2014 (11) TMI 8 - AT - Income Tax

Tribunal decision on transaction & VSAT charges disallowance under tax law

Income Tax Officer Versus M/s. Pratibhuti Viniyog Ltd.

Income Tax Officer Versus M/s. Pratibhuti Viniyog Ltd. - TMI Issues Involved:1. Disallowance under section 40(a)(ia) for VSAT charges and transaction charges.2. Deletion of addition under section 14A read with Rule 8D by the Assessing Officer.Issue-wise Detailed Analysis:1. Disallowance under section 40(a)(ia) for VSAT charges and transaction charges:The Revenue challenged the deletion of disallowance of Rs. 3,00,009 under section 40(a)(ia) concerning VSAT charges and transaction charges paid to the stock exchange. The Assessing Officer (AO) argued that these charges were for professional and technical services, necessitating TDS deduction under section 194J. The assessee contended that no TDS was required as these charges did not constitute professional or technical services, citing the Tribunal's decision in Kotak Securities Ltd. The AO, however, disallowed the payment, asserting that the Tribunal's decision was under appeal in the High Court.Both parties acknowledged that the disallowance of Rs. 2,90,009 for transaction charges was upheld by the Jurisdictional High Court in Kotak Securities Ltd. However, the assessee referenced another High Court decision in The Stock and Bond Trading Company, which ruled that transaction charges were not covered under section 194J. The Tribunal held that the later decision in Kotak Securities Ltd. was binding, thus affirming the AO's disallowance under section 40(a)(ia) for transaction charges.Regarding the Rs. 1,10,000 VSAT charges, the Tribunal noted that the Jurisdictional High Court in Angel Capital and Debit Market Ltd. had ruled that VSAT charges were not technical services, thus no TDS was required. Consequently, the Tribunal held that no disallowance under section 40(a)(ia) was warranted for VSAT charges.The assessee's alternative plea was that all payments were made by 31st March 2007, and thus, no disallowance under section 40(a)(ia) should be made, referencing the Allahabad High Court decision in Vector Shipping Services Pvt. Ltd. The Tribunal, however, noted that this decision did not constitute the ratio decidendi on the issue of 'paid' versus 'payable' and was merely obiter dicta. The Tribunal preferred the more detailed judgments of the Calcutta High Court in Crescent Exports Syndicate and the Gujarat High Court in Sikandarkhan N. Tunvar, which overruled the Special Bench decision in Merilyn Shipping & Transports. Thus, the Tribunal partially allowed the Revenue's ground, affirming the disallowance for transaction charges but not for VSAT charges.2. Deletion of addition under section 14A read with Rule 8D by the Assessing Officer:The AO disallowed Rs. 4,41,221 under section 14A, applying Rule 8D, against the assessee's dividend income of Rs. 4,76,670. The Commissioner (Appeals) held that Rule 8D was not applicable for the assessment year 2007-08, as established by the Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. The Commissioner provided a reasonable basis for determining the disallowance, proportionate to the total expenditure and the value of transactions yielding exempt income.The Tribunal found no reason to deviate from the Commissioner (Appeals)'s findings, affirming that disallowance under Rule 8D could not be applied for the assessment year 2007-08. Thus, the Tribunal dismissed the Revenue's ground on this issue.Conclusion:The Tribunal's order resulted in a partial allowance of the Revenue's appeal, affirming the disallowance of transaction charges under section 40(a)(ia) but rejecting the disallowance of VSAT charges. Additionally, the Tribunal upheld the deletion of the disallowance under section 14A read with Rule 8D for the assessment year 2007-08. The order was pronounced in open Court on 22.8.2014.