Income Tax Appellate Tribunal - Indore
Kalpataru Multipier Ltd., Bhopal vs Assessee on 4 July, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARMA, A.M.
PAN NO. : AABCK5385J
I.T.A.No.17/Ind/2013
A.Y. : 2009-10
ACIT, Kalpataru Multiplier
2(1), vs. Limited,
Bhopal 18, Itwara Near Birjisia
Masjid,
Bhopal
Appellant Respondent
I.T.A.No.597/Ind/2012
A.Y. : 2009-10
Kalpataru Multiplier ACIT,
Limited, vs. 2(1),
18, Itwara Near Birjisia Bhopal
Masjid,
Bhopal
Appellant Respondent
Department by : Shri R. A. Verma, Sr. DR
Assessee by : Shri Arun Jain, C. A.
Date of Hearing : 04.07.2013
Date of : 15.07.2013
pronouncement
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ORDER
PER R. C. SHARMA, A.M.
These are cross appeals filed by the Revenue and assessee against the order of CIT(A) dated 30th October, 2012, for the assessment year 2009-10 in the matter of order passed u/s 143(3) of the Income-tax Act, 1961.
2. Following grounds have been taken by the Revenue :-
"On the facts and in the circumstances of the case, the CIT(A) has erred in -
1. deleting the addition of Rs. 6,51,910/- made by the Assessing Officer on account of disallowance u/s 40(a)(ia).
2. deleting the addition of Rs. 3,69,769/- made by the Assessing Officer on account of disallowance out of software expenses.
3. In the appeal filed by the assessee, following ground has been taken :-
" 1. That in the facts and in the circumstances of the case, the ld. CIT(A) erred in 2
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facts and also in law in confirming disallowance of Expenses of CDSL charges of Rs. 5,95,709/- u/s 40(a)(ia) of the Income-tax Act, 1961."
4. The Rival contentions have been heard and records perused. Brief facts of the case are that the assessee is a limited company carrying on business as sharebroker. The assessee company filed its return of income for assessment year 2009-10 on 15.9.2009 at an income of Rs. 92,31,970/-. The case was selected for scrutiny by issuing notice u/s 143(2) and assessment u/s 143(3) was completed on 30.11.2011 at an income of Rs. 1,09,41,550/-. During the course of scrutiny assessment, the Assessing Officer made addition by making of disallowance under the head NSE General Charges of V-sat charges of Rs. 5,51,910/-, disallowance of expenses under the head NSE General Charges, processing charges amounting to Rs. 6,69,674/-, disallowance under the head CDSL charges amounting to Rs. 3,95,709/-, disallowance of software expenses of Rs. 3,69,869/-.
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5. By the impugned order, the ld. CIT(A) deleted the disallowance of Rs. 5,51,910/- of V-sat charges after having the following observations :-
"4.4 I have carefully considered the submissions of the appellant and facts of the case. In regard to V-SAT charges, it may be noted that V-SAT used for connectivity with Stock Exchange through Satellites. The Hon'ble I.T.A.T., Mumbai in the case of DCIT Mumbai vs. Sonal Shares and Stock Broker Pvt.Ltd., (2010) 38 SOT 150 (Mum) had an occasion to consider this issue and held that stock exchanges has measures of providing infrastructure to its members provide V- sat facilities to its members to enable screen based trading in shares. Fees collected in this regard is nothing but fee paid for use of facilities provided by the stock exchange. Stock exchange do not provide any technical services by installing V-sat net work and, therefore, the payment for V- sat charges are not fee for technical services and, 4
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hence, the assessee is not liable for deduction of tax at source u/s 194J of the Act. In view of the above, I am of the view that no TDS was required to be made on V-sat connectivity/Broad Band Charges as these charges were neither in the nature of technical fees nor for any work contract. Therefore, the disallowance of Rs. 5,51,910/- of V- sat charges u/s 40(a)(ia) is deleted. "
6. We have considered the rival submissions and found from record that the assessee is engaged in the business of share broker. V-SAT charges was paid on account of V-SAT used for connectivity with Stock Exchange through satellite. The payment so made was not covered under the definition of works contract. Therefore, the assessee was not liable to deduct tax at source u/s 194C. Thus, there was no liability of TDS, accordingly, we do not find any infirmity in the order of CIT(A) for deleting the disallowance of V-SAT charges by invoking provisions of Section 40(a)(ia).
7. The Assessing Officer has also made disallowance of Rs. 3,69,869/- by observing that the assessee had debited an 5
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amount of Rs. 1,94,769/- on account of software expenses in profit and loss account. On verification of details furnished by the assessee, the Assessing Officer noted that the assessee company in fact had debited an amount of Rs. 6,96,769/- on account of software expenses. These expenses consisted of Rs. 80,022/- for maintenance expenses and the balance Rs. 6,16,747/- were incurred on software. As per the Assessing Officer, these expenses incurred for the purchase of software had enduring benefit to the assessee and treated as capital expenditure. After allowing depreciation, the Assessing Officer made a net disallowance of Rs. 3,69,869/- and added to the returned income.
8. By the impugned order, the ld. CIT(A) deleted the disallowance after having the following observations :-
"6.4 I have carefully considered the submissions of the appellant and facts of the case. As facts narrated by the appellant, the net expenses incurred by the appellant were only of Rs. 1,14,747/- which were debited to the profit and loss account in addition to Rs. 80,022/- on maintenance charges. 6
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Thus, the total expenses debited in profit and loss account were Rs. 1,94,769/- only. The Assessing Officer himself allowed maintenance expenses of Rs. 80,022/- as revenue expenditure. Thus, the Assessing Officer was not correct in making net addition of Rs. 3,69,869/- as against debit of net expenses of Rs. 1,14,747/- in the profit and loss account. As regards, the net expenditure of Rs. 1,14,747/- on software, it is noticed that these net expenses were incurred on the software having a validity of one year only and, thereafter, the appellant had to pay further annual charges to continue the use of software. In the instant case, intact, the software could be used for one year only, as new software NOW and FOW were put to use in 2010. Hence, it cannot be said that the software obtained by the appellant had enduring benefit. Thus, these expenses were also of revenue nature and allowable as deduction. Accordingly, the net 7
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addition of Rs. 3,69,869/- is deleted. This ground of appeal is allowed."
9. We have considered the rival submissions and found from record that the assessee has debited net expenditure of Rs. 1,14,747/- on account of software having validity of one year, accordingly, assessee had to pay further annual charges to continue the use of software. Financial Technologies supplied ODIN software and Religare Technova supplied FAST TRADE software used for internet based trading through stock exchange. These softwares were front office softwares which allow connectivity with stock exchange. Its license validity was one year only thereafter the assessee had to pay annual charges to continue this software. The assessee was not absolute owner of software as he has not been given source code which is necessary to modify software. It was contended that these expenses have no enduring benefit for a longer period but these are incurred every year. These were recurring expenditure and, thus, are revenue expenses. Computer technology is changing very fast and software becomes obsolete within a year or two. Further, these softwares have 8
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been discontinued in the year 2010 and stock exchanges ( NSE and BSE) supplied their own software named NOW and FOW. Thus, the softwares were changed with a short period and, hence, these were revenue expenditure in the trade of the assessee being a broker of share trading as these had no enduring benefit due to fast change in technology. The detailed finding recorded by CIT(A) at para 6.4 has not been controverted. Accordingly, no infirmity is found for deletion of addition of Rs. 3,69,869/-.
10. The Assessing Officer has also disallowed CDSL charges of Rs. 5,95,709/- u/s 40(a)(ia). By the impugned order, the ld. CIT(A) confirmed the disallowance after having the following observations :-
"5.2 In assessment proceedings, the Assessing Officer noticed that the appellant had claimed deduction of charges of Rs. 5,95,709/- paid to CDSL. The Assessing Officer noticed that CDSL is a limited company and it had charged certain amount for services rendered in respect of dematerialization of securities etc. and, thus, these charges were paid for 9
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getting professional and technical services and the appellant was liable for making TDS u/s 194J of the Act. Since, the appellant had not deducted tax at source, the Assessing Officer disallowed the said amount of Rs. 5,95,709/- u/s 40(a)(ia) of the Act. 5.3 For the sake of brevity, it may be noticed that this issue was covered by the decision of Hon'ble Bombay High Court in the case of CIT vs. Kotak Securities Limited, (2012) 340 ITR 333 (Bom), wherein it was held that transaction charges paid by an assessee to stock exchange constitute fee for technical services covered u/s 194J and, therefore, liable for TDS. Therefore, the transaction charges paid to CDSL for dematerialization of securities etc. were also charges for technical services covered u/s 194J and, there appellant was liable to deduct tax at source while crediting the transaction charges to CDSL. Since the appellant had not deducted tax at source u/s 194J on CDSL charges of Rs. 5,95,709/-, the Assessing Officer was justified in making 10
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disallowance u/s 40(a)(ia). Accordingly, the disallowance of Rs. 5,95,709/- made as CDSL charges u/s 40(a)(ia) is confirmed."
11. Rival contentions have been heard and records perused. In view of the decision of Bombay High Court in the case of Kotak Securities Limited (supra), as referred by the ld.CIT(A) in his appellate order, the TDS is required to be deducted out of CDSL charges u/s 194J. Since no TDS was deducted by the assessee, the Assessing Officer was justified in disallowing the same u/s 40(a)(ia) of the Income-tax Act, 1961.
12. In the result, both the appeals of the Revenue and assessee are dismissed.
This order has been pronounced in the open court on 15th July, 2013.
Sd/- sd/-
(JOGINDER SINGH) (R. C. SHARMA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 15th July, 2013.
CPU*
9.11.7
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