Income Tax Appellate Tribunal - Mumbai
Sanghvi Savla Stock Broker Ltd , vs Assessee
„ ‟
IN THE INCOME TAX APPELLATE TRIBUNAL
"E" BENCH, MUMBAI
,
BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
/ ITA no. 9075/Mum./2010
( / Assessment Year : 2007-08)
/ C.O. no. 72/Mum./2013
( 9075/Mum./2010 )
(Arising out of ITA no. 9075/Mum./2010)
( / Assessment Year : 2007-08)
Asstt. Commissioner of Income Tax ....................... /
Circle-4(2), Aayakar Bhavan Appellant
101, M.K. Road, Mumbai 400 020
v/s
M/s. Sanghvi Savla Stock Brokers Ltd. ................... /
Vesta-B, 90, Feet Road Respondent
Pant Nager, Ghatkopar (E)
Mumbai 400 075
Permanent Account Number - AAACS8744C
/ Revenue by : Mrs. Jyothilakshmi Nayak
/ Assessee by : Mr. Farookh Irani
/ /
Date of Hearing - 03.10.2013 Date of Order - 10-10-2013
/ ORDER
/
PER AMIT SHUKLA, J.M.
The present appeal has been preferred by the Revenue and the cross objection by the assessee, challenging the impugned order dated 27th October 2010, passed by the learned Commissioner (Appeals)-VIII, Mumbai, M/s. Sanghvi Savla Stock Brokers Ltd.
2for the quantum of assessment passed under section 143(3) of the Income Tax Act, 1961 (for short "the Act") for the assessment year 2007-08.
We first take up Revenue's appeal in ITA no.9075/Mum./2010, vide which, following grounds have been raised.
"i. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made under section 40(a)(ia) in respect of V-SAT charges of Rs.6,44,107 and transaction charges of Rs.3,30,000 paid to Stock Exchange, 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.
ii. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in ignoring the fact that these services are essential in nature as they can only be availed by members of Stock Exchange.
iii. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in ignoring the facts that use of technology and algorithmic based programs have converted an erstwhile physical market into a digitally operated market."
iv. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the services rendered by the brokers are not standard services but services that has been developed to cater to the needs of the broker community to facilitate trading."
v. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has overlooked the fact that the brokers have in subsequent years themselves started deducting the TDS on such payments and that there is no reason to give a different treatment in this year."
vi. On the facts and in the circumstances of the case, the impugned order of the Ld.CIT(A) is contrary to law to be set aside and that of the Assessing Officer be restored."
2. The assessee is a stock broker in BSE / NSE. The Assessing Officer noted that the assessee has debited a sum of Rs.6,44,107, on account of V- SAT charges and Rs.3,30,000, on account of transactions charges. He held that these charges are in the nature of rendering of technical services and, therefore, the assessee was liable to deduct TDS on such payments. Since the assessee has not deducted any TDS, he made the disallowance under section 40(a)(ia) after detail discussion running into 10 pages. The learned Commissioner (Appeals) has allowed the assessee's appeal after following the decision of the Tribunal in Kotak Securities Pvt. Ltd. v/s ACIT, 124 TTJ 241 (Mum.) and DICT v/s Angel Broking Ltd., 35 SOT 457 (Mum.).
3. Before us, it has been submitted that insofar as the V-SAT charges are concerned, the same are covered by the decision of the Hon'ble Jurisdictional High Court in the case of CIT v/s Angel Capital and Debit Market Ltd., Income Tax appeal no.475 of 2011, passed by the Hon'ble Jurisdictional High Court, vide order dated 27th July 2011, wherein it has M/s. Sanghvi Savla Stock Brokers Ltd.
3been held that on the payment of V-SAT charges, there is no liability of deducting TDS. Moreover, this issue is also covered by the decision of the Hon'ble Jurisdictional High Court in CIT v/s Kotak Securities Ltd., [2012] 340 ITR 333 (Bom.). As regards transaction charges, it has been submitted before us, that though this issue has been decided against by the Hon'ble Jurisdictional High Court in principle but no disallowance can be made as there was a reasonable cause in assessee's case also, like in the case of Kotak Securities, as no such disallowance was made by the Revenue in this case also in the earlier years. Thus, in view of the ratio laid down by the Bombay High Court in Kotak Securities Ltd. (supra), no disallowance can be made.
4. The learned Departmental Representative submitted that though the issue of V-SAT charges is covered by the decision of the Bombay High Court, however, regarding transaction charges, she submitted that whether the issue of transaction charges has been examined by the Assessing Officer in the earlier years or not, is not coming from the records and whether this is the first year wherein the payment has been made or similar payments were made in the earlier year also is not coming forth.
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 V-SAT 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 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 M/s. Sanghvi Savla Stock Brokers Ltd.
4been 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.
6.
6. In the result, Revenue's appeal is treated as partly allowed for statistical purposes.
We now take up assessee's cross objection no.72/Mum./2013, which is arising out of the appeal preferred by the Revenue in ITA no.9075/Mum./2010. The assessee has raised, inter-alia, following grounds of appeal:-
"1. The CIT(A) erred in disallowing Rs. 2,60,000 being computer software purchase during the year as capital expenditure.
1.2 The appellant submits that in this era of high technology advancement, especially in the field of computer and software, the life of the software is very short because by the time you start using the software, there is a better and more advance software is available in market and therefore one tends to replace the software frequently to have better systems and control on the business operation. This is even more relevant in the field of capital market and specifically in the stock broking business which is done by appellant company. Because of the inherent risk in the business makes it extremely necessary to have more advanced software to know the client's position at any point of time.
1.3 The appellant therefore submits that, the expense on software is like regular ongoing business expenses and should be allowed as evenue expenses. Only because a new item has been added in the depreciation table, does not make any expenditure which is of nature Revenue expenditure, of the nature of capital expenditure."
7. The Assessing Officer has disallowed the claim of Rs. 2,60,000 incurred by the assessee on account of computer software which was claimed as revenue expenditure. The Assessing Officer has treated the same as capital expenditure because such software expenses have an enduring benefit and, therefore, he held that only depreciation should be allowed as per the new appendix of Income Tax Rules.
M/s. Sanghvi Savla Stock Brokers Ltd.
58. The learned Commissioner (Appeals) too confirmed the action of the Assessing Officer after observing and holding as under:-
"The appellant during the appellate proceedings has placed reliance upon the decision of CIT(A) in its own case for the assessment year 2001 -02 in which it has been pointed out that the assessee had during the year upgraded software programmes like back office software, debt market software etc. which is done every year to support the expanding business and to increase the technical support to NSE and debt market operations. The appellant has therefore, submitted that the expenditure be allowed as revenue expenditure.
The issue raised in this ground of appeal has been put to rest by insertion of nomenclature "computer including computer software" at item no.5 in the new Appendix-I effective from assessment year 2006-07. In view of this insertion, all computer software are required to be treated as capital asset for assessment year 2006-07 and onward. Expenditure incurred for purchase of any software is therefore, capital expenditure. The disallowance made by the Assessing Officer is therefore, upheld. The appeal on this ground is not allowed."
9. Before us, the learned Counsel for the assessee Mr. Farookh Irani, submitted that the software expenses are incurred for day-to-day running of the business and with the change of technology, the span of software is very short which has to be changed every now and then. Therefore, it does not have any enduring benefit on the capital field. In support of his contention, he has strongly relied upon the decision of the Hon'ble Delhi High Court in CIT v/s Asahi India Safety Glass Ltd. [2012] 346 ITR 329 (Del.). He further submitted that the depreciation schedule in Appendix-I, which provides for rate of depreciation in case of computers and software will not lead to an automatic conclusion that all the software expenses are to be treated as capital expenses from A.Y.2006-07. Rules per-se cannot decide, what is capital asset or revenue expenditure, because the same has to be seen on the facts and circumstances of the case as well as the tests laid down by various Courts from time to time.
10. Per contra, the learned Departmental Representative submitted that once the statutory rule itself prescribes the rate of depreciation on the software, then definitely it suggests that the software expenditures are in the nature of capital only. Otherwise depreciation rate could not have been provided. This aspect has not been considered by the Hon'ble Delhi High Court relied upon by the learned Counsel, as the matter pertained to the M/s. Sanghvi Savla Stock Brokers Ltd.
6assessment years 1997-98 and 1998-99. She also strongly relied upon the decision of the Delhi Special Bench of the Tribunal in Amway India Enterprises v/s DCIT, [2008] 111 ITD 112 (Del.) (SB), where detail guidelines have been laid down. She, thus, strongly relied upon the findings of the Assessing Officer and the learned Commissioner (Appeals).
11. In the rejoinder, the learned Counsel for the assessee submitted that the decision of Special Bench has been considered by the Hon'ble Delhi High Court in CIT v/s Amway India Enterprises, [2012] 346 ITR 341 (Del.), wherein it has been held that the software expenditure are to be treated as revenue expenditure.
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, looking to the nature of expenses and various 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 M/s. Sanghvi Savla Stock Brokers Ltd.
7softwares become 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 be 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 upgradation 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 charecterised as capital asset. Thus, the grounds raised by the assessee in the cross objection are treated as allowed.
13.
13. In the result, assessee's cross objection is treated as allowed.
14. ,
14. To sum up, Revenue's appeal is allowed for statistical purposes, whereas the assessee's cross objection is treated as allowed.
10-10-2013 Order pronounced in the open Court on 10-10-2013.
Sd/- Sd/-
Sd/- Sd/-
RAJENDRA SINGH AMIT SHUKLA
ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 10-10-2013
M/s. Sanghvi Savla
Stock Brokers Ltd.
8
/ Copy of the order forwarded to:
(1) / The Assessee;
(2) / The Revenue;
(3) / The CIT(A);
(4) / The CIT, Mumbai City concerned;
(5) / The DR, ITAT, Mumbai;
(6) / Guard file.
/ True Copy
/ By Order
/ Pradeep J. Chowdhury
/ Sr. Private Secretary
/ / (Dy./Asstt. Registrar)
/ ITAT, Mumbai