2010 (7) TMI 1116 - AT - Income Tax

Summary

Issues involved:
1. Disallowance of penalty paid to SEBI
2. Disallowance of transaction charges to Stock Exchange
3. Tax deduction on payments made to jobbers/arbitragers

Issue 1: Disallowance of penalty paid to SEBI
The Revenue challenged the deletion of the addition of penalty paid to SEBI by the CIT(A). The Assessing Officer disallowed the penalty, but the CIT(A) ruled in favor of the taxpayer, stating that payments to Stock Exchange for regulation violations are not prohibited by law. The Revenue argued that BSE's rules violations constitute a breach of the law. The Tribunal decided to send the matter back to the Assessing Officer for verification of the payment nature and subsequent relief, aligning with previous Tribunal decisions.

Issue 2: Disallowance of transaction charges to Stock Exchange
The Revenue contested the deletion of transaction charges by the CIT(A) under sec. 40(a)(ia) of the I.T. Act. The CIT(A) ruled in favor of the taxpayer, following a Tribunal decision that fees to Stock Exchange do not involve technical services, hence no tax deduction is required. The Tribunal upheld the CIT(A)'s decision, citing consistent Tribunal views on the matter.

Issue 3: Tax deduction on payments to jobbers/arbitragers
The Revenue challenged the CIT(A)'s decision on the relationship between member/broker and jobber, claiming it should be subject to tax deduction u/s 194C of the I.T. Act. The Assessing Officer disallowed the payment, considering it within sec. 194C. However, the CIT(A) disagreed, citing the jobbers' role as principals and co-sharers of profit/loss, not falling under sec. 194C. The Tribunal decided to send the matter back to the Assessing Officer for a fresh decision, lacking clarity on the acceptance of a similar case by the Revenue.