADVERSE INFERE NCE COULD HE DRAWN AGAINST IT. [PARA 14] GOODWILL IN STOCK MARKET EVEN ASSUMING THAT THE PAYMENT HAS BEEN MADE FOR TH E PURCHASE OF GOODWILL OF COMPANY 'AFC, IT HAS TO BE ACCEPTED THAT IN THIS LINE OF BUSINESS THE GOODWILL OF THE BROKER IS PARAMOUNT. BECAUSE OF CERTAIN STRAY IN INCIDENCES WHICH HAVE TAKEN PLACE IN THE STOCK MARK ET WHICH HAVE SHAKEN THE CONFIDENCE OF THE PUBLIC AT L ARGE IN THE PAST, THE INVESTORS ALWAYS DEPEND UPON THE G OOD WILL OF THE BROKER BECAUSE NO INVESTOR WOULD LIKE T O BURN HIS FINGERS BY THE UNSCRUPULOUS ACTIVITIES UNDERTAK EN BY CERTAIN FRAUDULENT BROKER. THE COMPANY AFC HAD A STRONG CLIENTELE BASE OF 3709 PERSONS WHICH ITSELF SHOW THAT AFC WAS HOLDING A STRONG REPUTE IN THE EYES OF ITS CLIENTS. UNDOUBTEDLY BY PURCHASE OF RIGHTS TO DO TH E BUSINESS WITH THESE 3709 CLIENTS THE ASSESSEE HAS ACTUALLY PURCHASED THE GOODWILL OF AFC [PARA 15] COMMERCIAL RIGHTS GAIN SIGNIFICANCE IN THE COMMERCI AL WORLD AS THEY REPRESENT A PARTICULAR BENEFIT OR M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 8 ADVANTAGE OR REPUTATION BUILT OVER A CERTAIN SPAN O F TIME AND THE CUSTOMER ASSOCIATE WITH SUCH ASSETS. [PAM 1 7] IT IS NOT IN DOUBT OR DISPUTE THAT PURCHASE OF THE CLIENTELE BUSINESS BY THE ASSESSEE FROM AFC IS A RIGHT WHIC H CAN BE USED AS A TOOL TO CARRY ON THE BUSINESS. IT CAN ALSO BE SEEN FROM THE ANGLE OF PURCHASE OF ENTIRE MARKETING NETWORK BY THE ASSESSEE IN AFC EVEN IF CONSIDERED FROM THIS ANGLE THE ASSESSEE IS ELIGIBLE FOR DEPREC IATION ON PAYMENT OF RS. 2.5 CRORES [PARA 20]. 28. THE AR, THEREFORE, PLEADED THAT BEING GENUINE EXPEN DITURE INCURRED FOR THE PURPOSES OF ACQUIRING BUSINESS, THE DEPRE CIATION HAS TO BE ALLOWED TO THE ASSESSEE. 29. THE DR SUBMITTED THAT THE ASSESSEE HAD NOT GIVEN CLASSIFICATION ON THE EXPENDITURE. 30. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED TH E ORDERS & THE CASE LAWS CITED BEFORE US. THE FACT THAT THE ASSESSEE ACQUIRED BUSINESS OF PENINSULA IS NOT DISPUTED, THEREFORE, TH E EXPENDITURE OF ACQUISITIONS OF CUSTOMERS RIGHTS ALSO HAVE T O BE TREATED AS GENUINE. THE BALD ASSERTIONS OF THE REVENUE AUTHORITIES CANNOT SUBSTANTIATE THE DISALLOWANCE. 31. ONCE IT IS SEEN THAT THE EXPENDITURE HAS BEEN INCUR RED FOR ACQUIRING THE BUSINESS, WE CANNOT HOLD THAT ACQUISITION OF CUSTOMER RIGHTS ARE BOGUS. WE, THEREFORE, HOLD THAT THE EXPENDITURE AS SUCH WAS GENUINE. 32. ONCE THE EXPENSE HAS BEEN ACCEPTED BY US TO BE GENUINE, IT WOULD FALL WITHIN THE INCLUSIONS OF SECTION 32(1)(II). ALSO, RESPECTFULLY FOLLOWING THE DECISIONS AS CITED, WE SET ASIDE TH E ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO A LLOW THE DEPRECIATION AS PER LAW. 33. GROUND NO. 4 IS THEREFORE, ALLOWED. 34. IN THE RESULT, THE APPEAL IS TREATED AS PARTLY ALLOWED. M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 9 ITA NO. : 1029/MUM/2011 : DEPARTMENT APPEAL : 35. THE FOLLOWING GROUNDS HAVE BEEN TAKEN BY HE DEPARTMENT: 1. LD. CIT(A) ERRED IN DELETING THE ADDITIONS AMOU NTING TO RS. 78,91,360/- RELYING ON THE DECISION OF THE H ON'BLE ITAT SPL. BENCH IN THE CASE OF SHREYAS S MORAKHIA IGNORING THE FACT THAT THE SAME IS NOT ACCEPTED BY THE DEPARTMENT AND APPEAL U/S 260A HAS BEEN FILED BEFOR E THE HON'BLE BOMBAY HIGH COURT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE VS AT IS A PART OF COMPUTER AND HENCE ELIGIBLE FOR DEPRECIATIO N @ 60% WITHOUT APPRECIATING THE FACT THAT VSAT IS ESSENTIALLY A PART OF WIRELESS COMMUNICATION SYSTEM THROUGH SATELLITE WHICH IS EXCLUSIVE FROM THE COMPU TER SYSTEMS AND ELIGIBLE FOR DEPRECIATION @ 25%. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITI ON AMOUNTING TO RS. 1,95,84,164/- WITHOUT APPRECIATING THE FACT THAT THE AO HAS RIGHTLY TREATED THE VANDA LOSS AS SPECULATIVE LOSS AS PER SECTION 73 OF THE ACT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE A O TO DISALLOW THE EXPENSES U/S 14A AS PER THE DIRECTIONS OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S. GODREJ & BOYCE MFG. CO. LTD. VS. DCIT WHICH IS NOT ACCEPTED BY THE DEPARTMENT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE DEPRECIATION ON THE NON- COMPETE FEES EVEN THOUGH T HE ASSESSEE HAS NOT ACQUIRED ANY ASSET WHICH CAN BE DEPRECIATED WITH TIME. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE DEPRECIATION ON GOODWILL AMOUNTING TO RS. 13,12,500 /- EVEN THOUGH THE ASSESSEE IS NOT ELIGIBLE FOR THE SA ME AS PER SECTION 32 OF THE ACT. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE AM OUNT OF RS. 33,50,000/- CLAIMED AS BUSINESS EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THE AO RIGHTLY H ELD THE SAME AS CAPITAL EXPENSES AS THE MEMBERSHIP FEES CANNOT BE SAID TO BE USED EXCLUSIVELY FOR THE PURPO SES OF BUSINESS 8. THE APPELLANT CRAVES TO LEAVE TO ADD, TO AMEND A ND/OR ALTER ANY OF THE GROUNDS OF APPEAL, IF NEED BE. 9. THE APPELLANT, THEREFORE, PRAYS THAT ON THE GROU NDS STATED ABOVE, THE ORDER OF CIT(A)-39, MUMBAI MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 36. GROUND NO. 1 PERTAINS TO DELETION OF RS. 78,91,360/- ON ACCOUNT OF BAD DEBTS. M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 10 37. IN THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED BAD DEBTS TO THE EXTENT OF RS. 78,9 1,360/-. THE AO CALLED FOR AN EXPLANATION ON THIS ISSUE. THE ASSESSEE VIDE LETTER DATED 26.06.2009 SUBMITTED THAT AS A BROKER, THE ASSESSEE HAS TO RECORD THE TRANSACTION AND LATER ON THE AMOUN T IS REALIZED, T + 2 BASIS. BUT AT TIMES, THE CLIENT IS UNABLE TO SQUARE UP THE TRANSACTION AND ON THE OTHER SIDE, THE BROKER, I.E. THE ASSESSEE HEREIN, HAS TO MAKE THE PAYMENTS TO THE STOC K EXCHANGE ON THE SPECIFIED DATE. THIS AMOUNT IS NORMALLY WR ITTEN OFF AS BAD DEBTS BUT ACTUALLY IT IS BUSINESS LOSS, COMPUTE D AT THE END OF THE YEAR. THE ASSESSEE VIDE LETTER DATED 03.12.200 9, FURTHER SUBMITTED THE DETAILS IN THE FORM OF LEDGER ACCOUNT S AND SUBMITTED THAT THE CASE WAS COVERED BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS BONANZA PORTFOLIO LT D, ITA NO. 269/2009, DATED 27.08.2009 U/S 37(1) AND ALSO CITED TH E CASES (I) ITO V AND H RASTOGI, ITAT MUMBAI B, THIRD MEMBER BENCH (80 TTJ 696) (II) DIF(INTERNATIONAL TAXATION) VS OMAN INTERNATIONAL BANK SAOG 2009-TIOL-1 59-HG- MUM-IT (III) OMAN INTERNATIONAL BANK SAOG 100 ITD 285 (MUM-SB) (IV) CIT VS M/S STAR CHEMICALS (BOMBAY) P LTD (2008 ) 11 DTR 311 (BOM) (V) ANGEL CAPITAL & DEBT MARKET LTD V ACIT (2008) 11 8?TJ 351 (MUM), 12 DTR 433 (VI) ZUARI LEASING & FINANCE LTD VS ITO (2008) 118 TTJ 351 (DEL) TM 721: (2008) 112 ITD 205: (2008) 6 DTR 529 (VII) M/S SATCO SECURITIES 7 FINANCIAL SERVICES LTD VS ITO 2009 TIOL-265- ITAT-MUM (VIII) KANORIA SECURITIES & FINANCIAL SERVICES (P) LTD VS CIT (2007) 108 TTJ (MUMBAI) 473: (2007) 15 SOT 191 (MUMBAI). (IX) ACIT VS SUBHASH CHAND SHOREWALA (2004) 91 TTJ 57 (DELHI) (X) PARKER SECURITIES LTD VS DCIT (2006) 102 TTJ 23 5 (AHD.). 38. THE AO NEGATED THE CLAIM OF THE ASSESSEE AND ALSO MENTIONED IN THE ORDER THAT THE DECISION IN THE CASE OF B ONANZA PORTFOLIO LTD. IS A LATEST DECISION BY THE HONBLE DELHI HIGH C OURT M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 11 AND IT IS NOT KNOWN AS TO WHETHER THE DEPARTMENT HAS ACCEPTED THE SAME. THE AO RELYING ON THE DECISION OF COORDINATE BE NCH OF ITAT, MUMBAI IN THE CASE OF INDIA INFOLINE SECURITIES LTD VS ACIT IN ITA NO. 2584/MUM/2006, WHO AFTER CONSIDERING THE ARGUMENTS OF THE ASSESSEE, DENIED THE CLAIM OF THE ASSESSEE. 39. THE ASSESSEE APPROACHED THE CIT(A), WHO AFTER CONSID ERING THE ARGUMENT THE ASSESSEE OBSERVED, WITHOUT PREJUDICE TO THE ABOVE ARGUMENTS, THE APPELLANT SUBMITTED THAT THE BROKERAGE EARNED DURIN G LAST 3 YEARS IN RESPECT OF THE SAID PARTIES AGGREGA TED TO RS 1,43,10,195/-. DETAILS OF THE SAME WERE ALREADY SUBMITTED TO THE AO AND THE SAME IS SUBMITTED TO ME AT PAGES 87 TO 88 OF THE PAPER BOOK. THUS THE APPELLAN T STATES THAT THE BAD-DEBTS OF RS 78,91,360/- WRITTEN OFF PERTAINED TO THE BROKERAGE INCOME ALREADY CREDITED TO THE PROFIT AND LOSS A/C IN THE RELEVANT YEARS AND ACCORDINGLY THE WRITE OFF OF THE BAD-DEBTS MUST BE ALLOWED U/S 36(1)(VII) AS IT SATISFIES THE CONDITIO NS OF SECTION 36(2)(I). 5.15 HAVE GONE THROUGH THE ISSUE. THE HON'BLE ITAT SPECIAL BENCH'S DECISION IN THE CASE OF SHREYAS MORAKHIA ITA NO. 3374/MUM/2004 FOR A.Y. 1998-99 ORDER DT. 16.7.2010 IS IN FAVOUR OF THE APPELLANT. THE HON'BLE ITAT SPECIAL BENCH HAS ALSO HELD AS FOLLOWS :- '32. KEEPING IN VIEW ALL THE FACTS OF THE CASE AND THE LEGAL POSITION EMANATING FROM THE VARIOUS JUDICIAL PRONOUNCEMENTS AS DISCUSSED ABOVE, WE ARE OF THE VI EW THAT THE AMOUNT RECEIVABLE BY THE ASSESSEE, WHO IS A SHARE BROKER, FROM HIS CLIENTS AGAINST THE TRANSACT IONS OF PURCHASE OF SHARES ON THEIR BEHALF CONSTITUTES DEBT WHICH IS A TRADING DEBT. THE BROKERAGE/ COMMISSION INCOME ARISING FROM SUCH TRANSACTIONS VERY MUCH FOR M PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE/ TRANSACTION HAS BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVA NT PREVIOUS YEAR OR ANY EARLIER YEAR, IT SATISFIES THE CONDITION STIPULATED IN SECTION 36(2)(I) AND THE AS SESSEE IS ENTITLED TO DEDUCTION U/ S 36(1)(VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OF THE SAID DEBTS FROM H IS BOOKS OF ACCOUNT AS IRRECOVERABLE. WE, THEREFORE, A NSWER THE QUESTION REFERRED TO THIS SPECIAL BENCH IN THE AFFIRMATIVE THAT IS IN FAVOUR OF THE ASSESSEE.' 5.16) RESPECTFULLY FOLLOWING THE HON'BLE SPECIAL BE NCH'S DECISION, I HOLD THAT THE APPELLANT IS ENTITLED FOR DEDUCTION OF RS.78,91,360/- AS BAD DEBTS U/S 36(1)( VII) OF THE I.T. ACT. THE A.O. IS DIRECTED TO DELETE THE ADDITION. M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 12 40. THE CIT(A), THEREFORE, ALLOWED THE GROUND OF APPEAL, AS RAISED BY THE ASSESSEE. 41. AGAINST THIS DECISION OF THE CIT(A), THE DEPARTMENT IN APPEAL BEFORE THE ITAT. 42. AT THE TIME OF HEARING, THE AR SUBMITTED THAT THE ISSU E OF ALLOWANCE OF BAD DEBTS IS SQUARELY COVERED BY THE HONB LE BOMBAY HIGH COURT IN THE CASE OF SHREYAS S MORAKHIA, REP ORTED IN 342 ITR 285 (BOM), ACCEPTING THE SPECIAL BENCH DECISION IN THAT CASE. 43. THE DR ACCEPTED THE FACT THAT ISSUE AS SUCH HAS BE EN ACCEPTED BY THE HONBLE BOMBAY HIGH COURT AND HELD TO BE ALLOWABLE, BUT IN ANY CASE, DEFENDED THE ORDER OF THE AO. 43. WE HAVE HEARD THE ARGUMENTS AND PURSUED THE ORD ERS AND CASE LAWS CITED. AT THE OUTSET, WE ARE SURPRISED BY THE APPROACH OF THE AO IN NOT ACCEPTING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF BONANZA ( SUPRA ) BUT INSTEAD, PLACED RELIANCE ON A DECISION OF THE COORDINATE BENCH OF MUMBAI, MEANING WHEREBY THAT THE AO DID NOT ACCEPT THE DECISION OF A HIGHER JUDICIAL AUTHORITY. BE IT AS MAY, THE ISSUE HAS NOW B EEN DECIDED BY HONBLE BOMBAY HIGH COURT AS WELL, ACCEPTING T HE RATIO LAID DOWN BY THE SPECIAL BENCH AT MUMBAI, IN THE CASE OF SHREYAS S MORAKHIA (SUPRA) . IN SUCH A CIRCUMSTANCE, WE SUSTAIN THE ORDER OF THE CIT(A) AND AS A CONSEQUENCE REJECT TH E GROUND AS RAISED BY THE DEPARTMENT. 45. GROUND NO. 1 IS THEREFORE, REJECTED. 46. GROUND NO. 2 PERTAINS TO ALLOWANCE OF DEPRECIATION OR VSAT. M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 13 46. AT THE TIME OF HEARING, THE AR SUBMITTED THAT THE ISS UE IS COVERED BY THE ORDERS OF THE COORDINATE BENCHES AT MU MBAI IN ASSESSEES OWN CASES IN ASSESSMENT YEARS 2001-02, 200 5-06 & 2006-07 (COPIES OF ORDERS ENCLOSED). 47. RESPECTFULLY FOLLOWING THE DECISIONS OF THE ITAT AND IN ABSENCE OF ANY CONTRARY DECISION OR MATERIAL BROUGHT ON RECORD BY THE AO, WE SUSTAIN THE ORDER OF THE CIT(A), CONSEQUENT IALLY, REJECTING THE GROUND TAKEN BY THE DEPARTMENT. 48. GROUND NO. 2 IS THEREFORE REJECTED. 49. GROUND NO. 3 PERTAINS TO ALLOWANCE OF VANDA LOSS BY THE CIT(A). 50. THE AO HAD TREATED THE LOSS AS SPECULATION LOSS U/S 73. 51. BEFORE THE AO, THE ASSESSEE EXPLAINED THE ASSESSEE COMPANY HAS INCURRED NET LOSS ON ACCOUN T OF VANDA TRANSACTIONS OF RS. 1,95,84,164/-. KINDLY REFER T O SUBMISSIONS MADE VIDE LETTER DATED 12/06/2009. PAGES 11 58 TO 1161. DURING THE COURSE OF LAST HEARING YOUR HONOUR HAD ASKED FOR AN EXPLANATION FOR ALLOWABILITY OF VANDA LOSS A S BUSINESS LOSS U/S 28 & NON- APPLICABILITY OF PROVISIONS OF EXPLANATION TO SECTION 73 TO IT IN THIS REGARD, THE ASSESSEE COMPANY SUBMITS AS FOLLOW S: THE TRANSACTIONS OF PURCHASE/ SALE OF SHARES ON OWN A CCOUNT IS ALWAYS DEMARCATED FROM THOSE WHICH TAKE PLACE THROUG H VANDA ACCOUNT. THIS IS EXPLAINED AS FOLLOWS: A. IN RESPECT OF THE TRANSACTIONS OF PURCHASE/SELL UNDER TAKEN AS A TRADER OR INVESTOR ON OWN ACCOUNT, THE ASSESSEE COMPANY IS CONSIDERED AS A SEPARATE CLIENT ON PAR WITH OTHER CLIENTS. THIS CAN BE SEEN FROM THE FACT THE CONT RACT NOTES ISSUED HAVE A SEPARATE CLIENT IDENTIFICATION NUMBER FOR EACH CLIENT. THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE COMPANY ON ITS OWN AS A TRADER/ INVESTOR AR E CHARACTERIZED BY A UNIQUE SEPARATE IDENTIFICATION NUMBER STATED IN THE CONTRACT NOTES. B. IN CASE OF TRANSACTIONS UNDERTAKES ON VANDA ACCOUNT, THE SAID UNIQUE CLIENT IDENTIFICATION NUMBER OF THE ASSESSEE COMPANY IS NOT STATED IN THE CONTRACT NOTES. THE VAND A TRANSACTIONS ARE EARMARKED BY SEPARATE VANDA ACCOUNT WHICH MAY BE EITHER 'INSTITUTION' OR 'INDIVIDUAL' DEPENDIN G ON THE STATUS OF THE CLIENT. C. TRANSACTIONS ON ACCOUNT OF VANDA ARE UNDERTAKEN OUT OF COMPULSIONS OF MARKET REGULATIONS TO SATISFY THE CONTRACTUAL OBLIGATIONS. IT MUST BE NOTED THAT THE ASSE SSEE COMPANY, BEING A BROKER ENTERS INTO TRANSACTIONS OF PURCHASE/ SALE OF SHARES ON BEHALF OF THE CLIENTS. AS PER M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 14 THE REGULATIONS OF THE STOCK EXCHANGES THESE CONTRACT UAL OBLIGATIONS MUST BE SETTLED ON A T+2 BASIS. SINCE THE BROKER IS PRINCIPALLY LIABLE TO THE STOCK EXCHANGES FOR THE TRANSACTIONS UNDERTAKEN ON BEHALF OF ITS CLIENTS, THERE FORE THESE ARE REQUIRED TO BE SETTLED BY THE BROKER UNTIL TH E 2ND DAY SUBSEQUENT TO THE TRANSACTION DAY I.E. T+2. HOWEV ER, SINCE THE BROKER WAS ACTING ON BEHALF OF THE CLIENTS, THEREFORE EVENTUALLY THE CLIENTS ARE RESPONSIBLE FOR THE TRANSACTIONS UNDERTAKEN BY THE BROKER ON THEIR BEHALF . D. THERE CAN BE INSTANCES THAT THE CLIENTS MAY DISOWN THIS TRANSACTION UNDERTAKEN BY THE BROKER. THIS MAY OCCUR WHEN THERE MAY BE TRADE ERROR IN EXECUTING THE ORDERS BY THE BROKER (OR) THE CLIENT MAY FAIL TO SATISFY ITS CONTRA CTUAL OBLIGATIONS. ALSO, THERE CAN BE INSTANCES THAT THERE MAY BE ERROR ON EXECUTING AN ORDER BY THE BROKER ITSELF DUE TO WHICH THE SAID TRANSACTION WOULD BE DISOWNED BY THE BROKER. E. HOWEVER, SINCE THE BROKER (IE THE ASSESSEE COMPANY ) IS PRIMARILY RESPONSIBLE FOR TRADE UNDERTAKEN ON BEHALF OF ITS CLIENTS IT HAS TO COMPULSORILY SATISFY THOSE OBLIGATIONS. IN FACT, IN THE ABSENCE OF FULFILLING THOSE OBLIGATIONS THE ASSESSEE MAY HAVE BEEN TREATED TO BE IN DEFAULT AND T HUS COULD BE DEBARRED FROM CARRYING ON ITS ACTIVITIES AS A BROKER OF SHARES. THESE OBLIGATIONS WHICH THE BROKER H AS TO COMPULSORILY UNDERTAKE ARE TRANSFERRED TO VANDA ACCOUN T. F. THUS IT CAN BE SEEN THAT VANDA TRANSACTIONS ARE UNDERTAKEN IN THE COURSE OF THE BUSINESS OF EARNING BROKERAGE AND NOT ON ITS OWN ACCOUNT. AFTER THE SAID TRANSACTIONS ARE DISOWNED BY THE CLIENTS, THE BROKER HA S TO PURCHASE THE SHARES FROM THE MARKET IN ORDER TO SATIS FY THE SALE OBLIGATIONS OF THE CLIENT, (OR) IN CASE OF PURCHASE OBLIGATIONS THE BROKER PURCHASES THE SAID SHARES AND SE LLS IN THE OPEN MARKET OR AUCTIONS IT. THIS MAY RESULT INTO GAINS/ LOSS TO THE ASSESSEE COMPANY WHICH IS VANDA GAIN/LOSS. THE BROKERAGE CHARGEABLE TO THESE TRANSACTIO NS IS RECOUPED FROM THE SAID GAIN/LOSS. TAXABILITY OF .GAIN /LOSS ON VANDA ACCOUNT NOW THE QUESTION ARISES WHETHER THESE TRADES ON VANDA ACCOUNT RESULTING INTO GAIN/LOSS IS NORMAL BUSINESS INCOME/LOSS OF ITS IN THE NATURE OF SPECULATIVE BUSINESS VIDE EXPLANATION TO SECTION 73A. A. BEFORE DISCUSSING THE ISSUE IT WOULD BE WORTHWHILE TO REPRODUCE THE EXPLANATION TO S. 73 WHICH READS AS UNDER: 'WHERE ANY PART OF THE BUSINESS OF A COMPANY OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS 'INTEREST O N SECURITIES INCOME FROM HOUSE-PROPERTY, CAPITAL GAINS A ND 'INCOME FROM OTHER SOURCES', OR A COMPANY THE PRINCI PAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR GRATING O F LOANS AND ADVANCES CONSISTS IN THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS O F THE PURCHASE AND SALE OF SUCH SHARES. C. IT IS CLEAR FROM THE ABOVE PROVISION THAT SALE AND PURCHASE OF SHARES OF OTHER COMPANIES, WITHIN THE AMB IT OF THE EXPLANATION, MUST BE CARRIED OUT AS AN ACTIVITY OF BUSINESS OF PURCHASE AND SALE IN HIS OWN ACCOUNT AND NO T FOR EARNING BROKERAGE. TO FIND OUT THAT THE ASSESSEE CARRIED ON PURCHASE AND SALE OF SHARES OF OTHER COMPANIES AS ITS BUSINESS IN A GIVEN CASE, THE FACTS OF THAT CASE WILL HA VE TO BE EXAMINED AND THE TESTS WHICH COULD DETERMINE SUCH A SITUATION ARE: I NATURE OF ASSESSEE'S BUSINESS IN GENERAL; M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 15 II. THE PURPOSE BEHIND THE PARTICULAR TRANSACT ION; III THE EFFECT OF THE TRANSACTION, ETC. NATURE OF ASSESSEE'S BUSINESS IN GENERAL: THE NATURE OF ASSESSEE 'S BUSINESS IN GENERAL IS TO EARN INCOME AS A B ROKER OF STOCK EXCHANGE. PURPOSE BEHIND THE PARTICULAR TRANSACTION: A. THE INTENTION OF ASSESSEE BEHIND THE PURCHASE/ SALE OF SHARES ON VANDA ACCOUNT WAS NOT TO INDULGE IN THE BUSINESS AC TIVITIES OF PURCHASE AND SALE OF SHARES TO MAKE PROFIT OUT OF IT AT ITS OWN. THE PURPOSE BEHIND THE SAID TRANSACTIONS WAS TO E ARN BROKERAGE INCOME THEREFROM. B. IT WAS ONLY AN EVENTUALITY THAT SOME OF THE CLIENTS DISOWNED ONLY PART OF THE TRANSACTIONS WHICH UNDER COMPULSION WE RE TO BE TAKEN BY ASSESSEE AT ITS OWN. EFFECT OF THE TRANSACTION: A. COPY OF THE VANDA ACCOUNT FOR 'INDIVIDUALS' &FOR 'I NSTITUTIONS' IS ALREADY SUBMITTED. ALSO SAMPLE COPY OF THE SAUDA BOO K AND CONTRACT NOTES WAS SUBMITTED DURING THE COURSE OF HE ARING. B. THE ABOVE DETAILS PROVE THAT THESE TRANSACTIONS WER E NOT INTENDED TO BE ON OWN ACCOUNT OF THE ASSESSEE COMPAN Y. EXPLANATION TO S. 73 IS ATTRACTED ONLY WHEN PART OF THE BUSINESS OF THE ASSESSEE COMPANY CONSISTS OF THE PURCHASE AN D SALE OF SHARES OF OTHER COMPANIES AND IN THAT SITUATION ONLY S UCH DEALINGS IN SHARES IS DEEMED TO BE CARRYING ON A SPECULAT IVE BUSINESS. IT MUST BE NOTICED THAT ANY KIND OF VENTURE WILL NOT FALL WITHIN THE DEFINITION OF 'BUSINESS'. THE VENTURE OR ADVE NTURE WILL HAVE TO BE IN THE NATURE OF TRADE, COMMERCE OR MANU FACTURE. THUS, THERE IS LACK OF INGREDIENT CALLED 'BUSINESS' IN TH E SALE AND PURCHASE DONE BY THE ASSESSEE OF SHARES FOR WHICH NE T LOSS HAS OCCURRED TO ASSESSEE. THUS THE SAID LOSS ARISEN TO ASS ESSEE DOES NOT FALL WITHIN THE AMBIT OF EXPLANATION TO S. 73. THE LO SS OCCURRED TO ASSESSEE WAS IN COURSE OF ITS BUSINESS ACT IVITY OF BROKERAGE. RELIANCE IS PLACED ON THE DECISION IN THE CASE OF ACIT V/S SUBHASH CHAND SHOREWALA (2004) 91 TTJ (DEL) 57. THE H EAD NOTES OF THE SAID DECISION AND THE CONCLUSION IS STATED B ELOW: LOSS---SPECULATIVE LOSS--SHARE BROKING BUSINESS--LOSS ON A CCOUNT OF CLIENT DISOWNING TRANSACTIONS ON ANTICIPATING LOSS---IS BU SINESS LOSS AND NOT SPECULATIVE LOSS. HELD: ADMITTEDLY, THE ASSESSEE, BEING IN THE BUSINESS OF BR OKING WOULD BE FACING SITUATIONS WHEREIN SOME OF THE CLIENTS DO NOT O WN UP THE TRANSACTIONS ON ANTICIPATING LOSSES. IN SUCH SITUATIO NS, THE CONSEQUENTIAL LOSS INCURRED BY THE ASSESSEE TO HONOUR THE COMMITMENTS IS TO BE VIEWED A AN INTEGRAL PART OF CARR YING ON OF ASSESSEE'S BUSINESS AND IS, THEREFORE, NOT LIABLE TO BE JUDGED AS A SPECULATION LOSS -----DY.CIT VS S. C. GUPTA (ITA NO 2897/DEL/1997, DT 271H MAY, 2003) FOLLOWED; CIT VS BHA GWAN DASS RAMESHWAR DAYAL (1984) 42 CTR (DEL) 200(1984) 149 ITR 387 (DEL) RELIED ON. 52. THE AO DISREGARDED THE EXPLANATION OF THE ASSESSEE A ND OBSERVED, THE ASSESSEE'S ARGUMENT IS NOT ACCEPTABLE. THE ASSESSEE HAS TRIED TO IMPART A NEW MEANING TO THE PROVISIONS OF THE STATUTE AND HAS INTERPRETED AND TWISTED THE PROVISIONS TO SUIT ITS OWN PURPOSE. NO WHERE DOES THE SECTION MAKE A DISTINCTION BETWEEN LOSSES INCURRED IN PURCHASE AND SALE IN OWN ACCOUNT OR ANY OTHER TYPE OF TRANSACTION. EXPLANATION TO SECTION 7 3 SPECIFICALLY EXCLUDES CERTAIN TYPES OF COMPANIES FR OM ITS M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 16 AMBIT AND THE ASSESSEE DOES NOT BELONG TO THE CATEG ORY OF SUCH EXCEPTIONS. THIS IS A FACT WHICH THE ASSESS EE HAS ALSO NOT DENIED BUT HAS SOUGHT AN ESCAPE ROUTE THRO UGH A CONVOLUTED INTERPRETATION OF THE EXPLANATION. 6.6 ONCE THE CLIENT HAS DISOWNED THE TRANSACTION, T HE ASSESSEE STEPS INTO THE SHOES OF THE CLIENT AND IT IS IN THE INTEREST OF THE ASSESSEE THAT THE TRANSACTION IS SQ UARED OFF AT THE EARLIEST AND THE LOSSES IF ANY - ARE MIN IMIZED. BUT IN THE INSTANT CASE, THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THIS FACT. IT IS NOTICED THAT THE TRAN SACTIONS HAVE BEEN SETTLED BEYOND REASONABLE TIME, LOSSES HA VE BEEN INCURRED ON ACCOUNT OF COMPULSORY AUCTIONS ET C. WHICH IMPLY THAT THE ASSESSEE WAS WORKING FOR AN OPPORTUNE MOMENT I.E. A SITUATION WHERE THE TRANSAC TION WOULD RESULT IN A PROFIT. THIS IS FURTHER EVIDENCED BY THE FACT THAT THE ASSESSEE HAS EARNED A PROFIT OF RS.55,54,538/- ON SUCH TRANSACTIONS. THEREFORE, IT IS CLEAR THAT THE LOSS IS ONLY AS A RESULT OF BUSINESS OF PURCHASE AND SALE OF SHARES AND HENCE IT IS TO BE T REATED AS SPECULATION BY VIRTUE OF EXPLANATION TO SECTION 73 OF THE I. T. ACT, 1961. 53. THE AO, THEREFORE, DISALLOWED THE CLAIM OF VANDA LOSS OF RS. 1,95,84,164/-. 54. AGAINST THIS ORDER, THE ASSESSEE APPROACHED THE CIT (A), BEFORE WHOM IT REITERATED THE SUBMISSIONS MADE BEFORE THE AO. THE CIT(A), AFTER CONSIDERING THE DETAILED SUBMISSIONS, HELD, I HAVE GONE THROUGH THE ISSUE. THE APPELLANT'S BUS INESS IS TO EARN INCOME AS A BROKER OF STOCK EXCHANGES.. THE APPELLANT HAS INCURRED LOSS DUE TO THE FACT THAT CE RTAIN CLIENTS DID NOT OWN UP THE PURCHASE OF SHARES AND A S A RESULT, THE APPELLANT HAS TO TAKE DELIVERY AND TO S ELL AND LOSS HAS ARISEN FROM SUCH INCIDENTS. THE LOSSES HAV E NOT ARISEN FROM ANY PURCHASE OF SHARES MADE BY THE ASSESSEE FOR ITSELF. IN THE APPELLANT'S CASE, (THER E IS NO DISPUTE ABOUT THE GENUINENESS OF THE LOSSES. THE IS SUE INVOLVED IS WHETHER SUCH LOSS IS A SPECULATION LOSS IN VIEW OF EXPLANATION TO SECTION OR NOT. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, DELETED THE ADDITION AS MADE BY THE AO. 55. AGAINST THIS ORDER OF THE CIT(A), THE DEPARTMENT IS IN APPEAL BEFORE THE ITAT. 56. BEFORE US, THE AR SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION AS SUBMITTED BEFORE THE REVENUE AUTHORITIES. M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 17 57. THE DR PLACED RELIANCE ON THE ORDER OF THE AO. 58. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE PURSUE D THE ORDERS OF THE REVENUE AUTHORITIES. THE FACT THAT THE ASS ESSEE HAS SUFFERED A LOSS IS NOT DISPUTED. BUT THE ISSUE BEFORE US IS , WHAT IS A VANDA LOSS AND WHETHER VANDA LOSS IS A BUSINESS LOSS OR A SPECULATIVE LOSS. 59. VANDA LOSS IS A TERM USED IN SHARE AND/OR COMMUNITY TRADING. IN THE COURSE OF TRADING IN RESPECT OF THE TRANS ACTIONS OF PURCHASE/SELL UNDERTAKEN AS A TRADER OR INVESTOR OR ON OWN ACCOUNT, THE ASSESSEE COMPANY IS CONSIDERED AS A SEPAR ATE CLIENT ON PAR WITH OTHER CLIENTS BY THE STOCK EXCHANGE. T HIS CAN BE SEEN FROM THE FACT THAT THE CONTRACT NOTES ISSUED HAVE A SEPARATE CLIENT IDENTIFICATION NUMBER FOR EACH CLIENT. THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE COMPANY ON IT S OWN AS A TRADER/INVESTOR ARE CHARACTERIZED BY A UNIQUE SEPARA TE IDENTIFICATION NUMBER STATED IN THE CONTRACT NOTES. IN CAS E OF TRANSACTIONS UNDERTAKEN ON VANDA ACCOUNT, THE SAID UNIQ UE CLIENT IDENTIFICATION NUMBER OF THE ASSESSEE COMPANY IS NOT STATED IN THE CONTRACT NOTES. THE VANDA TRANSACTIONS A RE EARMARKED BY SEPARATE VANDA ACCOUNT WHICH MAY BE EIT HER 'INSTITUTION' OR 'INDIVIDUAL' DEPENDING ON THE STATUS OF THE CLIENT. TRANSACTIONS ON ACCOUNT OF VANDA ARE UNDERTAKEN OUT O F COMPULSIONS OF MARKET REGULATIONS TO SATISFY THE CONTRACT UAL OBLIGATIONS. THE ASSESSEE COMPANY, BEING A BROKER, ENTERS INTO TRANSACTIONS OF PURCHASE/ SALE OF SHARES ON BEHALF OF THE CLIENTS. AS PER THE REGULATIONS OF THE STOCK EXCHANGES THESE CO NTRACTUAL OBLIGATIONS MUST BE SETTLED ON A T+2 BASIS. SINCE THE BROK ER IS PRINCIPALLY LIABLE TO THE STOCK EXCHANGES FOR THE TRANSACT IONS UNDERTAKEN ON BEHALF OF ITS CLIENTS, THEREFORE THESE ARE RE QUIRED TO BE SETTLED BY THE BROKER WITHIN THE 2ND DAY OF THE T RANSACTION M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 18 DAY I.E. T+2. HOWEVER, SINCE THE BROKER IS ACTING ON BEHALF OF THE CLIENTS, THEREFORE EVENTUALLY THE CLIENTS ARE RESPONSIBLE FOR THE TRANSACTIONS UNDERTAKEN BY THE BROKER ON THEIR BEHALF. 60. THERE CAN BE INSTANCES THAT THE CLIENTS MAY DISOWN THE TRANSACTION UNDERTAKEN BY THE BROKER. THIS MAY OCCUR WHEN THERE MAY BE TRADE ERROR IN EXECUTING THE ORDERS BY T HE BROKER, OR THE CLIENT MAY FAIL TO SATISFY ITS CONTRACTUAL OBLIGATIONS . THERE MAY BE OTHER INSTANCES THAT THERE MAY BE ERROR ON EX ECUTING AN ORDER BY THE BROKER ITSELF DUE TO WHICH THE SAID TRANSA CTION WOULD BE DISOWNED BY THE CLIENT. 61. HOWEVER, SINCE THE BROKER IS PRIMARILY RESPONSIBLE FOR TRANSACTIONS UNDERTAKEN ON BEHALF OF ITS CLIENTS, IT HAS T O COMPULSORILY SATISFY THOSE OBLIGATIONS. IN THE ABSENCE OF FU LFILLING THE OBLIGATIONS, IT IS THE BROKER WHO MAY BE TREATED TO B E IN DEFAULT AND THUS, COULD BE DEBARRED FROM CARRYING ON ITS ACTIVITIES AS A BROKER OF SHARES. THESE OBLIGATIONS WHICH TH E BROKER HAS TO COMPULSORILY UNDERTAKE ARE TRANSFERRED T O VANDA ACCOUNT. 62. THUS VANDA TRANSACTIONS ARE UNDERTAKEN IN THE COU RSE OF THE BUSINESS OF EARNING BROKERAGE AND NOT ON ITS OWN AC COUNT. AFTER THE SAID TRANSACTIONS ARE DISOWNED BY THE CLIENTS, T HE BROKER HAS TO PURCHASE THE SHARES FROM THE MARKET IN ORDER TO SATISFY THE SALE OBLIGATIONS OF THE CLIENT, OR IN CASE OF PUR CHASE OBLIGATIONS THE BROKER PURCHASES THE SAID SHARES AND S ELLS IN THE OPEN MARKET OR AUCTIONS IT. THIS MAY RESULT INTO GAINS/LOSS TO THE BROKER, WHICH IS TERMED AS VANDA GAIN/LOSS. THE BROKE RAGE CHARGEABLE TO THESE TRANSACTIONS IS RECOUPED FROM THE S AID GAIN/LOSS. 63. TAXABILITY OF GAIN/LOSS ON VANDA TRANSACTIONS. NOW THE QUESTION MAY ARISES WHETHER THE TRANSACTIONS ON VANDA ACCOUNT M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 19 RESULTING INTO GAIN/LOSS, A NORMAL BUSINESS INCOME/LOSS OR IT IS IN THE NATURE OF SPECULATIVE BUSINESS VIDE EXPLANATION TO S ECTION 73A. 64. BEFORE DISCUSSING THE ISSUE IT WOULD BE WORTHWHILE TO REPRODUCE THE EXPLANATION TO S. 73 WHICH READS AS UNDER: WHERE ANY PART OF THE BUSINESS OF A COMPANY OTHER T HAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS 'INTERES T ON SECURITIES INCOME FROM HOUSE-PROPERTY, CAPITAL GA INS AND 'INCOME FROM OTHER SOURCES', OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANK ING OR GRATING OF LOANS AND ADVANCES CONSISTS IN THE PURPO SES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULA TION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSIS TS OF THE PURCHASE AND SALE OF SUCH SHARES. THUS IT IS CLEAR FROM THE ABOVE PROVISION THAT SALE AND P URCHASE OF SHARES OF OTHER COMPANIES, WITHIN THE AMBIT OF THE EXPLANATION, MUST BE CARRIED OUT AS AN ACTIVITY OF BUSINESS OF PURCHASE AND SALE IN HIS OWN ACCOUNT AND NOT FOR EARNING BROKERAGE. TO FIND OUT THAT THE BROKER CARRIED ON PURCH ASE AND SALE OF SHARES OF OTHER COMPANIES AS ITS BUSINESS, WILL HAVE TO BE EXAMINED AND THE TESTS, WHICH COULD DETERMINE SUCH A SITU ATION ARE : I NATURE OF ASSESSEE'S BUSINESS IN GENERAL; II THE PURPOSE BEHIND THE PARTICULAR TRANSACTION; III THE EFFECT OF THE TRANSACTION, ETC. 65. NATURE OF TRADERS BUSINESS IN GENERAL: THE NATURE OF TRADERS BUSINESS IN GENERAL IS TO EARN INCOME AS A BROKER OF ST OCK EXCHANGE. PURPOSE BEHIND THE PARTICULAR TRANSACTION: THE INTENTION OF TRADER BEHIND THE PURCHASE/SALE OF SHARES ON VANDA ACCOUNT WAS NOT TO INDULGE IN THE BUSINESS ACTIVITIES OF P URCHASE AND SALE OF SHARES TO MAKE PROFIT OUT OF IT AT ITS OWN . THE PURPOSE BEHIND THE SAID TRANSACTIONS WAS TO EARN BROKERAGE INCO ME THEREFROM. IT WAS ONLY IN AN EVENTUALITY THAT SOME OF TH E CLIENTS DISOWNED THE TRANSACTIONS WHICH UNDER COMPULSION WERE TO BE M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 20 TAKEN BY BROKER AT ITS OWN. THE MERE FACT THAT THE AS SESSEE HAS TREATED VANDA TRANSACTION DISTINCT FROM ITS REGULAR BROKE RAGE AND BUSINESS TRANSACTION, WE HAVE TO EXAMINE THE TRANSA CTIONS AS RECORDED BY THE ASSESSEE AND COME TO A CONCLUSION THAT HOW VANDA TRANSACTIONS ARE TREATED AND ITS EFFECT IN SO FAR A S THE ASSESSEE IS CONCERNED. 66. WE FIND THAT THE COPY OF VANDA ACCOUNT FOR 'INDIVIDUALS' & FOR 'INSTITUTIONS' IS ALREADY SUBMITTED. THE ASSESSEE HAS ALSO SUBMITTED SAMPLE COPY OF THE SAUDA BOOK AND CONTRACT N OTES DURING THE COURSE OF HEARING. THE DETAILS BRING OUT THE IN FERENCE THAT THESE TRANSACTIONS WERE NOT INTENDED TO BE ON O WN ACCOUNT OF THE ASSESSEE COMPANY. EXPLANATION TO S. 73 IS ATTRACTED ONLY WHEN PART OF THE BUSINESS OF THE ASSESSEE COMPANY CONSISTS OF THE PURCHASE AND S ALE OF SHARES OF OTHER COMPANIES AND IN THAT SITUATION ONLY SUC H DEALINGS IN SHARES IS DEEMED TO BE CARRYING ON A SPECULAT IVE BUSINESS. IT MUST BE NOTICED THAT ANY KIND OF VENTURE WILL NOT FALL WITHIN THE DEFINITION OF 'BUSINESS'. THE VENTURE OR ADVENTUR E WILL HAVE TO BE IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE. 67. THUS, THERE IS LACK OF INGREDIENT CALLED 'BUSINESS' IN TH E SALE AND PURCHASE DONE BY THE ASSESSEE OF SHARES FOR W HICH NET LOSS HAS OCCURRED TO ASSESSEE. THUS THE SAID LOSS ARISEN TO ASSESSEE DOES NOT FALL WITHIN THE AMBIT OF EXPLANATION TO S. 73. THE LOSS OCCURRED TO ASSESSEE WAS IN COURSE OF ITS BUSIN ESS ACTIVITY OF BROKERAGE. 68. RELIANCE IS PLACED ON THE DECISION IN THE CASE OF ACIT V/S SUBHASH CHAND SHOREWALA (2004) 91 TTJ (DEL) 57. THE CONCLUSION IS STATED BELOW: ADMITTEDLY, THE ASSESSEE, BEING IN THE BUSINESS OF BROKING WOULD BE FACING SITUATIONS WHEREIN SOME OF THE CLIE NTS DO NOT OWN UP THE TRANSACTIONS ON ANTICIPATING LOSSES. IN SUCH M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 21 SITUATIONS, THE CONSEQUENTIAL LOSS INCURRED BY THE ASSESSEE TO HONOUR THE COMMITMENTS IS TO BE VIEWED AN INTEGRAL PART OF CARRYING ON OF ASSESSEE'S BUSINESS AND IS, THEREFOR E, NOT LIABLE TO BE JUDGED AS A SPECULATION LOSS. 69. THE VIEW HAS BEEN TAKEN DY. CIT VS S. C. GUPTA (ITA NO 2897/DEL/1997, DT 271H MAY, 2003) FOLLOWED; CIT VS BHAGWAN DASS RAMESHWAR DAYAL 42 CTR 200 (DEL) 149 ITR 387 (DEL) AND RELIED ON BY THE ASSESSEE. 70. THE ISSUE ALSO CAME UP BEFORE THE AHMEDABAD BENCH OF ITAT, IN THE CASE OF PARKER SECURITIES LTD VS DCIT, REPO RTED IN 102 TTJ 235 AND IN ITO VS RIJVI SECURITIES (P) LTD. REPOR TED IN 50 SOT 592, WHEREIN THE COORDINATE BENCH AT AHMEDABAD HELD IT TO BE BUSINESS LOSS AND NOT A SPECULATION LOSS. 71. SINCE THERE IS NO CONTRARY DECISION ON THE ISSUE, WE, THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, SUSTAIN THE ORDER OF THE CIT(A) AND REJECT THE GROUND AS RAISED BY THE DEPARTMENT. 72. GROUND NO. 3 IS THEREFORE, REJECTED. 73. GROUND NO. 4 PERTAIN TO DISALLOWANCE MADE U/S 14A OF RS. 83,61,231/- BY THE AO AND THE CIT(A) HELD, THE HONBLE BOMBAY HIGH COURT HAS HELD THAT RULE 8 D IS NOT APPLICABLE FOR THIS ASSESSMENT YEAR. AT THE SAME TIME, THE HONBLE BOMBAY HIGH COURT HAS HELD THAT REASONABLE DISALLOWANCE SHOULD BE MADE U/S 14A OF T HE ACT. IN THIS CASE, THE BORROWED FUNDS, SURPLUS, MAR GIN MONEY RECEIVED FROM THE CLIENTS ARE MIXED-UP. IN VI EW OF THIS, IT CANNOT BE SAID THAT NO BORROWED FUNDS WERE USED FOR ACQUIRING TAX FREE INVESTMENTS. SIMILARLY, CERT AIN ADMINISTRATIVE EXPENSES HAD BEEN MET FOR EARNING TA X FREE INCOME. IN THESE CIRCUMSTANCES, I DIRECT THE A .O. TO MAKE DISALLOWANCE U/S 14A KEEPING IN VIEW OF THE GUIDELINES ISSUED BY THE HONBLE BOMBAY HIGH COURT WHICH ARE EXTRACTED ABOVE AND ALSO THE SUBMISSIONS MADE BY THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS AND THE APPELLATE PROCEEDINGS. 74. SINCE THE ISSUE HAS BEEN RESTORED TO THE AO OR COM PUTING THE DISALLOWANCE KEEPING IN VIEW THE GUIDELINES ISSUED BY THE M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 22 HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE E MFG. CO LTD VS DCIT, WAS ALSO RESTORE THE ISSUE TO THE AO T O COMPUTE THE DISALLOWANCE AS PER THE PROVISIONS OF SECTION 14A(2). 75. GROUND NO. 4 IS THEREFORE ALLOWED FOR STATISTICAL PURPOSES. 76. GROUND NO. 5 IS CLAIM OF DEPRECIATION ON NON COMPETE FEE. 77. IN THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 168/MUM/2011, WE HAVE HELD THE NON COMPETE FEE TO BE REVENUE IN NATURE. IN SUCH A CIRCUMSTANCES, THE ISSUE BE COMES INFRUCTUOUS HERE. AS A RESULT, WE REJECT THE GROUND AS R AISED BY THE DEPARTMENT. 78. GROUND NO. 5 IS THEREFORE, REJECTED. 79. GROUND NO. 6 PERTAINS TO ALLOWANCE OF DEPRECIATION ON GOODWILL. 80. THE AR SUBMITTED THAT THE ISSUE IS COVERED BY THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS SMIFFS SECURITIES LTD., REPORTED IN 348 ITR 302. 81. THE DR ACCEPTED THAT THE ISSUE IS COVERED BY THE D ECISION OF HONBLE SUPREME COURT. 82. SINCE THE ISSUE IS COVERED, WE DO NOT FIND ANY REASON TO DEVIATE FROM THE ORDER OF THE HONBLE SUPREME COURT IN T HE CASE OF SMIFFS SECURITIES ( SUPRA ) AS THERE BEING NO CONTRARY FACTUAL ASPECT. 83. WE, THEREFORE, SUSTAIN THE ORDER OF THE CIT(A) AND REJ ECT THE GROUND AS TAKEN BY THE DEPARTMENT. 84. GROUND NO. 6 IS THEREFORE, REJECTED. M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 23 85. GROUND NO. 7 PERTAINS TO ALLOWANCE OF MEMBERSHIP FEE O F RS. 33,50,000/-. 86. THE AO HAD DISALLOWED THE MEMBERSHIP FEE PAID, HOLDING THE SAME TO BE CAPITAL IN NATURE. THE CIT(A), REVERSED THIS FINDING OF THE AO. 87. AGAINST THIS ORDER OF THE CIT(A), THE DEPARTMENT IS BEFO RE THE ITAT. 88. THE AR SUBMITTED THAT THE ISSUE IS COVERED BY THE V ARIOUS DECISIONS OF VARIOUS FORA, WHEREIN COORDINATE BENCH AT PUNE HAD ALLOWED THE CLAIM OF THE ASSESSEE IN THE DECISION OF ACIT VS BAPHANA JEWELLERS PVT. LTD. IN ITA NO. 65-66/PUNE/2013 AND BY THE DECISION OF HONBLE P & H SITTING IN FULL BENCH IF AN ITEM OF EXPENDITURE IS TO BE CONSIDERED CAPI TAL IN NATURE, THE EXPENDITURE SHOULD BRING INTO EXISTENCE AN ASSET OR AN ADVANTAGE FOR THE ENDURING BENEFIT OF A TRADE. MEMBERSHIP FEE PAID TO A CLUB DOES NOT BRING INTO EXISTENCE AN ASSET OR AN ADVANTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS. IT IS AN EXPENDITURE INCUR RED FOR THE PERIOD OF MEMBERSHIP AND IS NOT LONG LASTING. B Y SUBSCRIBING TO THE MEMBERSHIP OF A CLUB, NO CAPITAL ASSET IS CREATED OR COMES INTO EXISTENCE. BY SUCH MEMBERS HIP, A PRIVILEGE TO USE FACILITIES OF A CLUB ALONE, ARE CONFERRED OIL ASSESSEE AND THAT TOO FOR A LIMITED PERIOD. SUC H EXPENSES ARE FOR RUNNING THE BUSINESS WITH A VIEW T O PRODUCE THE BENEFITS TO THE ASSESSEE. CONSEQUENTLY, IT CANNOT BE TREATED AS CAPITAL ASSET. HELD ACCORDINGLY, DISMISSING THE APPEAL, THAT THE CORPORATE MEMBERSHIP TO THE GOLF CLUB WAS FOR A LIM ITED PERIOD OF FIVE YEARS. IT WAS OBTAINED FOR RUNNING T HE BUSINESS WITH A VIEW TO PRODUCE PROFIT. THUS, THE CORPORATE MEMBERSHIP FEE PAID TO THE GOLF CLUB WAS OF REVENUE EXPENDITURE. AND THE DECISION OF OTIS ELEVATORS CO (INDIA) LTD. VS CIT, REPORTED IN 195 ITR 682 (BOM). 89. SINCE THE ISSUE IS DECIDED BY THE HONBLE BOMBAY HIGH COURT AND HONBLE PUNJAB & HARYANA HIGH COURT, WE DO N OT FIND ANY REASON TO DEVIATE FROM THE ABOVE FINDINGS AND SUSTA IN THE M/S MOTILAL OSWAL SECURITIES LTD ITA 168/M/2011 ITA 1029/M/2011 24 ORDER OF THE CIT(A). CONSEQUENTIALLY, WE REJECT THE GROUND OF APPEAL AS TAKEN BY THE DEPARTMENT. 80. GROUND NO. 7 IS THEREFORE, REJECTED. 81. IN THE RESULT, THE APPEAL AS FILED BY THE DEPARTMENT IS PARTLY ALLOWED. TO SUM-UP: ASSESSEES APPEAL IN ITA 168 OF 2011 STANDS PARTLY ALLOWED REVENUES APPEAL IN ITA 1029 OF 2011 STANDS PARTLY ALLOWED. SD/- SD/- ( ) ( ) % % % % % % % % (R C SHARMA) ( VIVEK VARMA ) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 21 ST JANUARY, 2015 &/ COPY TO:- 1) / THE APPELLANT. 2) ! / THE RESPONDENT. 3) THE CIT(A)-39, MUMBAI. 4) THE CIT, CENTRAL -II, MUMBAI. 5) '()* &+ , , / THE D.R. G BENCH, MUMBAI. 6) *,- . COPY TO GUARD FILE. %/+ / BY ORDER / / TRUE COPY / / 0 / 1 , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN, SR.PS