Income Tax Appellate Tribunal - Mumbai
Walfort Shares & Stock Broker ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
"G" BENCH: MUMBAI
BEFORE SHRI D K AGARWAL, JUDICIAL MEMBER
AND SHRI R K PANDA, ACCOUNTANT MEMBER
ITA No 5958/Mum/2008
(Assessment Year: 2005-06)
Wallfort Share & Stock Brokers Vs ITO 4(2)(2),
Pvt Ltd, Aayakar Bhavan,
205, Gundecha Chambers, Mumbai-400 020
Nagindas Master Road,
Fort,
Mumbai -400 001
PAN: AAACW 0750 G
Appellant Respondent
ITA No 5984/Mum/2008
(Assessment Year: 2005-06)
ITO 4(2)(2), Vs Wallfort Share & Stock Brokers Pvt
Aayakar Bhavan, Ltd,
Mumbai-400 020 205, Gundecha Chambers,
Nagindas Master Road,
Fort,
Mumbai -400 001
PAN: AAACW 0750 G
Appellant Respondent
Assessee by: Shri Beharilal
Revenue by: Shri Sunil K Singh
ORDER
PER D K AGARWAL, JUDICIAL MEMBER
These cross appeals by the assessee and the revenue are directed against the order dated 23.7.2008 passed by the Learned CIT (A) for the assessment year 2005-
06. Both these appeals are disposed of by this common order for the sake of convenience.
2. Briefly stated, the facts of the case are that the assessee company is engaged in the business of trading in shares and stock broking. It filed return declaring the 2 ITAd 5958 & 5984/M/2008 Wallfort Share & Stock Brokers Pvt Ltd total income of Rs 38,85,380/-. However, the assessment was completed at an income of Rs 38,67,310/- including the disallowance of depreciation on BSE Card Rs 18,28,313/- and disallowance of interest of Rs 5,85,194/- being payment of interest on arrears of SEBI fees treated as prior period expenses, vide order dated 19.12.2007 passed u/s 143(3) of the Income-tax act, 1961 (the Act). On appeal, the Learned CIT (A) while upholding the disallowance of depreciation on BSE Card, deleted the disallowance of interest on arrears of SEBI fees and accordingly partly allowed the appeal.
3. Being aggrieved by the order of Learned CIT (A), the assessee and the revenue both are in appeal before us.
ITA 5958/Mum/2008 (Assessee's appeal)
4. The only issue taken-up by the assessee is against the sustenance of disallowance of depreciation on BSE Card.
5. At the time of hearing both the parties have agreed that this issue is covered in favour of the revenue and against the assessee by the decision of Hon'ble Bombay High Court, therefore, the issue may be decided accordingly.
6. That being so and respectfully following the judgment of Hon'ble jurisdictional High Court in CIT vs Techno Shares and Stock Ltd (2009) 184 Taxman 103 (Bom) wherein it has been held that the BSE card did not fall in any of the categories specified u/s 32(1)(ii), depreciation could not be allowed on the BSE Card, we are of the view that the assessee is not entitled to depreciation on BSE Membership card and accordingly the order passed by the Learned CIT (A) in this regard is reversed and that of the Assessing Officer is restored. The grounds taken by the assessee are therefore rejected.
3 ITAd 5958 & 5984/M/2008 Wallfort Share & Stock Brokers Pvt Ltd ITA 5984/Mum/2008 (Revenue's appeal)
7. The grounds taken by the revenue are against the deletion of disallowance of interest of Rs 5,85,194/- paid to SEBI.
8. Brief facts of the above issue are that, it was inter alia, observed by the Assessing Officer that the assessee as a Member broker is governed by the provisions of Securities and Exchange Board of India (SEBI). As per SEBI Regulations, 1992 the brokers were required to pay the turnover tax based on their annual turnover as a registration fee. The same were disputed by the brokers. The Board therefore appointed an expert committee which submitted its report in December, 1992. The committee observed that the turnover was a fair basis for determination of registration fee and the incidence of fees prescribed by the Board was reasonable. The matter was taken by the stock brokers to the court and finally the Supreme Court vide its judgement dated 1.2.2001 upheld the regulations and power of SEBI to levy fees on the basis of turnover. In the meantime on 16.12.1998, the SEBI (Broker and Sub-broker) regulations, 1992 was amended and an interest @ 15% p.a. was levied in respect of any delay / failure of payment of registration fees / turnover fee which was accruing on the unpaid and disputed turnover tax. In the year 2004, the SEBI came out with the Interest Liability Regulations Scheme whereby one time waiver was given to the brokers to pay only 20% of the interest accrued so far in full and final settlement of their dues. The assessee has paid interest upto the date of payment of Rs 5,85,194/-. It was inter alia stated by the assessee that the liability was determined during the financial year 2004-05 under SEBI (Interest Liability Regulation Scheme), 2004. In the earlier years the interest liability was not ascertained since there was a dispute regarding payment of SEBI turnover fees, between Stock Broker Forum and SEBI and the quantum regarding payment of interest was finalized as per the Regulation Scheme during the year under consideration only. In the earlier it was not decided whether interest would be payable or not. Since it was in the nature of contingent liability no provision was made in the accounts in the earlier and the claim was made only in the year when the liability got finally crystallized. However, the Assessing Officer was of the view 4 ITAd 5958 & 5984/M/2008 Wallfort Share & Stock Brokers Pvt Ltd that since assessee is following the mercantile system of accounting, the interest paid to SEBI on arrears is not allowable and hence he disallowed the same and added to the income of the assessee being prior period expenditure. On appeal, the Learned CIT (A) following the ratio of decision of Hon'ble Supreme Court in the case of Mahalaxmi Sugar Mills Co vs CIT (1980) 123 ITR 429 (SC) while observing that the interest on SEBI fee partakes the character of SEBI fees itself and is thus allowable on the basis of actual payment u/s 43B, deleted the disallowance made by the Assessing Officer.
9. At the time of hearing, the Learned Departmental Representative supports the order of the Assessing Officer.
10. On the other hand, the Learned Counsel for the assessee while relying on the order of Learned CIT (A) also relied on the decisions in (i) Shree Pipes vs Dy CIT (Asstt) (2007) 289 ITR 154 (Raj) and (ii) Dy CIT (Assessment) vs Arvind Mills Ltd (2009) 314 ITR 251 (Guj) to contend that interest is allowable on actual payment u/s 43B of the Act. He further submits that since the payment was made in the year under consideration, the same is allowable. He, therefore, submits that the order passed by Learned CIT (A) in allowing the same be upheld.
11. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as according to SEBI (Interest Liability Regulations Scheme) 2004 whereby one time waiver was given to the brokers to pay only 20% of the interest accrued so far in full and final settlement of their dues, the assessee has paid interest amounting to Rs 5,85,194/- to SEBI. Co-ordinate Bench of the Tribunal in ITO vs Sureshchand Jain (2006) 284 ITR (AT) 160 (Mum) has held at page 161 of the head note as under:
"Held accordingly, that it was not a case where a one-time licence fee or charge was required to be paid by the assessee. It was a case where a particular percentage of turnover was to be charged as turnover charges. The turnover charges were in the nature of tax, duty, cess or fees payable under a law. Nothing had been brought on record to prove that the turnover charges were not payable under the law enacted by the Central Government.
5 ITAd 5958 & 5984/M/2008 Wallfort Share & Stock Brokers Pvt Ltd Therefore, the turnover charges paid by the assessee to the Board fell within the purview of section 43B."
The above decision has also been followed in ITO vs S S J Finance and Securities Pvt Ltd in ITA No.5981 and 5982/Mum/2008 for AY 2005-06 order dated 2nd December, 2009 wherein, one of us (JM) was a party. In the absence of any distinguishing feature brought on record by the revenue, we respectfully following the consistent view of the Tribunal hold that the payment of interest made by the assessee amounting to Rs 5,85,194/- to SEBI is allowable in the year under consideration and accordingly, we are inclined to uphold the finding of CIT (A) in deleting the disallowance made by the Assessing Officer. Grounds taken by the revenue are, therefore, rejected.
12. In the result, both the appeals stand dismissed.
Pronounced in the Open Court today on the 12th day of February 2010.
Sd/- Sd/-
(R K PANDA) (D K AGARWAL)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 12th February 2010
Copy to:-
1) The Appellant.
2) The Respondent.
3) The CIT (A) -IV, Mumbai.
4) The CIT -4, Mumbai.
5) The D.R. "G" Bench, ITAT, Mumbai.
By order
/ / True Copy / /
Asstt. Registrar
Chavan* I.T.A.T., Mumbai
6 ITAd 5958 & 5984/M/2008
Wallfort Share & Stock Brokers Pvt Ltd
Sr.N. Episode of an order Date Initials Concerned
1 Draft dictated on 01.02.10 Sr.PS
2 Draft placed before author 01.02.10 Sr.PS
3 Draft proposed & placed before the second Member JM/AM
4 Draft discussed/approved by Second Member JM/AM
5 Approved Draft comes to the Sr.PS Sr.PS
6 Kept for pronouncement on Sr.PS
7 File sent to the Bench Clerk Sr.PS
8 Date on which file goes to the Head Clerk
9 Date of dispatch of Order