Income Tax Appellate Tribunal - Mumbai
Kisan Ratilal Choksey Shares & ... vs Assessee on 14 June, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'A', MUMBAI.
Before Shri D. Manmohan, Vice President and
Shri J. Sudhakar Reddy, Accountant Member
I.T.A. No. 4347/Mum/2009.
Assessment Year : 2005-06
Addl. Commissioner of Income Tax, M/s Kisan Ratilal Choksey
Range-4(3), Mumbai. Vs. Shares & Securities,
1102, Stock Exchange
Building, Dalal Street,
Fort, Mumbai - 400 001.
PAN : AAACK4716G
Appellant Respondent
I.T.A. No. 4033/Mum/2009.
Assessment Year : 2005-06
M/s Kisan Ratilal Chokse Addl. Commissioner of
Shares & Securities, Vs. Income Tax, Rg.-4(3),
Mumbai. Mumbai.
Appellant Respondent.
Department by : Shri Piyush Jain.
Assessee by : Shri Deepak Shah.
ORDER
Per J. Sudhakar Reddy, A.M.
These are cross appeals directed against the order of the CIT(Appeals)- XIV, Mumbai dated 14-06-2009 for assessment year 2005-06.
22. The assessee is a broker and also renders other related financial services. The first issue that arises in these appeals are the disallowances on account of VSAT charges, lease line charges and transaction charges u/s 40(a)(ia) of the Act on the ground that TDS has not been deducted in terms of section 194J. The second issue is the disallowance of depreciation on motor vehicle on the ground that the same has been registered in the name of the Director and not in the name of the company. The third issue is whether the explanation to section 37(1) is applicable for penalties levied by SEBI for breach of certain operational regulations.
3. We have heard Mr. Piyush Jain, learned DR and Mr. Deepak Shah, learned counsel for the assessee.
4. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record and the orders of the authorities below as well as the case laws cited, we hold as follows :
5. Ground No. 1 of the Revenue appeal is in respect of deletion of an addition on account of VSAT charges. The first appellate authority held that no tax need be deducted at source from VSAT charges by holding as follows :
" From the reading of the above explanation (2) it is apparent that the term "fees" for technical services has wide import in its meaning as it includes rendering any managerial, technical consultancy services. Now it needs to be examined whether in the present case services rendered by the stock exchange falls within the ambit of fees for technical services. As far as VSAT charges are concerned I am of the view that they were in the nature of reimbursement charges paid by the members of stock exchange in lieu of infrastructure and trading facilities provided by the stock exchange; trading on the stock exchange is facilitated through 3 statellite based communication network which enables the trading member to trade on exchange from their respective places spread across the country. The DOT has granted licence to stock exchange for installing and setting of close user group telecommunication network based on VSAT and lease line. It may also be noted that the stock exchange is not supposed to derive any profit on such VSAT and leaseline charges received by them as these charges are simply to be passed on to the other agencies or government departments. In my opinion such payments cannot come within the ambit of 'fee for technical services', within the meaning of definition given in Explanation 2 to section 9(1)(vii) as it is neither any managerial nor technical nor consultancy services. Therefore, I hold that provisions of section 194J are not attracted on the VSAT charges amounting to Rs.1,18,500/-. Therefore, no disallowance could be made on this amount u/s 40a(ia). Thus, the appellant gets relief on this limited point."
This decision is in line with the judgment of the Hon'ble Madras High Court in the case of Skycell Communications Ltd. & Anr. Vs. DCIT 251 ITR 53 as well as the judgment of the Hon'ble Delhi High court in the case of CIT vs. Bharti Cellular Ltd. 220 CTR 9 (Del) 228. The Mumbai D-Bench of the Tribunal in the case of Pacific Internet (India) (P) Ltd. vs. ITO reported in 27 SOT 523 held as follows :
" There is no dispute that the assessee company is engaged in the business of providing internet excess services to its corporate clients and consumers. For providing the sales service, the assessee needs bandwidth network operating infrastructure. The controversy is whether the services are facilities availed by the assessee from VSNL/MTNL and other concerns towards bandwidth and network operating infrastructure can be said to be 'technical services' within the meaning of s. 194j r/w Expln. 2 to cl. (vii) of s. 9(1). As per provisions of s. 194j of the Act (i) there should be payment in the nature of fees and (ii) said should be for availing the technical services. Again expression 'technical service' has not been defined in s. 194J but meaning given to the said expression has been adopted from Expln. 2 to cl. (vii) of s. 9(1). The assessee has availed the bandwidth services and other infrastructure for providing the internet excess to its customers. These are standard facilities availed by the assessee. The payment made by the 4 assessee company to VSNL, MTNL and other concerns for availing the services of the bandwidth net work infrastructure cannot be said to be technical services within the meaning of s. 194J r/w Expln. 2 to cl. (vii) of s. 9(1). The order passed by the AO under s. 201(1) and 201(1A) is cancelled. - CIT vs. Estel Communications (P) Ltd. (2008) 217 CTR (Del) 102 relied on. "
6. Applying the propositions laid down in both the cases to the facts of this case, we have to uphold the order of the first appellate authority as far as VSAT charges are concerned. But as far as lease-line charges and transaction charges are concerned, the order of the first appellate authority has to be necessarily reversed as the findings are not in consonance with the decision of the Tribunal in the case Pacific Internet (India) (P) Ltd. (supra) as well as the decision of the Mumbai A- Bench of the Tribunal in the case of Kotak Securities Ltd. vs. Addl. CIT, 25 SOT 440 (Mum), wherein it is held as follows :
" Section 194J, read with section 40a(ia) of the Income-tax Act, 1961 - Deduction of tax at source - Technical services fee - Assessment year 2005-06 paid transaction fees to various stock exchanges and claimed same as deduction - Assessing Officer applying section 40(a)(ia) disallowed said transaction fee on ground that stock exchanges were providing technical services to assessee, so transaction fee was a fee paid for rendering technical services to it and assessee in terms of section 194J ought to have deducted tax at source on such amounts - Whether since stock exchanges do not render any managerial service nor do they render any technical consultancy service, transaction fee paid could not be said to be a fee paid in consideration of stock exchange rendering any technical services to assessee - Held, yes - Whether, therefore, section 194J would not be applicable to such circumstances and, therefore, disallowance made was to be deleted - Held, yes.
7. This issue of disallowance of lease-line charges and transaction charges on the ground that the assessee has not deducted TDS, arises in the assessee's appeal which we will deal at a later stage.5
8. In the result, ground No. 1 of the Revenue is dismissed.
9. Coming to ground No. 2 of the Revenue, it is directed against the disallowance of depreciation on motor car for the reason that the same is not registered in the name of a Company but is registered in the name of the Director. The car has been purchased with the assessee's own fund and is reflected in the balance sheet of the company. The AO does not dispute these facts. The only ground on which the AO disallows depreciation on motor car is that the registration is not done in the name of the company. This conclusion of the AO is wrong. The Hon'ble Bombay High Court in the case of CIT vs. Dilip Singh Sardarsingh Bagga 201 ITR 995 held that registration under the Motor Vehicles Act, is not an essential prerequisite for the acquisition of ownership of the motor vehicle and that an assessee purchasing a motor vehicle for valuable consideration and using the same for his business cannot be denied benefit of depreciation on the ground that transfer was not recorded under Motor Vehicle Act. The Delhi A-Bench of the Tribunal in the case of Usha Rectifier Corporation (I) Pvt. Ltd. vs. IAC 35 TTJ 602 held as follows :
"Depreciation - Ownership - Registration of vehicle under the Motor Vehicles Act not granted in the name of assessee-company- Registration is not an essential pre-requisite for the acquisition of owner-ship of a motor vehicle, but is an obligation cast upon the owner of a vehicle for the purpose of running a vehicle in any public place - In the present case, car was purchased with the funds of the owner of the car, was, therefore, entitled to depreciation - CIT vs. Salkia Transport Associates (1983) 33 CTR (Cal) 198 : (1983) 143 ITR 39 (Cal) applied.
Respectfully applying the propositions laid down to the facts of the case, we uphold the order of the first appellate authority and dismiss ground No.2 of the Revenue.
610. Ground No. 3 of the Revenue is against the deletion of disallowance being penalty of R.1,77,156/- levied by BSE on the ground that there are certain violations. Violations in question have been brought out at page 15 of the assessment order which is extracted below for ready reference :
" The charges levied relate to non-maintenance of complete records, delay in payment of funds and securities, incomplete KYC forms, short collection of margins etc. "
In our considered opinion, the issue in question is covered by the decision of the jurisdictional Tribunal in the case of ITO vs. VRM Share Broking P. Ltd. 27 SOT 469 (Mum), F-Bench wherein it is held as follows :
"HELD-I From the perusal of various notifications issued by SEBI, it was apparent that they were issued mainly in the context of the risk management, rather than as a penal provision for punishing the defaulters or deeming the transactions illegal. In view of the same, it was opined that with or without the provisions of the margin money the loss could not be held as illegal loss denying the benefit of set off of same against the income or allowing the same against the income or allowing the same to carry forward to the later years. The order of the Commissioner (Appeals) therefore did not call for any interference.
HELD-II The amount paid was a penalty levied for violation of the margins imposed by the SEBI on the share brokers. From the notifications issued by the SEBI, it was found that such margins were imposed in order to reduce the risk components and, therefore, those were basically risk management oriented penalties, which were routine in nature. It was also found that those violations were offered by payment of penalty as in the instant case.7
Respectfully following the same, we uphold the order of the first appellate authority and dismiss this ground of the Revenue.
11. Coming to the assessee's appeal in ITA No. 4033/Mum/2009, the sole issue is the disallowance of lease-line charges and transaction charges on the ground that no deduction of tax at source has been made on payments to BSE and NSE. In view of our discussion in the Revenue's appeal on the very same issue of applicability of section 194J, we allow this ground of the assessee.
12. In the result, the appeal of the Revenue is dismissed and the appeal of the assessee is allowed.
Order pronounced on this 4th day of June, 2010.
Sd/- Sd/-
(D. Manmohan) (J. Sudhakar Reddy)
Vice President. Accountant Member.
Mumbai,
Dated : 04.06.2010.
Wakode
Copy forwarded to :
1. Appellant.
2. Respondent
3. C.I.T.
4. CIT(A)
5. DR, A-Bench.
(True copy)
By Order
Asstt. Registrar,
ITAT, Mumbai Benches, Mumbai.