DCIT 4(1), MUMBAI v. BHAGWANDAS GORDHANDAS FINANCAIL P.LTD, MUMBAI

ITA 132/MUM/2010 | 2006-2007
Pronouncement Date: 06-07-2011 | Result: Dismissed

Appeal Details

RSA Number 13219914 RSA 2010
Assessee PAN AAACB2121J
Bench Mumbai
Appeal Number ITA 132/MUM/2010
Duration Of Justice 1 year(s) 5 month(s) 30 day(s)
Appellant DCIT 4(1), MUMBAI
Respondent BHAGWANDAS GORDHANDAS FINANCAIL P.LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 06-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted J
Tribunal Order Date 06-07-2011
Date Of Final Hearing 21-06-2011
Next Hearing Date 21-06-2011
Assessment Year 2006-2007
Appeal Filed On 07-01-2010
Judgment Text
1 ITA NOS 6655/M/2009 & 132/M/2010 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BENCHES MUMBAI BEFORE SHRI PRAMOD KUMAR AM & SHRI VIJAY PAL RAO JM ITA NO. 6655/MUM/2009 (ASST YEAR 2006-07) M/S BHAGWANDAS GORDHANDAS FINANCIAL P LTD C/O KALYANIWALLA & MISTRY ARMY & NAVY BLDGS - 3 RD FLOOR 148 MAHATMA GANDHI ROAD FORT MUMBAI 1 VS THE ADDL COMMR OF INCOME TAX RANGE 4(1) MUMBAI (APPELLANT) (RESPONDENT) PAN NO.AAACB2121J ITA NO. 132/MUM/2010 (ASST YEAR 2006-07) THE ADDL COMMR OF INCOME TAX RANGE 4(1) MUMBAI VS M/S BHAGWANDAS GORDHANDAS FINANCIAL P LTD C/O KALYANIWALLA & MISTRY ARMY & NAVY BLDGS - 3 RD FLOOR 148 MAHATMA GANDHI ROAD FORT MUMBAI 1 (APPELLANT) (RESPONDENT) A SSESSEE BY SHRI M M GOLVALA/SANDEEP CHETIWALA REVENUE BY MRS KUSUM INGALE PER VIJAY PAL RAO JM THESE ARE CROSS APPEALS BY THE ASSESSEE AND THE RE VENUE AGAINST THE ORDER DATED 14.10.2009 OF THE CIT(A) RELATING TO ASSESSME NT YEAR 2006-07. ITA NO. 6655/MUM/2009 ( BY THE ASSESSEE) 2 AT THE TIME OF HEARING THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE DOES NOT WANT TO ARGUE THE APPEAL IN ITA N O.6655/MUM/2009 AND DESIRED TO WITHDRAW THE SAME. THE ASSESSEE HAS ALSO FIELD A LETTER DATED 20.6.2011 AND PRAY 2 ITA NOS 6655/M/2009 & 132/M/2010 TO ALLOW WITHDRAWAL OF THE APPEAL IN QUESTION. THE LD DR HAS NO OBJECTION IF THE APPEAL OF THE ASSESSEE IS DISMISSED AS WITHDRAWN. 3 IN VIEW OF THE SUBMISSIONS OF BOTH THE PARTIES W E ACCEPT THE REQUEST OF THE ASSESSEE FOR WITHDRAWAL OF THE APPEAL IN ITA NO.665 5/M/2009 AND THE SAME IS STANDS DISMISSED AS WITHDRAWN. ITA NO. 132/MUM/2010 ( BY THE REVENUE) 4 THIS REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) ERRED IN DELETING THE DISALLOWANCE OF V-SAT LEASIN G AND TRANSACTION CHARGES OF RS. 1 47 90 043 U/S 40(A)(IA) WITHOUT APPRECIATIN G THE FACTS THAT THESE WERE COMPOSITE CHARGES FOR PROFESSIONAL AND TECHNICAL SERVIC ES RENDERED BY THE STOCK EXCHANGE TO ITS MEMBERS AND THE ASSESSEE HAS FAILED TO DEDUCT TDS THEREON. II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD CIT(A) ERRED IN IGNORING THE FACT THAT THESE SERVICES ARE ESS ENTIAL IN NATURE AS THEY CAN ONLY BE AVAILED BY MEMBERS OF STOCK EXCHANGE. III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD CIT(A) ERRED IN IGNORING THE FACTS THAT USE OF TECHNOLOGY AND ALGORITHMIC BASED PROGRAMS HAVE CONVERTED AN ERSTWHILE PHYSICAL MARKE T INTO A DIGITALLY OPERATED MARKET. IV) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD CIT(A) ERRED IN IGNORING THE FACT THAT THE SERVICES RENDE RED BY THE BROKERS ARE NOT STANDARD SERVICES BUT SERVICES THAT HAS BEEN DEVELOPE D TO CATER TO THE NEEDS OF THE BROKER COMMUNITY TO FACILITATE TRADING. V) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) HAS OVERLOOKED THE FACT THAT THE BROKERS HAVE IN SUB SEQUENT YEARS THEMSELVES STARTED DEDUCING THE TDS ON SUCH PAYMENT S AND THAT THERE IS NO REASON TO GIVE A DIFFERENT TREATMENT IN THIS YEAR. VI) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER NOT TO TREA T THE INTEREST OF RS. 29 60 673/-AS INCOME FROM OTHER SOURCES HOLDING TH AT INTEREST INCOME ON FIXED DEPOSITS AS MARGIN MONEY AHS INTRICATE AND CLOS E RELATIONSHIP OF ASSESSEES BUSINESS WITHOUT APPRECIATING THE FACT T HAT IT IS NOT THE BROKERAGE EARNED BY THE ASSESSEE FROM ITS BUSINESS BUT ITS A I NTEREST FROM BANK. 3 ITA NOS 6655/M/2009 & 132/M/2010 VII) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE IMPUGNED ORDER OF THE LD CIT(A) IS CONTRARY TO LAW AND CONSEQUENTLY MERITS TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RE STORED. 5 GROUND NO.1 REGARDING THE DISALLOWANCE OF V-SAT LEASING AND TRANSACTION CHARGES U/S 40(A)(IA). 5 WE HAVE HEARD THE LD DR AND THE LD AR OF THE ASSE SSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOT E THAT THIS ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF KOTAK SECUR ITIES LTD REPORTED IN 25 SOT 440. WE FURTHER NOTE THAT THE TRIBUNAL HAS BEEN REGULARL Y FOLLOWING THE SAID DECISION WHILE DECIDING THIS ISSUE. THE RELEVANT PORTION OF THE OR DER OF THE TRIBUNAL READS AS UNDER: 23. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE RELEV ANT PROVISIONS OF LAW MAY BE REFERRED TO FOR THE PURPOSE OF CLARITY. '194J. FEES FOR PROFESSIONAL OR TECHNICAL SERVICES. (1) ANY PERSON NOT BEING AN INDIVIDUAL OR AN HUF WHO IS RESPONSIBLE F OR PAYING TO A RESIDENT ANY SUM BY WAY OF (A) FEES FOR PROFESSIONAL SERVICES OR (B) FEES FOR TECHNICAL SERVICES SHALL AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE WHICHEVER IS EARLIER DEDUCT AN AMOUNT EQUAL TO FIVE PER CENT OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THEREIN: EXPLANATION: FOR THE PURPOSES OF THIS SECTION (A) PROFESSIONAL SERVICES MEANS SERVICES RENDERED BY A PERSON IN THE COURSE OF CARRYING ON LEGAL MEDICAL ENGINEERING O R ARCHITECTURAL PROFESSION OR THE PROFESSION OF ACCOUNTANCY OR TECH NICAL CONSULTANCY OR INTERIOR DECORATION OR ADVERTISING OR SUCH OTHER PROFESSION AS IS NOTIFIED BY THE BOARD FOR THE PURPOSES OF S. 44AA O R OF THIS SECTION; (B) FEES FOR TECHNICAL SERVICES SHALL HAVE THE SA ME MEANING AS IN EXPLN. 2 TO CL. (VII) OF SUB-S. (1) OF S. 9.' THE PROVISIONS OF S. 9(1)(VII) EXPLN. 2 IS AS FOLLO WS : 'EXPLANATION 2 : FOR THE PURPOSES OF THIS CLAUSE FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUDING ANY LU MP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL TECHNICAL OR 4 ITA NOS 6655/M/2009 & 132/M/2010 CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SE RVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERAT ION FOR ANY CONSTRUCTION ASSEMBLY MINING OR LIKE PROJECT UNDE RTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD SALARIES.' 24. AS CAN BE SEEN FROM EXPLN. 2 THE FEE FOR TECHN ICAL SERVICES MEANS ANY CONSIDERATION FOR RENDERING ANY TECHNICAL SERVI CE. THE EXPLANATION DOES NOT BY ITSELF THROW ANY LIGHT ON WHAT IS A TEC HNICAL SERVICE. TWO THINGS ARE HOWEVER CLEAR FROM THE SETTING OF S. 9 (1)(VII) R/W EXPLN. 2 VIZ. (I) THAT THERE SHOULD BE AN AGREEMENT TO ENGAGE/UTI LISE TECHNICAL SERVICE AND A PERSON UNDERTAKING TO RENDER THEM; (I I) IF THERE IS A CONTRACT OF EMPLOYMENT AND THE EMPLOYEE RENDERS TEC HNICAL SERVICE UNDER A CONTRACT OF EMPLOYMENT THEN THE PAYMENT OF REMUNERATION FOR SUCH SERVICES ARE OUTSIDE THE PURVIEW OF 'FEES FOR TECHNICAL SERVICES'. 25. THE HONBLE MADRAS HIGH COURT IN THE CASE OF SK YCELL COMMUNICATIONS LTD. VS. DY. CIT (2001) 170 CTR (MAD ) 238 : (2001) 251 ITR 53 (MAD) HAD AN OCCASION TO EXAMINE THE DEFINIT ION OF 'FEE FOR TECHNICAL SERVICES' IN THE CONTEXT OF PAYMENT OF FE ES BY A CELLULAR/MOBILE PHONE SUBSCRIBER TO THE OPERATOR OF THE CELLULAR/MOBILE PHONE FACILITY. THE FOLLOWING WERE ITS OBSERVATIONS : 'THUS WHILE STATING THAT TECHNICAL SERVICE WOULD INCLUDE MANAGERIAL AND CONSULTANCY SERVICE THE LEGISLATURE HAS NOT SE T OUT WITH PRECISION AS TO WHAT WOULD CONSTITUTE TECHNICAL SERVICE TO RENDER IT TECHNICAL SERVICE. THE MEANING OF THE WORD TECHNICAL AS GI VEN IN THE NEW OXFORD DICTIONARY IS ADJECTIVE : 1. OF OR RELATING TO A PARTICULAR SUBJECT ART OR CRAFT OR ITS TECHNIQUES : TECHNICAL TERMS (E SPECIALLY OF A BOOK OR ARTICLE) REQUIRING SPECIAL KNOWLEDGE TO BE UNDERSTO OD : A TECHNICAL REPORT. 2. OF INVOLVING OR CONCERNED WITH APPLIED AND INDUSTRIAL SCIENCES: AN IMPORTANT TECHNICAL ACHIEVEMENT. 3 RES ULTING FROM MECHANICAL FAILURE: A TECHNICAL FAULT. 4. ACCORDING TO A STRICT APPLICATION OR INTERPRETATION OF THE LAW OR THE RUL ES: THE ARREST WAS A TECHNICAL VIOLATION OF THE TREATY. HAVING REGARD TO THE FACT THAT THE TERM IS REQUIRED TO BE UNDERSTOOD IN THE CONTEXT IN WHICH IT IS USED FEE FOR TECHNICAL SERVICES COULD ONLY BE MEANT TO COVER SUCH THINGS TECHNICAL AS ARE CAPABLE OF BEING PROVIDED BY WAY OF SERVICE FOR A FEE. THE POPULAR MEANING AS SOCIATED WITH TECHNICAL IS INVOLVING OR CONCERNING APPLIED AND INDUSTRIAL SCIENCE. IN THE MODERN DAY WORLD ALMOST EVERY FACET OF ONE S LIFE IS LINKED TO SCIENCE AND TECHNOLOGY INASMUCH AS NUMEROUS THINGS USED OR RELIED UPON IN EVERYDAY LIFE IS THE RESULT OF SCIENTIFIC A ND TECHNOLOGICAL DEVELOPMENT. EVERY INSTRUMENT OR GADGET THAT IS USE D TO MAKE LIFE EASIER IS THE RESULT OF SCIENTIFIC INVENTION OR DEVELOPMEN T AND INVOLVES THE USE OF TECHNOLOGY. ON THAT SCORE EVERY PROVIDER OF EVE RY INSTRUMENT OR FACILITY USED BY A PERSON CANNOT BE REGARDED AS PRO VIDING TECHNICAL SERVICE. 5 ITA NOS 6655/M/2009 & 132/M/2010 WHEN A PERSON HIRES A TAXI TO MOVE FROM ONE PLACE T O ANOTHER HE USES A PRODUCT OF SCIENCE AND TECHNOLOGY VIZ. AN AUTOM OBILE. IT CANNOT ON THAT GROUND BE SAID THAT THE TAXI DRIVER WHO CONTRO LS THE VEHICLE AND MONITORS ITS MOVEMENT IS RENDERING A TECHNICAL SERV ICE TO THE PERSON WHO USES THE AUTOMOBILE. SIMILARLY WHEN A PERSON T RAVELS BY TRAIN OR IN AN AEROPLANE IT CANNOT BE SAID THAT THE RAILWAYS O R AIRLINESS RENDERING A TECHNICAL SERVICE TO THE PASSENGER AND THEREFORE THE PASSENGER IS UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE TO THE RAILWAY OR THE AIRLINE FOR HAVING USED IT FOR T RAVELLING FROM ONE DESTINATION TO ANOTHER. WHEN A PERSON TRAVELS BY BU S IT CANNOT BE SAID THAT THE UNDERTAKING WHICH OWNS THE BUS SERVICE IS RENDERING TECHNICAL SERVICE TO THE PASSENGER AND THEREFORE THE PASSEN GER MUST DEDUCT TAX AT SOURCE ON THE PAYMENT MADE TO THE BUS SERVICE PR OVIDER FOR HAVING USED THE BUS. THE ELECTRICITY SUPPLIED TO A CONSUME R CANNOT ON THE GROUND THAT GENERATORS ARE USED TO GENERATE ELECTRI CITY TRANSMISSION LINES TO CARRY THE TRANSFORMERS TO REGULATE THE FLO W OF CURRENT METERS TO MEASURE THE CONSUMPTION BE REGARDED AS AMOUNTING T O PROVISION OF TECHNICAL SERVICES TO THE CONSUMER RESULTING IN THE CONSUMER HAVING TO DEDUCT TAX AT SOURCE ON THE PAYMENT MADE FOR THE PO WER CONSUMED AND REMIT THE SAME TO THE REVENUE.' THE COURT FINALLY CONCLUDED AS FOLLOWS: 'INSTALLATION AND OPERATION OF SOPHISTICATED EQUIPM ENTS WITH A VIEW TO EARN INCOME BY ALLOWING CUSTOMERS TO AVAIL OF THE B ENEFIT OF THE USER OF SUCH EQUIPMENT DOES NOT RESULT IN THE PROVISION OF TECHNICAL SERVICE TO THE CUSTOMER FOR A FEE. WHEN A PERSON DECIDES TO SUBSCRIBE TO A CELLULAR TE LEPHONE SERVICE IN ORDER TO HAVE THE FACILITY OF BEING ABLE TO COMMUNI CATE WITH OTHERS HE DOES NOT CONTRACT TO RECEIVE A TECHNICAL SERVICE . WHAT HE DOES AGREE TO IS TO PAY FOR THE USE OF THE AIRTIME FOR W HICH HE PAYS A CHARGE. THE FACT THAT THE TELEPHONE SERVICE PROVIDE R HAS INSTALLED SOPHISTICATED TECHNICAL EQUIPMENT IN THE EXCHANGE T O ENSURE CONNECTIVITY TO ITS SUBSCRIBER DOES NOT ON THAT SC ORE MAKE IT PROVISION OF A TECHNICAL SERVICE TO THE SUBSCRIBER. THE SUBSC RIBER IS NOT CONCERNED WITH THE COMPLEXITY OF THE EQUIPMENT INST ALLED IN THE EXCHANGE OR THE LOCATION OF THE BASE STATION. ALL THAT HE WANTS IS THE FACILITY OF USING THE TELEPHONE WHEN HE WISHES TO AND BEING ABLE TO GET CONNECTED TO THE PERSON AT THE NUMBER TO WHICH HE DESIRES TO BE CONNECTED. WHAT APPLIES TO CELLULAR MOBILE TELEPHON E IS ALSO APPLICABLE IN FIXED TELEPHONE SERVICE. NEITHER SERV ICE CAN BE REGARDED AS TECHNICAL SERVICE FOR THE PURPOSE OF S. 194J OF THE ACT...' '....AT THE TIME THE IT ACT WAS ENACTED IN THE YEAR 1961 AS ALSO AT THE TIME WHEN EXPLN. 2 TO S. 9 (1)(VII) WAS INTR ODUCED BY THE FINANCE (NO. 2) ACT W.E.F. 1ST APRIL 1977 THE PR ODUCTS OF TECHNOLOGY HAD NOT BEEN IN SUCH WIDE USE AS THEY AR E TODAY. ANY CONSTRUCTION OF THE PROVISIONS OF THE ACT MUST BE IN THE BACKGROUND OF THE REALITIES OF DAY-TO-DAY LIFE IN W HICH THE PRODUCTS OF TECHNOLOGY PLAY AN IMPORTANT ROLE IN MA KING LIFE 6 ITA NOS 6655/M/2009 & 132/M/2010 SMOOTHER AND MORE CONVENIENT. SEC. 194J AS ALSO EX PLN. 2 IN S. 9(1)(VII) OF THE ACT WERE NOT INTENDED TO COVER THE CHARGES PAID BY THE AVERAGE HOUSEHOLDER OR CONSUMER FOR UTILISIN G THE PRODUCTS OF MODERN TECHNOLOGY SUCH AS USE OF THE TELEPHONE FIXED OR MOBILE THE CABLE T.V. THE INTERNET THE AUTOMOBILE THE RAILWAY THE AEROPLANE CONSUMPTION OF ELECTRICAL E NERGY ETC. SUCH FACILITIES WHICH WHEN USED BY INDIVIDUALS ARE NOT CAPABLE OF BEING REGARDED AS TECHNICAL SERVICE CANNOT BECOM E SO WHEN USED BY FIRMS AND COMPANIES. THE FACILITY REMA INS THE SAME WHOEVER THE SUBSCRIBER MAY BE INDIVIDUAL FIR M OR COMPANY. TECHNICAL SERVICE REFERRED IN S. 9(1)(VII) CONTEM PLATES RENDERING OF A SERVICE TO THE PAYER OF THE FEE. MERE COLLEC TION OF A FEE FOR USE OF A STANDARD FACILITY PROVIDED TO ALL THOS E WILLING TO PAY FOR IT DOES NOT AMOUNT TO THE FEE HAVING BEEN RECEI VED FOR TECHNICAL SERVICES.' 26. THE ABOVE OBSERVATIONS OF THE HONBLE MADRAS HI GH COURT ARE CLEARLY APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE LEA RNED CIT(A) IN COMING TO THE CONCLUSION THAT TRANSACTION CHARGES ARE IN THE NATURE OF FTS HAS HELD THAT THE FUNCTIONS PERFORMED BY THE STOCK EXCHANGES ARE OF A MANAGERIAL NATURE. THE FUNCTIONS LISTED BY LEARNED CIT(A) IN TH IS REGARD ARE : '(A) STOCK EXCHANGES PROVIDE SERVICES FOR RISK MANAGEME NT AND SURVEILLANCE TO THE MEMBER TRADER. THIS REASONING OF LE ARNED CIT(A) IN OUR VIEW IS NOT PROPER. THE ASSESSEE IN HIS CAPACITY AS A STOCKBROKER DOES NOT BEAR ANY RISK HIMSELF AS HE TRADES ONLY ON B EHALF OF HIS CLIENT. (B) STOCK EXCHANGE KEEPS MARGIN MONEY FROM MEMBERS TO ENSURE THAT TRANSACTIONS MADE THROUGH STOCK EXCHANGE ARE HONOURED FULLY. THIS FUNCTION IN OUR VIEW IS ONLY TO ENSURE THAT THE ULT IMATE BUYER OR SELLER OF SHARES IS NOT PUT TO LOSS. WE FAIL TO SEE AS TO HOW THIS CAN BE SAID TO BE A SERVICES RENDERED BY A STOCK EXCHANGE TO ITS MEMBER. (C) SETTLEMENT OF ACCOUNTS OF BUYERS AND SELLER OF S TOCK IS ALSO THE STOCK EXCHANGES RESPONSIBILITY. THIS IS AGAIN NOT A SERVICE RENDERED TO THE MEMBERS WHICH IS IN THE NATURE OF A TECHNICAL SE RVICE. THIS IS MERELY PROVIDING DATA TO ENABLE SETTLEMENT OF ACCOUNT. (D) THE NATURE OF SERVICE PROVIDED IS SPECIALIZED K NOWLEDGE EXPERIENCE AND SKILL IN THE FIELD OF SHARE TRADING. T HIS STATEMENT BY THE LEARNED CIT(A) IS A GENERAL STATEMENT WITHOUT REFEREN CE TO PARTICULAR TYPE OF SERVICE. WE ARE OF THE VIEW THAT STOCK EXCHAN GE REGULATES THE MANNER OF TRADING IN SHARES. (E) THE FINAL CONCLUSION OF THE AO IS THAT ALL THE ABOVE ARE NOTHING BUT RENDERING MANAGERIAL SERVICE TO A MEMBER. A MEMBER MANAG ES HIS OWN BUSINESS AND STOCK EXCHANGES DO NOT HAVE ANY CO NTROL OVER THE SAME. A MEMBER IS EXPECTED TO FOLLOW THE RULES AND RE GULATIONS OF THE STOCK EXCHANGE. THAT DOES NOT MEAN THAT THE STOCK E XCHANGES MANAGE THE BUSINESS OF THE ASSESSEE OR PROVIDE MANAG ERIAL SERVICES. 7 ITA NOS 6655/M/2009 & 132/M/2010 FROM WHAT IS STATED IN (A) TO (D) ABOVE THERE CAN BE NO REFERENCE THAT STOCK EXCHANGE RENDER MANAGERIAL SERVICES TO ITS MEMBE RS. THE FACT THAT THE STOCK EXCHANGE SUPERVISE CONTROL SETTLE B Y ARBITRATION DISPUTES CANNOT BE THE BASIS TO SAY THAT THEY PROVID E MANAGERIAL SERVICES TO ITS MEMBERS. IT IS A CASE WHERE CERTAIN FACILITIES AND RIGHTS ARE CONFERRED ON MEMBERS TRANSACTING BUSINESS AND TH E FEE PAID IS ONLY FOR USE OF SUCH FACILITIES AND RIGHTS AND NOT FOR ANY TECHNICAL SERVICES RENDERED.' 27. THE LEARNED CIT(A) IN THE LATER PART OF HIS ORDER ON THIS ISSUE HAS EXPRESSED THE VIEW THAT TRANSACTION FEE MAY NOT BE STRICTLY F EES FOR TECHNICAL SERVICES. THE LEARNED CIT(A) FURTHER HAS GONE ON TO HOLD THAT E VEN IF A DOUBT EXISTS BY WAY OF ABUNDANT CAUTION TDS SHOULD HAVE BEEN MADE. THIS IN OUR VIEW IS NOT A PROPER APPROACH. THE LIABILITY TO DEDUCT TAX AT SO URCE IN GIVEN FACTS AND CIRCUMSTANCES EITHER EXISTS OR DOES NOT EXIST. THERE CA NNOT BE ANY LEGAL OBLIGATION BY WAY OF ABUNDANT CAUTION. 28. TO CALL A PAYMENT AS FEES FOR TECHNICAL SERVICES IT SHOULD HAVE BEEN PAID IN CONSIDERATION FOR RENDERING BY THE RECIPIENT OF P AYMENT OF ANY (A) MANAGERIAL SERVICE (B) TECHNICAL OR CONSULTANCY SERVI CES; STOCK EXCHANGES MERELY PROVIDE FACILITY FOR ITS MEMBERS TO PURCHASE AND SELL SHARES SECURITIES ETC. WITHIN THE FRAMEWORK OF ITS BYE LAWS. IN THE EVENT OF DISPUTE IT PROVIDES MECHANISM FOR SETTLEMENT OF DISPUTES. IT REGULATES C ONDITIONS SUBJECT TO WHICH A PERSON CAN BE A MEMBER AND WHEN AND IN WHAT CIRCUMSTANCES MEMBERSHIP CAN BE TRANSFERRED CANCELLED SUSPENDED ETC. THE EXCHANGE PROVIDES A PLACE WHERE THE MEMBERS MEET AND TRANSACT BUSINESS. THE TRANSACTION FEE PAID IS ON THE BASIS OF VOLUME OF TRA NSACTION EFFECTED BY A MEMBER. THE STOCK EXCHANGES DO NOT RENDER ANY MANAGERI AL SERVICE NOR DO THEY RENDER ANY TECHNICAL CONSULTANCY SERVICE. THE TRA NSACTION 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 STOCK E XCHANGE AND SUCH FACILITIES ARE AVAILABLE FOR USE BY ANY MEMBER. THE PROVISIONS OF S. 194J WHICH CASTS A BURDEN ON A PERSON TO DEDUCT AT SOURCE AND TRE AT HIM A DEFAULTER ON FAILURE TO DEDUCT TAX AT SOURCE NEEDS TO BE INTER PRETED STRICTLY AND IN THE ABSENCE OF A CLEAR OBLIGATION ON THE PART OF A PERSO N SPELT OUT IN UNAMBIGUOUS TERMS BY THE PROVISIONS OF S. 194J R/W E XPLN. 2 TO S. 9(1)(VII) OF THE ACT SUCH OBLIGATION CANNOT BE IMPLIED OR LEFT TO THE IPSI DIXIT OF THE REVENUE AUTHORITIES. WE THEREFORE HOLD THAT TRANSACTI ON FEE PAID CANNOT BE SAID TO BE A FEE PAID IN CONSIDERATION OF THE STOCK EXCHANGE RENDERING ANY TECHNICAL SERVICES TO THE ASSESSEE. THE PROVISIONS OF S. 194J ARE THEREFORE NOT ATTRACTED. THEREFORE THERE WAS NO OBLIGATION ON THE P ART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE. CONSEQUENTLY THE PROVISIONS OF S. 40(A)(IA) WERE ALSO NOT ATTRACTED AND THEREFORE THE DISALLOWANCE MADE IS DIRECTED TO BE DELETED. 8 ITA NOS 6655/M/2009 & 132/M/2010 6 RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUN AL IN THE CASE OF KOTAK SECURITIES LTD (SUPRA) WE DECIDE THE ISSUE IN FAVO UR OF THE ASSESSEE; THE ORDER OF THE CIT(A) QUA THIS ISSUE UPHELD. 7 GROUND NO.2 REGARDING TREATING THE INTEREST RECEI VED AT RS. 29 60 673/- ON FDS AS MARGIN MONEY AS INCOME FROM OTHER SOURCES. 7.1 THE ASSESSEE IS A REGISTERED MEMBER OF BOMBAY S TOCK EXCHANGE AS WELL AS NATIONAL STOCK EXCHANGE AND DOING THE BUSINESS OF S HARE TRADING AND BROKING. THE ASSESSEE EARNED INTEREST INCOME OF RS. 29 59 389/- ON FD MAINTAINED AND KEPT AS MARGIN MONEY WITH STOCK EXCHANGE. THE ASSESSING OF FICER TREATED THE SAID INCOME AS INCOME FROM OTHER SOURCES. ON APPEAL THE CIT(A ) HAS ALLOWED THE CLAIM OF THE ASSESSEE AS BUSINESS INCOME. 8 WE HAVE HEARD THE LD DR AND THE LD AR OF THE ASSE SSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD AT THE OUTSET THE L D AR OF THE ASSESSEE SUBMITTED THAT THE MAIN BUSINESS OF THE ASSESSEE IS ARBITRAGE AND AS PER THE REGULATIONS OF NSE /BSE THE ASSESSEE IS REQUIRED TO KEEP MARGIN MONEY WITH THE STOCK EXCHANGE FAILING WITH THE ASSESSEES BUSINESS WILL COME TO STANDSTILL. H E HAS FURTHER CONTENDED THAT THIS MARGIN MONEY CAN B EITHER IN CASH BANK DEPOSIT BA NG GUARANTEE OR APPROVED SECURITIES. THUS THE LD AR OF THE ASSESSEE HAS SU BMITTED THAT THE FD KEPT AS MARGIN MONEY WAS THE BASIC REQUIREMENT OF THE BUSINESS OF THE ASSESSEE AND THE INTEREST EARNED ON THE SAID FD IS PART AND PARCEL OF THE BUS INESS ACTIVITIES OF THE ASSESSEE AND THE SAME SHOULD BE TREATED AS BUSINESS INCOME O F THE ASSESSEE. HE HAS RELIED UPON THE FOLLOWING DECISIONS: I CIGT VS VONDINDA CHOUDHURY & SONS 203 ITR 881(SC) II) CIT VS VIDHUT STEEL LTD 219 ITR 30(AP) 9 ITA NOS 6655/M/2009 & 132/M/2010 III) CIT VS KOSHIKA TELECOM LTD 287 ITR 479(DEL) IV_ CIT VS CHINNA NACHIMUTHU CONSTRUCTION 297 IT R 70(KAR) 8.1 ON THE OTHER HAND THE LD DR RELIED UPON THE OR DERS OF THE AUTHORITIES BELOW. 9 AFTER CONSIDERING THE RIVAL CONTENTIONS WE FIND THAT THE MARGIN MONEY IS REQUIRED AS PER THE REGULATIONS OF NSE/BSC AND ONE OF THE FORMS OF THE MARGIN MONEY TO BE KEPT BY THE ASSESSEE IS BANK DEPOSIT. WHEN THE BANK DEPOSIT HAS BEEN MADE BY THE ASSESSEE AND AS PER THE REGULATION S OF NSE/BSE THEN THE INTEREST RECEIVED ON THE FDS KEPT AS MARGIN MONEY AS A DIREC T NEXUS WITH THE BUSINESS OF THE ASSESSEE. 9.1 IN THE CASE OF VIDYUT STEEL LTD (SUPRA) THE HO NBLE ANDHRA PRADESH HIGH COURT HAS HELD THAT INTEREST EARNED ON MARGIN MO NEY WAS INEXTRICABLY CONNECTED WITH THE CONTRACT OF GUARANTEE ITSELF. THE INCOME D ERIVED ON THE MARGIN MONEY FOR OBTAINING BANK GUARANTEE COULD NOT E SEPARATELY ASS ESSED U/S 56 OF THE I T ACT. 9.2 SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE DELH I HIGH COURT IN THE CASE OF KOSHIKA TELECOM LTD (SUPRA) AND HELD THAT DEPOSIT OF THE MARGIN MONEY BY THE ASSESSEE WITH THE BANKS WAS INEXTRICABLY LINKED TO THE FURNISHING OF THE BANK GUARANTEES BY THE ASSESSEE TO THE DEPARTMENT F TELE COMMUNICATIONS FOR OBTAINING A LICENCE. HENCE THE INTEREST WAS ASSESSABLE AS BU SINESS INCOME. 9.3 THE HONBLE KARNAKTA HIGH COURT IN THE CASE OF CHINNA NACHIMUTHU CONSTRUCTIONS (SUPRA HAS TAKEN SIMILAR VIEW AS UNDE R: HAVING HEARD COUNSEL FOR BOTH SIDES WE HAVE NOTICE D THAT THE INVESTMENT OF AMOUNT IN FIXED DEPOSITS BY THE ASSESSEE WAS ONLY T O SECURE A BANK GUARANTEE TO BE OFFERED TO M/S KPTCL IN ORDER TO ACQU IRE A CONTRACT WORK. THEREFORE IT CANNOT BE TREATED AS AN INCOME FROM OTHER SOURCES AND INTEREST ACCRUED ON SUCH FIXED DEPOSITS HAS TO BE TREATED AS B USINESS INCOME ONLY. 10 ITA NOS 6655/M/2009 & 132/M/2010 OVER VIEW IS ALSO SUPPORTED BY THE JUDGMENT OF THE S UPREME COURT IN THE CASE OF CIT VS GOVINDA CHOUDHURY AND SONS REPORTED IN 23 ITR 881. 10 IN VIEW OF THE ABOVE DISCUSSION WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 11 IN THE RESULT THE APPEAL FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THE 6 TH JULY 2011. SD/- SD/- ( PRAMOD KUMAR ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 6 TH JULY 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI