2012 (9) TMI 124 - AT - Income Tax

Appeal partly allowed: Re-examination ordered on depreciation, software expenses, rebate, interest.

M/s. Emkay Share & Stock Brokers Ltd. Versus Additional Commissioner of Income tax, Range-4(1)

M/s. Emkay Share & Stock Brokers Ltd. Versus Additional Commissioner of Income tax, Range-4(1) - TMI Issues Involved:1. Depreciation on membership cards of BSE and NSE.2. Disallowance of software expenses.3. Disallowance of rebate under Section 88E of the IT Act.4. Disallowance of claim of deduction against the share of profit in the branch.5. Charging of interest under Sections 234B and 234C.Detailed Analysis:1. Depreciation on Membership Cards of BSE and NSE:The assessee claimed depreciation at 25% on NSE membership rights and BSE derivatives membership rights, which the AO disallowed based on a previous year's decision. The CIT(A) upheld this disallowance, referencing the Bombay High Court's judgment in CIT vs. Techno Shares & Stocks Ltd. The assessee argued that depreciation should be allowed based on the Supreme Court's judgment in Techno Shares & Stocks Ltd. vs. CIT. However, the Tribunal in Sino Securities P. Ltd. had disallowed such claims post-dematualization and corporatization of stock exchanges. The Tribunal noted distinctive features in the assessee's case, such as holding both NSE and BSE membership rights, and restored the issue to the AO for fresh examination, considering all aspects and providing an opportunity for a hearing.2. Disallowance of Software Expenses:The assessee claimed a deduction for software expenses related to licenses for ODIN Front Office software and Moneyware Integra. The AO treated these as capital expenses and allowed only 30% depreciation. The CIT(A) confirmed this disallowance. The assessee argued that the Delhi High Court in Amway India Enterprises and CIT vs. M/s. Asahi India Safety Glass Ltd. had allowed such expenses as revenue expenditure. The Tribunal, following these judgments, set aside the CIT(A)'s order and allowed the claim as revenue expenditure.3. Disallowance of Rebate under Section 88E:The AO allowed a rebate under Section 88E only on the net income from derivative transactions after allocating expenses, resulting in a reduced rebate. The CIT(A) further reduced the rebate. The assessee argued that the rebate should be allowed on the income from security transactions included in the total income. The Tribunal upheld the CIT(A)'s order, agreeing that the rebate should be limited to the STT paid on derivative transactions, which was Rs.2,56,449/-.4. Disallowance of Claim of Deduction Against the Share of Profit in the Branch:The AO disallowed the claim of Rs.29.36 lacs paid to M/s. J.S. Financial Services for managing a branch, treating it as a joint venture and alternatively as managerial services requiring TDS under Section 194J. The CIT(A) upheld this disallowance. The assessee argued that the arrangement was not a joint venture and that Section 194J was not applicable. The Tribunal disagreed with the joint venture characterization but agreed that the services were managerial, thus requiring TDS. However, following the Special Bench decision in Merilyn Shipping and Transports, the Tribunal allowed the claim subject to verification that no amount was outstanding at the year's end.5. Charging of Interest under Sections 234B and 234C:The assessee's ground regarding interest under Sections 234B and 234C was deemed consequential. The Tribunal directed the AO to re-compute the interest when giving effect to the order.Conclusion:The appeal was partly allowed, with the Tribunal providing detailed directions on each issue for further examination or re-computation by the AO. The significant phrases and legal terminology have been preserved to maintain the judgment's integrity.