ACIT CIR 4(2), MUMBAI v. PADMAKSHI FINANCIAL SERVICE P. LTD, MUMBAI

ITA 5943/MUM/2009 | 2005-2006
Pronouncement Date: 09-07-2010 | Result: Partly Allowed

Appeal Details

RSA Number 594319914 RSA 2009
Assessee PAN AABCP2260K
Bench Mumbai
Appeal Number ITA 5943/MUM/2009
Duration Of Justice 8 month(s)
Appellant ACIT CIR 4(2), MUMBAI
Respondent PADMAKSHI FINANCIAL SERVICE P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-07-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 09-07-2010
Assessment Year 2005-2006
Appeal Filed On 09-11-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI D.K. AGARWAL (J.M.) & SHRI R.K. PANDA ( A.M.) I.T.A. NO.5943/MUM/2009 (A.Y. 2005-2006) ASST. COMMR. OF INCOME-TAX CIR 4(2) R.NO.542 6 TH FLR. AAYKAR BHAVAN M.K. RD. MUMBAI 400 020. M/S. PADMAKSHI FINANCIAL SERVICES PVT. LTD. 96/98 MAKER TOWER F 9 TH FLR. CUFFE PARADE MUMBAI 400 005. PAN : AABCP2260K APPELLANT VS. RESPONDENT APPELLANT BY SHRI DEVADASAN. RESPONDENT BY SHRI JITENDRA JAIN. PER R.K. PANDA AM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 24.08.2009 OF CIT(A)-IV MUMBAI RELATING TO ASSESS MENT YEAR 2005-06. 2. IN GROUND OF APPEAL NO.1 THE REVENUE HAS CHALLE NGED THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS.39 522/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PENALTY PAID TO SEBI. 2.1 THE FACTS OF THE CASE IN BRIEF ARE THAT THE A SSESSING OFFICER DISALLOWED PENALTY AMOUNTING TO RS.39 522/- PAID TO BSE ON THE GROUND THAT THE SAME HAS BEEN PAID TO SEBI A STATUTORY BO DY FOR VIOLATION OF STATUTORY LAW. 2.2 IN APPEAL THE CIT(A) DELETED THE DISALLOWANCE ON THE GROUND THAT THE PAYMENTS MADE TO STOCK EXCHANGE FOR VIOLATION O F THEIR REGULATION ARE NOT EXPENDITURE FOR ANY PURPOSE WHICH IS AN OFF ENCE OR WHICH IS I.T.A. NO.5943/MUM/2009 M/S. PADMAKSHI FINANCIAL SERVICES PVT. LTD. 2 PROHIBITED BY LAW. THEREFORE THE EXPLANATION TO SEC.37 IS NOT CORRECT. AGGRIEVED WITH SUCH ORDER OF CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 3. THE LEARNED D.R. SUBMITTED THAT BSE BEING A STAT UTORY AUTHORITY VIOLATION OF ITS RULES & REGULATIONS AMOUNT TO INFR INGEMENT OF LAW THEREFORE THE ASSESSING OFFICER WAS JUSTIFIED IN D ISALLOWING THE PENALTY. 4. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTH ER HAND REFERRING TO A SERIES OF DECISIONS OF THE TRIBUNAL SUBMITTED THAT PENALTY PAID TO NSE & BSE IS ALLOWED AS REVENUE EXPENDITURE. REF ERRING TO PARA 5 OF THE STATEMENT OF FACTS FILED BEFORE THE CIT(A) HE SUBMITTED THAT THE PAYMENTS MADE TO THE STOCK EXCHANGE RELATE TO DELAY /TECHNICAL NON- COMPLIANCE ETC. AND THEREFORE NOT HIT BY EXPLANATIO N TO SEC.37(1). HOWEVER HE SUBMITTED THAT HE HAS NO OBJECTION IF T HE MATTER IS RESTORED TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION T O VERIFY THAT THE SAME HAS BEEN PAID TO NSE/BSE AND NOT TO SEBI AND ACCORDINGL Y ALLOW THE CLAIM IN VIEW OF THE CONSISTENT VIEW OF THE TRIBUNAL. 5. WE HAVE HEARD BOTH THE SIDES. WE FIND THE ASSES SING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE PENALTY HAS BEEN PAID TO SEBI A STATUTORY CORPORATION FOR VIOL ATION OF RULES FRAMED BY THE GOVT. THE CIT(A) DELETED THE DISALLOWANCE ON THE GROUND THAT THE SAME HAS BEEN PAID TO STOCK EXCHANGES. WE FIND ME RIT IN THE ALTERNATIVE CONTENTION OF THE ASSESSEE THAT THE MAT TER MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION OF THE NATURE OF PAYMENT AND ALLOW CONSEQUENTIAL RELIEF IN VIEW OF THE CONSI STENT VIEW OF THE CO- ORDINATE BENCHES OF THE TRIBUNAL. WE THEREFORE RESTORE THIS MATTER TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO V ERIFY THE NATURE OF PAYMENT AND GIVE APPROPRIATE RELIEF AS PER LAW AFTE R GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HO LD AND DIRECT I.T.A. NO.5943/MUM/2009 M/S. PADMAKSHI FINANCIAL SERVICES PVT. LTD. 3 ACCORDINGLY. GROUND NO.1 BY THE REVENUE IS ACCORD INGLY ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO.2 BY THE REVENUE RELATES TO THE ORDER OF THE CIT(A) IN DELETING TRANSACTION CHARGES OF RS.13 87 154/- MADE BY THE ASSESSING OFFICER U/S.40(A)(IA) OF THE I.T. ACT. 6.1 AFTER HEARING BOTH THE SIDES WE FIND THE ASSES SEE HAS DEBITED TRANSACTION CHARGES OF RS.13 87 154/- WHICH IS PAYA BLE TO STOCK EXCHANGE ON ACCOUNT OF SERVICES RENDERED BY IT WITH REGARD TO TRANSACTIONS IN SECURITIES THROUGH THE EXCHANGE. THE ASSESSING OFFICER DISALLOWED THE CLAIM MADE BY THE ASSESSEE ON THE GR OUND THAT NO TAX HAS BEEN DEDUCTED OUT OF SUCH PAYMENT AND THEREFORE I N VIEW OF THE PROVISIONS OF SEC.40(A)(IA) THE ABOVE AMOUNT HAS T O BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE FOR NON-DEDUCTION OF TAX. 6.2 IN APPEAL THE CIT(A) FOLLOWING THE DECISION O F THE TRIBUNAL IN THE CASE OF KOTAK SECURITIES VS. ADDL. CIT VIDE ITA NO. 1955/MUM/2008 FOR ASSESSMENT YEAR 2005-2006 DELETED THE DISALLOWANC E HOLDING THAT STOCK EXCHANGE DOES NOT PROVIDE MANAGERIAL SERVICES AND THE FEES PAID BY THE MEMBERS TO THE STOCK EXCHANGE IS NOT FOR ANY TECHNICAL SERVICES RENDERED AND SO TDS IS NOT DEDUCTIBLE ON THE SAME. AGGRIEVED WITH SUCH ORDER OF CIT(A) THE REVENUE IS IN APPEAL BEFO RE US. 7. WE FIND THE CO-ORDINATE BENCHES OF THE TRIBUNAL ARE TAKING THE CONSISTENT VIEW THAT FEES PAID BY THE MEMBERS TO TH E STOCK EXCHANGE IS NOT FOR ANY TECHNICAL SERVICES RENDERED SINCE THE S TOCK EXCHANGE DOES NOT PROVIDE MANAGERIAL SERVICES AND THEREFORE NO TAX IS DEDUCTIBLE ON SUCH PAYMENT. THEREFORE THE ORDER OF THE CIT(A) DOES NOT SUFFER FROM ANY INFIRMITY WHO HAS FOLLOWED THE DECISION OF THE TRIBUNAL. I.T.A. NO.5943/MUM/2009 M/S. PADMAKSHI FINANCIAL SERVICES PVT. LTD. 4 ACCORDINGLY THE SAME IS UPHELD AND THE GROUND RAIS ED BY THE REVENUE IS DISMISSED. 8. IN GROUND NO.3 THE REVENUE HAS CHALLENGED THE O RDER OF CIT(A) IN HOLDING THE RELATIONSHIP BETWEEN MEMBER/BROKER AND JOBBER AS A PRINCIPAL TO PRINCIPAL RELATIONSHIP AND THEREFORE N OT ELIGIBLE FOR TAX DEDUCTION U/S.194C OF THE I.T. ACT. 8.1 THE FACTS OF THE CASE IN BRIEF ARE THAT THE A SSESSEE HAS DEBITED AN AMOUNT OF RS. 43 89 541/- ON ACCOUNT OF PAYMENT MAD E TO JOBBERS/ARBITRAGERS. THE AO NOTED THAT THESE PAYMEN TS HAVE BEEN BOOKED IN THE BOOKS OF ACCOUNT AS COMMISSION PAYMEN T. SINCE THE ASSESSEE HAS NOT DEDUCTED ANY TDS ON THIS AMOUNT T HE AO CONFRONTED THE SAME TO THE ASSESSEE. NOT BEING SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND REFERRING TO THE PROVISIONS OF SEC. 194(1) THE AO HELD THAT THE COMPANY HAS ENLISTED THE SERVICES OF JOBBERS FOR CARRYING OUT THE WORK WHICH PRIMARILY BELONGS TO THE COMPANY . THE PAYMENTS MADE ARE IN LIEU OF SERVICES RENDERED FOR CARRYING OUT CERTAIN WORK AND THE PAYMENTS MADE THEREIN FALL WITHIN THE PURVIEW O F SEC. 194C OF THE I.T. ACT SINCE IT IS THE ASSESSEE WHO HAS TO CARRY OUT THE WORK OF JOBBING THROUGH ONE SET OF JOBBERS OR ANOTHER YEAR AFTER YE AR. THE WORK CAN ONLY BE SAID TO BE BELONGING TO THE ASSESSEE IN WHOSE PR OPRIETARY ACCOUNT THIS WORK IS BEING CARRIED OUT AND WHO HAS HIRED THESE P ERSONS IRRESPECTIVE OF THE TERMS OF CONTRACT AND COMPENSATION PAID. THE REFORE THE ASSESSEE WAS BOUND TO DEDUCT TAX ON THE PAYMENTS MADE IN RES PECT OF THE SERVICES OFFERED BY THE JOBBERS. HE ACCORDINGLY DISALLOWED T HE PAYMENT OF RS.43 89 541/- U/S. 40(A)(IA) READ WITH SEC. 194C O F THE I.T. ACT SINCE THE ASSESSEE HAD NOT DEDUCTED TAX. 8.2 IN APPEAL THE LD. CIT(A) FOLLOWING HIS OWN DE CISION IN THE CASE OF M/S. PRAKASH K. SHAH SHARE & SECURITIES PVT. LTD. DELETED THE ADDITION BY HOLDING AS UNDER : THE ROLE OF JOBBERS AS SUMMARIZED IN ENCYCLOPAEDIA OF BRITANNICA VOLUME 23 PAGES 517 & 518 IS THAT A JOB BER I.T.A. NO.5943/MUM/2009 M/S. PADMAKSHI FINANCIAL SERVICES PVT. LTD. 5 TRANSACTS BUSINESS ON THE FLOOR OF THE EXCHANGE BUT DOES NOT DEAL WITH THE PUBLIC AND THE JOBBER SERVES ONLY IN THE CAPACITY OF A PRINCIPAL BUYING AND SELLING FOR HIS OWN ACCO UNT AND DEALING ONLY WITH BROKERS AND OTHER JOBBERS. THUS IN EFFECT THE TRANSACTIONS ARE ON PRINCIPLE TO PRINCIPLE BASI S. THE JOBBER SEEKS TO MAXIMIZE HIS PROFITS BY ADJUSTING HIS BUYI NG AND SELLING PRICES AND THE TRADE ON THEIR OWN ACCOUNT A ND IN VIEW OF GROWING VOLUME OF TRANSACTIONS THE JOBBERS ENTE RED INTO AGREEMENT FOR FELICITATION OF THEIR TRADE AND MINIM IZATION OF MARKET RISKS. THE JOBBERS ARE IN FACT CLIENTS ACTIN G ON THEIR OWN ACCOUNT AND THE JOBBERS DEAL IN SHARES AND SECU RITIES ON PROFIT/LOSS SHARING BASIS AS DECIDED MUTUALLY AND P ERIODICALLY THE PROFIT/LOSS INCURRED BY A JOBBER IS ASCERTAIN A ND SHARES BETWEEN THE APPELLANT AND THE JOBBER AFTER DEDUCTIN G THE COST. THE RELATIONSHIP BETWEEN THE JOBBER AND THE APPELLA NT COMPANY IS THAT OF CO-SHARER OF PROFIT/LOSS THEREF ORE PROVISIONS OF SECTION 194C IS NOT ATTRACTED. AS PRO VISIONS OF SECTION 194C IS NOT ATTRACTED THE DISALLOWANCE U/S . 40(A)(IA) IS HELD TO BE NOT PROPER. AGGRIEVED WITH SUCH ORDER OF CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 9. THE LD. D.R. RELIED ON THE ORDER OF THE CIT(A). 9.1 THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND RELIED ON THE ORDER OF CIT(A) AS WELL AS THE TERMS & CONDITIONS O F THE MOU AND SUBMITTED THAT IT IS SHARE OF PROFIT AND NOT EVEN P AYMENT OF ANY SALARY SINCE THE AO HAS ALSO NOT INVOKED PROVISIONS OF SEC . 192 OF THE I.T. ACT. 10. AFTER HEARING BOTH THE SIDES WE FIND THE CIT(A ) FOLLOWING HIS OWN DECISION IN THE CASE OF M/S. PRAKASH K. SHAH SHARE & SECURITIES PVT. LTD. (SUPRA) DELETED THE DISALLOWANCE MADE BY THE AO ON THE GROUND THAT THE RELATIONSHIP BETWEEN THE JOBBERS AND THE ASSESSEE C OMPANY IS THAT OF CO- SHARER OF PROFIT/LOSS AND THEREFORE THE PROVISIONS OF SEC. 194C ARE NOT ATTRACTED. HE HAS NOT GIVEN ANY INDEPENDENT FINDING IN THIS CASE. FURTHER NEITHER THE LD. D.R. NOR THE LD. COUNSEL C OULD THROW ANY LIGHT AS I.T.A. NO.5943/MUM/2009 M/S. PADMAKSHI FINANCIAL SERVICES PVT. LTD. 6 TO WHETHER THE ORDER OF THE CIT(A) IN THE CASE OF P RAKASH K. SHAH SHARES & SECURITIES P. LTD. (SUPRA) HAS BEEN ACCEPTED BY T HE REVENUE OR THE REVENUE HAS FILED ANY APPEAL BEFORE THE TRIBUNAL AN D IF SO THE OUTCOME OF THE SAME. WE THEREFORE DEEM IT PROPER TO RESTO RE THIS MATTER TO THE FILE OF AO WITH A DIRECTION TO ADJUDICATE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUN D RAISED BY THE REVENUE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURP OSES. 11. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 09TH DAY OF JULY 201 0. SD/- SD/- (D.K. AGARWAL) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI: 09TH JULY 2010. NG: COPY TO : 1. ASSESSEE. 2.DEPARTMENT. 3 CIT(A)-IV MUMBAI. 4 CIT-4 MUMBAI. 5.DR C BENCH MUMBAI. 6.MATER FILE. (TRUE COPY) BY ORDER ASST.REGISTRAR ITAT MUMBAI. I.T.A. NO.5943/MUM/2009 M/S. PADMAKSHI FINANCIAL SERVICES PVT. LTD. 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 28-6-10 SR.PS/ 2 DRAFT PLACED BEFORE AUTHOR 29-6-10 SR.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/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER