Income Tax Appellate Tribunal - Mumbai
Jm Financial Services P. Ltd ( Formerly ... vs Assessee on 11 February, 2011
आयकर अपील य अ धकरण,
धकरण, मंुबई यायपीठ 'जे
जे' मंुबई
IN THE INCOME TAX APPELLATE TRIBUNAL
"J" BENCH, MUMBAI
ी बी.
बी रामकोट
रामकोट य,
य लेखा सद य,
य एवं ी अ मत शु ला, या यक सद य के सम
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
आयकर अपील सं. / ITA no. 3112/Mum./2011
( नधारण वष / Assessment Year : 2007-08)
J.M. Financial Services Pvt. Ltd. ....................... अपीलाथ /
(Formerly known as J.M. Morgan
Appellant
Stanley Financial Services Pvt. Ltd.)
141, Maker Chambers-III
Nariman Point, Mumbai 400 021
बनाम v/s
Addl. Commissioner of Income Tax ................... यथ /
Range-4(3), Aayakar Bhavan
Respondent
101, M.K. Marg, Mumbai 400 020
थायी लेखा सं./ Permanent Account Number - AAACJ5977A
आयकर अपील सं. / ITA no. 3117/Mum./2011
( नधारण वष / Assessment Year : 2007-08)
Addl. Commissioner of Income Tax ....................... अपीलाथ /
Range-4(3), Aayakar Bhavan
Appellant
101, M.K. Marg, Mumbai 400 020
बनाम v/s
J.M. Financial Services Pvt. Ltd. ................... यथ /
(Formerly known as J.M. Morgan
Respondent
Stanley Financial Services Pvt. Ltd.)
141, Maker Chambers-III
Nariman Point, Mumbai 400 021
थायी लेखा सं./ Permanent Account Number - AAACJ5977A
नधा रती क ओर से / Assessee by : Dr. K. Shivaram
राज व क ओर से / Revenue by : Mr. O.P. Sharma
सनवाई
ु क तार ख / आदे श घोषणा क तार ख /
Date of Hearing - 17.06.2013 Date of Order - 28.06.2013
आदे श / ORDER
J.M. Financial
Services Pvt. Ltd.
2
अ मत शु ला, या यक सद य के ारा /
PER AMIT SHUKLA, J.M.
These cross appeals have been preferred by either party challenging the impugned order dated 11th February 2011, passed by the learned Commissioner (Appeals)-XI, Mumbai, for 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 proceed to dispose off the assessee's appeal in ITA no.3112/Mum./2011.
2. In ground no.1, 2 and 3, the assessee has challenged the disallowance of ` 10,07,850, made under section 14A of the Act.
3. The relevant facts are that the assessee has received dividend income of ` 14,80,919, which did not form part of the total income. The assessee, in response to the show cause notice issued by the Assessing Officer, submitted that for the purpose of computation of disallowance under section 14A, the assessee has taken into consideration the compensation cost of the employee handling the mutual fund activity, the relevant infrastructure cost and the time spent for carrying on the said activity. The computation and working of disallowance was given before the Assessing Officer. As per the calculation, disallowance was worked out at ` 53,305, which was around 3.60% of the dividend income. On this basis, the assessee offered lumpsum disallowance of ` 74,046, being 5% of the dividend income which worked out at ` 74,046. The Assessing Officer, however, applied Rule 8D and worked out the disallowance under section 14A of ` 10,07,850, as per the calculation made at Page-17 of the assessment order. The learned Commissioner (Appeals) though agreed that Rule 8D is not applicable in the assessment year 2007-08 in view of the judgment of the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT, [2010] 328 ITR 081 (Bom.), however, held that the disallowance of ` 10,07,850, was quite reasonable and, therefore, no relief was given.
4. Before us, the learned Counsel submitted that the disallowance sustained by the learned Commissioner (Appeals) is highly excessive as the J.M. Financial Services Pvt. Ltd.
3same is based on the working as per Rule 8D and, therefore, the same cannot be sustained in view of the judgment in Godrej & Boyce Mfg. Co. Ltd. (supra), as Rule 8D cannot be held to be applicable in the assessment year 2007-08. Further, both the authorities have not found fault with the working of disallowance submitted by the assessee.
5. Learned Departmental Representative, on the other hand, supported the order passed by the learned Commissioner (Appeals).
6. After carefully considering the rival submissions and the relevant findings of the Assessing Officer and the learned Commissioner (Appeals), we find that the Assessing Officer has worked out the disallowance based on the working as per Rule-8D. Such a calculation of disallowance has also been confirmed by the learned Commissioner (Appeals) even though Rule 8D was held to be not applicable in this year. The approach of the learned Commissioner (Appeals) cannot be held to be justified as the calculation of disallowance was based on Rule 8D only and the same cannot be sustained in the assessment year 2007-08 in view of the judgment of Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. (supra). Neither the Assessing Officer nor the learned Commissioner (Appeals) has pointed out any defect in the working of the calculation of disallowance under section 14A furnished by the assessee and has not pointed out any specific expenditure incurred for earning of dividend income. In the absence of such a finding, we do not find any reason for any further disallowance to be made under section 14A over and above disallowed by the assessee, which is 5% of the dividend income and, thus, the additional disallowance of ` 10,07,850 does not deserve to be sustained. Consequently, we set aside the impugned order passed by the learned Commissioner (Appeals) on this issue and delete the addition made by the Assessing Officer and confirmed by the learned Commissioner (Appeals). Thus, ground no.1, 2 and 3 raised by the assessee are treated as allowed.
7. In ground no.4 to 8, the assessee has challenged the disallowance of lease rental paid on motor vehicle for sums aggregating to ` 17,68,792.
J.M. Financial Services Pvt. Ltd.
48. The assessee has paid lease rentals to Orex Infrastructure Services Pvt. Ltd. from whom it has obtained the vehicle on lease for its employees. As per the Accounting Standard 19, the assessee has capitalised the value of vehicle in the books of account and the same were shown under the head "Fixed Assets". No depreciation was claimed by the assessee on these vehicles for the income tax purpose. In the computation of income, the assessee has added back an amount of ` 3,76,000 to the profits of the business as finance charges on leased assets which was debited to the Profit & Loss account and reduced the lease rentals amounting to ` 17,68,972 from the income. The Assessing Officer, following the judgment of Hon'ble Supreme Court in Asea Brown Boveri Ltd. v/s IFCI, [2005] 56 SCL 21, held that these rentals paid by the assessee is nothing but purchase of an asset and the payment made as lease rental in reality are payments in installments towards re-payment of loans obtained for the purchase of the assets shown as finance leased assets. Accordingly, deduction of ` 17,68,972, claimed as lease rental of vehicle were disallowed and added back to the total income.
9. Before the Assessing Officer, alternative plea was also taken that depreciation and finance charges with respect to the leased vehicle should be allowed. The Assessing Officer rejected the assessee's claim on the ground that the same cannot be entertained at this stage in view of the judgment of Hon'ble Supreme Court in Goetze India Ltd. v/s CIT, [2006] 284 ITR 323 (SC), and held that the Assessing Officer has no power to entertain any claim after filing of the return of income.
10. Before the learned Commissioner (Appeals), it was contended that vehicles were taken on lease for the purpose of employees and the assessee has also paid fringe benefit tax on the lease rentals and also made its claim about depreciation and for allowing of lease rent as revenue expenditure. The learned Commissioner (Appeals), after incorporating altogether different set of facts, which has been reproduced from Pages-8 to 11 of the appellate order, dismissed the assessee's appeal in view of his finding given in Para-
J.M. Financial Services Pvt. Ltd.
57.3. The sum and substance of his finding in the impugned order are as under:-
i) The cars were not taken by the appellant on lease for its own business purpose.
ii) There is no genuine lease between the lessor and lessee.
iii) The Co-lessee i.e. the employee is paying back the appellant company the amount of loan taken for car and interest thereon in disguise of lease rental.
iv) The appellant company is merely working as a conduit between its employees and the lessor company.
v) The expenses are not the business expenditure of the appellant company.
vi) The lease does not meet the tests as set out by the Special Bench in the case of Mid East Portfolio Management Ltd. V. DCIT (2004) 271 ITR (AT) 87.
As regards the alternate claim of depreciation and finance charges, the learned Commissioner (Appeals) stated that as the claim was not made by filing of the revised return of income, therefore, there is no infirmity in the order of Assessing Officer.
11. Before us, the learned Counsel submitted that the learned Commissioner (Appeals) has failed to understand the proper facts and various clauses of lease agreements. He referred to the various clauses of the agreement which has been placed in the paper book from Pages-50 to 79 and submitted that the assessee is a lessee and has taken the vehicles on lease for the use of its employees and the leasing rental paid were for the purpose of business and the assessee was entitled for deduction on the same. The assessee was also entitled for depreciation as the same was shown as fixed assets in the books of the assessee. He further submitted J.M. Financial Services Pvt. Ltd.
6that if the assessee had recovered these lease rentals from the employees, the question of any debit on account of finance charges in the Profit & Loss account would not arise and the question of paying any fringe benefit tax on lease rental would also not arise. Therefore, the findings of the learned Commissioner (Appeals) cannot be sustained. Finally, he submitted that in view of the latest judgment of Hon'ble Supreme Court in ICDS Ltd. v/s CIT, [2013] 350 ITR 527 (SC), the assessee's alternative claim of revenue expenditure and depreciation should be allowed as the decision of Goetze India Ltd. (supra) is not applicable to the appellate authorities.
12. On the other hand, the learned Departmental Representative strongly relied upon the findings of the learned Commissioner (Appeals). Alterna- tively, he submitted that the matter can be restored to the file of the Assessing Officer for deciding the issue afresh in view of the judgment of the Hon'ble Supreme Court in IDCS Ltd. (supra).
13. We have carefully considered the rival contentions, perused the relevant findings of the Assessing Officer as well as the learned Commissioner (Appeals) and the material placed on record. From the facts discussed from Pages-8 to 11 of the learned Commissioner (Appeals)'s order, it is seen that the same has not been discussed or dealt with by the Assessing Officer. Such an appreciation of facts by the learned Commissioner (Appeals) has also been disputed before us. Further, the Hon'ble Supreme Court in IDCS Ltd. (supra) has also laid down the law relating to allowance of depreciation on leased vehicles and whether it is for the business purpose or not. Therefore, in the interest of justice, we are of the considered opinion that the entire issue should be restored back to the file of the Assessing Officer for denovo adjudication. Consequently, we set aside the impugned order passed by the learned Commissioner (Appeals) and restore the entire issue back to the file of the Assessing Officer for fresh adjudication in the light of the judicial pronouncements of the Hon'ble Supreme Court in IDCS Ltd. (supra).
14. प रणामतः नधा रती क अपील सां यक य उ े य के लए वीकत ृ मानी जाती है ।
J.M. Financial Services Pvt. Ltd.
714. In the result, assessee's appeal is treated as allowed for statistical purposes.
We now take up Revenue's appeal in ITA no.3117/Mum./2011.
15. In ground no.1, the Revenue has challenged the allowance of depreciation of Bombay Stock Exchange (BSE) and National Stock Exchange (NSC) Card on the ground that the same has ceased to exist in the financial year 2005-06 after demutualisation.
16. Brief facts, apropos the aforesaid issue, are that the assessee has claimed depreciation on membership rights of Stock Exchange i.e., BSE and NSE Card for sums aggregating to ` 29,80,028, being intangible asset. The Assessing Officer observed that this issue is covered against the assessee by the judgment of Hon'ble Jurisdictional High Court in CIT v/s Techno Shares and Stocks Ltd. & Ors., 225 CTR 337 (Bom.).
17. The assessee, in response to the show cause notice, gave elaborate submissions which have been incorporated in Pages-2 and 3 of the assessment order, however, the same was rejected on the ground that BSE and NSE cards do not fall into the category of tangible or intangible assets as enumerated in section 32 of the Act.
18. The learned Commissioner (Appeals) allowed the assessee's plea on the ground that the Hon'ble Supreme Court has reversed the decision of the Hon'ble Jurisdictional High Court in Techno Shares and Stocks Ltd., vide judgment dated 19th September 2010 and, accordingly, reversed the order of the Assessing Officer.
19. Before us, the learned Counsel submitted that this issue has been decided in favour of the assessee in assessee's own case for assessment year 2003-04 wherein it has been directed to the Assessing Officer to follow the judgment of the Hon'ble Supreme Court.
20. On the other hand, the learned Departmental Representative relied upon the findings of the Assessing Officer.
J.M. Financial Services Pvt. Ltd.
821. After carefully considering the rival contentions and on perusal of the relevant findings of the Assessing Officer and the learned Commissioner (Appeals), we find that the issue of allowability of depreciation on BSE and NSE cards stands concluded by the Hon'ble Supreme Court in Techno Shares and Stocks Ltd. v/s CIT, [2010] 327 ITR 323 (SC). Thus, we do not find any reason to deviate from the conclusion drawn by the learned Commissioner (Appeals). Consequently, the ground raised by the Revenue is treated as dismissed.
22. Ground no.2, relates to disallowance under section 40a(ia) on account of V-SAT and lease line charges.
23. The assessee has incurred V-SAT and lease line charges amounting to ` 5,65,568 and ` 3,25,884 and did not deduct TDS on such payments. These charges are payable to Stock Exchange on account of services provided by it with regard to the transactions in securities through Exchange. The assessee, in response to the show cause notice, submitted that these expenses are not in the nature of "fees for technical services" and accordingly section 194J is not applicable and, therefore, no disallowance under section 40a(ia) can be made. Further, detailed explanation was given with regard to the meaning of "Professional Services" and "Fee for Technical Services" as stipulated in section 194J. The Assessing Officer rejected the assessee's contentions after detailed reasoning as per the observation made in Pages-9 to 15 of the assessment order and held that V-SAT and lease line charges are technical services falling within the purview of section 194J and, therefore, liable for deduction of tax. Accordingly, he made disallowance under section 40a(ia) for sums aggregating to ` 8,91,452.
24. Before the learned Commissioner (Appeals), the assessee relied upon the decision of Mumbai Bench of the Tribunal in Kotak Securities v/s ACIT, [2009] 25 SOT 440 and DCIT v/s Angle Broking, [2010] 3 ITR (Trib.) 294 (Mum.). The learned Commissioner (Appeals), relying upon these case laws, held that payment towards V-SAT and lease line charges cannot be treated J.M. Financial Services Pvt. Ltd.
9as fees for technical services within the meaning of section 194J and, therefore, no disallowance under section 40a(ia) can be made.
25. Before us, both the parties agreed that this issue now stands decided by the Hon'ble Jurisdictional High Court in ITO v/s Angel Capital & Debit Market Ltd., ITA no.475 of 2011 and CIT v/s The Stock and Bond Trading Company, ITA no.4117 of 2010, wherein it has been held that the provisions of section 194J are not applicable in the case of lease line charges and V- SAT charges and, therefore, no TDS is required to be deducted.
26. After considering the relevant findings of the learned Commissioner (Appeals), we find that this issue now stands covered in favour of the assessee by the judgment of Hon'ble Jurisdictional High Court in the aforesaid case wherein it has been held that the payment of V-SAT and lease line charges do not come within the purview of "Fees for Technical Services" and, therefore, no TDS is liable to be deducted under section 194J and, consequently, no disallowance under section 40a(ia) can be made. Thus, the ground raised by the Revenue is treated as dismissed.
27. प रणामतः राज व क अपील खा रज क जाती है ।
27. In the result, Revenue's appeal is treated as dismissed.
आदे श क धोषणा खले
ु यायालय म दनांकः 28th June 2013 को क गई ।
Order pronounced in the open Court on 28th June 2013 Sd/- Sd/-
बी.
बी. रामकोट
रामकोट य अ मत शु ला
लेखा सद य या यक सद य
B. RAMAKOTAIAH AMIT SHUKLA
ACCOUNTANT MEMBER JUDICIAL MEMBER
मंुबई MUMBAI, दनांक DATED: 28th June 2013
J.M. Financial
Services Pvt. Ltd.
10
आदे श क त ल प अ े षत / Copy of the order forwarded to:
(1) नधा रती / The Assessee;
(2) राज व / The Revenue;
(3) आयकर आयु (अपील) / The CIT(A);
(4) आयकर आयु / The CIT, Mumbai City concerned;
(5) वभागीय त न ध, आयकर अपील य अ धकरण, मंुबई / The DR, ITAT, Mumbai;
(6) गाड फाईल / Guard file. या पत त / True Copy
स या पत त / True Copy
आदे शानसार
ु / By Order
द प जे. चौधर / Pradeep J. Chowdhury
वर नजी स चव / Sr. Private Secretary
उप / सहायक पंजीकार / (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मंुबई / ITAT, Mumbai