TOTAL SECURITIES LTD, MUMBAI v. DCIT 4(2), MUMBAI

ITA 7123/MUM/2008 | 2005-2006
Pronouncement Date: 31-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 712319914 RSA 2008
Assessee PAN AABCT1302N
Bench Mumbai
Appeal Number ITA 7123/MUM/2008
Duration Of Justice 2 year(s) 15 day(s)
Appellant TOTAL SECURITIES LTD, MUMBAI
Respondent DCIT 4(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-12-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted I
Tribunal Order Date 31-12-2010
Date Of Final Hearing 11-08-2010
Next Hearing Date 11-08-2010
Assessment Year 2005-2006
Appeal Filed On 16-12-2008
Judgment Text
1 ITA 7123M/08 & 800/M/09 TOTAL SECURITIES LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I BEFORE SHRI D. MANMOHAN V.P. AND SHRI P.M. JAGTAP A.M. ITA NO. 7123/MUM/08 ASSESSMENT YEAR 2005-06 M/S TOTAL SECURITIES LTD. 601 DURGA CHAMBERS 40 WATERFIELD ROAD BANDRA (W) MUMBAI 400 050. PAN AABCT 1302N VS. DCIT 4(2) 6 TH FLOOR. AAYAKAR BHAWAN M.K. ROAD MUMBAI.20 APPELLANT RESPONDENT ITA NO. 800/MUM/09 ASSESSMENT YEAR 2005-06 DCIT 4(2) 6 TH FLOOR. AAYAKAR BHAWAN M.K. ROAD MUMBAI.20 VS. M/S TOTAL SECURITIES LTD. 601 DURGA CHAMBERS 40 WATERFIELD ROAD BANDRA (W) MUMBAI 400 050. PAN AABCT 1302N APPELLANT RESPONDENT ASSESSEE BY SHRI S.C. KARPADIA DEPARTMENT BY SHRI SANJEEV DUTT ORDER PER P.M. JAGTAP A.M. THESE TWO APPEALS ONE FILED BY THE ASSESSEE BEI NG ITA NO. 7123/MUM/08 AND OTHER FILED BY THE REVENUE BEING ITA NO. 800/MUM/09 ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A) IV MUMB AI DATED 20.11.2008. 2 ITA 7123M/08 & 800/M/09 TOTAL SECURITIES LTD. 3. FIRST WE SHALL TAKE UP THE APPEAL OF THE ASSESS EE BEING ITA NO. 7123/MUM/08 GROUND NO. 1 OF WHICH RELATING TO DISALLOWANCE OF K EYMAN INSURANCE PREMIUM MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) HAS NOT BE EN PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 4. AS REGARDS GROUND NO. 2 IT IS OBSERVED THAT THE ISSUE INVOLVED THEREIN RELATING TO DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF PENALTY OF ` 7445/- PAID BY THE ASSESSEE TO STOCK EXCHANGE IS S QUARELY COVERED IN FAVOUR OF THE ASSESSEE BY SEVERAL DECISIONS OF THE TRIBUNAL. IN ONE OF SUCH DECISIONS RENDERED IN THE CASE OF ITO VS. GDB SHARE & STOCK BROKING SERVICES LTD. 88 TTJ (KOL) 352 IT WAS HELD BY THE TRIBUNAL THAT PENALTY PAID BY THE ASSESSEE A S A REGISTERED BROKER TO THE STOCK EXCHANGE FOR NOT COMPLYING WITH VARIOUS OBLIGATIONS /REQUIREMENTS IS NOT IN THE NATURE OF INFRINGMENT OF ANY LAW AS ENVISAGED IN EXPLANATION TO SECTION 37 AND THE SAME IS ALLOWABLE AS DEDUCTION BEING THE EXPENSES WHOLLY AN D EXCLUSIVELY INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. A SIMILA R VIEW HAS BEEN TAKEN BY THE CHANDIGARH BENCH OF ITAT IN THE CASE OF MASTER CAPI TAL SERVICE LTD. VS. DCIT 23 SOT 69 (CHD.) RESPECTFULLY FOLLOWING THE SAID DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL WE DELETE THE DISALLOWANCE MADE BY THE A. O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF PENALTY PAID BY THE ASSESSEE TO STOCK EXCHANGE AND ALLOW GROUND NO. 2 OF ASSESSEES APPEAL. 5. AS REGARDS GROUND NO. 3 IT IS OBSERVED THAT THE ISSUE RAISED THEREIN RELATING TO DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF ADMISSION FEES PAID BY THE ASSESSEE TO STOCK EXCHANGE AMOUNTI NG TO ` 2 50 000/- IS ALSO COVERED IN FAVOUR OF THE ASSESSEE INTER ALIA BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF NESEL HOLDINGS P. LTD. VS. CIT 282 ITR 601 WHERE IN IT WAS HELD THAT PAYMENT OF 3 ITA 7123M/08 & 800/M/09 TOTAL SECURITIES LTD. ONETIME NON-REFUNDABLE FEES FOR OBTAINING MEMBERSHI P OF STOCK EXCHANGE DOES NOT RESULT IN AN ENDURING BENEFIT AND THE SAME IS ALLOWABLE AS DEDUCTION BEING REVENUE EXPENDITURE. HONBLE MADRAS HIGH COURT HAS ALSO TAKEN A SIMILAR VIEW IN THE CASE OF CIT VS. S. VENKAT SUBRAMANIYAN 291 ITR 193 WHEREIN IT WAS HELD THAT PAYMENT OF ADMISSION FEE TO ACQUIRE THE MEMBERSHIP CARD OF THE STOCK EXCHANGE A ND TO CARRY ON BUSINESS ON THE FLOOR OF STOCK EXCHANGE IS ALLOWABLE AS REVENUE EXPENDITU RE. RESPECTFULLY FOLLOWING THE THESE JUDICIAL PRONOUNCEMENTS WE DELETE THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF ADMISSION FEES PAID BY THE ASSESSEE TO BOMBAY STOCK EXCHANGE AND ALLOW GROUND NO. 3 OF THE ASSESSEES A PPEAL. 6. GROUND NO. 4 RELATES TO THE DISALLOWANCE OF ` 4 57 500/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) U/S 40A(2)(B) BEING PAY MENT MADE BY THE ASSESSEE COMPANY TO THE RELATIVES OF HIS DIRECTORS. 7. THE PAYMENT CLAIMED TO BE MADE BY THE ASSESSEE C OMPANY ON ACCOUNT OF SALARY PAID TO SIX RELATIVES OF ITS DIRECTORS AGGREGATING TO ` 4 57 500/- WAS DISALLOWED BY THE A.O. ON THE GROUND THAT THE ASSESSEE COULD NOT SATI SFACTORILY ESTABLISH THE SERVICES CLAIMED TO BE RENDERED BY THE SAID RELATIVES. THE EXPLANATION OFFERED ON BEHALF OF THE ASSESSEE COMPANY THAT THE SAID RELATIVES WERE MAINL Y LOOKING AFTER GENERAL ADMINISTRATION WAS NOT FOUND ACCEPTABLE BY THE A.O. AS HE FOUND TH AT ALMOST 80% OF THE WORK OF THE ASSESSEE COMPANY WAS ON PROPRIETY ACCOUNT AND THE S AME WAS DONE BY THE JOBBERS AND ARBITRAGERS. HE ALSO HELD THAT GOING BY THEIR QUALI FICATIONS AND EXPERIENCE THE SAID RELATIVES WERE NOT IN A POSITION TO PROVIDE/RENDER ANY MEANINGFUL SERVICES TO THE ASSESSEE COMPANY. THE LD. CIT(A) ALSO FOUND THAT THE NATURE OF WORK STATED TO BE UNDERTAKEN BY THE SAID RELATIVES WAS VERY VAGUE. ACCORDING TO HI M IT WAS ALSO HIGHLY IMPROBABLE THAT THE SAID RELATIVES WORKED FOR THE COMPANY ONLY FOR THE MONTH OF APRIL MAY & JUNE IN THE 4 ITA 7123M/08 & 800/M/09 TOTAL SECURITIES LTD. YEAR UNDER CONSIDERATION AND DID NOT RENDER ANY SER VICES THEREAFTER. HE THEREFORE CONFIRMED THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ONE OF THE MAIN CONTENTIONS RA ISED BY THE LEARNED COUNSEL FOR THE ASSESSEE ON THIS ISSUE IS THAT EVEN IN THE SUBSEQUE NT YEARS THE SAME RELATIVES OF THE DIRECTORS OF THE ASSESSEE COMPANY HAVE RENDERED THE SERVICES FOR WHICH SALARY HAS BEEN PAID TO THEM. HE HAS CONTENDED THAT THE SAID SALARY WHICH IS MUCH MORE THAN THE SALARY PAID IN THE YEAR UNDER CONSIDERATION HAS BEEN ALLOW ED BY THE A.O. IN THE ASSESSMENTS COMPLETED U/S 143(3). HE HAS INVITED OUR ATTENTION TO THE COPY ONE OF SUCH ORDERS PASSED BY THE A.O. FOR A.Y. 2006-07 PLACED ON RECORD BEFOR E US TO POINT OUT THAT NO DISALLOWANCE ON ACCOUNT OF SALARY PAID TO RELATIVES OF THE DIRECTORS HAS BEEN MADE THEREIN. IN OUR OPINION THIS IS A CRUCIAL ASPECT HAVING A D IRECT BEARING ON THE ISSUE UNDER CONSIDERATION IN AS MUCH AS IF THE SALARY PAID TO T HE SAME RELATIVES OF THE DIRECTORS AT HIGHER RATE IN THE SUBSEQUENT YEARS HAS BEEN ALLOWE D BY THE A.O. THERE IS NO JUSTIFIABLE REASON TO DOUBT THEIR CAPABILITY TO RENDER THE SERV ICES IN THE YEAR UNDER CONSIDERATION AND TO DISALLOW THE SALARY PAID TO THEM AT LOWER RATE. HOWEVER SINCE THIS ASPECT PUT FORTH ON BEHALF OF THE ASSESSEE FOR THE FIRST TIME BEFORE US REQUIRES VERIFICATION WE DEEM IT FAIR AND PROPER AND IN THE INTEREST OF JUSTICE TO SEND THIS MATTER TO THE A.O. FOR SUCH VERIFICATION. ACCORDINGLY THE IMPUGNED ORDER OF THE LD. CIT(A) O N THIS ISSUE IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE A.O. WITH A D IRECTION TO DECIDE THE SAME AFRESH AFTER VERIFYING THE SUBMISSION OF THE ASSESSEE THAT SALAR Y PAID TO THE SAME RELATIVES AT HIGHER RATE HAS BEEN ALLOWED IN THE SUBSEQUENT YEARS. GRO UND NO. 4 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSE. 9. NOW WE SHALL TAKE UP THE APPEAL OF THE REVENUE BEING ITA NO. 800/MUM/09. 10. THE FIRST ISSUE RELATING TO ASSESSEES CLAIM FO R REBATE U/S 88E HAS BEEN RAISED BY THE REVENUE IN GROUND NO. 1 & 2 OF THIS APPEAL WHIC H READ AS UNDER:- 5 ITA 7123M/08 & 800/M/09 TOTAL SECURITIES LTD. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) ERRED IN NOT RECORDING REASONS FOR ADMITTING FRESH EVIDEN CES AS REQUIRED UNDER RULE 46A(2). 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) ERRED IN NOT ALLOWING PROPORTIONATE EXPENSES INCIDENTAL T O JOBBING FOR ARISING AT NET INCOME ELIGIBLE FOR REBATE U/S 88E. 11. DURING THE YEAR UNDER CONSIDERATION THE MAIN ACTIVITY CARRIED ON BY THE ASSESSEE COMPANY WAS JOBBING AND ARBITRAGE IN ITS OWN PROPRI ETARY ACCOUNT. IN THE RETURN OF INCOME THE ASSESSEE HAD SHOWN TOTAL TAX PAYABLE AT ` 1 79 90 227/- ON WHICH A REBATE OF ` 1 53 30 239/- WAS CLAIMED U/S 88E IN RESPECT OF SE CURITIES TRANSACTION TAX (STT). AS THE SAID REBATE WAS ALLOWABLE IN RESPECT OF INCOME DERIVED FROM SECURITIES ON WHICH STT HAD BEEN PAID THE ASSESSEE WAS CALLED UPON BY THE A.O. TO JUSTIFY THE DEDUCTION CLAIMED U/S 88E BY FURNISHING THE NECESSARY WORKING. FROM THE WORKING SO FURNISHED BY THE ASSESSE IT WAS NOTED BY THE A.O. THAT THE ARBITRAG E COMMISSION WAS NOT PROPORTIONATE TO ARBITRAGE INCOME. HE THEREFORE REQUIRED THE ASSESSE E TO JUSTIFY THE ALLOCATION OF EXPENSES ESPECIALLY RELATED TO ARBITRAGE ACTIVITY. THE ASSE SSEE WAS ALSO REQUIRED BY THE A.O. TO PRODUCE THE BOOKS OF ACCOUNT IN ORDER TO SUBSTANTIA TE ITS CLAIM FOR ALLOCATION OF EXPENSES. ACCORDING TO THE A.O. THE ASSESSEE HOWEVER FAILE D TO JUSTIFY ITS CLAIM FOR ALLOCATION OF EXPENSES AND ALSO FAILED TO PRODUCE THE BOOKS OF AC COUNT. HE THEREFORE PROCEEDED TO MAKE HIS OWN WORKING ON THE BASIS OF MATERIAL AVAIL ABLE ON RECORD BEFORE HIM AND WORKED OUT THE REBATE ADMISSIBLE TO THE ASSESSEE U/ S 88E AMOUNTING TO ` 78 03 015.22 AS AGAINST ` 1 53 30 239/- CLAIMED BY THE ASSESSEE. THE MATTER WAS CARRIED BEFORE THE LD. CIT(A) AND IT WAS SUBMITTED ON BEHALF OF THE ASSESS EE BEFORE HIM THAT BOOKS OF ACCOUNT HAD BEEN DULY PRODUCED BEFORE THE A.O. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS FOR HIS VERIFICATION. THE PAPER BOOK CONTAINING PAGES 1 TO 226 WAS ALSO FILED BY THE ASSESSEE AS ADDITIONAL EVIDENCE BEFORE THE LD. CIT(A) ALONG WITH THREE COMPUTER CDS CONTAINING BOOKS OF ACCOUNT. THE SAID EVIDENCE WAS FORWARDED B Y THE LD. CIT(A) TO THE A.O. FOR VERIFICATION AND COMMENTS. THE A.O. HOWEVER DID NOT SUBMIT ANY REMAND REPORT TO THE LD. CIT(A) DESPITE SUFFICIENT OPPORTUNITY. THE LD. CIT(A) THEREFORE PROCEEDED TO DECIDE THE ISSUE IN THE LIGHT OF ADDITIONAL EVIDENCE FILED BY THE ASSESSEE AS WELL AS BOOKS OF 6 ITA 7123M/08 & 800/M/09 TOTAL SECURITIES LTD. ACCOUNT PRODUCED BEFORE HIM AND HELD THAT THE ASSES SEE WAS ENTITLED FOR REBATE OF ` 1 53 30 239/- U/S 88E FOR THE AMOUNT OF STT PAID. 12. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LIMITED RELIEF WHICH IS SO UGHT BY THE LEARNED D.R. ON THIS ISSUE IS THAT THE SAME MAY BE SENT BACK TO THE A.O. IN ORDER TO GIVE HIM AN OPPORTUNITY TO VERIFY THE CLAIM OF THE ASSESSEE FOR REBATE U/S 88E. HE H AS SUBMITTED THAT THE DETAILS CALLED FOR BY THE A.O. IN ORDER TO VERIFY THE CLAIM OF THE ASS ESSEE FOR REBATE U/S 88E WERE NOT FURNISHED BY THE ASSESSEE DURING THE COURSE OF ASSE SSMENT PROCEEDINGS DESPITE SUFFICIENT OPPORTUNITY. HE HAS SUBMITTED THAT EVEN THE BOOKS OF ACCOUNT WERE NOT PRODUCED BY THE ASSESSEE IN ORDER TO ENABLE THE A.O. TO VERIFY ITS CLAIM FOR REBATE U/S 88E. HE HAS SUBMITTED THAT ALL THESE DETAILS HOWEVER WERE FUR NISHED BY THE ASSESSEE BEFORE THE LD. CIT(A) FOR THE FIRST TIME AND ALTHOUGH THE LD. CIT( A) FORWARDED THE SAME TO THE A.O. SEEKING HIS REMAND REPORT THE LATER COULD NOT SUBM IT THE SAME WITHIN A SHORT PERIOD OF 5- 6 MONTHS GIVEN BY THE LD. CIT(A). HE HAS CONTENDED THAT THE A.O. THUS HAS NOT GOT ANY EFFECTIVE OPPORTUNITY TO VERIFY THE ADDITIONAL EVID ENCE FILED BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE LD. CIT(A) COMPRISING OF VOLUMINOUS DOCUMENTS RUNNING INTO 226 PAGES. ACCORDING TO HIM THE A.O. ALSO HAS NOT GOT THE OPP ORTUNITY TO VERIFY THE CLAIM OF THE ASSESSEE FOR REBATE U/S 88E FROM THE BOOKS OF ACCOU NT. HE HAS CONTENDED THAT THIS IS THUS A FIT CASE TO GIVE ONE MORE OPPORTUNITY TO THE A.O. TO VERIFY THE CLAIM OF THE ASSESSEE FOR REBATE U/S 88E IN THE LIGHT OF ADDITIONAL EVIDENCE FILED BY THE ASSESSEE. ALTHOUGH THE LEARNED COUNSEL FOR THE ASSESSEE HAS RAISED STRONG OBJECTION FOR SENDING THIS MATTER BACK TO THE A.O. FOR GIVING HIM AN OPPORTUNITY TO VERIFY THE DETAILS AND DOCUMENTS FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) ON THE GROUND THAT S UCH OPPORTUNITY HAS ALREADY BEEN AFFORDED BY THE LD. CIT(A) TO THE A.O. WE ARE OF T HE VIEW THAT IT IS A FIT CASE TO GIVE AN OPPORTUNITY TO THE A.O. TO EXAMINE THE ISSUE IN THE LIGHT OF ADDITIONAL EVIDENCE FILED BY THE ASSESSEE BEFORE THE LD. CIT(A). IT IS MANIFEST FROM THE ORDER OF THE A.O. THAT THE RELEVANT DETAILS SPECIFICALLY REQUIRED BY HIM TO VE RIFY ITS CLAIM FOR REBATE U/S 88E WERE NOT FILED BY THE ASSESSEE DURING THE COURSE OF ASSE SSMENT PROCEEDINGS. THE ASSESSEE WAS 7 ITA 7123M/08 & 800/M/09 TOTAL SECURITIES LTD. ALSO CALLED UPON BY THE A.O. TO PRODUCE THE BOOKS O F ACCOUNT IN ORDER TO SUBSTANTIATE THE SAID CLAIM WHICH IT FAILED TO DO. BEFORE THE LD. C IT(A) THE ASSESSEE HOWEVER FILED A PAPER BOOK CONTAINING 226 PAGES AS ADDITIONAL EVIDE NCE AND ALTHOUGH THE SAID EVIDENCE WAS FORWARDED BY THE LD. CIT(A) TO THE A.O. SEEKING HIS REMAND REPORT THEREON THE PERIOD EFFECTIVELY GIVEN BY HIM TO THE A.O. FOR SUB MITTING THE REMAND REPORT WAS LESS THAN 6 MONTHS. KEEPING IN VIEW THE FACT THAT THE A DDITIONAL EVIDENCE FILED BY THE ASSESSEE INVOLVED VOLUMINOUS DETAILS AND DOCUMENTS RUNNING I NTO 226 PAGES AND THE SAME WAS REQUIRED TO BE VERIFIED FROM THE BOOKS OF ACCOUNT O F THE ASSESSEE WE ARE OF THE VIEW THAT THE OPPORTUNITY AFFORDED BY THE LD. CIT(A) TO VERIF Y THE ADDITIONAL EVIDENCE CANNOT BE REGARDED AS SUFFICIENT AND PROPER. ACCORDING TO US THE A.O. IN THE FACTS AND CIRCUMSTANCES OF THE CASE DESERVES ONE MORE OPPORTU NITY TO VERIFY THE CLAIM OF THE ASSESSEE FOR REBATE U/S 88E FROM THE DETAILS FURNIS HED BY THE ASSESSEE BEFORE THE LD. CIT(A) FOR THE FIRST TIME AS WELL AS THE BOOKS OF A CCOUNT MAINTAINED BY THE ASSESSEE. WE THEREFORE SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE A.O. WITH A DIRECTIO N TO DECIDE THE SAME IN THE LIGHT OF DETAILS AND DOCUMENTS FURNISHED BY THE ASSESSEE AFT ER NECESSARY VERIFICATION. THE A.O. IS ALSO DIRECTED TO AFFORD SUFFICIENT OPPORTUNITY TO T HE ASSESSEE TO SUBSTANTIATE ITS CLAIM FOR THE SAID REBATE U/S 88E. GROUND NO. 1 & 2 OF REVEN UES APPEAL ARE ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 13. IN GROUND NO. 3 & 4 THE REVENUE HAS CHALLENGE D THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION OF ` 1.01 CRORES MADE BY THE A.O. U/S 40(A)(IA) ON ACCO UNT OF PAYMENTS MADE TO JOBBERS/ARBITRAGERS FOR THE FAILUR E OF THE ASSESSE TO DEDUCT THE TAX AT SOURCE. 14. THE AMOUNT OF ` 1 01 62 325/- PAID BY THE ASSESSEE COMPANY TO ITS ARBITRAGERS/JOBBERS WAS CLAIMED AS DEDUCTION. ACCOR DING TO THE A.O. THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE FROM THE SAID AMOU NT U/S 194C AND SINCE IT HAD FAILED TO 8 ITA 7123M/08 & 800/M/09 TOTAL SECURITIES LTD. COMPLY WITH THE SAID REQUIREMENTS THE AMOUNT OF ` 1 01 62 325/- WAS DISALLOWED BY HIM U/S 40(A)(IA). THE LD.CIT(A) HOWEVER DELETED THE SAID DISALLOWANCE ACCEPTING THE CONTENTION OF THE ASSESSEE THAT THE PROVISIONS OF S ECTION 194C WERE NOT ATTRACTED TO THE TRANSACTIONS ENTERED INTO BY IT WITH ARBITRAGERS/JO BBERS AS THE SAME WERE ON PRINCIPAL TO PRINCIPAL BASIS. 15. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT A SIMILAR I SSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. ASSET ALLIANCE SECURITIES PVT. LTD. IN ITA NO. 1488/MUM/2009DATED 16 TH JULY 2010 AFTER DISCUSSING ALL THE RELEVANT ASPECTS IN PARA NO. 9 OF ITS ORDER WHI CH IS REPRODUCED BELOW: THE REVENUE IS IN APPEAL. WE HAVE EXAMINED THE FA CTS AND THE RIVAL CONTENTIONS. WHEREAS THE LEARNED SENIOR DR STRONGL Y RELIED ON THE ORDER PASSED BY THE AO AND THE STATUTORY PROVISIONS THE BASIC CONT ENTION OF THE ASSESSEE BEFORE US WAS THAT THERE WAS A JOINT VENTURE BETWEEN IT AND T HE JOBBERS / ARBITRAGERS TO SHARE THE PROFITS AND LOSSES ARISING ON ACCOUNT OF THE DE ALINGS BETWEEN THEM THAT SUCH AN ARRANGEMENT WAS ON PRINCIPAL TO PRINCIPAL BASIS TH AT THEREFORE THE JOBBER / ARBITRAGER CANNOT BE TERMED AS A CONTRACTOR FOR CARRYING OUT A NY WORK FOR THE ASSESSEE AND IN THESE CIRCUMSTANCES THERE WAS NO QUESTION OF INVOKI NG SECTION 194C. IT WAS EXPLAINED THAT THIS WAS A BUSINESS DONE BY THE ASSE SSEE ON ITS OWN ACCOUNT IN THE STOCK EXCHANGE AND NOT FOR OR ON BEHALF OF ITS CLIE NTS FOR BROKERAGE AND FOR THE PURPOSE OF TRADING IN SHARES AND SECURITIES IN THE STOCK EXCHANGE ON ITS OWN ACCOUNT THE ASSESSEE ENTERED INTO AGREEMENTS WITH SEVERAL JOBBERS / ARBITRAGERS WITH THE UNDERSTANDING THAT THE ULTIMATE PROFIT OR LOSS IN SUCH TRADE WOULD BE DIVIDED BETWEEN THEM EQUALLY. AT OUR INSTANCE THE LEARNED REPRESENTATIVE FOR THE ASSESSEE HAS FILED COPIES OF THE AGREEMENTS ENTERED INTO WIT H THE JOBBERS / ARBITRAGERS. THE AGREEMENTS ARE IN STANDARD FORM. WE MAY REFER TO T HE AGREEMENT WITH MR AMIT ZAVERI WHICH IS AT PAGE 23 OF THE PAPER BOOK. THE PREAMBLE TO THE AGREEMENT STATES THAT MR AMIT ZAVERI HAS SHOWN HIS WILLINGNESS TO AC CEPT THE AGREEMENT FOR DEALING AND TRADING IN THE CASH AND F&O SEGMENT OF NSE IN A CCORDANCE WITH THE RULES PRESCRIBED BY SEBI AND THAT HE HAS ACCEPTED TO SHAR E THE PROFIT AND LOSS IN THE TRANSACTIONS MADE BY HIM ON BEHALF OF THE ASSESSEE COMPANY AS MUTUALLY AGREED UPON BY THE PARTIES FROM TIME TO TIME. CLAUSE 1 OF THE AGREEMENT SAYS THAT THE ASSESSEE HAS GIVEN TO THE DEALER (MR AMIT ZAVERI) T HE RIGHT TO TRADE IN THE CASH AND F&O SEGMENT OF THE NSE. HOWEVER THE OVERALL SUPER VISION AND CONTROL WILL BE WITH THE ASSESSEE. CLAUSE 2 PROVIDES THAT MR AMIT ZAVERI IS AUTHORIZED TO TRADE AND OUT OF THE NET PROCEEDS WHETHER PROFIT OR LOSS FR OM SUCH DEALING OF SHARES AND SECURITIES WILL BE SHARED BETWEEN THE ASSESSEE AND HIM IN THE RATIO OF 50 : 50. CLAUSE 3 PROVIDES THAT ALL TRANSACTIONS DEALINGS AND OTHE R FORMALITIES WILL BE CARRIED OUT IN THE NAME OF THE ASSESSEE ONLY. CLAUSE 4 PROVIDES T HAT THE ASSESSEE WILL BE SOLELY 9 ITA 7123M/08 & 800/M/09 TOTAL SECURITIES LTD. ENTITLED TO RECEIVE AND KEEP ANY KIND OF DIVIDEND INTEREST AND OTHER CORPORATE BENEFITS DURING THE COURSE OF TRANSACTIONS CARRIED OUT BY MR AMIT ZAVERI. CLAUSE 5 OBLIGES THE ASSESSEE TO PAY ALL MARGIN MONIES TO TH E STOCK EXCHANGE FOR THE TRANSACTIONS CARRIED OUT BY MR AMIT ZAVERI IN THE N AME OF THE ASSESSEE. MORE IMPORTANTLY IT PROVIDES THAT ALL APPLICABLE EXPENSES WILL BE DEDUCTED / ADDED BE FORE THE DISTRIBUTION OF THE PROFIT / LOSS AS AGREED UPO N IN CLAUSE 2 ABOVE . CLAUSE 6 SAYS THAT THE PARTIES WILL ABIDE BY THE RULES PRESCRIBED BY NSE AND SEBI AND CLAUSE 7 PROVIDES FOR DISCONTINUANCE OF THE AGREEMENT BY GIV ING ONE DAYS NOTICE. ALL THE AGREEMENTS FILED BEFORE US ARE IDENTICALLY WORDED. IT HAS BEEN ARGUED ON BEHALF OF THE ASSESSEE ON THE BASIS OF THESE AGREEMENTS THAT THERE WAS A JOINT VENTURE BETWEEN IT AND THE JOBBERS OR ARBITRAGERS FOR TRADING IN SH ARES AND SECURITIES IN THE STOCK EXCHANGES ON THE COMPANYS OWN ACCOUNT AND THE PROF ITS OR LOSSES ON SUCH TRADING WERE TO BE DIVIDED EQUALLY BETWEEN THE ASSESSEE AND THE CONCERNED JOBBER OR ARBITRAGER. IT WAS FURTHER REPRESENTED BEFORE US T HAT NO EXPENDITURE OR PAYMENT MADE TO THE JOBBER OR ARBITRAGER WAS CLAIMED IN THE ASSE SSEES BOOKS OF ACCOUNT FROM WHICH TDS HAD TO BE MADE AND IT WAS ONLY THE NET IN COME FROM THE JOINT VENTURE THAT WAS ACCOUNTED FOR IN THE ASSESSEES BOOKS. IN OTHER WORDS THE SUBMISSION WAS THAT THE PAYMENT TO THE JOBBERS AND ARBITRAGERS WAS NOT DEBITED TO THE ASSESSEES PROFIT AND LOSS ACCOUNT AT ALL AND THEREFORE THERE WAS NO LIABILITY TO DEDUCT THE TAX. WE CALLED UPON THE ASSESSEE TO PROVE THIS CLAIM WIT H REFERENCE TO THE ACCOUNTS. THE ASSESSEE FILED THE ACCOUNTS AND OTHER DETAILS TO ES TABLISH ITS CLAIM. WE FIND FROM THE PAPERS SUBMITTED BY THE ASSESSEE IN THE FORM OF THR EE SEPARATE PAPER BOOKS THAT ON 11 TH MARCH 2008 THE ASSESSEE HAD EXPLAINED THE TRADING INCOME OF RS.6 91 06 197/- APPEARING IN SCHEDULE G TO THE AUDITED PROFIT AND LOSS ACCOUNT AND IT WAS POINTED OUT THAT OUT OF THE ABOVE TRADING INCOME JOBBING I NCOME AMOUNTED TO RS.1 57 75 393/- AND ARBITRAGE INCOME AMOUNTED TO R S.14 90 112/-. OUT OF THE BALANCE THE OWN TRADING INCOME WHICH AROSE TO THE ASSESSEE APPARENTLY WITHOUT THE HELP OF THE JOBBERS / ARBITRAGERS AMOUNTED TO RS.3 07 47 989/-. THE BALANCE OF RS.2 10 92 703/- REPRESENTED SECURITY TRANSACTION T AX COLLECTED BY THE ASSESSEE. THE TOTAL OF THE TRADING INCOME FORMED PART OF THE FIGU RE OF RS.10 38 05 456/- WHICH WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEA R ENDED 31.03.2006 AS BROKING TRADING AND DEPOSITORY INCOME. IT WAS THIS FIGURE WHICH WAS EXPLAINED IN SCHEDULE G TO THE ACCOUNTS. THE ASSESSEE AGAIN WROTE A LE TTER DATED 11 TH APRIL 2008 TO THE AO EXPLAINING THE JOBBING / ARBITRAGE INCOME WHICH WAS INCLUDED IN THE FIGURE OF RS.6 91 06 196/-. IN THIS LETTER IT WAS SUBMITTED TO THE AO THAT THE JOBBING / ARBITRAGE ACTIVITY WAS CARRIED OUT BY THE ASSESSEE IN ASSOCIATION WITH THE JOBBERS / ARBITRAGERS IN ACCORDANCE WITH PROFIT SHARING AGREE MENTS ENTERED INTO WITH THEM. IT WAS POINTED OUT IN THIS LETTER THAT THE SHARE OF TH E JOBBERS AND ARBITRAGERS WERE GIVEN TO THEM AND THE DETAILS OF SUCH AMOUNTS HAD ALREADY BEEN ENCLOSED IN THE EARLIER DATED 11 TH MARCH 2008. WE HAVE LOOKED INTO THE DETAILS FILED BY THE ASSESSEE ALONG WITH ITS LETTER DATED 11 TH MARCH 2008 FILED BEFORE THE AO. THE DETAILS HAVE BEEN GIVEN UNDER THE HEAD DETAILS OF JOBBERS / ARBITRAG ERS ALONG WITH INCOME EARNED FROM JOBBING AND ARBITRAGE ACTIVITY. THE ASSESSEE HAS FURNISHED THE NAMES OF THE JOBBERS THEIR PERMANENT ACCOUNT NUMBERS AND ADDRESSES. SIM ILAR DETAILS HAVE ALSO BEEN GIVEN IN RESPECT OF ARBITRAGERS. THE GROSS AMOUNT RECEIVED IN RESPECT OF THE BUSINESS CARRIED ON BY THE ASSESSEE THROUGH THE JOBBERS / AR BITRAGERS IS ALSO GIVEN JOBBER-WISE AND ARBITRAGER-WISE FROM WHICH THE SHARE OF THE JO BBER / ARBITRAGER HAS BEEN DEDUCTED AND THE BALANCE HAS BEEN TAKEN AS THE ASSE SSEES SHARE OF PROFIT IN THE JOINT VENTURES. THE TOTAL SHARE OF THE JOBBER OUT OF THE GROSS RECEIPTS AND PAID TO THEM COMES TO RS.1 42 24 997/- AND THE TOTAL SHARE PAID TO THE ARBITRAGERS CAME TO RS.19 46 576/-. THE AGGREGATE OF THE TWO COMES TO RS.1 61 71 573/- WHICH IS THE 10 ITA 7123M/08 & 800/M/09 TOTAL SECURITIES LTD. AMOUNT THAT HAS BEEN DISALLOWED BY THE AO BY INVOKI NG SECTION 194C READ WITH SECTION 40(A)(IA) OF THE ACT. THE FACTS SHOW THAT THERE WERE SEPARATE JOINT VENTURES ENTERED INTO BY THE ASSESSEE WITH SEVERAL JOBBERS / ARBITRAGERS AND PAYMENTS HAVE BEEN MADE TO THEM UNDER SUCH AGREEMENTS AND THE ASS ESSEES SHARE IN THE PROFITS HAS BEEN TAKEN TO THE PROFIT AND LOSS ACCOUNT. IN THES E CIRCUMSTANCES THE PROVISIONS OF SECTION 194C ARE NOT ATTRACTED BECAUSE IN ESSENCE A ND SUBSTANCE THE AMOUNTS PAID TO THE JOBBERS OR ARBITRAGERS DID NOT IN REALITY REPRE SENT THE EXPENSE OF THE ASSESSEE COMPANY BUT REPRESENTED PAYMENT OF THE SHARE OF THE JOBBERS / ARBITRAGERS UNDER THE AGREEMENT ENTERED INTO WITH THEM. IN SUCH A CASE T HE ASSESSEE IS RIGHT IN SAYING THAT THERE WAS NO QUESTION OF DEDUCTING ANY TAX AT SOURC E. THE ABOVE FACTS ALSO ESTABLISH THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE JOBBERS / ARBITRAGERS WAS NOT OF PRINCIPAL AND AGENT BUT WAS THAT OF PRINCIPAL TO PR INCIPAL. BOTH HAD AGREED TO EMBARK UPON A JOINT VENTURE TO TRADE IN SHARES AND SECURITIES IN THE STOCK EXCHANGE AND TO SHARE THE PROFIT / LOSS EQUALLY. WE DO NOT SEE HOW SUCH PAYMENTS CAN BE TERMED AS PAYMENTS TO CONTRACTORS FOR ANY WORK TO B E CARRIED OUT BY THEM. WE THEREFORE UPHOLD THE FINDING OF THE CIT(A) THAT THE SE PAYMENTS DO NOT ATTRACT SECTION 194C AND THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX THERE FROM. ACCORDINGLY SECTION 40(A)(IA) IS ALSO NOT APPLICABLE. THE PAYMENTS IN OUR VIEW WERE RIGHTLY ALLOWED AS DEDUCTION BY THE CIT(A). THE GROUNDS 7 TO 10 ARE D ISMISSED. 16. SINCE THE ISSUE INVOLVED IN THE PRESENT CASE A S WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR WE RESPECTFULLY FOLLO W THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S ASSET ALLIANCE SECURITIES PVT. LTD. (SUPRA) AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DELETING THE ADDITION MADE BY THE A.O. U/S 4 0(A)(IA) ON ACCOUNT OF PAYMENTS MADE BY THE ASSESSEE TO JOBBERS/ARBITRAGERS. GROUND NO. 3 & 4 OF REVENUES APPEAL ARE ACCORDINGLY DISMISSED.. 17. IN GROUND NO. 5 TO 11 THE REVENUE HAS CHALLEN GED THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF ` 48 000/- MADE BY THE A.O. U/S 40(A)(IA) ON ACCOUNT OF V. SAT LEASELINE AND TRANSACTION CHARGES PAID BY THE ASSESSEE TO STOCK EXCHANGE. 18. IN THE P&L ACCOUNT FILED ALONG WITH ITS RETUR N THE AMOUNT PAID TO STOCK EXCHANGE ON ACCOUNT OF V SAT LEASELINE AND TRANSACTION CHAR GES WAS DEBITED BY THE ASSESSEE COMPANY. ACCORDING TO THE A.O. THE SAID CHARGES P AID BY THE ASSESSEE TO THE STOCK EXCHANGE WERE FOR SUCH SERVICES WHICH WERE IN THE N ATURE OF TECHNICAL SERVICES FALLING WITHIN THE PURVIEW OF SECTION 194J. HE THEREFORE HELD THAT TAX AT SOURCE OUGHT TO HAVE BEEN DEDUCTED BY THE ASSESSEE COMPANY FROM THE PAYM ENT MADE TO THE STOCK EXCHANGE 11 ITA 7123M/08 & 800/M/09 TOTAL SECURITIES LTD. FOR THE SAID SERVICES AS PER THE PROVISIONS OF SECT ION 194J. SINCE THE ASSESSEE HAD FAILED TO DEDUCT SUCH TAX THE A.O. HELD THAT THE AMOUNT P AID FOR THE SAID SERVICES WITHOUT DEDUCTION OF TAX AT SOURCE WAS LIABLE TO BE DISALLO WED U/S 40A(IA). THE MATTER WAS CARRIED BEFORE THE LD. CIT(A) WHO HELD THAT V SAT LEASELIN E AND TRANSACTION CHARGES WERE ACTUALLY IN THE NATURE OF REIMBURSEMENT OF CHARGES PAID BY THE MEMBERS OF THE STOCK EXCHANGE IN LIEU OF INFRASTRUCTURE AND TRADING FACI LITIES PROVIDED BY THE LATER. HE HELD THAT THE PAYMENT MADE BY THE ASSESSEE TO THE STOCK EXCHA NGE ON ACCOUNT OF THE SAID CHARGES THUS WAS NOT COMING WITHIN THE DOMAIN OF FEE FOR T ECHNICAL SERVICES AND THE SAME ALSO NOT BEING FOR ANY WORK DONE BY NSE FOR THE MEMBER BROKER TAX AT SOURCE WAS NOT DEDUCTIBLE THERE FROM U/S 194J. ACCORDINGLY HE D ELETED THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF V SAT CHARGES LEASE LINE AND TR ANSACTION CHARGES U/S 40A(IA) RELYING ON THE DECISION OF MUMBAI BENCH OF ITAT IN THE CASE OF KOTAK SECURITIES LTD VS. ACIT 318 ITR (AT) 258. AGGRIEVED BY THE ORDER OF THE LD . CIT(A) THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 19. WE HAVE HEARD THE ARGUMENTS OF BOTH TH E SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF CO-ORDINATE BENCH OF TH IS TRIBUNAL IN THE CASE OF KOTAK SECURITIES LTD. (SUPRA) RELIED UPON BY THE LD. CIT( A) WHEREIN IT WAS HELD THAT STOCK EXCHANGES DO NOT RENDER ANY MANAGERIAL OR TECHNICAL SERVICES TO ITS MEMBERS IN LIEU OF THE PAYMENT OF TRANSACTION CHARGES ETC. AND SINCE S UCH PAYMENTS ARE MADE BY THE MEMBER BROKERS MAINLY FOR THE FACILITIES PROVIDED BY THE S TOCK EXCHANGE THE PROVISIONS OF SECTION 194 J ARE NOT APPLICABLE SO AS TO MAKE THE BROKERS LIABLE TO DEDUCT TAX AT SOURCE FROM THE SAID PAYMENT. IT WAS ALSO HELD THAT THE PROVISIONS OF SECTION 40A(IA) THUS ARE NOT ATTRACTED SO AS TO MAKE ANY DISALLOWANCE ON ACCOUNT OF SUCH C HARGES. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE CO-ORDINATE BENCH OF THIS TRIB UNAL IN THE CASE OF KOTAK SECURITIES LTD. (SUPRA) WE UPHOLD THE IMPUGNED ORDER OF THE L D. CIT(A) DELETING THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF V SAT CHARGES LEASE LINE CHARGES & TRANSACTION CHARGES AND DISMISS GROUND NO. 5 TO 11 OF THIS APPEAL FILED BY THE REVENUE. 12 ITA 7123M/08 & 800/M/09 TOTAL SECURITIES LTD. 20. IN THE RESULT APPEAL OF THE ASSESSEE IS TREATE D AS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS TREATED AS PARTLY ALLOWED FOR STATIS TICAL PURPOSE. ORDER PRONOUNCED ON 31 ST DECEMBER 2010. SD/- SD/- (D. MANMOHAN) (P.M. JAGTAP) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI DATED 31 ST DECEMBER 2010. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IV - MUMBAI 4. THE CIT- 4 MUMBAI 5. THE DR BENCH E 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI 13 ITA 7123M/08 & 800/M/09 TOTAL SECURITIES LTD. ` DATE INITIALS 1. DRAFT DICTATED 16.12.10 27/10/10 SR.P.S./P.S. 2. DRAFT PLACED BEFORE AUTHOR 20.12.10 27/10./10 SR.P.S./P.S. 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER. - J.M./A.M. 4.DRAFT DISCUSSED/ APPROVED BY SECOND MEMBER. J.M./A.M. 5. APPROVED DRAFT COMES TO THE SR.P.S./P.S. SR.P.S./P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S. 8. DATE OF WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER.