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2010 (6) TMI 510 - AT - Income TaxBusiness income or capital gain - The dispute is regarding nature of income from share transactions in delivery based shares entered into by the assessee during the year - In addition to the business as share broker from which the assessee has received brokerage income, the assessee has also been undertaking transactions in shares in his proprietary capacity - The true nature of transaction can be understood from the intention of the assessee at the time of purchase - Though frequency and volume are indicative of a trading transaction, the same are not conclusive - No shares sold have been held for more than one year as the entire capital gain has been shown as short term capital gain - Thus the assessee has been selling the share on average profit of about .5% which can happen only in a trading transaction and not in investments It has also been argued that the assessee had received increased dividend of Rs.94,31,290/- compared to Rs.44,51,213/- in the immediate preceding year which shows that the assessee was making investment in shares from this year - The dividend is an incidental income even in trading transaction because the assessee will receive dividend in case of purchases made before the record date even if the purchases are held for a short period - In this case considering the assessee had made purchases worth about Rs.3500 crores the dividend is negligible and is only an incidental income relating to the trading activity It is true but in order to hold that the assessee remained an investor it has to be shown from the circumstances of the case that the assessee was not purchasing and selling as a trader to make profit - It was held that the dominant object for acquiring right shares and renouncing of some shares and selling of some new shares was to prevent eroding the value of capital as after the right issue the value of original shares was bound to depreciate - Accordingly decided in the favour of the assessee as a trader Regarding depreciation on membership card of BSE - the issue raised is covered against the assessee by the judgment of Hon ble High Court of Mumbai in case of Techno shares and Stock Ltd. (2009 -TMI - 34562 - BOMBAY HIGH COURT). The assessee in that case had claimed that BSE card was an intangible asset and therefore depreciation was allowable in view of the provision of section 32(l)(ii) as per which depreciation was allowable in respect of intangible assets from 1.4.1998 Regarding interest paid on arrear of SEBI turnover fees - where a particular percentage of turnover is charged as turnover charge, the latter was of the nature of tax, duty, cess or fees which come within the purview of section 43B - Accordingly decided in the favour of the assessee
Issues Involved:
1. Classification of income from delivery-based sales and purchases of shares (business income vs. short-term capital gain). 2. Disallowance of depreciation on the BSE membership card. 3. Disallowance of interest paid on arrears of SEBI turnover fees. 4. Disallowance of V-SAT charges and lease line charges. Issue-wise Detailed Analysis: 1. Classification of Income from Delivery-Based Sales and Purchases of Shares: The primary dispute was whether the income from delivery-based sales and purchases of shares should be assessed as business income or short-term capital gain. The assessee, a member of BSE and NSE, declared brokerage income and business profit from trading shares, as well as short-term capital gain from the sale and purchase of shares. The AO noted that the assessee had not shown any capital gain from investment in shares in the preceding year and had declared business income from both delivery-based and non-delivery-based transactions. The AO observed that the assessee reclassified delivery-based transactions as investments from 1.4.2004 to benefit from the lower tax rate on short-term capital gains introduced by section 111A. The AO concluded that the nature of the transactions remained the same and should be treated as business activity. The CIT(A) upheld the AO's decision, noting that the assessee's high frequency and volume of transactions indicated trading activity. The Tribunal agreed, emphasizing that the high turnover, repetitive transactions, and short holding periods were indicative of trading rather than investment. The Tribunal also noted that the assessee's argument of maintaining separate accounts for trading and investment was not conclusive. The Tribunal upheld the decision that the income from delivery-based transactions should be assessed as business income. 2. Disallowance of Depreciation on BSE Membership Card: The assessee claimed depreciation on the BSE membership card, which the AO disallowed, stating it was not a capital asset. The CIT(A) allowed the claim based on the Tribunal's decision in the assessee's own case for the previous year. However, the Tribunal referred to the judgment of the Hon'ble High Court of Mumbai in Technoshares and Stock Ltd., which held that the BSE card was not entitled to depreciation as it was not an intangible asset related to intellectual property rights. The Tribunal set aside the CIT(A)'s order and confirmed the disallowance made by the AO. 3. Disallowance of Interest Paid on Arrears of SEBI Turnover Fees: The AO disallowed the interest paid on arrears of SEBI turnover fees, stating that interest was not covered under section 43B of the Income-Tax Act. The CIT(A) allowed the claim, following the judgment of the Hon'ble Supreme Court in Mahalaxmi Sugar Mills Co. Ltd., which held that interest on turnover fees was of the same nature as the fees itself. The Tribunal upheld the CIT(A)'s decision, referencing the Tribunal's decision in Wallfort Shares and Stock Brokers Pvt. Ltd., which allowed the deduction of interest on SEBI turnover fees under section 43B. 4. Disallowance of V-SAT Charges and Lease Line Charges: The AO disallowed the V-SAT and lease line charges, treating them as fees for technical services and subject to tax deduction at source under section 40(a)(ia). The CIT(A) held that these charges were reimbursement for infrastructure and trading facilities provided by the stock exchanges and were not fees for technical services, thus not requiring tax deduction at source. The Tribunal upheld the CIT(A)'s decision, citing the Tribunal's decision in Kotak Securities Ltd., which held that transaction charges paid to stock exchanges were for the use of facilities and not for managerial or technical services, and thus not subject to tax deduction at source. Conclusion: The Tribunal dismissed the assessee's appeal and partly allowed the revenue's appeal, confirming the classification of income from delivery-based transactions as business income, disallowing depreciation on the BSE membership card, allowing the deduction of interest on SEBI turnover fees, and upholding the non-disallowance of V-SAT and lease line charges.
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