Income Tax Appellate Tribunal - Cochin
Popular Mega Motors (India) Ltd, Cochin vs Assessee on 21 October, 2014
1
ITA No.620/Coch/2013
acIN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
Before Shri N.R.S. Ganesan (JM) and Shri Chandra Poojari (AM)
I.T.A No. 620/Coch/2013
(Assessment year 2008-09)
Popular Mega Motors (India) Ltd vs The ACIT, Cir.1(3)
Kuttukaran Centre Kochi
Mamangalam, Palarivattom
Cochin 682 025
PAN : AABCP6105H
(Appellant) (Respondent)
Appellant by : Shri A.S. Narayanamurthy
Respondent by : Shri M Anil Kumar, CIT /
Smt. Latha V Kumar, Jr DR
Date of hearing : 05-08-2014
Date of pronouncement : 21-10-2014
ORDER
Per N.R.S. Ganesan (JM) This appeal of the assessee is directed against the order of CIT(A)- II, Kochi dated 03-07-2013 and pertains to assessment year 2008-09.
2. The first issue arises for consideration is disallowance of Rs. 12,64,056 towards bandwidth and access charges. 2 ITA No.620/Coch/2013
3. Shri A.S. Narayanamurthy, the ld.representative for the assessee submitted that the assessee is a dealer of Tata Commercial Vehicle. In the course of business, the assessee has paid Rs.12,64,056 for accessing CRM Software of Tata Motors Ltd. The ld.representative further submitted that the manufacturer of vehicle, M/s Tata Motors Ltd controls purchase, sales and service of vehicles of all its dealer through CRM Software. All dealers are expected to access this software and fill up the data relating to purchase, sales and service of the vehicle. The ld.representtive further submitted that the performance of the dealer is monitored by the manufacturer by reviewing the data in CRM Software. Incentives and trade discounts of the dealers are finalized by the manufacturer by reviewing data uploaded by the dealers in the CRM Software. The manufacturer charges every dealer for bandwidth and access for usage of CRM Software. Therefore, according to the ld.representative, Tata Motors is not providing any technical services to the assessee. Hence, the assessee is not liable to deduct tax on the access and bandwidth charges paid to Tata Motors for using CRM Software. The ld.representative placed his reliance on the decision of Mumbai Bench of this Tribunal in Pacific Internet (India) (P) Ltd vs ITO (2009) 24 DTR (Mumbai)(Trib) 543 and the decision of the Amritsar Bench of this Tribunal in ITA No.189(Asr)/2011 in Dy.CIT vs M/s C.L. Gulati & Sons P Ltd order dated 30-04-2012, copy of which is available on page 23 of the paper book.
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4. On the contrary, Shri M Anil Kumar, the ld.DR submitted that software and network equipments are owned by Tata Motors. As per the arrangement between the assessee and Tata Motors the assessee has to install ISDN Line from local Telecom Service Provider. Therefore, the payment made by the assessee with Tata Motors Ltd is a fee for technical service by the manufacturing company and TDS should have been made u/s 194J. The assessee has to pay access charges of Rs.105 per vehicle in addition to bandwidth charges. According to the ld.representative, the payment made by the assessee for accessing CRM Software and bandwidth charges are for technical service. Therefore, the CIT(A) has rightly confirmed the order of the assessing officer.
5. We have considered the rival submissions on either side and also perused the material available on record. It is not in dispute that the assessee is a dealer for sale of commercial vehicle manufactured by Tata Motors Ltd. The manufacturer, Tata Motors Ltd controls the purchase, sales and services of the vehicles through CRM Software. The dealer has to upload the data relating to purchase, sales and services of vehicle. Tata Motors Ltd, after evaluating the data uploaded by the dealers would decide about the incentives and trade discount. Tata Motors charges for accessing the software as also for bandwidth charges. The question arises for consideration is whether the payment made by the assessee for 4 ITA No.620/Coch/2013 accessing the CRM Software and bandwidth charges are in the nature of fee for technical services or not? The contention of the assessee before the lower authorities was that it is not fee for technical services as no human interference is required; however, the lower authorities found that the entire process of operation, maintenance of CRM Software is due to human interference, therefore, the fee charged by Tata Motors is only fee for technical services.
6. We have also carefully gone through the decision of the Mumbai Bench of this Tribunal in Pacific Internet (India)(P) Ltd (supra) and the decision the Amritsar Bench of this Tribunal in C.L. Gulati & Sons P Ltd (supra). The Bombay High Court in CIT vs Kotak Securities Ltd (2012) 340 ITR 333 (Bom) had an occasion to consider an identical issue. The case before the High Court BOLT system was introduced by Bombay Stock Exchange in order to facilitate the member brokers to trade in securities. Transaction charges are levied by Bombay Stock Exchange on the member broker, who enters into transaction in securities / derivatives through BOLT system provided by Bombay Stock Exchange. The entire trading in securities is managed by Bombay Stock Exchange through BOLT system provided by Stock Exchange. There was a direct linkage between the managerial services rendered and the transaction charges levied by the Stock Exchange. The question arose before the Bombay 5 ITA No.620/Coch/2013 High Court was whether the payment made by member broker of Bombay Stock Exchange is a fee for technical service or not? The Bombay High Court, after considering the materials available on record has observed as follows at page 342 of the ITR:
" Unless th stock exchange constantly monitors the transactions relating to the sale or purchase of the securities right from the stage when the two contracting parties interact through the BOLT system, it would be impossible to ensure safety of the market. When there is considerable variation in the price of the securities offered to be sold or purchased the in-built system alerts and remedial measure are taken immediately so that no panic situation arises in the stock market. With a view to regulate the trading in securities, the stock exchange provides risk management and surveillance to the stock brokers to ensure the safety of the market. The surveillance function involves price monitoring, exposure of the members, rumour verification on a daily basis and take remedial actions like reduction of filters, imposition of special margin, transferring scrips on a trade to trade settlement basis, suspension of scrips / members, etc. These are some of he identified managerial services rendered by the stock exchange for which transaction charges are levied.
The fact that the BOLT system provided by the stock exchange has in-built automatic safeguards which 6 ITA No.620/Coch/2013 automatically gives alert signal if the fluctuation in the prices of the securities exceed a particular limit prescribed by the stock exchange does not mean that the managerial services are not rendered, because, firstly, the in-built mechanism in the BOLT system itself is a part of the managerial service rendered by the stock exchange and, secondly, even the in-built mechanism provided in the system is varied or altered by the stock exchange depending upon the circumstances encountered during the course of rendering managerial services.
The argument that the BOLT system is like a ATM system provided by the banks is also without any merit, because through the ATM system, no trading activity is carried on, whereas, through the BOLT system trading activity is carried on which is monitored / regulated / managed by the stock exchange. Therefore, in our opinion, the Tribunal was in error in holding that no technical or managerial services are rendered by the stock exchange by providing the BOLT system of trading in securities."
7. The lower authorities had no occasion to consider this judgment of the Bombay High Court. Though the assessee claims that no human interference is required the fact remains is that Tata Motors reviews the data uploaded by the dealers for the purpose of providing incentive and trade discount. Therefore, the fact of the case in our hand is similar to the facts decided by Bombay High Court in Kotak Securities Ltd (supra). 7 ITA No.620/Coch/2013 However, the lower authorities had no occasion to consider the same. Therefore, this Tribunal is of the considered opinion that the assessing officer shall reconsider the issue. Giving one more opportunity to the assessee would facilitate the assessee to explain how the judgment of the Bombay High Court in the case of Kotak Securities Ltd (supra) would apply / not apply to the facts of the case of the assessee. Giving such an opportunity may not prejudice the interest of either party. Accordingly, the orders of the lower authorities are set side and the issue is remitted back to the file of the assessing officer. The assessing officer shall examine the matter afresh in the light of the material available on record and thereafter decide the same in accordance with law after considering the judgment of the Bombay High Court in Kotak Securities Ltd (supra).
8. The assessee has taken one more ground with regard to disallowance of provision for leave encashment. Shri A.S. Narayanamurthy, the ld.representative for the assessee submitted that the issue is covered against the assessee by the decision of this Tribunal. In view of the above, the ground relating to disallowance of provision for leave encashment is dismissed.
9. In the result, the appeal of the assessee is allowed for statistical purpose.
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Order pronounced in the open court on this 21st October, 2014.
Sd/- sd/- (Chandra Poojari) (N.R.S. Ganesan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cochin, Dt : 21st October, 2014 pk/- copy to:
1. Popular Mega Motors (India) Ltd, Kuttukaran Centre, Mamangalam, Palarivattom, Cochin 682 025
2. The ACIT, Cir.1(3), Kochi
3. The Chief Commissioner of Income-tax, Kochi
4. The Commissioner of Income-tax(A)-II, Kochi
5. The DR (True copy) By order Asstt. Registrar, Income-tax Appellate Tribunal, Cochin Bench