TaxTMI 
TaxTMI 
2011 (5) TMI 687
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....he approved user and broker could be termed as subsidiary user of the net work. The assessee being the main hirer was supposed to fulfill all the obligations and formalities including payment of rental, license fees, installation fees and all other dues for all the circuit equipment and components of this net work. This net work was approved to be run at no profit no loss basis. The net work mainly consisted of Hub Equipment which is located in the premises of the assessee and VSAT antenna and coding equipment was located in the member's premises. On the basis of this position, AO concluded that VSAT net work was being used by the members for the purpose of conducting their business and, therefore, this net work was not exclusively used for the purpose of business of the assessee. Therefore, assessee was asked to explain as to why the claim of depreciation should not be restricted in view of the provisions of sec. 38 of the Act. The assessee filed detailed submissions. After examination of this explanation, AO observed that the equipment was being used by the members also and though assessee was recovering cost including the depreciation cost, but the same could not be termed as ch....
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....ses of the assessee and VSAT antenna and monitor was installed at the premises of the brokers. The stock exchange transactions had to be routed through the system provided by the assessee company and the brokers were not authorised to carry out the trading on any VSAT system. Since as per the DOT conditions, assessee company was required to own the equipment and VSAT net work in its own name, the same were acquired by the assessee. It was explained that in the absence of VSAT at the premises of the members, no trade could have been possibly executed. Therefore, such VSAT net work was basically used for the purpose of business of the assessee. 15. It was further argued that VSAT was installed at the remote location by the assessee for the purpose of exclusive use of its business and merely equipments were installed at the members premises which served as enabler to conduct the business of the assessee, could not be interpreted to consider that the equipments were not being exclusively used for the purpose of the business. Reference was also made to the Board's letter No. F.10/14/66/-IT(AI) dated 12th December, 1966, wherein it was provided that fans and air conditioners etc. prov....
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....n that assessee was not earning profit. In fact, the recovery of capital cost and revenue had an element of recuperation. He also noted that members of directors could not have utilised VSAT system for any other purpose than the purpose laid down in the contract i.e. to deal with the NSE. The assessee could not have offered this facility to any other person other than the member and, therefore, it could not be said that the equipment was installed in the premises of a third party. The net work was providing as a facility to the trading members, registered participants and other institutions such as custodians, clearing agents, depositories, who were required to contact directly to the exchange in execution of trade clearing or settlement of funds and all securities and the only purpose of installation of such net work was to achieve the business objective of the assessee. He also observed that there was no dispute that assets were owned by the assessee and if the members did not comply with the various conditions specified in the agreement, then the company had a right to deactivate any of the VSAT. 18. He noted that whatever recovery was made from the members, it was retained b....
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....y was required to own the system and assessee company would collect only user charges from the members and the whole system was to be operated on no profit no loss basis. Without installing the VSAT antenna and monitor at the premises of the members, the members could not have executed any trade. There was other condition of DOT by which members would not have taken their own VSAT system and, therefore, compulsorily assessee had to install such system with the members for which even user charges have been charged to the members. Merely because part of the equipment was installed in the members premises, it cannot be said that the same has not been used for the exclusive business of the assessee. Such system could not have been used for any other purpose by the members except for execution of the trade through the exchange of the assessee. Therefore, the whole system has been installed for the purpose of the business. He further argued that commercial transactions are always entered into in such a way that it benefits mutually both the parties and if the other party is also benefited it cannot be an issue and in this regard he relied on the observations of the Hon'ble Supreme Court ....
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....onal Stock Exchange was supposed to be established in the budget for F.Y 1993-94. Ultimately, assessee company was incorporated by nationalized banks to start screen based trading to replace the existing floor based trading in stocks and shares. For this screen based trading the assessee company was required to install VSAT net work which consisted of a hub and VSAT antenna and monitor. The hub was installed in the premises of the assessee company, whereas VSAT antenna and monitor were installed in the premises of member brokers. The whole electronic system was installed with a prior permission of DOT under which the whole system was required to be owned by the assessee and was to be operated on no profit no loss basis because certain concessions were given in respect of customs duty. There was a further condition that all transactions were to be carried out through this system only and brokers could not trade transactions on the system owned by them which means that the whole system was to be owned by the assessee and even the part of the system which was also to be owned by the assessee company for the usage of this system by the members, assessee had charged only usage charges a....
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.... cases is that if the expense is incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purpose outside the course of business then the expense is not deductible. In deciding whether a payment of money is a deductible expenditure one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If the payment or expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may inure to the benefit of a third party (Usher's Wiltshire Brewery Ltd. v. Bruce) Another test is whether the transaction is properly entered into as a part of the assessee's legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby : Eastern Investments Ltd. v. CIT (supra). But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee." From the above it is clear that it is the commercial expediency which has to be seen while de....