DCIT CIR 4(2), MUMBAI v. SURYAKANT D. NISSAR, MUMBAI

ITA 2750/MUM/2010 | 2006-2007
Pronouncement Date: 27-07-2011 | Result: Dismissed

Appeal Details

RSA Number 275019914 RSA 2010
Assessee PAN AAAPN7166N
Bench Mumbai
Appeal Number ITA 2750/MUM/2010
Duration Of Justice 1 year(s) 3 month(s) 19 day(s)
Appellant DCIT CIR 4(2), MUMBAI
Respondent SURYAKANT D. NISSAR, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 27-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted J
Tribunal Order Date 27-07-2011
Date Of Final Hearing 19-07-2011
Next Hearing Date 19-07-2011
Assessment Year 2006-2007
Appeal Filed On 08-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH MUMBAI BEFORE SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 2750/MUM/2010 (ASSESSMENT YEAR: 2006-07) ACIT CIRCLE 4(2) SHRI SURYAKANT D. NISSAR ROOM NO. 642 6TH FLOOR 612 STOCK EXCHNGE TOWERS AAYAKAR BHAVAN M.K. ROAD VS. DALAL STREET MUMBAI 400023 MUMBAI 400020 PAN - AAAPN 7166 N APPELLANT RESPONDENT APPELLANT BY: SHRI S.K. SINGH RESPONDENT BY: NONE O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) VII MUMBAI DATED 13.01.2010. 2. THE REVENUE HAS RAISED TWO GROUNDS FIRST BEING ALL OWANCE OF VSAT & TRANSACTION CHARGES DISALLOWED BY THE A.O. INVOKING PROVISIONS OF SECTION 40A(A)(IA) AND THE SECOND ISSUE IS WITH REFERENCE T O ALLOWANCE OF ` 6 59 361/- IN RESPECT OF MARK TO MARKET LOSS IN FUTURE & OPTIO N RELYING UPON THE HON'BLE SUPREME COURT JUDGEMENT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA P. LTD. 312 ITR 254. 3. ASSESSEE WAS NOT REPRESENTED BY ANYBODY NOR THERE W AS ANY REQUEST FOR ADJOURNMENT. THEREFORE THE APPEAL WAS EXPARTE O N MERITS AFTER HEARING THE LEARNED D.R. 4. AS FAR AS THE ISSUE OF ALLOWANCE OF VSAT & TRANSACT ION CHARGES ARE CONCERNED THESE EXPENDITURES ARE ALLOWABLE EXPENDIT URES FOLLOWING THE ORDER OF THE ITAT IN THE CASE OF KOTAK SECURITIES VS. ADD L. CIT IN ITA NO. 1995/MUM/2008( 25 SOT 440). THE CIT(A) FOLLOWED THE ORDER OF THE ITAT MUMBAI BENCH IN KOTAK SECURITIES VS. ADDL. CIT (SUP RA). SINCE THE STOCK EXCHANGES DO NOT PROVIDE ANY MANAGERIAL SERVICES AN D THE FEES PAID BY THE ITA NO. 2750/MUM/2010 SHRI SURYAKANT D. NISSAR 2 MEMBER TO THE STOCK EXCHANGE IS NOT FOR TECHNICAL S ERVICES RENDERED NO TDS IS DEDUCTIBLE ON THE SAME. THEREFORE PROVISION S OF SECTION 40(A)(IA) DOES NOT APPLY. THE SAME VIEW ALSO TAKEN BY THE ITAT MUM BAI BENCH IN THE CASE OF DCIT VS. ANGEL BROKING LTD. 35 SOT 547 WHEREIN I T WAS HELD AS UNDER: - STOCK EXCHANGES AS MEASURE OF PROVIDING INFRASTRUC TURE TO THEIR MEMBERS INSTALL VSAT AND LEASED LINE SYSTEM. FEE CO LLECTED IN THAT REGARD IS NOTHING BUT FEE PAID FOR USE OF FACI LITIES PROVIDED BY THE STOCK EXCHANGE. SUCH FACILITIES ARE AVAILABL E FOR USE BY ANY MEMBER. SATELLITE BASED TRADING ENABLES TRADING MEMBERS TO TRADE ON EXCHANGE FROM THEIR PLACE OF WORK ACROSS T HE COUNTRY. STOCK EXCHANGE HAS TO GET PERMISSION FROM THE DEPAR TMENT OF TELECOMMUNICATION FOR INSTALLING AND SETTING UP VSA T OR LEASED LINE SYSTEM. CHARGES LEVIED BY THE STOCK EXCHANGE O N ITS MEMBERS ARE FOR THE PURPOSE OF RECOVERY OF ITS COST IN PROVIDING THESE FACILITIES TO THE MEMBERS. STOCK EXCHANGES DO NOT PROVIDE ANY TECHNICAL SERVICES BY INSTALLING VSAT NETWORK. THEY MERELY PROVIDE FACILITIES FOR MEMBERS TO PURCHASE AND SELL SHARES WITHIN FRAME WORK OF ITS BY-LAWS. THEY ALSO PROVIDE FOR A MECHANISM FOR SETTLEMENT OF DISPUTE BETWEEN THE BROKERS AND CUSTO MERS. STOCK EXCHANGES DO NOT INVOLVE THEM IN PROVIDING ANY TECH NICAL SERVICES TO ANY OF ITS MEMBERS. THE ASSESSING OFFICER IN COMING TO THE CONCLUSION T HAT THE PAYMENT WAS FOR FEE FOR TECHNICAL SERVICES HAD RELI ED UPON THE FACT THAT THE SCREEN BASED TRADING WAS SOPHISTICATE D METHOD OF TRADING. THAT BY ITSELF WOULD NOT BE SUFFICIENT TO HOLD TECHNICAL SERVICES BEING RENDERED. THE ASSESSING OFFICER HAD ALSO HELD THAT SERVICES WERE NOT AVAILABLE TO THE PUBLIC AT L ARGE BUT ONLY TO REGISTERED MEMBERS AGAIN THAT BY ITSELF WOULD NOT MAKE THE SERVICES IN QUESTION AS TECHNICAL SERVICES. ANOTHER REASON GIVEN BY THE ASSESSING OFFICER WAS THAT SPEED AT WHICH TR ANSACTIONS WERE COMPLETED AND THE EASE WITH WHICH TRANSACTIONS WERE DONE IN SCREEN BASED TRADING WHICH AGAIN WAS NOT RELEVA NT CRITERIA FOR HOLDING THE SERVICES RENDERED AS TECHNICAL SERVICES . FACT THAT THE DATA PROVIDED ON SCREEN WOULD PROVIDE BETTER DATA F OR CARRYING OUT TRANSACTION WOULD NOT AGAIN BE SUFFICIENT TO HO LD THAT TECHNICAL SERVICES WERE BEING RENDERED. ALL THE ABO VE FEATURES PRESENT IN SCREEN BASED TRADING SAVE TIME. THIS IS THE RESULT OF IMPROVED TECHNOLOGY. THAT DOES NOT MEAN THAT STOCK EXCHANGE IS PROVIDING TECHNICAL SERVICES. MEMBERS OF THE STOCK EXCHANGE AND THE PUBLIC AT LARGE ARE BENEFICIARIES OF THESE TECH NICAL IMPROVEMENTS. STOCK EXCHANGES ARE NOT THE OWNER OF THIS TECHNOLOGY TO PROVIDE IT FOR A FEE FOR PROSPECTIVE USE. THEY ARE THEMSELVES CONSUMERS OF THE TECHNOLOGY. THEREFORE THE PAYMENT IN QUESTION COULD NOT BE CON SIDERED AS FEE FOR TECHNICAL SERVICES RENDERED. THE ORDER OF T HE COMMISSIONER (APPEALS) WAS TO BE CONFIRMED. ITA NO. 2750/MUM/2010 SHRI SURYAKANT D. NISSAR 3 5. IN THE CASE OF KOTAK SECURITIES LTD (SUPRA) RELIED ON BY THE CIT(A) THE ISSUE WITH REFERENCE TO TDS PROVISIONS WAS ALSO CON SIDERED AND HELD AS UNDER; TO CALL A PAYMENT AS FEES FOR TECHNICAL SERVICES IT SHOULD HAVE BEEN PAID IN CONSIDERATION OF RENDERING BY THE RECIPIENT OF PAYMENT OF ANY (A) MANAGERIAL SERVICE (B) TECHNICAL OR CONSULTANC Y SERVICES. THE STOCK EXCHANGES MERELY PROVIDE FACILITY TO ITS MEMBERS T O PURCHASE AND SELL SHARES SECURITIES ETC. WITHIN THE FRAMEWORK OF ITS BYE LAWS. IN THE EVENT OF DISPUTE IT PROVIDES FOR MECHANISM FOR SETTLEMENT OF DISPUTE. IT REGULATES CONDITIONS SUBJECT TO WHICH A PERSON CAN BE A MEMBER AND AS TO WHEN AND IN WHAT CIRCUMSTANCES MEM BERSHIP CAN BE TRANSFERRED CANCELLED SUSPENDED ETC. THE EXCH ANGE PROVIDES FOR A PLACE WHERE THE MEMBERS FAN MEET AND TRANSACT BUS INESS. THE TRANSACTION FEE PAID IS ON THE BASIS OF VOLUME OF T RANSACTIONS EFFECTED BY A MEMBER. THE STOCK EXCHANGE DOES NOT RENDER ANY MANAGERIAL SERVICE NOR DO THEY RENDER ANY TECHNICAL CONSULTANC Y SERVICE. THE TRANSACTION FEE IS NOT PAID IN CONSIDERATION OF ANY SERVICE PROVIDED BY THE STOCK EXCHANGE. IT IS A PAYMENT FOR USE OF FACI LITIES PROVIDED BY THE STOCK EXCHANGE AND SUCH FACILITIES ARE AVAILABL E FOR USE BY ANY MEMBER. THE PROVISIONS OF SECTION 194J WHICH CASE A BURDEN ON A PERSON TO DEDUCT TAX AT SOURCE AND TREAT HIM AS A D EFAULTER ON HIS FAILURE TO DEDUCT TAX AT SOURCE NEED BE INTERPRETE D STRICTLY AND IN THE ABSENCE OF A CLEAR OBLIGATION ON THE PART OF A PERS ON SPELT OUT IN UNAMBIGUOUS TERMS BY THE PROVISIONS OF SECTION 194J READ WITH EXPLANATION 2 TO SECTION 9(1)(VII) SUCH OBLIGATION CANNOT BE IMPLIED OR LEFT TO THE IPSI DIXIT OF THE REVENUE AUTHORITIES. THEREFORE TRANSACTION FEE PAID COULD NOT BE SAID TO BE A FEE PAID IN CONS IDERATION OF THE STOCK EXCHANGE RENDERING ANY TECHNICAL SERVICE TO T HE ASSESSEE. THE PROVISIONS OF SECTION 194J WERE THUS NOT ATTRACTE D. THEREFORE THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DE DUCT TAX AT SOURCE. CONSEQUENTLY THE PROVISIONS OF SECTION 40(A)(IA) W ERE ALSO NO ATTRACTED AND THEREFORE THE DISALLOWANCE MADE WAS TO BE DELETED. RESPECTFULLY FOLLOWING THE ABOVE COORDINATE BENCH D ECISION WE ARE OF THE OPINION THAT THERE IS NO NEED TO DEVIATE FROM THE O RDER OF THE CIT(A). ACCORDINGLY THE GROUND IS DISMISSED. 6. GROUND NO. 2 IS WITH REFERENCE TO DELETING THE ADDI TION OF ` 6 59 361/- MADE IN RESPECT OF MARKET LOSS IN FUTURE & OPTION R ELYING ON THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS . WOODWARD GOVERNOR INDIA P. LTD. 312 ITR 254. WHILE COMPLETING THE ASS ESSMENT THE A.O. NOTED THAT ASSESSEE HAS TAKEN STOCK POSITION AT COST OR M ARKET PRICE WHICH EVER IS ITA NO. 2750/MUM/2010 SHRI SURYAKANT D. NISSAR 4 LOWER IN RESPECT OF OPEN POSITION IN FUTURE AND OPT ION SEGMENT. HE WAS OF THE VIEW THAT IN RESPECT OF FORWARD CONTRACTS THE L OSS ACTUALLY MATERIALISES ON THE DATE WHEN THE CONTRACT IS SQUARED OFF. IN BE TWEEN IT ONLY REMAINS A NOTIONAL PROFIT OR A NOTIONAL LOSS WHICH VARIES ON DAY-TO-DAY BASIS. ACCORDINGLY HE CONSIDERED THE LOSS IN THE CONTRACT VALUE AS A NOTIONAL LOSS AND DISALLOWED THE SAME TO AN EXTENT OF ` 6 59 361/-. THE CIT(A) RELYING ON THE PRINCIPLES ESTABLISHED BY THE HON'BLE SUPREME C OURT THE CASE OF CIT VS. WOODWARD GOVERNOR INDIA P. LTD. 312 ITR 254 WHERE IN IT WAS HELD THAT THE LOSS SUFFERED BY ASSESSEE ON ACCOUNT OF FLUCTUATION S OF FOREIGN EXCHANGE AS ON THE DATE OF BALANCE SHEET IS AN ITEM OF EXPENDIT URE UNDER SECTION 37(1) ALLOWED THE MARK TO MARKET LOSS IN THE CASE OF EQUI TY INDEX/STOCK FUTURE AS AN ALLOWABLE LOSS. REVENUE IS CONTESTING THE SAME. 7. AFTER CONSIDERING THE ARGUMENTS OF THE LEARNED D.R. WE DO NOT SEE ANY REASON TO DIFFER FROM THE FINDING OF THE CIT(A). AS SESSEE IS IN THE BUSINESS OF SHARE BROKING AND AS PART OF BUSINESS ACTIVITY HAS ENTERED INTO OPEN POSITIONS IN DERIVATIVE MARKET. BY VIRTUE OF THE AM ENDMENT BROUGHT TO SECTION 43(5) THE TRANSACTIONS IN RESPECT OF TRADIN G IN DERIVATIVES CANNOT BE CONSIDERED AS A SPECULATIVE TRANSACTION. THEREFORE THESE TRANSACTIONS ARE BUSINESS TRANSACTIONS. IF THE ASSESSEE HAS TAKEN TH E STOCK POSITION THE LAW PERMITS VALUATION OF STOCK EITHER AT COST PRICE OR MARKET PRICE WHICHEVER IS LOWER IN COMPUTATION OF PROFIT FOR THE YEAR. THEREF ORE THE NOTIONAL LOSS ARRIVED AT IN THE ABOVE POSITIONS IS CORRECTLY ALLO WED BY THE CIT(A) AS A LOSS IN THE COMPUTATION OF INCOME. WE DO NOT SEE ANY REA SON TO INTERFERE WITH THE ORDER OF THE CIT(A). ACCORDINGLY THE GROUND IS REJE CTED. 8. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH JULY 2011. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 27 TH JULY 2011 ITA NO. 2750/MUM/2010 SHRI SURYAKANT D. NISSAR 5 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VIII MUMBAI 4. THE CIT IV MUMBAI CITY 5. THE DR J BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.