M/s. Gojit Comtrade Ltd, Cochin v. JtCIT(OSD), Cochin

ITA 394/COCH/2014 | 2009-2010
Pronouncement Date: 21-11-2014

Appeal Details

RSA Number 39421914 RSA 2014
Assessee PAN AADCG3019R
Bench Cochin
Appeal Number ITA 394/COCH/2014
Duration Of Justice 2 month(s) 4 day(s)
Appellant M/s. Gojit Comtrade Ltd, Cochin
Respondent JtCIT(OSD), Cochin
Appeal Type Income Tax Appeal
Pronouncement Date 21-11-2014
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 21-11-2014
Date Of Final Hearing 19-11-2014
Next Hearing Date 19-11-2014
Assessment Year 2009-2010
Appeal Filed On 16-09-2014
Judgment Text
ITA NO 394/COCH/2014 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE S/SHRI N.R.S. GANESAN JM & CHANDRA POOJARI AM ITA NO.394/COCH/2014 (ASST YEAR 2009-10 ) GEOJIT COMTRADE LTD 10 TH FLOOR 34/659/P CIVIL LINE ROAD PADIVATTOM KOCHI THE JT COMMR OF INCOME TAX(OSD) CIRCLE 1(2) KOCHI ( APPELLANT) VS (RESPONDENT) PAN NO. AADCG3019R ASSESSEE BY SHRI VIVEK KRISHNA GOVID REVENUE BY SHI K K JOHN SR DR DATE OF HEARING 19 TH NOV 2014 DATE OF PRONOUNCEMENT 21 NOV 2014 ORDER PER CHANDRA POOJARI AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 27.6.2014 OF THE CIT(A) AND ITS RELATES TO THE AY 2009-10. 2 THE ONLY ISSUE IN THIS APPEAL FOR OUR CONSIDERATI ON IS WITH REGARD TO PAYMENT OF ADMISSION FEE PAID TO VARIOUS COMMODITY EXCHANGES AGGREGATING TO RS. 31 LAKS TREATED AS CAPITAL EXPENDITURE. 2.1 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPA NY IS ENGAGED IN THE BUSINESS OF PROVIDING BROKERAGE SERVICES IN THE BUS INESS OF COMMODITIES AND ITA NO 394/COCH/2014 2 COMMODITY DERIVATES. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 13.7.2009 DECLARING TAXABLE INCOME OF RS. 1 57 06 787/-. THE AO COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT AT A TOTAL INCOME OF RS. 1 84 19 287/-. 2.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS TH E AO NOTICED THAT THE ASSESSEE HAS PAID ADMISSION FEE OF RS . 31 00 000/- TO VAR I OUS COMMODITIES EXCHANGES NAMELY MCX NCDEX AND NMCE . THE ASSESSEE STARTED ITS BUSINESS OPERATIONS DURING THE YEAR UNDER CONSIDERATION AND BECAME A MEMBER IN THE ABOVE COMMODITY E X CHANGES TO ACT AS A BROKER . FOR OBTAINING ADMISSIONS THE ASSESSEE HAS PAID NON-REFUNDABLE ADMISSION FEES OF RS . 31 LACS IN ADDITION TO SUBSTANTIAL REFUNDABLE DEPOSITS . THE AO OBSERVED THAT WHILE THE REFUNDABLE DEPOSITS ARE KEPT AS ASSET IN THE BALANCE SHEET THE ADMISSION FEE PAID HAS BEEN CLAIMED IN FULL AS REVENUE EXPENDITURE. ACCORD ING TO THE AO THE ADMISSION FEES PAID WOULD ENTITLE THE ASSESSEE COMP ANY TO ALL THE RIGHTS OF A MEMBER OF THESE EXCHANGES . THE AO WAS OF THE VIEW THAT A NY TRANSACTION IN COMMODITY DERIVATIVES THOUGH THESE EXCHANGES CAN BE MADE ONLY THROUGH MEMBERS OF THESE EXCHANGES . THUS BY BECOMING A MEMBER OF THESE EXCHANGES THE ASSESSEE HAS OBTAINED ENDURING BENEFIT WHICH WO ULD LAST TILL THE ASSESSEE CONTINUES IN BUSINESS . IT IS A KIND OF A LICENSE GIVEN BY THE EXCHANGES TO THE ASSESSEE TO ACT AS A BROKER. AS PER THE DEPREC IATION SCHEDULE ALL LICENSES WOULD FORM PART OF THE BLOCK OF INTANGIBLE ASSETS E LIGIBLE FOR DEPRECIATION @ 25%. ITA NO 394/COCH/2014 3 2.3 THE ASSESSEE VIDE ITS LETTER DATED 10-11-2011 EXPLAINED THAT THE ADMISSION FEES PAID WAS IN THE NATURE OF A SUNK COS T AND WOULD NOT PROVIDE ANY ENDURING BENEFIT TO IT. IT WAS ALSO SUB MITTED THAT FOR ANY REASON IF THE ADMISSION FEE IS TREATED AS A CAPITAL EXPEND ITURE DEPRECIATION BE ALLOWED TREATING IT AS AN INTANGIBLE ASSET . 2.4 AFTER CONSIDERING THE SUBMISSION OF THE ASSESSE E THE AO OBSERVED THAT THOUGH THE ASSESSEE CLAIMS THAT IT DOES NOT RECEIVE ANY ENDURING BENEFIT OUT OF THE ADMISSION FEE IT IS A FACT THAT THE PAYMENT IS A ONETIME FEE ALLOWING THE ASSESSEE TO BE A MEMBER OF THE EXCHANG E FOR LIFE TIME . THEREFORE IT CANNOT BE DENIED THAT ENDURING BENEFIT I S RECEIVED . ACCORDINGLY AS REQUESTED BY THE ASSESSEE THE ABOVE SUM WAS TREATED AS A CAPITAL ASSET ELIGIBLE FOR DEP RECIATION @ 25% . SINCE THE ASSET HAS BEEN ACQUIRED IN THE SECOND HALF OF T HE YEAR HALF OF THE ELIGIBLE DEPRECIATION @ 12 . 5% AMOUNTING TO RS . 3 87 500/- WAS ALLOWED AND THE DIFFERENCE AMOUNTING TO RS . 27 12 500/- WAS ADDED BACK TO THE ASSESSEE ' S INCOME. AGGRIEVED THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). 2.5 . DU RING THE COURSE OF APPELLATE PROCEEDINGS THE ASSES SEE SUBMITTED THAT THE NATURE OF THIS ADMISSION FEE PAID TO VARIO US RECOGNIZED COMMODITY EXCHANGES WAS REVENUE IN NATURE . IT WAS FURTHER SUBMITTED THAT T HE COMPANY ITA NO 394/COCH/2014 4 WAS INCORPORATED WITH THE MAIN OBJECT OF CARRYING ON THE BUSINESS AS BROKERS/INTERMEDIARIES IN COMMOD ITY E X CHANGES AND TO CARRY ON THE BUSINESS IT WAS NECESSARY TO PAY ADMISSION FEE AND DEPOSITS TO THE RECOGNIZED COMMODITY EXCHANGES IN I NDIA . THE DEPOSIT PAID WAS TREATED AS AN ASSET AND CARRIED OV ER IN THE BALANCE SHEET AND THE ADMISSION FEE WAS WRITTEN OFF AS REVE NUE EXPENDITURE . IT WAS SUBMITTED THAT THE AO ERRED IN TREATING THE ADMISSION FEE PAID TO COMMODITY EXCHANGES OF RS. 31 LAKHS AS CAPITAL EXPENDITURE. THE AMOUNT PAID WAS A NON - REFUNDABLE FEES AND THERE WAS NO ASSET OR ADVANTAGE OF ENDURING NATURE. IN SUPPORT OF HIS CO NTENTION HE RELIED ON VARIOUS CASES LAWS IN SUPPORT OF ITS CONTENTION . 2.6 THE CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE LEGAL POSITION CONFIRMED THE ADDITION MADE BY THE AO IN PARA 5.3 OF HIS AS UNDER: 5.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER SUBMISSI ON OF THE ASSESSEE AND THE LEGAL POSITION IN THIS REGARD . ALTHOUGH ASSESSEE HAS MENTIONED THAT NATURE OF ADMISSION FEE IS REVENUE I N NATURE BUT FROM THE COPIES OF THE AGREEMENT ENTERED WITH NCDEX AND NMCE IT IS SEEN THAT THIS MEMBERSHIP FEE AND THE SECURITY DEPOSIT A RE PAID FOR BEING ADMITTED AS TRADING- CUM-CLEARING MEMBER ON THE COM MODITY EXCHANGE FOR A MINIMUM PERIOD SPECIFIED AND THAT THIS ADMISSION FEE AND SECURITY DEPOSIT ARE OF NON REFUNDABLE NATURE. FROM THE NATURE OF THESE COMMODITY EXCHANGES THEY CAN BE EQUATED WITH STOCK EXCHAN G E MEMBERSHIP WHERE IT IS A PERSONAL PRIVILEGE GRANTED TO A MEMBER TO TRADE IN SHARES ON THE FLOOR OF THE STOCK EXCHANGE. IT IS BASICALLY A KIND OF LICENCE T HAT PROVIDES BUSINESS ITA NO 394/COCH/2014 5 AND COMMERCIAL RIGHTS TO THE ASSESSEE TO DO BUSINES S IN THESE COMMODITIES AT COMMODITY EXCHANGES . IN THE CASE OF TECHNO SHARES & STOCKS LTD . VS. CIT [ 234 CTR (SC) 105] SUPREME COURT HAS HELD THAT STOCK EXCHANGE MEMBERSHIP ARE INTANGIBLE ASSET S ELIGIBLE FOR DEPRECIATION AND THEREFORE IN LINE WITH THE ANALYSI S OF THE APEX COURT FOR THE STOCK EXCHANGE MEMBERSHIP IT IS FELT THAT APPLICATION FEE WHICH IS SPEND FOR OBTAINING THE MEMBERSHIP OF COMM ODITY EXCHANGE IS ALSO OF THE SAME NATURE AND THEREFORE THE ASSESS ING OFFICER IS CORRECT IN LAW IN TREATING THE SAME AS CAPITAL IN NATURE ON WHICH DEPRECIATION HAS ALREADY BEEN ALLOWED BY THE ASSESSING OFFICER IN LINE WITH THE FINDINGS OF THE APEX COURT. ACCORD INGLY THE ADDITION OF RS. 31 00 000 MADE BY THE AO IS JUSTIFIED AND THE S AME IS HEREBY CONFIRMED. 3 THE LD AR OF THE ASSESSEE SUBMITTED THAT T H E C O MPAN Y WAS IN CO RP O RAT E D WIT H TH E M A IN O BJ EC T OF CA R RY IN G O N TH E BUSINESS AS BR O K E RS / INTERM E DIARI ES IN C O MM O DIT Y EXC HANG ES AND T O CARR Y ON TH E BU S I NESS IT IS N E C E S S AR Y TO PA Y ADMI SS I O N F EE AND D E P OS IT S T O TH E R E C OG NI ZE D C O MM O DIT Y EXC H A N GES IN INDI A. TH E D E P OS IT P A ID I S T REA T E D A S A N ASSE T A ND CA RRI E D OVE R IN TH E B ALA N CE SHEET AND TH E ADMISSION F E E IS WRITTEN OFF AS R EVE NU E EX PENDITUR E. T H E LD A S SES SIN G O F FI CE R E RR ED IN TR EA TIN G TH E ADMI SS I O N F EE P A ID T O CO MM O DIT Y EX CHAN GES O F R S 3 1 L A KH S AS CAP IT A L EX P E NDITURE. IT WAS SUBMITTED THAT THE AM O UNT PAID WAS A N O N-R E FUNDABLE F EE S AND THERE I S N O A SS ET OR ADVANTAGE OF ENDURIN G NATUR E. THE LD AR INVITED OUR ATTENTION TO THE RELEVANT CLAUSE OF THE AGREEMENT ENTERED BETWEEN MCX NCDEX AND NMCE WHICH READS UNDER: ' THE UNDERSIGNED AR E AWAR E THAT TH E UND E RSIGN E D WOULD B E LARE ADMITT E D A S A TRADING - CUM-CLEARING MEMB E R OF MCX OI1 PA Y ING TH E PRESCRIBED M E MB E RSHIP F EE AND SEC URIT Y D E P O SIT AND THAT TH E ITA NO 394/COCH/2014 6 M E MB E RSHIP IS N O T TRANSF E RRABL E F O R A MINIMUM P E RI O D O F THR E E YE ARS OR AN Y MINIMUM P E RI O D A S MA Y B E S TIPUL A T E D FR O M TIME TO TIM E B Y MCX AND TH E UNDERSIGNED D O UNI E QUIVOCALL Y UNDERTAKE THAT TH E UNDERSI G N E D SHALL NOT B E ENTITLED TO MAKE AN Y C LAIM FOR R E FUND OF S E CURIT Y DEPOS I T FOR A MINIMUM P E RI O D O F THR EE Y EARS E V EN IF THE UND E RSIGN E D INTEND T O C E AS E O R T O DISCONTINU E T O TRADE O N MC X.' IT WAS CONTENDED THAT THE ABOVE CLAUSE IS SIMILAR I N THE CAS E OF NCD E X AND NMCE ALSO . H E NC E IT IS SUBMITTED THAT THE ADMISSION FEE IS A NON- REFUNDABL E C OS T WHICH D O ES NOT R ES ULT IN TH E CREATI O N OF AN Y ASSET AND HENCE IT IS TO BE TREATED AS R E V E NU E EX PENDITURE . FURTHER IT WAS ALSO S UBMITTED THAT THE PA Y M EN T O F A DMI S SION FEES DOES NOT RESULT IN A RIGHT WHICH I S C ON T EMPLATED O R ME NT IONED AS AN IN T ANGI BL E ASSE T U N DE R TH E DEPRECIA T ION RU L ES. TO SUBS T A N TIATE T H E C LAIM THA T A DMISSI O N FEES PAID TO COMMODITY EXCHANGES IS TO BE TREATED AS REVENUE EXP ENDITURE IN SUPPORT OF ITS CONTENTION THE LD AR PLACED RELIANCE ON THE FOLLOWING JUDGMENTS: I) KRISHNA COMMODITIES VS ACIT IN ITA NO.3617/DEL/2012 II) PEERLES S S E CURITI E S LTD. V S JCIT SPL. BENCH(KOL) III) CIT VS . S. VENKATASUBRAMANIAM - 291 ITR 193(MAS) IV) NESET HOLDIN G S (P) LTD . VS CIT - 282 ITR 601 (DEL) ACCORDINGLY THE LD AR PRAYED THAT THE ADDITIONS MA DE BY THE AO MAY BE DELETED. 3.1 ON THE OTHER HAND THE LD DR RELIED ON THE JUDG MENT OF THE SUPREME COURT IN THE CASE OF TECHNO SHARES & STOCKS & ORS V S CIT REPORTED IN 234 ITA NO 394/COCH/2014 7 CTR 105 AND ALSO THE ORDER OF THE TRIBUNAL IN THE C ASE OF ITO VS CDR P J MATHEW IN ITA NO. 321/COCH/02 FOR THE AY 1994-95 WH EREIN IT HAS BEEN HELD AS UNDER: WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDERED T HE MATERIAL AVAILABLE ON RECORD INCLUDING THE PRECEDENTS. WE ARE OF THE VIEW THAT THIS ISSUE HAS BEEN DISCUSSED AND DECIDED BY THE TRIBUNAL IN T HE CASE OF SHRI JOE PAUL JOHN IN LT.A. NO. 617/COCH/2004 DATED 29.5.200 8 FOR THE ASSESSMENT YEAR 1995-96. RESPECTFULLY FOLLOWING THE D ECISION OF THE TRIBUNAL CITED SUPRA WE FIND THAT THE MEMBER CARD OF COCHIN STOCK EXCHANGE IS THE CAPITAL ASSET AS DEFINED UNDER SECTIO N 2( 14) OF THE LT. ACT AND ON TRANSFER OF SUCH CAPITAL ASSET THE GAINS RESUL TING THEREON IS SUBJECTED TO CAPITAL GAINS TAX UNDER THE CHARGING PROV ISIONS OF THE INCOME TAX ACT. THEREFORE WE SET ASIDE THE ORDER OF T HE CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER. 4 HAVING CONSIDERED THE RIVAL SUBMISSIONS AND PERU SAL OF THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE ASSESSEE PAID THE ADMISSION FEE TO THE COMMODITY EXCHANGES AS A LICENSE FEE TO CARRY ON TH E BUSINESS AND IT IS A ONETIME PAYMENT. HAD THE ASSESSEE NOT INCURRED THI S EXPENDITURE THE ASSESSEE WAS NOT ENTITLED TO CARRY ON THE BUSINESS WITH COMM ODITY EXCHANGES WHICH IS A PAYMENT ONCE AND FOR ALL RESULTING IN AN ENDURING BENEFIT TO THE ASSESSEE. THE PAYMENT OF MEMBERSHIP FEE BRINGING INTO EXISTENCE AN ASSET OR AN ADVANTAGE FOR THE ENDURING BENEFIT OF A TRADE AND SUCH AN EXP ENDITURE IS ATTRIBUTABLE NOT TO REVENUE BUT TO CAPITAL. WE FIND THE HONBLE JUR ISDICTIONAL HIGH COURT WHILE DISMISSING THE APPEAL OF THE ASSESSEE IN THE CASE O F FRAMATONE CONNECTORS OEN LTD VS DCIT REPORTED IN 294 ITR 559 HAS HELD AS UNDER: WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL THAT THE EXPENDITURE EFFECTED BY THE ASSESSEE IS CAPITAL IN NATURE. ONCE THE ASSESSEE PAYS THE ITA NO 394/COCH/2014 8 AMOUNT TO A CLUB FOR MEMBERSHIP IT IS A PAYMENT ON CE AND FOR ALL RESULTING IN AN ENDURING BENEFIT TO THE INSTITUTIO N. THE MERE FACT THAT THE ASSESSEES REPRESENTATIVE LIKE THE MANAGING DIREC TORS PARTICIPATION IN THE CLUB PROMOTES THE ASSESSEE'S BUSINESS DOES NOT CHANGE THE CHARACTER OF THE PAYMENT WHICH WAS MADE ONCE AND FOR ALL. THE APEX COURT IN PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD . V. CIT [1997] 225 ITR 792 HELD THAT WHEN AN EXPENDITURE IS MADE NOT ONLY ONCE AND FOR ALL BUT WITH A VIEW TO BRINGING INTO EXISTENCE AN ASSET OR AN ADVANTAGE FOR THE ENDURING BENEFIT OF A TRADE THERE IS A VERY GOOD REASON (IN THE ABSENCE OF SPECIAL CIRCUMSTANCES LEADING TO AN OPPOSITE CON CLUSION) FOR TREATING SUCH AN EXPENDITURE AS PROPERLY ATTRIBUTABLE NOT T O REVENUE BUT TO CAPITAL. WE ARE OF THE VIEW THAT THE ABOVE PRINCIPLE WOULD S QUARELY APPLY IN A CASE WHERE THE COMPANY HAS MADE AN EXPENDITURE FOR GETTING INSTITUTIONAL MEMBERSHIP IN A CLUB AND IT IS AN EX PENDITURE AS PROPERLY ATTRIBUTABLE NOT TO REVENUE BUT TO CAPITAL. WE TH EREFORE ANSWER THE QUESTION IN FAVOUR OF THE REVENUE AND AGAINST THE A SSESSEE. CONSEQUENTLY THIS APPEAL IS DISMISSED. 5 BEING SO IN VIEW OF THE ABOVE JUDGMENT OF THE JU RISDICTIONAL HIGH COURT CITED SUPRA WE HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS A CAPITAL EXPENDITURE AND NOT REVENUE. 6 IN THE RESULT THE APPEAL FILED BY THE ASSESSEE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21ST D AY OF NOV 2014. SD/- SD /- (N.R.S. GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER COCHIN: DATED 21ST NOV 2014 RAJ* ITA NO 394/COCH/2014 9 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT COCHIN 1 DATE OF DICTATION 19 NOV 2014 2 DT ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 20 NOV 2014 3 DT ON WHICH THE APPROVED DRAFT COMES TO THE SR P S/PS 4 DT ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER 5 DICTATION PAID PLACED IN THE ORIGINAL FILE (NO.OF PAGES) 6 DT OF PRONOUNCEMENT 7 DT ON WHICH THE FILE GOES TO THE BENCH CLERK 8 DT ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DT ON WHICH THE FILE GOES TO AR 10 DT OF DISPATCH OF THE ORDER