Idbi Capital Market Services Ltd, ... vs Assessee

आयकर अपील य अ धकरण, 'आई' खंडपीठ मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI - I -BENCH सव ी आय.पी. बंसल, या यक सद य एवं राजे , लेखा सद य Before S/Sh. I.P. Bansal, Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.1404/Mum/2013, नधारण वष/Assessment Year-2009-10 IDBI Capital Market Services Ltd. Dy. CIT rd 3 Floor, Mafatlal Center Vs Range-4(1) Nariman Point,Mumbai-400 021. Aayakar Bhavan, M.K. Marg PAN:AAACI 1268 F Mumbai-400 020.

(अपीलाथ /Appellant) ( यथ / Respondent) नधा रती ओर से/Assessee by : Shri N.C. Jain राज व क ओर से/ Revenue by :Shri Premanand J. -(DR) सन ु वाई क तार ख/ Date of Hearing :30- 04 -2015 घोषणा क तार ख / Date of Pronouncement : 08-05-2015 आयकर अ ध नयम,1961 क धारा 254(1)के अ तगत आदे श Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद य राजे के अनुसार PER RAJENDRA, AM-

Challenging the order dt.7/12/2012 of the CIT(A)-8,Mumbai, the assessee has raised following Grounds of Appeal:

a)The learned CIT (A) erred in confirming the disallowance of Rs. 94,01,055 made under section 40(a)(1a) of the Act basing his decision on the pronouncement in CIT vs Kotak Securities Ltd (IT A No. 3111 of 2009)

b)The learned CIT (A) while relying on the decision of the Hon'ble Bombay High Court in the case of Kotak Securities which held such payments as 'fees for technical services' failed to take note of the fact that even though such payments are held to be subjected to TDS, the 1-lonhie high Court did not approve disallowance u/s 40(1) (ia) on the ground of the disputed nature of the issue.

c) The learned CIT (A) failed to take note of the fact that the provisions of section 194J and 40(i)(1a) are two distinct and independent provisions and application of the provision does not necessary involve application of disallowance provision U/S 40(i)(ia). By holding the provisions of section 40(i)(1a) not applicable to the assessment year 2005-06 which was the year before them, the 1-lonbic Court gave legal cognizance and relevance to the existence of reasonable cause in making disallowance under the section.

d) The learned CIT (A) failed to take note of the fact that the reasons which prompted the court to hold the provision inapplicable to a.y. 2005-06 apply with equal force to the year under appeal. Such payments were also treated as not of the nature of 'fees of technical services' and not objected to by the department for several years. When the issue arose, the I-Ion' ble ITAT Mumbai held it as not the fecs for technical services'. it is for the first time in 2011 that the issue was decided differently by the Bombay High Court.

e) The learned CiT (A) failed to appreciate that the issue was highly contentious and was decided by the 1TAT in assessce's favour which constituted a reasonabe cause fbr not deducting tax at source. Existence of such dispute has been accepted by I-Ion'hlc Bombay High Court as reasonable cause justifying non-deduction of tax and consequent non-application of Section 40(1)(ia).

Ground No. 2 The appellant craves leave to add to, modify or substitute any ground of appeal before or during the hearing of the appeal if the circumstances so require.

Assessee-company,engaged in the business of, investment, broking and securities, filed its return of income on 23/9/2009,declaring net loss of Rs. 22.52 crores under normal provisions and book profit of rs.11.46 crores u/s.115JB of the Act.Assessing Officer(AO) completed the assessment u/s.143(3) of the Act on ,determining the income of the assessee at (-) Rs.15.89 crores.

1404/M/13(09-10) IDBI

2.Effective ground of appeal is about disallowance made u/s. 40(a)(ia) of the Act. During the assessment proceedings,the AO found that the assessee had claimed BSE charges, NSE charges and transaction charges as per the detail given below:-

(i) BSE Charges Rs.3,90,508/- (ii) NSE Charges Rs.6,69,874/- (iii) Transaction Charges Rs.33,29,423/- Total Rs.43,89,805/-

He found that the assessee has not deducted tax at source for the above mentioned charges.The assessee, in this regard, submitted that the above charges were not fees for technical services,that it was not under obligation to deduct tax u/s.194J of the Act, that the issue was considered by the Tribunal in the case of Kotak Securities wherein it was held that such services were not in the nature of technical services.The AO did not accept the contention of the assessee because the Hon'ble Bombay High Court had reversed the decision of the Tribunal.Therefore,the disputed amount was added to the income of the assessee under the provisions of section 40(a)(ia) of the Act for not deducting tax at source u/s. 194J of the Act.

3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority (FAA).Before him,it was argued that the Hon'ble High Court,in the case of Kotak Securities,had held that reasonable cause was a decisive factor in making disallowance. After considering the submission of the assessee,the FAA dismissed the appeal relying on the order of Kotak Securities Ltd.(ITA No.3111/09). He held that the transaction charges paid by the assessee to the stock exchange constituted fee for technical services, that the assessee was liable to deduct tax at source while crediting the transaction charges to the account of stock exchange that the AO had rightly disallowed the amounts in question u/s. 40(a)(ia) of the Act.

4.During the course of hearing before us,Authorised Representative (AR) stated that the Tribunal hadwhile deciding appeal for ay 08-09,held that provisions of sec.194J were not attracted,that the return of income was filed by the assessee long before the decision of the Hon'ble High Court was pronounced.Departmental Representative (DR) left the issue to the discretion of the Bench.

5.We have heard the rival submissions and perused the material before us.We find that while adjudicating the appeal for AY 2008-09 in assessee's own case in (ITA No.618/Mum2012) dt. 18/2/2015),the Tribunal has held as under :-

"7. Ground No.2 is in relation to the disallowance made under section 40(a)(ia) of the Act in respect of payments made to Bombay Stock Exchange. We find that this issue is squarely covered in favour of the assessee and against the Revenue except that the transaction charges have been considered to be subject to TDS by the decision of Hon'ble Bombay High Court in the case of Kotak Securities Ltd. in Income Tax appeal No.3111 of 2009. However, we find that the Hon'ble High Court has observed that section 194J was inserted w.e.f. 1/7/1995 and till assessment year 2005-06 both the Revenue and the assessee proceeded on the footing that section 194J was not applicable to the payment of transaction charges and accordingly during the period from 1995 to 2005 neither the assessee has deducted tax at source nor the Revenue has raised any objection. The Hon'ble High Court further observed that in these circumstances if both the parties for nearly a decade proceeded on the footing that section 194J is not attracted, then in the assessment year in question, no fault can be found with the assessee in not deducting tax at source under section 194J of the Act and consequently, no action could be taken under section 40(a)(ia) of the Act.

7.1 Return of income for the year under consideration was filed on 14/08/2009 and this decision of the Hon'ble Court was pronounced on 21/10/2011. Thus, the assessee had already filed the return of income and the time period for deducting tax at source was also lapsed. Considering 2 1404/M/13(09-10) IDBI

these peculiar facts. in our considered opinion no disallowance on this account should be made for the year under consideration. Ground No.2 is accordingly allowed."

We find that return for the year under appeal was filed on 23/9/2009,as stated earlier. Respectfully,following the order of the Tribunal,for the earlier year we decide the effective ground of appeal in favour of the assessee as the facts and circumstances of both the years are similar.

As a result, appeal filed by the assessee stands allowed .

फलतः नधा रती वारा दा खल क गई अपील मंजूर क जाती है . Order pronounced in the open court on 8th,May, 2015. आदे श क घोषणा खुले यायालय म दनांक 8th मई,2015 को क गई । Sd/- Sd/- (आय.पी. बंसल /I.P. BANSAL) (राजे / RAJENDRA) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER मबुं ई/Mumbai, दनांक/Date: 08.05.2015 Jv. Sr.PS आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1.Appellant /अपीलाथ 2. Respondent / यथ

3.The concerned CIT(A)/संब ध अपील य आयकर आयु त, 4.The concerned CIT /संब ध आयकर आयु त

5.DR "A" Bench, ITAT, Mumbai / वभागीय त न ध, खंडपीठ,आ.अ. याया.मब ुं ई

6.Guard File/गाड फाईल स या पत त //True Copy// आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपील य अ धकरण, मब ुं ई /ITAT, Mumbai.

3