Income Tax Appellate Tribunal - Kolkata
Guiness Securities Limited, Kolkata vs Assessee on 1 June, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH: KOLKATA
[Before Shri N. V. Vasudevan, JM & Shri M. Balaganesh, AM]
I.T.A No.1065/Kol/2013
Assessment Year: 2008-09
M/s. Guiness Securities Ltd. Vs. Deputy Commissioner of Income-tax,
(PAN: AAACG9843L) Circle-6, Kolkata.
(Appellant) (Respondent)
Date of hearing: 30.05.2016
Date of pronouncement: 01.06.2016
For the Appellant: Shri M. D. Shah, AR
For the Respondent: Shri Debasish Banerjee, JCIT, Sr. DR
ORDER
Per Shri M. Balaganesh, AM:
This appeal by assessee is arising out of order of CIT(A)-VI, Kolkata vide Appeal No. 04/CIT(A)-VI/cir-6/11-12/Kol dated 18.02.2013. Assessment was framed by DCIT, Cir-6, Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the "Act") for AY 2008-09 vide his order dated 31.12.2010.
2. The first issue to be decided in this appeal of assessee is as to whether the disallowance u/s. 40(a)(ia) of the Act could be made towards SMS charges to the extent of Rs.6,22,008/- in the facts and circumstances of the case.
2.1. The brief facts of this issue are that the assessee is a registered stock broker. The Ld. AO observed that the assessee had made payments to Max Motilities Pvt. Ltd. - Rs.3,24,508/- and E Biz Technology Pvt. Ltd.- Rs.2,97,500/- towards SMS charges without deduction of tax at source. The Ld. AO made disallowance u/s. 40(a)(ia) of the Act towards the same.
2.2. Before the Ld. CIT(A) the assessee stated that the aforesaid amount of Rs.6,22,008/- paid for SMS charges was not covered under the provisions of chapter XVII of the Act. Hence, the assessee had no liability to deduct tax on the said payment. The assessee further states and submits that according to the provisions of explanation 2 to section 9(1)(vii) and section 194J of the Act the aforesaid SMS service provided in the Mobile Phone cannot be regarded as "technical service". The Ld. CIT(A) observed that the service provider i.e. M/s. Max Motilities Pvt. Ltd. and M/s. E Biz Technology P. 2 ITA No.1065/K/2013 Guiness Securities Ltd. AY 2008-09 Ltd. are not themselves telephone operators but they are providing the services on behalf of the telecom operators. They act as contractors for giving the service between the assessee and the telecom service provider. It was held that M/s. Max Motilities Pvt. Ltd. and M/s. E Biz Technology P. Ltd. are contractors between the assessee and the telecom operator for carrying out the work and to provide the facility of sending of bulk SMS. Therefore, the provisions of section 194C of the act are applicable. The Ld. CIT(A) held that the provisions of section 194J of the Act are not applicable. Aggrieved by the decision of Ld. CIT(A), the assessee is in appeal before us on the following grounds:
"1. For that the CIT(A)-VI, Kol is not justified in holding that the provision of section 194C of the I. T. Act, 1961 is applicable on the amount of expenditure incurred by the appellant for the payment of SMS charges.
2. For that the CIT(A)-VI, Kol is not justified in holding that the provisions of section 40(a)(ia) of the I. T. Act, 1961 is applicable in respect of the expenditure incurred by the appellant company for payment of SMS charges of Rs.6,22,008/-."
2.3. The Learned AR argued that the aforesaid two parties provide an Internet platform to send SMS to various customers of the assessee. There was no oral or written contract entered into by the assessee with these two parties and assessee had just consumed the SMS credits sold by the two parties. He further argued that the provisions of section 194C of the Act could be invoked only when there is a contract for carrying out any 'work' which admittedly requires human intervention. In the instant case, the aforesaid two parties were providing only an interface between the stock broker's software and the customer wherein the net effect of the transactions in the contract notes gets automatically interfaced with Internet platform provided by the two parties and the SMS is generated to the customers without any element of human intervention. This is nothing but transmission of SMS. He placed reliance on the decision of the Coordinate bench of this Tribunal in the case of ITO Vs. Saha Agency in ITA No. 2453/Kol/2013 dated 20.05.2016, which in turn, placed reliance on the decision of Hon'ble Calcutta High Court in the case of M/s. Stumm India, ITA No. 127 of 2009 dated 16.08.2010. With regard to the absence of human intervention, he placed reliance on the decision of the Coordinate bench of this Tribunal in the case of DCIT Vs. West Bengal State Electricity Distribution Co. ltd. in ITA Nos. 1397, 1398 & 1428/Kol/2013 dated 04.05.2016.
3 ITA No.1065/K/2013Guiness Securities Ltd. AY 2008-09 2.4. In response to this, Ld. DR argued that there must be some oral or written contract between the assessee and the aforesaid two parties without which there is no reason for these two parties to play a role for transmission of SMS to the customers of the assessee. Accordingly, he argued that the works indeed carried out by these two parties and hence, the provisions of section 194C of the Act are very much applicable.
2.5. We have heard rival submissions and perused the material available on record and the case laws cited by the parties. We find that the nature of services rendered by these two parties are just to provide an Internet platform wherein the software of stock broker gets automatically interfaced with Internet platform without any human intervention and SMS gets automatically generated and sent to customers of assessee. It can at best be considered only as these two parties selling SMS credits to the assessee. It is nobody's case that the transactions fall under the ambit of section 194J of the Act. In order to apply the provisions of section 194C of the Act, there should be two main ingredients - (i) the existence of contract (whether oral or written) and (ii) such contract should be for carrying out any work requiring the human intervention. In the instant case, there is no contract entered into by and between the assessee with two parties as we find that SMS credits sold by two parties were just consumed by the assessee on need basis. In this regard, we find that the case law relied on by the ld. AR on the decision of Kolkata Tribunal in the case of Saha Agency, supra is well founded. In the said decision it was held as under:
"3.7. We have heard rival submissions and perused the material available on record and case laws cited above. We find in respect of payments made to Air Transport Corporation (Assam) Ltd., the Ld. CIT(A) had recorded a categorical finding that there was no oral or written contract the assessee had with lorry operators as vehicles were hired whenever the need arose. This finding has not been controverted by the revenue before us. In this regard, the reliance placed by the Ld. AR on the decision of jurisdictional High Court in the case of M/s. Stumm India, supra, wherein it has been held as under:
"It is urged before us that the learned Tribunal ought not to have accepted the judgment and order of the CIT (Appeal) who has quashed the disallowance of deduction of Rs.41,33,710/- and on account of tax deduction at source. The learned Tribunal has recorded the fact that the department has not been able to bring any material on record to show that the assessee has made the payment to the transporters in pursuance of contract for carriage of goods of the assessee and the question of deduction at source under section 194C does not and cannot arise. In the absence of evidence of payment made by the assessee to the transporters, the assessee cannot be saddled with the liability of deducting tax at source. Before us no other point has been urged nor it is said that the aforesaid fact finding is truthful without any basis whatsoever."4 ITA No.1065/K/2013
Guiness Securities Ltd. AY 2008-09 Hence, we hold that the provisions of section 194C of the Act cannot be made applicable to the payments made to Air Transport Corporation (Assam) Ltd."
2.6. We find that the activity carried on in the instant case does not fall under the definition of 'work' in terms of section 194C of the Act as it does not involve any human intervention. In this regard, reliance is placed on the decision of Coordinate bench of this Tribunal in the case of West Bengal State Electricity Distribution Co. Ltd., supra, wherein it was held as under:
"5. We find that the payments in respect to item no. 1 and item no. 4 as mentioned in above para 3 i.e. are the expression transmission charges and/or wheeling charges entail distribution of electricity in the area of corporation and the charges could not be subject matter to the provisions of section 194C or 194J of the Act. This was restricted to the case of the assessee in view of the public function to be undertaken by it, as a result of restructuring of West Bengal State Electricity Distribution Co. Ltd. The wheeling charges represent the charges for permitting use of state transmission utility for permitting use of state transmission utility by the person other than the distribution licensee. The transmission charges simply constitute a fee for availing of the transmission utility to be used by open asset concept for distribution of electricity, licensees and consumers. In our view, the wheeling charges and transmission charges are neither contractual payments nor fee for technical services u/s. 194C or 194J of the Act as contended by revenue because there is no human intervention or human interface and, therefore, this cannot be contractual payments or fee for technical services. Therefore, we are of the view that there is nothing on record to support the contentions of the revenue that the wheeling charges and transmission charges assumed the character of contractual payments and fee for technical services as noted by AO. This view of ours is supported by the decision of Hon'ble Bombay High Court in the case of CIT Vs. Maharastra State Electricity Distribution Co. Ltd. (2015) 375 ITR 23 (Bom). We find that this issue is squarely covered by this decision in favour of assessee. Therefore, on these two payments, in view of our reasoning, we confirm the order of CIT(A). This common issue of revenue's appeals is dismissed."
Respectfully following the aforesaid judicial precedents and in view of the aforesaid facts and circumstances, we allow ground nos. 1 and 2 raised by the assessee.
3. The next issue to be decided in this appeal of assessee is as to whether the assessee is eligible for getting rebate u/s. 88E of the Act in the facts and circumstances of the case.
3.1. Brief facts are that the assessee claimed rebate u/s. 88e of the Act to the extent of Rs.17,34,845/-. The Ld. AO restricted the same to Rs.2,66,312/- on the basis of some calculations. The basis of assessee's claiming rebate u/s. 88E of the Act is given below:
Computation of Tax rebate u/s. 88E 5 ITA No.1065/K/2013 Guiness Securities Ltd. AY 2008-09 Net Taxable Income 16,974,200.00 Net Tax payable before surcharge & E.cess 5,092,260.00 Avg. rate of Tax 30.00% Gross Profit in share trading Sale of shares 21,555,959.00 Income from derivative trading 9,076,161.00 Increase in stock 3,662,800.04 34,294,920.04 Less: Purchase of shares 26,236,095.00 Demat charges 728.00 26,236,823.00 Profit from share trading 8,058,097.04 Tax at average rate 30% 2,417,429.00 STT claimed 1,734,845.00 That from the aforesaid computation of tax rebate u/s. 88E it is apparently clear for the financial year relating to the assessment year the assessee company was entitled to claim rebate up to Rs.2,417,429/- but, the assessee has only claimed the rebate of Rs.1734845/- under section 88E, which is the actual amount of STT paid by/he assessee company during the financial year relating to the assessment year 2008-2009. The said payment of STT is also an admitted fact. Hence,' the additions made in the said assessment u/S 88E are incorrect, arbitrary, and contrary to the relevant provisions of the act."
3.2. The Ld. CIT(A) observed as follows:
"48. I have carefully considered the observations of the Assessing Officer in the assessment order and submissions of the appellant. The Assessing Officer has determined the ratio of receipt from share trading by taking the gross receipt as per income in the profit and loss account which includes sale of shares; increase in stock but without subtracting purchase of shares. On the other hand, the appellant has calculated the rebate u/s 88 by dividing the gross income from share trading with the net taxable income shown in the return without allocating any expenses to the share trading income out of total expenditure of Rs.17,88,61,194/-. The correct basis for the calculation is gross receipt from the various heads of income which is as follows:-
Stock broking operations Rs. 13,76,75,740/-
Depository services Rs. 34,20,301/-
Other income Rs. 2,08,06,025/-
Rs. 16,19,02,066/-
Share trading & F&O Rs. 80,58.244/-
Rs. 16,99,60,310/-
49. The Assessing Officer will calculate the taxable amount on account of STT related income by taking the figure of share trading at an amount of Rs.80,58,824/- and gross receipt of Rs.16,99,60,310/-. The STT related taxable income is 4.741% of the total taxable income as per this data. The Assessing Officer will calculate the tax as per the appeal effect resulting in to modification of this calculation and decide accordingly. The total taxable income will be determined by the Assessing Officer after the appeal effect and accordingly the rebate u/s 88E will be given on the tax calculated accordingly as discussed above stating 6 ITA No.1065/K/2013 Guiness Securities Ltd. AY 2008-09 that STT related taxable income is 4.741% of the total taxable income as per the data. This ground of appeal is partly allowed."
Aggrieved, assessee is in appeal before us on the following ground nos. 3 and 4:
"3. For that the said CIT(A)-VI, Kolkata has failed and/or neglected to consider the total rebate of rs.17,34,845/- claimed by the appellant company u/s. 88e of the I. T. Act, 1961.
4. For that the Ld. CIUT(A)-VI, Kol is not justified in holding that the appellant is entitled to get only 4.741% of its total taxable income as rebate u/s. 88e of the I. T. Act, 1961 for the assessment year 2008-09."
3.3. The Ld. AR argued that the assessee is having composite business of trading in shares wherein it incurred loss of Rs.10,17,337/-; income from stock broking, income from depository services, income from trading in derivatives and other income and after deducting expenses thereon, reported a net profit of Rs.1,83,53,129/-. The Ld. AR claimed that the infrastructure is required only for stock broking activity carried on by the assessee and no expenses were incurred by the assessee for trading in shares. However, without prejudice to this argument, he placed reliance on the Coordinate bench decision in the case of Destiny Securities Ltd. Vs. DCIT in ITA Nos. 1447 & 1446/Kol/2012 dated 29.04.2016 in support of his contention. In response to this, Ld. DR vehemently supported the orders of the lower authorities.
3.4. We have heard rival submissions and perused the material available on record and the case law cited by the ld. AR. The facts stated hereinabove remained undisputed are not reiterated herein for the sake of brevity. We find that the Coordinate bench of this Tribunal had dealt with similar issue in the case of Destiny Securities Ltd., supra wherein it was held as under:
"5. In view of this, ld. Counsel for the assessee stated that in the present case there is no dispute in regard to direct expenses whereas dispute is limited to indirect expenses and the nature of expenses are fixed and do not change with the volume of self business, hence should be apportioned over the core business of brokerage but Ld. Counsel for the assessee finally agreed for proportionate disallowance. In respect to interest on FD, ld. Counsel for the assessee stated that interest on FD is not made out of surplus fund but 100% of these FDs have been deposited with the Stock Exchange as margin money against which business of bunch clients and self was carried on. Qua this, ld. Counsel for the assessee filed complete chart in respect to FD interest and other interest income as well as indirect expenses. Finally, Ld. Counsel for the assessee stated that a proportionate disallowance in respect to transaction relating to brokerage can be attributed @ 5 to 10% at the best. Ld. Counsel for the assessee for this referred to assessment order and stated that assessee's self transaction i.e. own transactions are only to the extent of 41% whereas brokerage/clients' transactions are at 59%. In view of this ld. Counsel for the assessee argued that the disallowance of indirect expenses and 7 ITA No.1065/K/2013 Guiness Securities Ltd. AY 2008-09 disallowance in respect to interest income the disallowance of STT can be attributed at 5 to 10%. On the other hand, the Ld. Sr. DR also agreed that the issue can be decided in term of the decision of M/s. Millennium Stock Broking (P) Ltd., supra.
6. We have heard rival submissions and gone through facts and circumstances of the case. We find that the above facts are undisputed and only issue before us for our adjudication in this case is that how much percentage of disallowance of STT rebate is to be given. In view of the above facts as discussed above, the assessee's self transactions are to the tune of 41% and brokerage/clients' transactions pertained to 59%. The proposition of law laid down by this Coordinate bench in the case of M/s. Millennium Stock Broking (P) Ltd., supra, if we go by that then at the best revenue can disallow rebate u/s. 88E of the Act qua brokerage income at 10%, both on indirect expenses as well as interest. We order accordingly."
3.5. Respectfully following the aforesaid decision, we direct the Ld. AO to disallow the rebate u/s. 88E of the Act at 10% on the claim of the assessee and grant relief for the remaining amount. Accordingly, ground nos. 3 and 4 raised by the assessee are partly allowed.
4. The ground no. 5 raised by the assessee is with regard to levy of interest u/s. 234D of the Act, which is consequential in nature and hence, does not require any adjudication.
5. In the result, the appeal of the assessee is partly allowed as indicated above.
6. Order is pronounced in the open court on 01.06.2016 Sd/- Sd/-
(N. V. vasudevan) (M. Balaganesh)
Judicial Member Accountant Member
Dated : 1st June, 2016
Jd.(Sr.P.S.)
Copy of the order forwarded to:
1. APPELLANT - M/s. Guiness Securities Ltd., 10, Canning Street, 3rd floor, Kolkata-700 001.
2 Respondent -DCIT, Circle-6, Kolkata.
3. The CIT(A), Kolkata
4. CIT , Kolkata
5. DR, Kolkata Benches, Kolkata /True Copy, By order, Asstt. Registrar.