2010 (2) TMI 1115 - AT - Income Tax

Summary

Issues involved: Appeal against disallowance u/s 40(a)(ib) and u/s 14A for assessment year 2005-06.

The Appellate Tribunal ITAT Mumbai heard an appeal filed by the assessee against the order of the CIT(Appeals)-IV, Mumbai for the assessment year 2005-06. The assessee, a member of Bombay Stock Exchange Ltd. engaged in share broking, had income mainly from brokerage. The AO disallowed the amount paid by the assessee u/s 40(a)(ib) of the Act for Securities Transaction Tax, and also made a disallowance u/s 14A. The first appellate authority granted partial relief. The assessee appealed further, challenging the addition made towards Securities Transaction Tax. The Tribunal considered the arguments presented by both parties.

The Tribunal examined the relevant sections of the Income Tax Act. Section 40(a)(ib) pertains to sums paid on account of securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004. Section 88E provides for a rebate in respect of securities transaction tax. The Finance (No.2) Act, 2004, under Chapter VII, specifies the collection and recovery of securities transaction tax by recognized stock exchanges and prescribed persons. The charge of securities transaction tax is imposed on the purchase/sale of equity shares, units of equity-oriented funds, derivatives, and units.

The Tribunal noted that the assessee, as a broker, acted as a collecting agent of STT on behalf of the Government and neither purchased nor sold shares directly. Therefore, the Tribunal held that section 40(a)(ib) did not apply to the assessee in this case, and the benefit under section 88E could not be extended. The Tribunal disagreed with the CIT(A)'s view that this arrangement was tax planning or a colorable device, finding such assertions without merit. Consequently, the Tribunal ruled in favor of the assessee, deleting the disallowance in question and allowing the appeal.

In conclusion, the Appellate Tribunal ITAT Mumbai ruled in favor of the assessee, holding that the disallowance u/s 40(a)(ib) and u/s 14A for the assessment year 2005-06 was not applicable in this case. The Tribunal emphasized that the assessee, as a broker, was not directly involved in the purchase or sale of shares but acted as a collecting agent of STT on behalf of the Government.