2016 (3) TMI 975 - HC - Income Tax

Court allows interest deduction for share broking business, exempts dividend expenses. Brokerage income not taxable.

The Commissioner of Income Tax-4 Versus Credit Suisse First Boston (India) Securities Pvt. Ltd.

The Court allowed the deduction of interest expenditure for a share broking business under Section 37(1) of the Income Tax Act, rejecting the Revenue's ... Deduction of interest expenditure - nature of the business of the assessee is share broking and not of financing - whether the claim of expenditure of interest was inadmissible under Section 37(1)? Held that:- Appeal admitted on first substantial question of law Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing as a deduction interest expenditure of ₹ 21,92,68,519/to the assessee even though the nature of the business of the assessee is share broking and not of financing and the claim of expenditure of interest was inadmissible under Section 37(1) of the I.T. Act, 1961? Issues involved:1. Deduction of interest expenditure for a share broking business under Section 37(1) of the Income Tax Act, 1961.2. Addition of expenses incurred in relation to exempt dividend income under Section 14A of the Income Tax Act.3. Taxability of party brokerage income.4. Taxability of interest on securities on accrual basis.Analysis:Issue 1: Deduction of interest expenditure for a share broking business under Section 37(1) of the Income Tax Act, 1961The Tribunal allowed the deduction of interest expenditure to the assessee, even though the nature of the business was share broking, not financing. The Revenue contended that the claim of interest expenditure was inadmissible under Section 37(1) of the Act. However, the Court held that the issue was concluded against the Revenue based on previous decisions. The Court emphasized that an order of a Coordinate Bench of the Tribunal is binding in the absence of any difference in facts and/or law. Consequently, this issue did not give rise to any substantial question of law and was not entertained.Issue 2: Addition of expenses incurred in relation to exempt dividend income under Section 14A of the Income Tax ActThe Assessing Officer disallowed the expenditure related to exempt dividend income earned by the assessee. However, the Tribunal deleted the addition, citing that the shares held by the assessee were stock in trade. The Court noted that the method of reflecting brokerage income in the service tax return on accrual basis and in the Profit and Loss account on an actual basis was consistent and acceptable. The Tribunal satisfactorily explained the difference in brokerage amounts. As this issue did not present a substantial question of law, it was not entertained.Issue 3: Taxability of party brokerage incomeThe Tribunal held that party brokerage income of a certain amount was not taxable, despite being shown in the service tax return. The Tribunal based its decision on the consistent method adopted by the assessee and accepted by the Revenue regarding the treatment of brokerage income. Since this issue did not raise a substantial question of law, it was not entertained.Issue 4: Taxability of interest on securities on accrual basisThe Assessing Officer added a sum to the income declared as accrued interest on Government Security. However, the Commissioner of Income Tax and the Tribunal ruled that the interest on securities was not received or accrued on a day-to-day basis but only on the due date specified in the coupon. The Court found that the issue was covered by a previous decision, and therefore, did not give rise to a substantial question of law.The appeal was admitted on the substantial question of law framed in question number (1), while the other issues did not present substantial questions of law. The Registry was directed to communicate the order to the Tribunal for further proceedings.