2014 (5) TMI 814 - AT - Income Tax

Tribunal Upholds Disallowance of Charges under Tax Rule

DCIT 4(3), Mumbai Versus M/s. Kotak Investment Advisors Ltd.

The Tribunal upheld the CIT (A)'s decision regarding the disallowance of VSAT charges and transaction charges under section 40(a)(ia) for the assessment ... Disallowance of VSAT charges – Transaction charges paid to stock exchange u/s 40(a)(ia) of the Act – Failure to deduct TDS on composite charges paid for professional and technical service - Held that:- Following CIT vs. Angel Capital & Debit Market Ltd [2014 (5) TMI 584 - BOMBAY HIGH COURT ] - VSAT and lease Line Charges paid by the assessee to Stock Exchange were merely reimbursement of the charges paid / payable by the Stock Exchange to the Department of Telecommunication - the VSAT and Lease Line Charges paid by the assessee do not have any element of income, deducting tax while making such payment do not arise. In Asstt. /Dy. Commr. of Income-tax (LTU) Versus DICGC Ltd. [2012 (4) TMI 240 - ITAT MUMBAI] it was held that both parties has proceeded on the footing that tax was not deductible u/s 194J - the provisions of section 40(a)(ia) could not be invoked - The VSAT and Lease Line Charges are not payments, which come in within the domain of “fees for technical services” and they are also not for “any work” done by the BSE or BSE for the member broker - The stock exchange does not provide any managerial services and the fees paid by the member to the Stock Exchange is not for any technical services rendered – thus, TDS is not required to be made on such payments – there was no infirmity in the order of the CIT(A) – Decided against Revenue. Issues Involved:1. Disallowance of VSAT charges and transaction charges under section 40(a)(ia).2. Disallowance made under section 14A read with Rule 8D.Issue 1: Disallowance of VSAT charges and transaction charges under section 40(a)(ia):The appeal filed by the Revenue challenged the CIT (A)'s order regarding the disallowance of VSAT charges and transaction charges under section 40(a)(ia) for the assessment year 2006-2007. The Revenue contended that these charges were for professional and technical services rendered by the stock exchange to its members, and the assessee failed to deduct TDS. The CIT (A) was criticized for overlooking the essential nature of these services and the technological advancements in the market. The Revenue also argued that the brokers had started deducting TDS in subsequent years, implying inconsistency in treatment. However, the Tribunal referred to relevant case laws, including a judgment of the Hon'ble High Court of Bombay, to support the assessee's position. The Tribunal found that the charges were not for technical services and did not require TDS deduction. The Tribunal upheld the CIT (A)'s decision, dismissing the Revenue's appeal on this issue.Issue 2: Disallowance made under section 14A read with Rule 8D:The CIT (A) had confirmed the addition made by the Assessing Officer under section 14A read with Rule 8D. The Revenue raised this ground before the Tribunal, despite the confirmation by the CIT (A). The assessee's counsel argued that the Revenue's ground was logically flawed since the CIT (A) had already confirmed the addition. The Revenue admitted the error in raising this ground. The Tribunal, after hearing both parties, concluded that the ground raised by the Revenue should be dismissed as infructuous. The Tribunal noted that the relevant issue regarding disallowance under section 14A had already been decided in the assessee's appeal. Therefore, the Tribunal dismissed this ground as unnecessary.In conclusion, the Tribunal upheld the CIT (A)'s decision on both issues, dismissing the Revenue's appeal. The Tribunal found no infirmity in the CIT (A)'s order and deemed it consistent with relevant legal precedents. The judgment provided detailed analysis and references to support the decisions made, ensuring a thorough examination of the issues raised by the Revenue.