Income Tax Appellate Tribunal - Mumbai
Sanghvi Bros. Brokerage Ltd , vs Assessee on 19 November, 2010
आयकर अपील य अ धकरण,
धकरण मंुबई यायपीठ 'ई
ई' मंुबई ।
"E" BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL "E
सव ी वजयपाल राव,
राव या.स
या स एवं एन.
एन के. बलै या,
या लेखा सद य ।
BEFORE SHRI VIJAY PAL RAO, JM & SHRI N. K. BILLAIYA,
BILLAIYA, AM
आयकर अपील सं./I.T.A.
I.T.A. No. 1061/Mum/201
1061 /Mum/2011
/Mum/201 1
( नधारण वष / Assessment Year :2007-08)
ACIT, Cir. 4(2) बनाम M/s Sanghavi Brothers
बनाम/
Room No. 642, 6 t h Floor, Brokerage Ltd., Vesta B,
Vs.
Aayakar Bhavan, M. K. Road, 90, Feet Road, Pant Nagar,
Mumbai-400020 Ghatkopar (E)
Mumbai-400075
(अपीलाथ /Appellant
Appellant)
Appellant .. ( यथ / Respondent)
Respondent
या ेप/Cross
Cross objection No. 65/Mum/2013
65/Mum/2013
( नधारण वष / Assessment Year :2007-08)
M/s Sanghavi Brothers बनाम ACIT, Cir. 4(2) t h
बनाम/
Brokerage Ltd., Vesta B, Room No. 642, 6 Floor,
Vs.
90, Feet Road, Pant Nagar, Aayakar Bhavan, M. K. Road,
Ghatkopar (E) Mumbai-400020
Mumbai-400075
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. :AAECS5879A
(अपीलाथ /Appellant
Appellant)
Appellant .. ( यथ / Respondent)
Respondent
नधा
नधा रती क ओर से/Assessee by : Shri Farookh Irani
राज ब क ओर से/ Revenue by : Shri Pitamber Das
सनवाई
ु क तार ख / D a te o f H e ar i n g : 18th November 2013
घोषणा क तार ख/D
ख at e O f P ro n o u n c e m e n t : 22nd November 2013
आदे श / O R D E R
PER : वजयपाल राव, या.स. / VIJAY PAL RAO, JM
This appeal by the Revenue and Cross Objection by the assessee are directed against the order dated 19.11.2010 of Commissioner of Income Tax(Appeals) for the assessment years 2007-08. 2 ITA No.1061/M/2011 & CO No. 65/M/2013
Sanghavi Brothers Brokerage Ltd.
2. The Revenue has raised the following effective grounds in this appeal:
"1. "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance made in respect of VSAT of ` 3,83,877/- and Transaction charges of ` 9,55,407/- u/s 40(a)(ia), without appreciating the facts that these were composite charges for professional and technical services rendered by the stock exchange to its members and the assessee has failed to deduct TDS thereon.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of ` 1,25,931/- made u/s 14A read with Rule 8D of the Income Tax Act by Assessing Officer."
3. Ground No. 1 regarding disallowance u/s 40(a)(ia) of Income Tax Act of VSAT charges and transaction charges paid to National Stock Exchange. We have heard the Ld. D.R as well as Ld. A.R and considered the relevant material on record. At the outset the Ld. A.R of the assessee has pointed out an identical issue has been considered by this Tribunal in the case of sister concern of the assessee namely M/s Sanghvi Savla Stock Brokers Ltd. in ITA No. 9075/M/2010 and C.O No. 72/M/2013 vide order dated 10.10.2013. We note that the Co-ordinate Bench of this Tribunal in case of M/s Sanghvi Savla Stock Brokers Ltd. (supra) as decided this issue in para 5 as under:
"5. We have heard the rival contention, perused the relevant findings of the authorities below and the material available on record. It is not disputed that, Insofar as the payment of VSAT charges are concerned, the same is covered by the decision of the Bombay High Court cited supra and, therefore, there was no requirement for deducting the TDS and, consequently, no disallowance under section 40(a)(ia) can be made. Regarding transaction charges, we agree with the contention of the learned Departmental Representative that, whether the disallowance has been made for the first time and no such 3 ITA No.1061/M/2011 & CO No. 65/M/2013 Sanghavi Brothers Brokerage Ltd.
disallowance was made in the earlier years, is not clear from the records, Therefore, on this score, we set aside the issue of transaction charges to the file of the Assessing Officer, to verify, whether in the earlier years transactions charges have been paid and any disallowance has been made in the earlier years or not. If the assessee has paid the transaction charges in the earlier years and no disallowance has been made by the Department, then in view of the decision of the Hon'ble Jurisdictional High Court in case of Kotak Securities Ltd. (supra), no disallowance should be made in this year because in that way it constitute a reasonable cause for not deducting the TDS in this year also. With this direction, the matter is restored to the file of the Assessing Officer. Thus, the ground raised by the Revenue is treated as partly allowed for statistical purposes."
4. It is clear that the Tribunal has decided the issue by following the decision of Hon'ble Jurisdiction High Court in case of CIT Vs Angel Capital and Debit Market Ltd. dated 27.7.2011 as well as in case of CIT Vs Kotak Securities Ltd. 340 ITR 333. Thus, as far as the payment of VSAT charges are concerned in view of the decision of Hon'ble Jurisdiction High Court in case of CIT Vs Angel Capital and Debit Market Ltd. (supra), TDS is not required to be deducted and consequently no disallowance can be made u/s 40(a)(ia). So far as the disallowance in respect of transaction charges this issue is set aside to the record of the A.O to verify whether the disallowance in respect of transaction charges has been made first time in this year or it was also made in the earlier years and accordingly decide the issue in light of the decision of Hon'ble Jurisdiction High Court in case of CIT Vs Kotak Securities Ltd. (supra).
5. Ground No. 2 regarding disallowance u/s 14A. We have heard the Ld. D.R as well as Ld. A.R and considered the relevant material on record. The CIT(A) has decided this issue in para 3.1 as under: 4 ITA No.1061/M/2011 & CO No. 65/M/2013
Sanghavi Brothers Brokerage Ltd.
"3.1. From the assessment order, I find that the A.O has mentioned that tax free dividend income of Rs.73,722/- had been claimed as exempt. From the copy of P & L Account and the computation of income filed by the appellant under cover of its letter dated 26.10.2010, I find that the profit before tax at Rs.98,72,624/- includes dividend income of Rs,73,722/. The assessee has offered for tax the sum of Rs.85,41,564/- as profit of business/profession after adding back depreciation (Rs.16,91,305/-) debited to P & L Account and reducing depreciation (Rs.30,22,365/-) as per Income-tax Act. Thus, I find that the amount of Rs.73,722/- being dividend income is included in profit of business / profession offered for tax at Rs.85,41,564/-. As the appellant has already filed an application u/s 154 before the A.O., I find it fit to direct the A.O. to decide the application u/s 154 expeditiously by examining whether the dividend income of Rs.73,722/- had been claimed as exempt by the assessee. If the dividend income of Rs.73,722/- had not been claimed as exempt income, no disallowance u/s 14A is required to be made The appeal on this ground is accordingly decided with directions as above. For statistical purpose, the appeal on this ground i treated as allowed."
6. As it is clear from the order of the CIT(A) that the assessee has claimed that the dividend income has been offered to tax as part of the profit of business and profession and accordingly the CIT(A) directed the A.O to decide the application of the assessee filed u/s 154 by examining this fact. When the assessee has claimed that the dividend income has been offered to tax then without verification of the claim of the assessee no disallowance can be made u/s 14A. Hence, we set aside this issue to the record of the A.O to verify this fact and accordingly decide the issue. C.O No. 65/M/2013
7. There is a delay of 4 days for filing the Cross Objection by the assessee. We have heard the Ld. A.R as well as Ld. D.R and considered the relevant material on record. The Ld. A.R of the assessee has relied upon the decision of Hon'ble Supreme Court in case of N. Balakrishnan 5 ITA No.1061/M/2011 & CO No. 65/M/2013 Sanghavi Brothers Brokerage Ltd.
Vs M. Krishnamurthy 7 SSC 123. Having considered the rival submissions and in the facts and circumstances of the case as well as in the interest of justice we condone the delay of 4 days for filing the Cross Objection by the assessee.
8. The assessee has raised the only issue in the Cross Objection regarding disallowing of ` 1,50,000/- being Computer software purchase as Capital Expenditure. We have heard the Ld. A.R as well as Ld. D.R and considered the relevant material on record. The Ld. A.R of the assessee has submitted that an identical issue has been considered and decided by the Tribunal in the case of assessee's sister concern namely M/s Sanghvi Savla Stock Brokers Ltd. (supra). As pointed out by the Ld. A.R we note that in the case of M/s Sanghvi Savla Stock Brokers Ltd. the Tribunal has considered this issue in para 12 as under:
"12. We have heard the rival contention, perused the relevant findings of the authorities below and the material available on record. The assessee has incurred software expenses for upgrading the software programmes like back office software, debt market software, etc., relating to its business of stock broking. The Assessing Officer as well as the learned Commissioner (Appeals) has disallowed these expenses mainly on the ground that in the Income Tax Rules, Appendix-I, Item no. 5, which has been brought in Income Tax Rule w.e.f. assessment year 2006-07, mentions the rate of depreciation on computers including computer software @60%. From this, they have inferred that the computer software is nothing but capital asset on which depreciation has to be allowed. In our considered opinion, inclusion of the word "computer software"
in new Appendix-I, giving the rate of depreciation, will not, per- se lead to a conclusive inference that from the assessment year 2006-07, computer software are to be held as capital asset only on which depreciation has to be allowed and any expenses on software cannot be held as revenue expenditure. Whether any particular expense falls in the capital field or revenue field has to be judged, look4ng to the nature of expenses and various 6 ITA No.1061/M/2011 & CO No. 65/M/2013 Sanghavi Brothers Brokerage Ltd.
tests laid down by the courts from time immemorial. In this age of computerization, various softwares are developed for smooth functioning of various business needs that helps business to run effectively, efficiently and profitably. The softwares keep on changing at a very fast pace with the growing requirement in the day-to-day business. Most of the softwares became obsolete in short span and new and upgraded version are required for better functioning. Unless, it has been brought on record that the software installed has a very long lasting life and enduring benefit on a capital asset, then, probably it can he said that it may not be of revenue in nature. However, the software application, per-se, do not, in any manner, supplants the source of Income or make any addition to the capital side of the assessee. Thus, in our opinion, software application expenses are nothing, but up-gradation of efficient working of operations through computers in the day-to-day business management, which keeps on changing periodically and thus any expenditure on such an up gradation or buying of software is revenue expenditure only. The decisions as relied upon by the learned Counsel also supports our view. Even though the Rules have provided rate of depreciation on computer software, but that does not lead to any kind of drawing legal inference that all the softwares have to be characterised as capital asset. Thus, the grounds raised by the assessee in the cross objection are treated as allowed."
9. We further note that the disallowance has been made by the A.O by virtue of insertion of expression Computer including Computer Software at item no. 5 of part A/III of new appendix-I of depreciation table and not on the basis of the real nature of the expenditure. Accordingly, by following the decision of the Co-ordinate Bench in case of M/s Sanghvi Savla Stock Brokers Ltd. (supra) we decide this issue in favour of the assessee and delete the addition made by the authorities below.
7ITA No.1061/M/2011 & CO No. 65/M/2013
Sanghavi Brothers Brokerage Ltd.
10. In the result, the appeal of the revenue is partly allowed for statistical purposes and Cross Objection of the assessee is allowed. Order pronounced in the open Court on this 22nd day of November 2013 Sd/- Sd/-
(एन. के. बलै या) ( वजयपाल राव)
लेखा सद य या यक सद य
(N. K. BILLAIYA) (VIJAY PAL RAO)
Accountant Member Judicial Member
Place: Mumbai : Dated: 22nd November 2013
Subodh
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai