DCIT CIR 4(2), MUMBAI v. SUNCHAN SECURITIES LTD, MUMBAI

ITA 1173/MUM/2010 | 2006-2007
Pronouncement Date: 21-01-2011 | Result: Dismissed

Appeal Details

RSA Number 117319914 RSA 2010
Bench Mumbai
Appeal Number ITA 1173/MUM/2010
Duration Of Justice 11 month(s) 9 day(s)
Appellant DCIT CIR 4(2), MUMBAI
Respondent SUNCHAN SECURITIES LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 21-01-2011
Assessment Year 2006-2007
Appeal Filed On 12-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI R.K. PANDA(AM) AND SMT ASHA VIJAYARAGHAVAN (JM) ITA NO. 1173/MUM/2010 (ASSESSMENT YEAR-2006-07) THE DCIT CIR 4(2) AAYAKAR BHAVAN MUMBAI-400 020 M/S. SUNCHAN SECURITIES LTD. 7 PARK REACH PROF. ALMEDA PARK BANDRA (W) MUMBAI PAN-AAFCS8953A (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI SURENDRA KUMAR RESPONDENT BY: NONE O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE LD.CIT(A)-8 MUMBAI DATED 4.11.2009 FOR THE A.Y.200 6-07. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE THEREFOR E WE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND DISPOSE OF THIS MATTER EX PARTE ON MERIT. 3. THE GROUND NOS. 1 & 2 IN THE DEPARTMENTAL APPEAL IS THAT THE DELETION BY THE LEARNED CIT(A) THE DISALLOWANCE OF EXPENSES LIKE VSAT LEASELINE AND TRANSACTION CHARGES AMOUNTING TO RS.17 68 339/- . THE AO HELD THAT THE CHARGES PAID TO STOCK EXCHANGE WERE FOR TECHNIC AL SERVICES AND COME WITHIN THE PURVIEW OF SEC. 194J AND 194C OF THE I. T. ACT AND THEREFORE LIABLE FOR DEDUCTION OF TAX. ITA NO. 1173/M/10 2 4. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED THA T THE CHARGES PAID TO STOCK EXCHANGE WERE FOR THE USE OF INFRASTRUCTURE A ND THE PROVISIONS OF SEC. 194J WAS NOT APPLICABLE ON THE SAME. THE LD. CIT(A ) RELYING ON THE DECISION OF ITAT MUMBAI BENCH A IN THE CASE OF KOTAK SECUR ITIES LTD. VS ACIT 24 DTR 214 HELD THAT THE FEES PAID BY THE MEMBERS TO THE STOCK EXCHANGE IS NOT FOR ANY TECHNICAL SERVICES RENDERED AND THEREFO RE TDS IS NOT DEDUCTIBLE ON THE SAME. 5. AGGRIEVED REVENUE IS IN APPEAL BEFORE US. WE FIND IN THE CASE OF KOTAK SECURITIES LTD. VS ACIT( 24 DTR 214) IT WAS HELD AS UNDER: TO CALL A PAYMENT AS FEES FOR TECHNICAL SERVICES I T SHOULD HAVE BEEN SAID IN CONSIDERATION FOR RENDERING BY TH E RECIPIENT OF PAYMENT OF ANY (A) MANAGERIAL SERVICE (B) TECHNICAL OR CONSULTANCY SERVICES; STOCK EXCHANGES MERELY PROVID E FACILITY FOR ITS MEMBERS TO PURCHASE AND SELL SHARES SECURITIES ETC. WITHIN THE FRAMEWORK OF ITS BYE LAWS. IN THE EVENT OF DIS PUTE IT PROVIDES MECHANISM FOR SETTLEMENT OF DISPUTES. IT REGULATES CONDITIONS SUBJECT TO WHICH A PERSON CAN BE A MEMBER AND WHEN AND IN WHAT CIRCUMSTANCES MEMBERSHIP CAN BE TRANSFERRED CANCELLED SUSPENDED. THE EXCHANGE PROVIDES A PLACE WHERE THE MEMBERS MEET AND TRANSACT BUSINESS. THE TRANSACTION FEE IS NOT PAID IN CONSIDERATION OF ANY SERVICE PROVIDED BY THE STOCK EXCHANGE. IT IS A PAYMENT FOR USE OF FACILITIES PROVIDED BY THE STO CK EXCHANGE AND SUCH FACILITIES ARE AVAILABLE FOR USE BY ANY ME MBER. THE PROVISION OF S. 194J WHICH CASTS A BURDEN ON A PERS ON TO DEDUCT AT SOURCE AND TREAT HIM A DEFAULTER ON FAILURE TO D EDUCT TAX AT SOURCE NEEDS TO BE INTERPRETED STRICTLY AND IN THE ABSENCE OF A CLEAR OBLIGATION ON THE PART OF A PERSON SPELT OUT IN UNAMBIGUOUS TERMS BY THE PROVISIONS OF S. 194J R/W EXPLN. 2 TO S. 9(1)(VII). SUCH OBLIGATION CANNOT BE IMPLIED OR LEFT TO THE DI XIT OF THE REVENUE AUTHORITIES. THEREFORE TRANSACTION FEE PAI D CANNOT SAID TO BE A FEE PAID IN CONSIDERATION OF THE STOCK EXCH ANGE RENDERING A TECHNICAL SERVICES TO THE ASSESSEE. THE PROVISIO NS OF S. 194J ARE THEREFORE NOT ATTRACTED. THEREFORE THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE. CONSEQUENTLY THE PROVISIONS OF S. 40(A)(IA) WERE ALSO NOT ATTRAC TED AND THEREFORE THE DISALLOWANCE MADE DIRECTED TO BE DELETED. TRANSACTION FEE PAID TO STOCK EXCHANGE ON THE BASIS OF VOLUME OF TRANSACTION IS PAYMENT FOR USE OF FACILIT IES PROVIDED BY STOCK EXCHANGE AND NOT FOR ANY SERVICES EITHER TEC HNICAL OR MANAGERIAL HENCE PROVISIONS OF S. 194J ARE NOT ATT RACTED AND NO DISALLOWANCE CAN BE MADE BY INVOKING 40(A)(IA). ITA NO. 1173/M/10 3 RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH OF THE TRIBUNAL WE DISMISS THESE GROUNDS RAISED BY THE RE VENUE. 6. GROUND NOS. 3 TO 7 RELATES TO DELETING THE ADDIT ION MADE ON ACCOUNT OF PENALTY OF RS. 12 40 600/- ON VIOLATION OF THE BYE- LAWS OF THE STOCK EXCHANGE WHICH ARE STATUTORY IN CHARACTER AND THUS AMOUNTED TO INFRINGEMENT OF LAW. 7. AGGRIEVED REVENUE IS IN APPEAL BEFORE US. 8. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON TH E ORDER OF THE AO. 9. WE HEARD THE LEARNED DR AND PERUSED THE RECORDS. WE FIND THAT IN THE CASE OF KAIRA CAN CO. LTD. VS DY. CIT (MUM) (32 DTR 485) THE ITAT MUMBAI A BENCH HELD AS FOLLOWS: THE PERUSAL OF THE EXPLANATION TO S. 37(1) SHOWS T HAT IF EXPENDITURE IS INCURRED FOR ANY PURPOSE WHICH IS E ITHER AN OFFENCE OR IS PROHIBITED BY LAW THEN DEDUCTION CANN OT BE ALLOWED I RESPECT OF SUCH EXPENDITURE. A PERUSAL OF DEFINITI ONS IN DICTIONARIES CLEARLY SHOWS THAT IF THERE IS A BREAC H OR VIOLATION OF LAW OR RULE THEN IT IS TO BE TREATED AS OFFENCE. I N THE PRESENT CASE ADMITTEDLY THE ASSESSEE IS GOVERNED BY THE PROVISI ONS OF SEBI ACT. CERTAIN REGULATIONS WERE MADE UNDER THIS ACT WHICH ARE CALLED AS SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS 1997. UNDER THESE REGULATIONS THE AS SESSEE WAS ADMITTEDLY REQUIRED TO MAKE CERTAIN DISCLOSURES AND NON COMPLIANCE OF THE SAME WAS LIABLE TO PENALTY NOT EX CEEDING RS. 5 000 FOR EVERY DAY DURING WHICH SUCH NON-COMPLIANC E CONTINUED. THE P2ERUSAL OF THE SEBI REGULATION SCHEME 2002 CL EARLY SHOWS THAT THE OBJECT WAS TO REGULARIZE THE DEFAULT WHICH WOULD HAVE BEEN BECAUSE OF OVERSIGHT OR LACK OF KNOWLEDGE WHI CH IS APPARENT FROM PARA 3 OF THE RECITAL OF THE SCHEME P ARA 4 PROVIDES IN CLEAR TERMS THAT THE SCHEME WAS BEING INTRODUCED TO ENABLE THE DEFAULTERS TO COMPLY WITH LEGAL REQUIREMENTS UNDER THE REGULATIONS OF 1997. ONCE THE PAYMENT PRESCRIBED U NDER THE SCHEME WAS MADE THE REQUIREMENTS UNDER THE 1997 RE GULATIONS ARE TREATED TO BE COMPLIED WITH AND CONSEQUENTLY T HE PROVISIONS OF SS. 15A AND 24 OF THE SEBI ACT COULD NOT BE ENFO RCED AGAINST SUCH PERSONS. THEREFORE SUCH PAYMENTS CANNOT BE SA ID TO BE PAYMENT FOR VIOLATION OF LAW AND CONSEQUENTLY THE SAME CANNOT BE SAID TO BE A PENALTY UNDER S. 15A OF THE SEBI AC T. THEREFORE THE PROVISIONS OF EXPLANATION TO S. 37 CANNOT BE AP PLIED TO THE ITA NO. 1173/M/10 4 PRESENT CASE CIT VS AHMEDABAD COTTON MFG. CO. LTD . & ORS. (1993) 115 CTR (SC) 401 (1994) 205 ITR 163 (SC) REL IED ON. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDI NATE BENCH OF THE TRIBUNAL WE DISMISS THESE GROUNDS RAISED BY THE RE VENUE. 10. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 21 ST DAY OF JANUARY 2011. SD/- SD/- (R.K. PANDA) ( ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 21 ST JANUARY 2011. RJ COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CENTRAL - I CONCERNED 5. THE DR E BENCH TRUE COPY BY ORDER ASST. REGISTRAR I.T.A.T MUMBAI ITA NO. 1173/M/10 5 DATE INITIALS 1 DRAFT DICTATED ON: 7.01..2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 7.01.2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: ______ S R. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: ______ 9. DATE OF DISPATCH OF ORDER: ______ 10. DATE ON WHICH FILE GOES TO AR