2010 (3) TMI 1090 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of deduction for admission fee paid to OTC Exchange of India Ltd.
2. Deletion of addition made on account of penalty paid to NSE.
3. Deletion of disallowance of VSAT, lease line charges, and transaction charges due to non-deduction of tax at source.

Summary:

1. Disallowance of Deduction for Admission Fee Paid to OTC Exchange of India Ltd.:
The assessee, a company engaged in share broking, trading, and dealing in shares and securities, claimed a deduction of Rs. 6,00,000/- as an admission fee paid to OTC Exchange of India Ltd. The Assessing Officer (AO) disallowed this claim, considering it a capital expenditure. The CIT(A) upheld the AO's decision, noting the lack of evidence that the surrender of membership by the assessee was accepted by the OTC Exchange. The Tribunal observed that the nature of the claim as a write-off of the admission fee was not clear from the records. The Tribunal set aside the order of the CIT(A) and remanded the issue back to the AO for fresh consideration, emphasizing that the deduction could only be allowed if the fee had not been claimed in any earlier assessment year and if the OTC Exchange recognized the surrender of membership by the assessee.

2. Deletion of Addition Made on Account of Penalty Paid to NSE:
The assessee claimed a deduction of Rs. 40,300/- paid as fines and penalties to NSE for trade violations and delays in submission of statements. The AO disallowed the claim, considering these payments as penalties for infraction of law. The CIT(A) deleted the addition, holding that the payments were not for offenses prohibited by law but were compensatory in nature. The Tribunal upheld the CIT(A)'s decision, agreeing that the fines and penalties were trade-related and not statutory penalties, thus allowable as deductions.

3. Deletion of Disallowance of VSAT, Lease Line Charges, and Transaction Charges Due to Non-Deduction of Tax at Source:
The AO disallowed the deduction of VSAT charges, lease line charges, and transaction charges paid by the assessee to stock exchanges, citing non-deduction of tax at source u/s 194J. The CIT(A) deleted the disallowance, following the precedent set in the case of Kotak Securities Ltd., where it was held that such charges were not for technical services but for the use of infrastructure facilities. The Tribunal concurred with the CIT(A), referencing the Madras High Court's decision in Skycell Communications Ltd. Vs. DCIT, which clarified that payments for the use of standard facilities do not constitute fees for technical services. The Tribunal dismissed the Revenue's appeal, affirming that the charges were for infrastructure use and not technical services, thus not subject to TDS u/s 194J.

Conclusion:
The Tribunal allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal, providing clarity on the nature of deductions and the applicability of TDS provisions in the context of stock exchange-related charges.