2010 (8) TMI 1032 - AT - Income Tax

Summary

Issues Involved:
1. Depreciation on Membership Cards
2. Disallowance of Bad Debts
3. Disallowance of Personal and Club Membership Expenditure
4. Penalty for Short Margin
5. Deduction u/s 80M

Summary:

1. Depreciation on Membership Cards:
The revenue challenged the disallowance of depreciation on the BSE Membership card and the membership card of the Foreign Exchange Dealers Association of India (FEDAI). The CIT(A) had relied on the ITAT's decision in the case of M/s. Techno Shares and Stocks Ltd. However, the Hon'ble Bombay High Court in ITA No. 971 of 2006 & ITA No. 218 of 2007 held that depreciation u/s 32 of the Act cannot be allowed on stock exchange Membership cards acquired on or after 1.4.1998. The court reasoned that BSE cards do not qualify as "intangible assets" under section 32(1)(ii) as they are not related to intellectual property rights. Consequently, the assessee is not entitled to claim depreciation on the BSE card or the FEDAI membership card. The order of the CIT(A) was reversed, and the Assessing Officer's order was restored.

2. Disallowance of Bad Debts:
The revenue contested the deletion of the addition made on account of disallowance of bad debts amounting to Rs. 3,26,549/-. The CIT(A) followed the Special Bench decision in DCIT Vs. Oman International Bank SAOG, which held that it is sufficient for bad debts to be written off in the books of account without needing to establish that they had become bad. The Special Bench in DCIT Vs. Shri Shreyas S. Morakhia further clarified that amounts receivable by a share broker from clients are trading debts, and if the brokerage income has been accounted for, the conditions of section 36(2) are satisfied. The Tribunal found no merit in the revenue's ground and dismissed it.

3. Disallowance of Personal and Club Membership Expenditure:
The revenue challenged the deletion of disallowance of Rs. 6,248/- for personal expenditure and Rs. 1,50,000/- for club membership charges. The CIT(A) accepted the assessee's argument that these were business expenditures, citing various judicial precedents. The Tribunal upheld the CIT(A)'s decision, noting that spreading over expenses for acquiring corporate membership does not make them capital in nature. The Tribunal referenced several cases, including American Express International Banking Corporation Vs. CIT and CIT Vs. Sundaram Industries Ltd., to support its conclusion.

4. Penalty for Short Margin:
The revenue contested the deletion of the penalty of Rs. 1,80,966/- levied for not maintaining the required margin with the stock exchange. The CIT(A) held that the payment was compensatory and not penal in nature. The Tribunal agreed, referencing similar decisions in ACIT Vs. Mr. Ramesh Damani and Classic Shares and Stock Broking Services Ltd. Vs. DCIT, which held that such penalties are compensatory and allowable as revenue expenditure. The revenue's ground was dismissed.

5. Deduction u/s 80M:
The revenue challenged the allowance of deduction u/s 80M of Rs. 13,63,756/-. The CIT(A) held that section 115-O, which disallows deductions for dividends on which dividend distribution tax has been paid, was not applicable for the assessment year 2003-04. The Tribunal upheld this view, referencing several cases, including Neelam Mercantile P. Ltd. Vs. ITO and Godrej Agrovet Ltd. Vs. DCIT, which confirmed that section 115-O(5) is not applicable for AY 2003-04. The revenue's ground was dismissed.

Conclusion:
The appeal by the revenue was partly allowed, while the appeal by the assessee was dismissed as not pressed. The order was pronounced on 6th August 2010.