ADDL CIT RG 4(3), MUMBAI v. KISAN RATILAL KISAN RATILAL CHOKSEY SHARES & SECURITES P. LTD, MUMBAI

ITA 4917/MUM/2009 | 2006-2007
Pronouncement Date: 30-09-2010 | Result: Dismissed

Appeal Details

RSA Number 491719914 RSA 2009
Assessee PAN AAACK4716G
Bench Mumbai
Appeal Number ITA 4917/MUM/2009
Duration Of Justice 1 year(s) 1 month(s) 3 day(s)
Appellant ADDL CIT RG 4(3), MUMBAI
Respondent KISAN RATILAL KISAN RATILAL CHOKSEY SHARES & SECURITES P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted G
Tribunal Order Date 30-09-2010
Date Of Final Hearing 29-07-2010
Next Hearing Date 29-07-2010
Assessment Year 2006-2007
Appeal Filed On 27-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT ASHA VIJAYARAGHAVAN (JM) ITA NO. 4821/MUM/2009 (ASSESSMENT YEAR-2006-07) M/S. KISAN RATILAL CHOKSEY SHARES & SECURITIES PVT. LTD. 1102 STOCK EXCHANGE TOWERS DALAL STREET FORT MUMBAI-400 001 PAN-AAACK4716G THE ADDL CIT RANGE 4(3) AAYAKAR BHAVAN MUMBAI-400 020 (APPELLANT) VS. (RESPONDENT) ITA NO. 4917/MUM/2009 (ASSESSMENT YEAR-2006-07) THE ADDL CIT RANGE 4(3) AAYAKAR BHAVAN MUMBAI-400 020 M/S. KISAN RATILAL CHOKSEY SHARES & SECURITIES PVT. LTD. 1102 STOCK EXCHANGE TOWERS DALAL STREET FORT MUMBAI-400 001 PAN-AAACK4716G (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI DEEPAK R. SHAH RESPONDENT BY: SHRI S.K. MAHAPATRA O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THESE TWO ARE CROSS APPEALS ONE PREFERRED BY THE A SSESSEE AND THE OTHER PREFERRED BY THE REVENUE ARE DIRECTED AGAINST THE ORDERS OF THE LD. CIT(A)-XIV DATED 24.6.2009 FOR THE ASSESSMENT YEAR 2006-07. KISAN RATILAL CHOKSEY 2 I.T.A. NO. 4821/ 2009: ASESSES APPEAL 2. THE FIRST GROUND IN THE ASSESSEES APPEAL IS AGA INST DISALLOWANCE OF LEASE LINE CHARGES AND TRANSACTION CHARGES AGGREGAT ING TO RS.25 87 191/- U/S.40(A)(IA) ON ACCOUNT OF NON DEDUCTION OF TDS. THE SUM OF RS.25 87.101/- CONSISTS OF TRANSACTION CHARGES OF R S.16 96 577/- AND LEASE LINE CHARGES OF RS.8 90 614/- PAID TO THE STOCK EXC HANGES BSE/NSE. THE LEASE LINE CHARGES AND TRANSACTION CHARGES ARE FOR THE USAGE OF DATA UPLINKING FACILITIES PROVIDED BY THE EXCHANGES. TH E TRANSACTION CHARGES ARE BEING LEVIED BY BSE/NSE FOR UTILIZING THEIR TRADING PLATFORMS. TRANSACTION CHARGES ARE LEVIED ON EACH TRANSACTION CARRIED OUT BY THE MEMBER OF STOCK EXCHANGE ON BEHALF OF ITS CLIENTS AND THE CHARGES A RE BEING DEBITED ON THE GROSS VALUE OF EACH SUCH TRANSACTION. DURING THE P REVIOUS YEAR THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCES ON SUCH PAYMENTS MA DE TO NSE/BSE. THE ASSESSING OFFICER HAS TREATED THE ABOVE CHARGES AS EXPENSES FOR TECHNICAL SERVICES FALLING WITHIN THE PURVIEW OF 194J OF I.T. ACT. CONSEQUENTLY THE ASSESSING OFFICER DISALLOWED THE ABOVE PAYMENTS U/S .40(A)(IA) OF I.T. ACT 1961 ON THE GROUND THAT THE ASSESSEE HAD FAILED TO DEDUCT TAX ON SUCH CHARGES. THE ASSESSEE SUBMITTED THAT THE MUMBAI BE NCH IN THE CASE OF KOTAK SECURITIES LTD. VS ACIT (25 SOT 440 MUM) HAS HELD THAT SUCH PAYMENTS WOULD NOT CONSTITUTE FEES FOR TECHNICAL SE RVICES FALLING WITHIN THE SEC.9(1)(VII) AND HENCE THE PROVISION OF SEC.194J A RE ALSO NOT APPLICABLE. HOWEVER THE ASSESSING OFFICER ANALYZED THE VARIOUS SYSTEMS AND PROCEDURES OFFERED BY THE STOCK EXCHANGES AND CONCLUDED THAT T HESE SERVICES INVOLVE SPECIALIZED KNOWLEDGE EXPERIENCE AND SKILL IN THE FIELD OF SHARE TRADING AND ARE IN THE NATURE OF TECHNICAL SERVICES AND PART MA NAGERIAL SERVICES. THEREFORE THE PAYMENT MADE TO THE STOCK EXCHANGE FO R CARRYING OUT THE TRANSACTIONS QUALIFIES TO BE TECHNICAL SERVICES AS BUT FOR THE ENTIRE HIGHLY SOPHISTICATED SYSTEM AND SERVICES INVOLVES SPECIALI ZED KNOWLEDGE EXPERIENCE AND SKILL IN THE FIELD OF SHARE TRADING PROVIDED BY THE EXCHANGES TRANSACTIONS WOULD NOT HAVE BEEN POSSIBLE. HE DISAL LOWED THE PAYMENTS MADE TO THE STOCK EXCHANGES AGGREGATING TO RS.25 87 191/- ON ACCOUNT OF KISAN RATILAL CHOKSEY 3 LEASE LINE CHARGES AND TRANSACTION CHARGES U/S 40( A)(IA) ON ACCOUNT OF NON DEDUCTION OF TAXES 3. BEFORE THE LD. CIT(A) THE ASSESSEE RELIED ON THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF M/S. KOTAK SECURITIES LTD SUPRA WHEREIN IT HAS BEEN HELD THAT THE TRANSACTION FEES COULD NOT BE CO NSIDERED TO BE FEES PAID UNDER CONSIDERATION OF STOCK EXCHANGE RENDERING ANY TECHNICAL SERVICES TO THE ASSESSEE. HENCE THE TRIBUNAL HELD THAT PROVISIO N OF SEC.194J WAS NOT ATTRACTIVE. THE CIT(A) HOWEVER DISMISSED THE APPEA L OF THE ASSESSEE HOLDING AS UNDER: SINCE THE ISSUE IN HAND IS YET TO REACH ITS FINALI TY THEREFORE BY RESPECTFULLY FOLLOWING THE MAJORITY DECISION OF THE HONBLE ITAT (AHMEDABAD) IN THE CASE OF CANARA BANK VS. ITO AND ALSO THE DECISION OF AUTHORITY FOR ADVANCE RULINGS IN THE CASE OF CAR GO COMMUNITY NETWORK PVT LTD. 289 ITR 355 (AAR) I SUPPORT THE FINDING OF THE AO. THE ACTION OF THE AO THEREFORE IN RESPECT OF DISA LLOWANCE OF THESE TWO PAYMENTS ON ACCOUNT OF LEASELINE CHARGES OF RS.8 90 614/- AND TRANSACTION CHARGES OF RS.16 96 577/- ARE UPHELD. 4. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. WE FIND THAT THIS ISSUE HAS BEEN COVERED BY THE DECISION OF ITAT MUMBAI IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.4347/M/09 AND ITA NO.4033/M/09 DT.4.6.2010. FOR THAT YEAR THE DEPARTMENT CAME ON APPEAL IN RESPECT OF ALLOWANCE OF V-SAT CHARGES AND THE ASSESSEE CAME ON APPEAL IN RESPECT OF DISALLOWANCE OF LEASE LINE CHARGES AND TRANSACTION CHARGES U/S.40(A)(IA). IN THAT DECISION THE TRIBUNAL HAS HELD AS UNDER: GROUND NO 1 OF THE REVENUE APPEAL IS IN RESPECT O F DELETION OF AN ADDITION ON ACCOUNT OF VSAT CHARGES. THE FIRST APPE LLATE AUTHORITY HELD THAT NO TAX NEED TO BE DEDUCTED FROM SOURCE FROM VS AT CHARGES BY HOLDING AS FOLLOWS: FROM THE READING OF THE ABOVE EXPLANATION (2) IT IS APPARENT THAT THE TERM FEES FOR TECHNICAL SERVICES HAS WIDE IMP ORT IN ITS MEANING AS IT INCLUDES RENDERING ANY MANAGERIAL TE CHNICAL CONSULTANCY SERVICES. NOW IT NEEDS TO BE EXAMINED WHETHER IN THE PRESENT CASE SERVICES RENDERED BY THE STOCK EXC HANGE FALLS WITHIN THE AMBIT OF FEES FOR TECHNICAL SERVICES. A S FAR AS VSAT CHARGES ARE CONCERNED I AM OF THE VIEW THAT THEY WE RE IN THE NATURE OF REIMBURSEMENT CHARGES PAID BY THE MEMBERS OF STOCK KISAN RATILAL CHOKSEY 4 EXCHANGE IN LIEU OF INFRASTRUCTURE AND TRADING FACI LITIES PROVIDED BY THE STOCK EXCHANGE TRADING ON THE STOCK EXCHANG E IS FACILITATED THROUGH SATELLITE BASED COMMUNICATION N ETWORK WHICH ENABLES THE TRADING MEMBER TO TRADE ON EXCHANGE FRO M THEIR RESPECTIVE PLACES SPREAD ACROSS THE COUNTRY. THE D OT HAS GRANTED LICENCE TO STOCK EXCHANGE FOR INSTALLING AN D SETTING OF CLOSE USER GROUP TELECOMMUNICATION NETWORK BASED ON VSAT AND LEASE LINE. IT MAY ALSO BE NOTED THAT THE STOCK EX CHANGE IS NOT SUPPOSED TO DERIVE ANY PROFIT ON SUCH VSAT AND LEAS E LINE CHARGES RECEIVED BY THEM AS THESE CHARGES ARE SIMPL Y TO BE PASSED ON TO THE OTHER AGENCIES OR GOVERNMENT DEPAR TMENTS. IN MY OPINION SUCH PAYMENTS CANNOT COME WITHIN THE AMB IT OF FEE FOR TECHNICAL SERVICES WITHIN THE MEANING OF DEFI NITION GIVEN IN EXPLANATION 2 TO SECTION 9(1)(VII) AS IT IS NEITHER ANY MANAGERIAL NOR TECHNICAL NOR CONSULTANCY SERVICES. THEREFORE I HOLD THAT PROVISIONS OF SECTION 194J ARE NOT ATTRACTED ON THE VSAT CHARGES AMOUNTING TO RS.1 18 500/-. THEREFORE NO DISALLOW ANCE COULD BE MADE ON THIS AMOUNT U/S.40(A)(IA). THUS THE APPEL LANT GETS RELIEF ON THIS LIMITED POINT. THIS DECISION IS IN LINE WITH THE JUDGMENT OF THE H ONBLE MADRAS HIGH COURT IN THE CASE OF SKYCELL COMMUNICATIONS LT D. & ANR. VS.DCIT 251 ITR 53 AS WELL AS THE JUDGMENT OF THE H ONBLE HIGH COURT IN THE CASE OF CIT VS. BHARTI CELLULAR LTD 22 0 CTR 9 (DEL) 228. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF PACIFIC INTERNET (INDIA) (P) LTD. VS. ITO SUPPORTED IN 27 S OT 523 HELD AS FOLLOWS : THERE IS NO DISPUTE THAT THE ASSESSEE COMPANY IS EN GAGED IN THE BUSINESS OF PROVIDING INTERNET EXCESS SERVICES TO I TS CORPORATE CLIENTS AND CONSUMERS. FOR PROVIDING THE SALES SERV ICES THE ASSESSEE NEEDS BANDWIDTH NETWORK OPERATING INFRASTR UCTURE. THE CONTROVERSY IS WHETHER THE SERVICES ARE FACILIT IES AVAILED BY THE ASSESSEE FROM VSNL/MTNL AND OTHER CONCERNS TOWA RDS BANDWIDTH AND NETWORK OPERATING INFRASTRUCTURE CAN BE SAID TO BE TECHNICAL SERVICES WITHIN THE MEANING OF S.194 J R/W EXPLN.2 TO CL. (VII) OF S.9(1). AS PER PROVISIONS OF S.194 J OF THE ACT (I) THERE SHOULD BE PAYMENT IN THE NATURE OF FEES AND (II) SA ID SHOULD BE FOR AVAILING THE TECHNICAL SERVICES. AGAIN EXPRESSION TECHNICAL SERVICE HAS NOT BEEN DEFINED IN S.194J BUT MEANING GIVEN TO THE SAID EXPRESSION HAS BEEN ADOPTED FROM EXPLN. 2 TO C L. (VII) OF S.9(1). THE ASSESSEE HAS AVAILED THE BANDWIDTH SER VICES AND OTHER INFRASTRUCTURE FOR PROVIDING THE INTERNET EXC ESS TO ITS CUSTOMERS. THESE ARE STANDARD FACILITIES AVAILED B Y THE ASSESSEE. THE PAYMENT MADE BY THE ASSESSEE COMPANY TO VSNL M TNL AND OTHER CONCERNS FOR AVAILING THE SERVICES OF THE BAN DWIDTH NET WORK INFRASTRUCTURE CANNOT BE SAID TO BE TECHNICAL SERVICES WITHIN THE MEANING OF S.194J R/W EXPLN.2 TO CL. (VII) OF S .9(1). THE ORDER PASSED BY THE AO UNDER S.201(1) AND 201(1A) IS CANC ELLED. CIT KISAN RATILAL CHOKSEY 5 VS. ESTEL COMMUNICATIONS (P) LTD (2008) 217 CTR(DEL ) 102 RELIED ON. APPLYING THE PROPOSITIONS LAID DOWN IN BOTH THE CAS ES TO THE FACTS OF THIS CASE WE HAVE TO UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY AS FAR AS VSAT CHARGES ARE CONC ERNED. BUT AS FAR AS LEASE LINE CHARGES AND TRANSACTION CHARGES A RE CONCERNED THE ORDER OF THE FIRST APPELLATE AUTHORITY HAS TO B E NECESSARILY REVERSED AS THE FINDINGS ARE NOT IN CONSONANCE WITH THE DECISION OF THE TRIBUNAL IN THE CASE PACIFIC INTERNET (INDIA ) (P) LTD (SUPRA) AS WELL AS THE DECISION OF THE MUMBAI A BENCH OF T HE TRIBUNAL IN THE CASE OF KOTAK SECURITIES LTD VS ADDL CIT 25 SOT 440(MUM) WHEREIN IT IS HELD AS FOLLOWS: SECTION 194J READ WITH SECTION 40A(IA) OF THE INC OME-TAX ACT 1961 DEDUCTION OF TAX AT SOURCE TECHNICAL SERVICES FEE ASSESSMENT YEAR 2005-06 PAID TRANSACTION FEES TO VA RIOUS STOCK EXCHANGES AND CLAIMED SAME AS DEDUCTION-ASSESSING O FFICER APPLYING SECTION 40(A)(IA) DISALLOWED SAID TRANSACT ION FEE ON GROUND THAT STOCK EXCHANGES WERE [PROVIDING TECHNIC AL SERVICES TO THE ASSESSEE SO TRANSACTION FEE WAS A FEE PAID FO R RENDERING TECHNICAL SERVICES TO IT AND ASSESSEE IN TERMS OF SECTION 194J OUGHT TO HAVE DEDUCTED TAX AT SOURCE ON SUCH AMOUNT S WHETHER SINCE STOCK EXCHANGES DO NOT RENDER ANY TECHNICAL SERVICE NOR DO THEY RENDER ANY TECHNICAL CONSULTANCY SERVICE. T HEREFORE TRANSACTION FEE PAID COULD NOT BE SAID TO BE A FEE PAID IN CONSIDERATION OF STOCK EXCHANGE RENDERING ANY TECHN ICAL SERVICES TO ASSESSEE. HELD YES WHETHER THEREFORE SECTION 19 4J WOULD NOT BE APPLICABLE TO SUCH CIRCUMSTANCES AND THEREFORE D ISALLOWANCE MADE WAS TO BE DELETE YES. IN THE RESULT REVENUES APPEAL ON THIS ISSUE IS DISMI SS ED 5. FURTHER THE ITAT DEALING WITH THE ASSESSEES APP EAL IN RESPECT OF LEASE LINE CHARGES AND TRANSACTION CHARGES ALLOWED THE AS SESSEES CLAIM HOLDING AS UNDER: COMING TO THE ASSESSEES APPEAL IN ITA NO. 4033/M UM/2009 THE SOLE ISSUE IS THE DISALLOWANCE OF LEASE-LINE CHARGES AND TRANSACTION CHARGES ON THE GROUND THAT NO DEDUCTION OF TAX AT SOURCE HA S BEEN MADE ON PAYMENTS TO BSE AND NSE. IN VIEW OF OUR DISCUSSION IN THE REVENUES APPEAL ON THE VERY SAME ISSUE OF APPLICABILITY OF S ECTION 194J WE ALLOW THIS GROUND OF THE ASSESSEE. 6. RESPECTFULLY FOLLOWING THE DECISION OF THE COORD INATE BENCH IN THE ASSESSEES OWN CASE FOR THE AY 2004-05 IN ITA NO. 4 033/MUM/2009 WE KISAN RATILAL CHOKSEY 6 HOLD THAT THE LEASE LINE CHARGES AND TRANSACTION CH ARGES ARE NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES CONTEMPLATED U/S9(1)(VII) AND HENCE PROVISIONS OF SEC 194J WILL NOT APPLY TO SUCH TRANS ACTIONS AND HENCE THE ASSESSEE IS NOT REQUIRED TO DEDUCT TAX AT SOURCE FR OM THE PAYMENT OF RS.25 87.101/- CONSISTING OF TRANSACTION CHARGES OF RS.16 96 577/- AND LEASE LINE CHARGES OF RS.8 90 614/- PAID TO THE STO CK EXCHANGES BSE/NSE. CONSEQUENTLY THE LOWER AUTHORITIES ERRED IN DISALLO WING THIS AMOUNT U/S 40(A)(IA). WE DELETE THE DISALLOWANCE OF RS..25 87. 101/- CONSISTING OF TRANSACTION CHARGES OF RS.16 96 577/- AND LEASE LIN E CHARGES OF RS.8 90 614/- PAID TO THE STOCK EXCHANGES BSE/NSE. THE ASSESSEES APPEAL IS ALLOWED ON THIS ISSUE. 7. THE NEXT ISSUE IS REGARDING THE DISALLOWANCE OF DEVELOPMENT OF WEBSITE EXPENSES OF RS. 37 32 299/-. THE ASSESSEE VIDE ITS LETTER DT.28.11.08 EXPLAINED THAT THE WEBSITE DEVELOPMENT CHARGES AND COMPUTER EXPENSES ARE AS UNDER: DURING THE YEAR ASSESSEE HAS INCURRED SOFTWARE AND WEBSITE DEVELOPMENT EXPENSES OF RS.37.32 LACS. THESE EXPEN SES ARE INCURRED MAINLY FOR DEVELOPMENT OF THEIR WEBSITE FINANCIAL DATA CONTENT MANAGEMENT TOWARDS DATABASE AND VARIOUS PACKAGES RE QUIRED FOR CUSTOMER RELATIONSHIP AND RISK MANAGEMENT. DETAILS OF THESE EXPENSES ALONG COPIES OF SOME MAJOR EXPENSES ARE ENCLOSED (A NNEXURE 1). SINCE ALL THESE EXPENSES ARE FOR THE DAY-TO-DAY BROKERAGE AND RELATED BUSINESS OPERATIONS OF THE COMPANY THE SAME ARE AL LOWABLE AS DEDUCTION U/S.37. 8. HOWEVER THE AO HAS HELD THAT AFTER THE AMENDMEN T OF I.T. RULES W.E.F. 1.4.2003 DEFINITION OF COMPUTER INCLUDED COM PUTER SOFTWARE AND THEREFORE THE EXPENSES ON SOFTWARE SHOULD BE TREATE D AS DEPRECIABLE ASSETS AND HENCE THE DEDUCTION CLAIMED AS ABOVE HAVE TO BE DISALLOWED. 9. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE T HE CIT(A). THE LD. CIT(A) DISMISSED THE GROUNDS OF THE ASSESSEE BY OBS ERVING AS UNDER: IN RESPECT OF GROUND NO.4 IT IS CONTENDED THAT AO DISALLOWED WEBSITE DEVELOPMENT EXPENSES OF RS.37 32 299/- WITH OUT APPRECIATING KISAN RATILAL CHOKSEY 7 THE NATURE AND PURPOSE OF EACH INDIVIDUAL EXPENSES INCURRED UNDER DIFFERENT HEADS FOR DIFFERENT PURPOSES AND INSTEAD TREATED THE SAME AS CAPITAL EXPENDITURE AND CLUBBED THEM ALL AS EXPENDI TURE INCURRED FOR WEBSITE DEVELOPMENT. THE APPELLANT CONTENDED THAT THE AO FURTHER FAILED TO APPRECIATE THAT THE ASSESSEE BEING A SHAR E BROKER THE BUSINESS OF THE ASSESSEE REQUIRES EXTENSIVE USE OF COMPUTERS. THE VARIOUS SERVICES OFFERED BY THE ASSESSEE ALSO REQUI RE SPECIALIZED SOFTWARE. FURTHER IN LINE WITH THE TREND OF THE I NDUSTRY THE ASSESSEE NOT ONLY HAS TO DEVELOP/PURCHASE VARIOUS SOFTWARE BUT HAS TO INCUR EXPENDITURE FOR DAY TO DAY MAINTENANCE AND UPKEEP O F ITS COMPUTERS AND UPGRADATION OF SYSTEMS AND SOFTWARE. SOFTWARES AND SYSTEMS HAVE TO BE CONSTANTLY RE-WRITTEN/MODIFIED DUE TO CH ANGE IN LEGAL OR REGULATORY REQUIREMENTS CHANGE IN HARDWARE CONFIGU RATIONS LOOPHOLES FOUND AND VIRUSES AFFECTING THE SOFTWARE AND TECHNO LOGICAL CHANGES REQUIRING SOFTWARE TO BE COMPATIBLE. THE AO FAILED TO APPRECIATE THAT THE EXPENSES INCURRED WERE MAINLY TO COMPLY WITH CH ANGING REQUIREMENT OF STATUTES AND UPGRADATION DUE TO TECH NOLOGICAL ADVANCES. IT WAS ALSO CONTENDED THAT THE EXPENSES WERE NOT ON E TIME EXPENSES BUT IN THE NATURE OF RECURRING EXPENSES THAT NEEDS TO BE INCURRED ON REGULAR BASIS AND DOES NOT RESULT IN ANY ENDURING B ENEFIT TO THE ASSESSEE. THE APPELLANT PLACED RELIANCE ON THE FOL LOWING DECISIONS: 1. BUSINESS INFORMATION PROCESSING SERVICES VS. ACIT ( 73 ITD 304)/239 ITR 19 (ITAT JP). 2. BANK OF PUNJAB VS. JCIT 122 TAXMAN 235 (CHAD) 3. MEDIA VIDEO LTD VS JCIT 122 TAXMAN 28 (DEL) 4. ITC CLASSIC FINANCE LTD. VS. DCIT 112 TAXMAN 155 (C AL) 5. PRAGA TOOLS LTD VS. CIT 123 ITR 773 (AP) 6. ALEMBIC CHEMICAL WORKS CO LTD VS CIT 177 ITR 377 (S C) THE APPELLANT FURTHER RELIED ON THE DECISION IN THE CASE OF EMPIRE JUTE CO LTD VS. CIT 124 ITR 1 (SC) AND HINTON (INSPECTOR O F TAXES) VS. MADEN & IRELAND LTD 39 ITR 357 (HL). IN VIEW OF THE ABOVE THE APPELLANT SUBMITTED THAT THE ABOVE EXPENDITURE IS OF REVENUE NATURE AND THEREFORE SHOULD BE ALLOWED AS DEDUCTION. 10. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS AND SUB MISSIONS AND HAVE ALSO GONE THROUGH THE ORDER OF THE AO I FIND THAT THE AO HAS DISCUSSED THIS ISSUE IN PARA 4.5 OF HER ORDER AND ARRIVED AT THE C ONCLUSION THAT THE LEGISLATURE HAS TAKEN CARE BY AMENDING THE DEFINITI ON OF COMPUTER AND INSERTED THE WORDS COMPUTER INCLUDES COMPUTER SO FTWARE W.E.F. 1.4.2003 AND ALSO PLACED RELIANCE IN THE CASE OF AR AVALI CONSTRUCTION PVT LTD. 259 ITR 30 AND HELD THAT TECHNICAL KNOW HOW IS A CAPITAL EXPENDITURE WHICH IS ENTITLED FOR DEPRECIATION U/S.32 OF THE I. T. ACT. THE SOFTWARE EXPENSES INCURRED BY THE ASSESSEE COMPANY ARE IN TH E NATURE OF ENDURING BENEFITS TO THE ASSESSEE THEREFORE CAPITAL IN NAT URE HENCE DISALLOWED. KISAN RATILAL CHOKSEY 8 11. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. THE ASSESSEE HAS GIVEN THE DETAILS OF COMPUTER AND WEB SITE MAINTENANCE EX PENSES AS UNDER: WEBSITE DEVELOPMENT AND FINANCIAL CONTENT MANAGEMEN T EXPENSES 15 73 459 DATABASE EXPENSES 3 57 625 COMPUTER MAINTENANCE EXPENSES 15 67 110 BANDWIDTH EXPENSES (46 490) INTERNET CONNECTION CHARGES (2 64 000) WEB SPACE CHARGES 5 158 CTCL SOFTWARE EXPENSES 1 22 374 SOFTWARE EXPENSES FOR WEB RESEARCH 16 400 OTHER SOFTWARE MAINTENANCE AND UPGRADES EXPENSES 4 00 663 TOTAL 37 32 299 12. FROM THE ABOVE WE SEE THAT THE FIRST ITEM OF E XPENDITURE IS WEBSITE DEVELOPMENT AND FINANCIAL CONTENT MANAGEMENT EXPENS ES. THIS IS MERELY FOR THE DEVELOPMENT OF WEB SITE FOR THE ASSESSEE. THERE IS NO ASSET OF ENDURING NATURE CREATED BY THE SAME. THE WEB SITE IS MERELY HOSTED TO ENABLE THE CLIENTS TO KNOW ABOUT THE ASSESSEE AS WE LL AS TO TRANSACT BUSINESS WITH THE ASSESSEE. THIS IS ONLY FOR THE C ONVENIENCE AND FOR CARRYING OUT THE DAY TO DAY BUSINESS OF THE ASSESSE E AND CANNOT BE SAID TO BE FOR THE DEVELOPMENT OF ANY ASSET OF THE SINGLE M EMBER IN THE CASE OF RADIAL MARKETING PVT LTD VS. ITO (210 2 ITR TRIB 64 1(MUM)(SMC). IN THE CIRCUMSTANCES THE WEB SITE DEVELOPMENT AND FINANCI AL CONTENT MANAGEMENT EXPENSES ARE ALLOWABLE AS REVENUE EXPENDITURE. THE OTHER ITEMS OF EXPENDITURE ARE DATA BASE EXPENSES COMPUTER MAINTE NANCE EXPENSES BANDWIDTH EXPENSES INTERNET CONNECTION CHARGES WE B SPACE CHARGES ALL ARE IN THE REVENUE FIELD INCURRED FOR THE BUSINESS OF THE ASSESSEE. NONE OF THEM COULD BE CONSIDERED TO BE IN THE CAPITAL FIELD . APPLYING THE RATIO OF THE DECISION OF SUPREME COURT IN THE CASE OF EMPIRE JUT E CO LTD 124 ITR 1 WE HAVE TO HOLD THAT THESE EXPENSES ARE IN THE REVENUE FIELD AND HENCE ALLOWABLE. THE OTHER EXPENSES VIZ. CTCL AND SOFTW ARE EXPENSES FOR THE WEB RESEARCH AND SOFTWARE MAINTENANCE AND UPGRADES CANN OT BE CONSIDERED AS ACQUISITION OF SOFTWARE IN THE NATURE OF DEPRECIABL E ASSET CONTEMPLATED U/S.32. THERE EXPENSES WERE MADE TO MEET THE EVER CHANGING NEEDS OF TECHNOLOGICAL IMPROVEMENTS AND ARE RECURRING EXPEND ITURE THE ASSESSEE HAD KISAN RATILAL CHOKSEY 9 NOT OBTAINED ANY BENEFIT OF ENDURING NATURE. THERE FORE THESE EXPENSES ARE ALSO ALLOWABLE AS REVENUE EXPENDITURE. WITH THE RES ULT THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF RS.37 32 299 IS REVENUE E XPENDITURE IS UPHELD AND THE ASSESSEES GROUND OF APPEAL ON THIS ISSUE IS AL LOWED. 13. THE NEXT GROUND OF APPEAL IS REGARDING THE DISA LLOWANCE U/S.14A OF RS.4 14 994/-. THE ASSESSEE COMPANY HAVE EARNED A DIVIDEND OF RS.28 92 442 AND THE AO APPLYING THE PROVISIONS OF RULE 8D DISALLOWED A SUM OF RS.4 14 994 APPLYING THE RATIO OF THE DECIS ION OF SPECIAL BENCH IN THE CASE OF ITO V DAGA CAPITAL MANAGEMENT PVT LTD ( 117 ITD 169 MUM SB). ON APPEAL THE CIT(A) CONFIRMED THE DECISION OF THE AO HOLDING THAT PROVISIONS OF RULE 8D WAS SQUARELY APPLICABLE TO TH E APPELLANT CASE. 14. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. 15. WE FIND THAT THE DECISION OF SPECIAL BENCH IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD HAS BEEN SET ASIDE BY THE JURIS DICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO LTD V DCIT (2010 TIOL-564-HC-MUM-IT). IN THE CIRCUMSTANCES WE SET ASIDE THE ORDER OF AO AND CIT(A) ON THIS ISSUE AND REMIT THE MATTER BACK TO THE FILES OF AO TO DEC IDE THE ISSUE AFRESH IN LINE WITH THE RATIO OF THE DECISION OF THE JURISDICTIONA L HIGH COURT. ITA 4917 DEPARTMENTAL APPEAL 16. THE FIRST GROUND OF APPEAL IS AGAINST THE DISAL LOWANCE MADE IN RESPECT OF VSAT LEASE LINE AND TRANSACTION CHARGES U/S.40( A)(IA). WE FIND FROM THE ORDER OF THE LD. CIT(A) THAT HE HAS ONLY DELETED TH E DISALLOWANCE OF VSAT CHARGES OF RS.3 29 901 FOR NON DEDUCTION OF TDS. H E HAD UPHELD THE DISALLOWANCE OF LEASE LINE CHARGES OF RS.8 90 614 A ND TRANSACTION CHARGES OF RS.16 96 577 . THEREFORE THE DEPARTMENT HAS NO GRIEVANCE IN SO FAR AS THE LEASE LINE AND TRANSACTION CHARGES PAID BY THE ASSESSEE. AS REGARDS VSAT CHARGES PAID WE FIND THAT THE TRIBUNAL IN THE ASSESSEES OWN CASE HAS UPHELD THE ALLOWANCE OF VSAT CHARGES IN ITA NO.4347 /M/09 FOR THE A.Y 2005-06 DT.4.6.10 WHEREIN IT HAS BEEN OBSERVED AS U NDER: KISAN RATILAL CHOKSEY 10 GROUND NO.1 OF THE REVENUE APPEAL IS IN RESPECT OF DELETION OF AN ADDITION ON ACCOUNT OF VSAT CHARGES. THE FIRST APP ELLATE AUTHORITY HELD THAT NO TAX NEED BE DEDUCTED AT SOURCE FROM VSAT CH ARGES BY HOLDING AS FOLLOWS: FROM THE READING OF THE ABOVE EXPLANATION (2) IT I S APPARENT THAT THE TERM FEES FOR TECHNICAL SERVICES HAS WIDE IMP ORT IN ITS MEANING AS IT INCLUDES RENDERING ANY MANAGERIAL TE CHNICAL CONSULTANCY SERVICES. NOW IT NEEDS TO BE EXAMINED WHETHER IN THE PRESENT CASE SERVICES RENDERED BY THE STOCK EXC HANGE FALLS WITHIN THE AMBIT OF FEES FOR TECHNICAL SERVICES. A S FAR AS VSAT CHARGES ARE CONCERNED I AM OF THE VIEW THAT THEY WE RE IN THE NATURE OF REIMBURSEMENT CHARGES PAID BY THE MEMBERS OF STOCK EXCHANGE IN LIEU OF INFRASTRUCTURE AND TRADING FACI LITIES PROVIDED BY THE STOCK EXCHANGE TRADING ON THE STOCK EXCHANG E IS FACILITATED THROUGH SATELLITE BASED COMMUNICATION N ETWORK WHICH ENABLES THE TRADING MEMBER TO TRADE ON EXCHANGE FRO M THEIR RESPECTIVE PLACES SPREAD ACROSS THE COUNTRY. THE D OT HAS GRANTED LICENCE TO STOCK EXCHANGE FOR INSTALLING AN D SETTING OF CLOSE USER GROUP TELECOMMUNICATION NETWORK BASED ON VSAT AND LEASE LINE. IT MAY ALSO BE NOTED THAT THE STOCK EX CHANGE IS NOT SUPPOSED TO DERIVE ANY PROFIT ON SUCH VSAT AND LEAS E LINE CHARGES RECEIVED BY THEM AS THESE CHARGES ARE SIMPL Y TO BE PASSED ON TO THE OTHER AGENCIES OR GOVERNMENT DEPAR TMENTS. IN MY OPINION SUCH PAYMENTS CANNOT COME WITHIN THE AMB IT OF FEE FOR TECHNICAL SERVICES WITHIN THE MEANING OF DEFI NITION GIVEN IN EXPLANATION 2 TO SECTION 9(1)(VII) AS IT IS NEITHER ANY MANAGERIAL NOR TECHNICAL NOR CONSULTANCY SERVICES. THEREFORE I HOLD THAT PROVISIONS OF SECTION 194J ARE NOT ATTRACTED ON THE VSAT CHARGES AMOUNTING TO RS.1 18 500/-. THEREFORE NO DISALLOW ANCE COULD BE MADE ON THIS AMOUNT U/S.40(A)(IA). THUS THE APPEL LANT GETS RELIEF ON THIS LIMITED POINT. 17. FURTHER THE REVENUES APPEAL IS TO BE DISMISSED IN LIGHT OF THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CA SE OF SKYCELL COMMUNICATIONS LTD. & ANR. VS.DCIT 251 ITR 53 AS WE LL AS THE JUDGMENT OF THE HONBLE HIGH COURT IN THE CASE OF CIT VS. BHART I CELLULAR LTD 220 CTR 9 (DEL) 228. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF PACIFIC INTERNET (INDIA) (P) LTD. VS. ITO SUPPORTED IN 27 SOT 523 HE LD AS FOLLOWS: THERE IS NO DISPUTE THAT THE ASSESSEE COMPANY IS EN GAGED IN THE BUSINESS OF PROVIDING INTERNET EXCESS SERVICES TO I TS CORPORATE CLIENTS AND CONSUMERS. FOR PROVIDING THE SALES SERV ICES THE ASSESSEE NEEDS BANDWIDTH NETWORK OPERATING INFRASTR UCTURE. THE CONTROVERSY IS WHETHER THE SERVICES ARE FACILIT IES AVAILED BY KISAN RATILAL CHOKSEY 11 THE ASSESSEE FROM VSNL/MTNL AND OTHER CONCERNS TOWA RDS BANDWIDTH AND NETWORK OPERATING INFRASTRUCTURE CAN BE SAID TO BE TECHNICAL SERVICES WITHIN THE MEANING OF S.194 J R/W EXPLN.2 TO CL. (VII) OF S.9(1). AS PER PROVISIONS OF S.194 J OF THE ACT (I) THERE SHOULD BE PAYMENT IN THE NATURE OF FEES AND (II) SA ID SHOULD BE FOR AVAILING THE TECHNICAL SERVICES. AGAIN EXPRESSION TECHNICAL SERVICE HAS NOT BEEN DEFINED IN S.194J BUT MEANING GIVEN TO THE SAID EXPRESSION HAS BEEN ADOPTED FROM EXPLN. 2 TO C L. (VII) OF S.9(1). THE ASSESSEE HAS AVAILED THE BANDWIDTH SER VICES AND OTHER INFRASTRUCTURE FOR PROVIDING THE INTERNET EXC ESS TO ITS CUSTOMERS. THESE ARE STANDARD FACILITIES AVAILED B Y THE ASSESSEE. THE PAYMENT MADE BY THE ASSESSEE COMPANY TO VSNL M TNL AND OTHER CONCERNS FOR AVAILING THE SERVICES OF THE BAN DWIDTH NET WORK INFRASTRUCTURE CANNOT BE SAID TO BE TECHNICAL SERVICES WITHIN THE MEANING OF S.194J R/W EXPLN.2 TO CL. (VII) OF S .9(1). THE ORDER PASSED BY THE AO UNDER S.201(1) AND 201(1A) IS CANC ELLED. CIT VS. ESTEL COMMUNICATIONS (P) LTD (2008) 217 CTR(DEL ) 102 RELIED ON. 18. RESPECTFULLY FOLLOWING THE ORDER OF CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE AND THE DECISION IN 27 SOT 523 WE UPHOLD THE ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE MADE IN RESPECT OF VSAT CHARGES AND DISMISS THE DEPARTMENTAL APPEAL ON THIS ISSUE. 19. THE SECOND ISSUE IS REGARDING THE DELETION OF D ISALLOWANCE ON DEPRECIATION ON MOTOR CARS. THE ASSESSEE HAD PURCH ASED MOTOR CAR FROM ITS OWN FUND AND REFLECTED THE SAME IN THE BALANCE SHEE T OF THE COMPANY. IT IS ALSO NOT DISPUTED THAT THE CARS WERE USED FOR THE B USINESS OF THE ASSESSEE. HOWEVER THE AO HAD DISALLOWED THE DEPRECIATION ON MOTOR CARS ON THE GROUND THAT THE REGISTRATION IS NOT DONE IN THE NAM E OF THE COMPANY. ON APPEAL THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASS ESSEE FOR DEDUCTION OF DEPRECIATION ON MOTOR CARS FOLLOWING THE DECISIONS OF: 1. CIT VS MOHD. BUX SHOKAT ALI (NO.2) (2002) 256 ITR 3 57 (RAJ.) 2. CIT VS MYSORE MINERALS LTD. VS CIT (1999) 239 ITR 7 75 (SC) 3. CIT VS NAVDURGA TRANSPORT CO. (1999) 235 ITR 158 (A LL) 4. CIT VS DILIP SINGH SARDARSINGH BAGGA (1993) 201 ITR 995 (BOM) KISAN RATILAL CHOKSEY 12 20. AGGRIEVED THE REVENUE IS ON APPEAL. WE FIND TH AT THIS ISSUE IS ALSO COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF MU MBAI TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA 4347/M/09 DT.4.6.10 FOR THE AY 2005-06. COMING TO THE GROUND NO.2 OF THE REVENUE IT IS D IRECTED AGAINST THE DISALLOWANCE OF DEPRECIATION ON MOTOR CAR FOR THE REASON THAT THE SAME IS NOT REGISTERED IN THE NAME OF A COMPANY BUT IS REGISTERED IN THE NAME OF THE DIRECTOR. THE CAR HAS BEEN PURCHASED W ITH THE ASSESSEES OWN FUND AND IS REFLECTED IN THE BALANCE SHEET OF T HE COMPANY. THE AO DOES NOT DISPUTE THESE FACTS. THE ONLY GROUND ON WHICH THE AO DISALLOWS DEPRECIATION ON MOTOR CAR IS THAT THE RE GISTRATION IS NOT DONE IN THE NAME OF THE COMPANY. THIS CONCLUSION OF TH E AO IS WRONG . THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS DIL IP SINGH SARDARSINGH BAGGA 201 ITR 995 HELD THAT REGISTRATI ON UNDER THE MOTOR VEHICLES ACT IS NOT AN ESSENTIAL PREREQUISITE FOR THE ACQUISITION OF OWNERSHIP OF THE MOTOR VEHICLE AND THAT AN ASSESSEE PURCHASING A MOTOR VEHICLE FOR VALUABLE CONSIDERATION AND USING THE SAME FOR HIS BUSINESS CANNOT BE DENIED BENEFIT OF DEPRECIATION O N THE GROUND THAT TRANSFER WAS NOT RECORDED UNDER MOTOR VEHICLE ACT. THE DELHI A-BENCH OF THE TRIBUNAL IN THE CASE OF USHA RECTIFIER CORPO RATION (I) P.LTD VS IAC 35 TTJ 602 HELD AS FOLLOWS: DEPRECIATION OWNERSHIP REGISTRATION OF VEHIC LE UNDER THE MOTOR VEHICLE ACT NOT GRANTED IN THE NAME OF ASSE SSEE COMPANY. REGISTRATION IS NOT AN ESSENTIAL PRE-REQUISITE FOR THE ACQUISITION OF OWNERSHIP OF A MOTOR VEHICLE BUT IS AN OBLIGATION C AST UPON THE OWNER OF A VEHICLE FOR THE PURPOSE OF RUNNING A VEH ICLE IN ANY PUBLIC PLACE IN THE PRESENT CASE CAR WAS PURCHAS ED WITH THE FUNDS OF THE OWNER OF THE CAR WAS THEREFORE ENTI TLED TO DEPRECIATION CIT VS SALKIA TRANSPORT ASSOCIATES (2 983) 33 CTR (CAL) 198: (1983)143 ITR 39(CAL) APPLIED. RESPECTFULLY APPLYING THE PROPOSITIONS LAID DOWN TO THE FACTS OF THE CASE WE UPHOLD THE ORDER OF THE FIRST APPELLATE AU THORITY AND DISMISS GROUND NO.2 OF THE REVENUE. 21. FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSES SEES OWN CASE ON THIS ISSUE WE UPHOLD THE ORDER OF THE FIRST APPELLATE A UTHORITY DIRECTING THE GRANT OF DEPRECIATION ON MOTORCARS AND DISMISS THE REVENUES APPEAL ON THIS ISSUE. 22. THE LAST ISSUE ON THE DEPARTMENTS APPEAL IS RE GARDING THE ALLOWANCE OF CLAIM FOR BAD DEBT OF RS. 13 330/-. THE AO HAS D ISALLOWED THE CLAIM HOLDING AS UNDER: KISAN RATILAL CHOKSEY 13 THUS THE MAJORITY VIEW OF HIGH COURT IS THAT THE D EBT MUST BE ESTABLISHED TO HAVE BECOME BAD BEFORE IT IS WRITTEN OFF U/S 36(1)(VII). THIS WAS THE VIEW OF THE DISSENTING MEMBER IN THE C ASE OF DCIT V OMAN INTERNATIONAL BANK (100 ITD 285 MUM SB). 23. ON APPEAL THE LD. CIT(A) ALLOWED THE SAME FOLLO WING THE DECISION OF MUMBAI HIGH COURT IN THE CASE OF DIT VS. OMAN INTER NATIONAL BANK. AGGRIEVED THE DEPARTMENT IS ON APPEAL. WE FIND THA T THIS ISSUE HAS REACHED THE FINALITY IN VIEW OF THE DECISION OF SUPREME COU RT IN THE CASE OF TRF LTD 323 ITR 397 WHERE THE APEX COURT HAS HELD THAT AFTE R 1 ST APRIL 1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT IN FACT HAS BECOME IRRECOVERABLE AND IT IS ENOUGH THE BAD DEBT IS WRIT TEN OFF AS IRRECOVERABLE IN THE HANDS OF ASSESSEE. IN VIEW OF THE DECISION OF APEX COURT WE UPHOLD THE DECISION OF FIRST APPELLATE AUTHORITY AND DISMISS T HE APPEAL OF THE REVENUE ON THIS ISSUE. 24. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF SEPTEMBER 2010. SD/- SD/- (PRAMOD KUMAR) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUD ICIAL MEMBER MUMBAI DATED 30 TH SEPTEMBER 2010. RJ COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CENTRAL - I CONCERNED 5. THE DR G BENCH TRUE COPY BY ORDER ASST. REGISTRAR I.T.A.T MUMBAI KISAN RATILAL CHOKSEY 14 DATE INITIALS 1 DRAFT DICTATED ON: 28.9..2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 28.9.2010 ______ 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: _________ ______ SR. 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: _________ ______