Income Tax Appellate Tribunal - Mumbai
Prp Financial Consultants , Mumbai vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'C' : MUMBAI
BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI B. RAMAKOTAIAH,(AM)
ITA No.234/Mum/2010
Assessment Year : 2006-07
The Asstt. Commissioner of Income tax
Circle 4(2)
Room No.642, 6th Floor
Aayakar Bhavan, M.K. Road
Mumbai-400 020. .....(Appellant)
Vs.
M/s. PRP Financial Consultants
122, Stock Exchange Towers
Dalal Street
Mumbai-400 001. .....(Respondent)
P.A. No.(AAAFP 7350 A)
Appellant by : Shri D. Songate
Respondent by : Shri D.C. Jain
ORDER
Per D.K. AGARWAL (JM).
This appeal preferred by the revenue is directed against the order dated 8.12.2009 passed by the ld. CIT(A) for the Assessment Year 2006-07.
2. Briefly stated facts of the case are that the assessee firm, a member of NSE, is engaged in the business of stock broking, filed return declaring business income of Rs.53,71,164/-. However, the assessment was completed at an income of Rs.82,73,000/- including disallowance of lease line and V-Sat charges u/s.40(a)(ia) Rs.8,19,285/-, Stock Exchange penalty Rs.4,54,905/- and disallowance for non-deduction of TDS u/s.40(a)(ia) Rs.14,61,059/- vide order dated 22.12.2008 passed u/s.143(3) of the Income tax Act, 1961(the Act). On appeal the ld. CIT(A) while deleting the 2 ITA No.234/M/10 A.Y:06-07 disallowance of Rs.8,19,285/- 4,54,905/- reduced the disallowance u/s.40(a)(ia) to Rs.4,54,145/- and accordingly partly allowed the appeal.
3. Being aggrieved by the order of the ld. CIT(A) the revenue is in appeal before us.
4. Ground No. 1.1. to v. are against the deletion of disallowance of VSAT charges lease line and transaction charges Rs.8,19,285/- u/s.40(a)(ia).
5. The brief facts of the above issue are that it was interalia observed by the Assessing Officer that the assessee has debited lease line charges Rs.1,38,987/- and VSAT charges Rs.6,80,298/-. These charges are payable to stock exchange on account of services provided by it with regard to transaction in securities through exchange. The Assessing Officer after discussing the issue at pages 2 to 9 of the assessment order was of the view that the payment made on account of lease line charges/VSAT/transaction charges by whatever name called are technical services falling within the purview of sec.194J and are therefore, liable for deduction of tax and accordingly he made an addition of Rs.8,19,285/- on account of these charges to the income of the assessee for non-deduction of tax (TDS). On appeal, the ld. CIT(A) following the decision of the Tribunal in Kotak Securities Ltd. vs. Addl. CIT since reported in (2009) 318 ITR(AT) 268(Mum.), deleted the disallowance made by the Assessing Officer.
6. At the time of hearing both parties have agreed that the above issue is squarely covered in favour of the assessee by the decision of the Tribunal in Kotak Securities Ltd. vs. Addl. CIT (supra), therefore, the issue may be decided accordingly.
7. Having carefully heard the submissions of the rival parties and perusing the material available on record we find merit that the issue is squarely covered in favour of the assessee by the decision of the Tribunal in Kotak Securities Ltd. vs. Addl. CIT (supra), wherein it has been held that the 3 ITA No.234/M/10 A.Y:06-07 transaction fee paid cannot be said to be a fee paid in consideration of stock exchange rendering any technical services and hence, disallowance u/s.40(a)(ia) of the Act is not in accordance with law.
8. Recently in DCIT vs. Angel Broking Ltd. (2010) 35 SOT 457 (Mum.) it has been held by the Tribunal in para-10 of its order dated 9.12.2009 as under :
"10. We have already given nature of VSAT charges and lease line charges, other charges, BOLT charges, Demat charges, paid by the assessee. Stock exchanges as measure of providing infrastructure to its members installs VSAT, lease line facilities, BOLT Charges and Demat Charges to its members. Fees collected in this regard is nothing but fee paid for use of facilities provided by the stock exchange. Such facilities are available for use by any member. Satellite based trading enables trading member to trade on exchange from their place of work across the country. Stock exchange has to get permission of Department of Telecommunication for installing and setting up VSAT or lease line system. Charges levied by the stock exchange on its members are for the purpose of recovery of its cost in providing these facilities to the members. Stock Exchanges do not provide any technical services by installing VSAT network. It is the facility provided to its members, such payment cannot be said to be nature of fees for any technical services rendered. Stock Exchanges merely provide facilities for its members to purchase and sell shares within frame work of its bye-laws. It also provides for a mechanism for settlement of dispute between the brokers and its customers. Stock Exchanges do not involve them in providing any technical services to any of its members. We are of the view that this ratio of Hon'ble Madras High court will apply to the facts of the present case. The Assessing Officer in coming to the conclusion that the payment was for fee for technical services has relied on the fact that the screen based trading is sophisticated method of trading. This by itself will not be sufficient to holding technical services being rendered. The Assessing Officer has also held that services are not available to the public at large but only to registered members, again this by itself will not make the services in question as technical services. Another reason given by the Assessing Officer is that speed at which transactions were completed and the ease with which transactions are done in screen based trading. This again is not relevant criteria for holding that the services rendered were technical services. Fact that the data provided on screen will provide better data for carrying out transaction will not again be sufficient to hold that technical services are being rendered. All the above features present in screen based trading saves time. This is the result of improved technology. That does not 4 ITA No.234/M/10 A.Y:06-07 mean that stock exchange is providing technical services. Members of the stock exchange and the public at large are beneficiaries of these technical improvements. Stock exchanges are not the owner of this technology to provide them for a fee to prospective use. They are themselves consumers of the technology. We are therefore of the view that learned CIT(A) was right in holding that the payment in question is not fee for technical services rendered. We therefore confirm the order of learned CIT(A) and dismiss this appeal of the Revenue."
9. In the absence of any distinguishing feature brought on record by the revenue we respectfully following the order of the Tribunal supra, hold that the payment of leaseline charges, transaction charges and V-SAT charges cannot be considered as fees for technical services rendered and accordingly we are inclined to uphold the order of the ld. CIT(A) in deleting the disallowance made by the AO. The grounds taken by the revenue are therefore rejected.
10. Ground No.2.1. to v. are against the deletion of Rs.4,54,905/- of stock exchange penalty.
11. Brief facts of the above issue are that the Assessing Officer was of the view that Explanation to section 37 is applicable on the same. The Assessing Officer also observed that the TDS was deductible on payment to stock exchange and hence, the amount is disallowable u/s.40(a)(ia) too. On appeal, the ld. CIT(A following the decision in Kotak Securities Limited supra, deleted the disallowance made by the Assessing Officer .
12. At the time of hearing both parties have agreed that the above issue is squarely covered in favour of the assessee by the decision of the Tribunal in Kotak Securities Ltd. vs. Addl. CIT (supra), and in ITO vs. S.B. & T Securities P. Ltd. in ITA No.6452/M/06 for Assessment Year 2003-04 order dated 6.3.2009 (copy filed), therefore, the issue may be decided accordingly.
13. We have carefully heard the submissions of the rival parties and perused the material available on record. We find merit in the submission of the ld. Counsel for the assessee that the issue is squarely covered in favour 5 ITA No.234/M/10 A.Y:06-07 of the assessee by the decision of the Tribunal in S.B. & T Securities P. Ltd. supra, wherein the Tribunal deleted the similar disallowance by following the decision of the co-ordinate Bench of the Tribunal in Goldcrest Capital Markets Ltd. vs. ITO and vice versa in ITA No.1240,1241,1415 & 1416/M/2006 for Assessment Years 2002-03 and 2003-04 order dated 21.1.2009 wherein it has been held that there was no violation of law by the assessee and the fine paid were only for non-observation of internal regulations of Stock Exchange. In the absence of any distinguishing feature brought on record by the revenue we respectfully following the consistent view of the Tribunal supra, hold that there was no violation of law by the assessee and fine/penalty paid were only for non-observation of internal rules and regulations of the Stock Exchange and accordingly we are inclined to uphold the finding of the ld. CIT(A) in deleting the same. The grounds taken by the revenue are, therefore, rejected.
14. Ground No.3.i. to v. are against the deletion of disallowance of Rs.8,05,793/- u/s.40(a)(ia) paid to M/s. Hughes software.
15. The brief facts of the above issue are that it was interalia observed by the Assessing Officer that the assessee hired the services of Hughes software for maintaining the machines, providing technical support and replacement of parts as and when needed. According to the Assessing Officer the service provider was both, providing services as well as supply of material, the assessee was liable to deduct TDS on the said composite amount, therefore, he disallowed Rs.8,05,793/- and added to the income of the assessee for non-deduction of TDS u/s.194J /194C. On appeal the ld. CIT(A) after examining the invoices of M/s. Hughes Communication India Limited wherein the description indicated that the payment is for VSAT support services and V-SAT Bandwidth services , held that the payments are for providing VSAT services and hence, TDS is not deductible on the same and therefore, addition of Rs.8,05,793/- u/s.40(a)(ia) is not warranted.
6 ITA No.234/M/10A.Y:06-07
16. At the time of hearing the ld. DR supports the order of the Assessing Officer.
17. On the other hand the ld. Counsel for the assessee submits that this issue is also covered by the decision of the Tribunal in Kotak Securities Ltd. supra, therefore, the order passed by the ld. CIT(A) be upheld.
18. Having carefully heard the submissions of the rival parties and perusing the material available on record and keeping in view of our finding recorded in para 7-9 of this order we are of the view that the payment made by the assessee to Hughes Communication India Limited for providing VSAT services cannot be considered as fees for technical services rendered and accordingly we are inclined to uphold the order of the ld. CIT(A) in deleting the disallowance made by the Assessing Officer. The grounds taken by the revenue are, therefore, rejected.
19. Ground No. 4 is against the deletion of addition of Rs.2,01,020/- paid for souvenir services.
20. The brief facts of the above issue are that the assessee has claimed expenses of Rs.10,76,729/- on account of souvenir expenses. The said expenses are in reality incurred for supplying clients with an in-house magazine pertaining to the stock market. This magazine brought out in the name of Firefly involves technical inputs. The assessee was asked to explain. In the absence of any compliance the Assessing Officer disallowed Rs.10,76,729/- including the disallowance of Technical Trends Rs.2,21,120/- u/s.40(a)(ia) of the Act. On appeal the ld. CIT(A) while observing that the payments of Rs.3,27,809/- to Great Art Printer, Rs.72,800/- to Sheetal Prints, Rs.2,21,120 to Technical Trends and Rs.60,000/- to S.S. Trends are for supply of material which do not attract provisions of TDS and hence, deleted the disallowance made by the Assessing Officer .
21. At the time of hearing the ld. DR relied on the order of the Assessing Officer.
7 ITA No.234/M/10A.Y:06-07
22. On the other hand ld. Counsel for the assessee supports the order of the ld. CIT(A).
23. After hearing the rival parties and perusing the material available on record we find that there is no dispute that the payments of Rs.2,21,120/- was made to Technical Trends for supply of printed souvenir which is for the purpose of business. In the absence of any contrary material placed on record by the revenue against the finding of the ld. CIT(A) we are of the view that the said payment does not attract provisions for TDS and accordingly we while upholding the order passed by the ld. CIT(A) on this account, reject the ground taken by the revenue .
24. In the result, revenue's appeal stands dismissed.
Order pronounced in the open court on 9.9.2010.
Sd/- Sd/-
(B. RAMAKOTAIAH) ( D.K. AGARWAL )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 9.9.2010.
Jv.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.