2011 (3) TMI 896 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions for assessee on disallowance of protective addition and non-deduction of tax.

The Tribunal upheld the CIT(A)'s decisions in favor of the assessee in a case involving disallowance of protective addition on BSE Card and non-deduction ... Protective addition - recovery of depreciation taxable under section 41(1) - cost of acquisition on demutualisation under section 55(2)(ab) - treatment of written down value for computation of capital gains on shares allotted on corporatisation/demutualisation - lease line charges not constituting fees for professional or technical services attracting section 194J - disallowance under section 40(a)(ia) for failure to deduct tax at sourceProtective addition - recovery of depreciation taxable under section 41(1) - cost of acquisition on demutualisation under section 55(2)(ab) - treatment of written down value for computation of capital gains on shares allotted on corporatisation/demutualisation - Deletion of protective addition made by the assessing officer on account of alleged recovery of depreciation consequent to allotment of shares on corporatisation/demutualisation of the stock exchange. - HELD THAT: - The assessing officer made a protective addition on the premise that, if the assessee claimed cost of acquisition of shares allotted on demutualisation at the original membership cost, the prior depreciation allowed on the membership would amount to a recovery taxable under section 41(1), or alternatively taxable under section 28(1)(iv). The Tribunal accepted the CIT(A)'s finding that the assessee, on sale of 6,386 of the 10,000 allotted shares in A.Y. 2008-09, computed capital gains by taking cost on the basis of the written down value plus Re.1 per share (the WDV basis used for income-tax computation), thus negativing the AO's apprehension of a double benefit. The Tribunal further observed that the same method would apply to computation of capital gain on the balance shares when sold, and therefore the protective addition lacked justification. On this basis the Tribunal upheld deletion of the addition made by the AO. [Paras 10]Protective addition of Rs.1,09,75,494/- deleted and revenue's ground dismissed.Lease line charges not constituting fees for professional or technical services attracting section 194J - disallowance under section 40(a)(ia) for failure to deduct tax at source - Whether lease line charges paid to the stock exchange are fees for professional or technical services so as to attract withholding under section 194J and consequent disallowance under section 40(a)(ia). - HELD THAT: - The Tribunal noted that the question had been previously decided by the Tribunal in DCIT v. Angel Broking Ltd., where it was held that lease line charges do not amount to fees for technical services within the scope of section 194J. Both parties agreed the precedent applied. Applying that decision, the Tribunal found no infirmity in the CIT(A)'s deletion of the disallowance made by the AO under section 40(a)(ia) for non-deduction of tax at source. [Paras 12]Addition under section 40(a)(ia) deleted and revenue's ground dismissed.Final Conclusion: The Tribunal dismissed the revenue's appeal for A.Y. 2006-07, upholding the CIT(A)'s deletion of the protective addition relating to demutualisation of BSE membership and the deletion of the disallowance for non-deduction of TDS on lease line charges. Issues:1. Disallowance of protective addition on BSE Card.2. Non-deduction of tax at source on lease line charges.Issue 1: Disallowance of protective addition on BSE Card:The appeal was filed by the revenue against the CIT(A)'s order regarding the disallowance of Rs. 1,09,75,494 made on account of protective addition on BSE Card for assessment year 2006-07. The assessee, a stockbroking company, claimed depreciation on the BSE Card till A.Y. 2005-06. The BSE Card was converted into shares of BSE Ltd. due to corporatization and demutualization. The AO contended that if the assessee sells the shares, it would claim the cost of acquisition at the original price of the BSE Card, leading to a benefit received by the assessee. The AO made a protective addition of Rs. 1,09,75,494 based on this premise. However, the CIT(A) held that the assessee's conduct in selling shares in A.Y. 2008-09 did not indicate a double benefit as feared by the AO. The CIT(A) deleted the protective addition, stating it was unjustified. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's apprehension was unfounded as the assessee had not taken the cost of BSE shares at the original cost of the BSE Card.Issue 2: Non-deduction of tax at source on lease line charges:The second issue involved non-deduction of tax at source on lease line charges paid by the assessee to the stock exchange. The AO treated the charges as fees for professional and technical services, requiring tax deduction at source under section 40(a)(ia) of the Act. However, the CIT(A) ruled that lease line charges did not fall under fees for technical services and deleted the addition made by the AO. The Tribunal noted that a similar issue had been decided in a previous case where it was held that lease line charges were not fees for technical services under section 194J of the Act. Consequently, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to delete the addition.In conclusion, the Tribunal dismissed the revenue's appeal on both issues, upholding the CIT(A)'s decisions in favor of the assessee.