2009 (12) TMI 615 - AT - Income Tax

Depreciation on the value of BSE Card - Bombay High Court in the case of Techno Shares & Stocks Ltd. (2009 -TMI - 34562 - BOMBAY HIGH COURT) has held that depreciation under section 32 of the Act, cannot be allowed on stock exchange Membership card acquired by an assessee on or after 1-4-1998 - Decided against the assessee Regarding VSAT charges and leaseline charges - Learned CIT(A) followed the decision in Skycell Communications Ltd. (2001 -TMI - 13961 - MADRAS High Court) and held that the provisions of section 194J are not attracted to VSAT charges because those charges are not for providing any technical services but use to infrastructure facilities and therefore no disallowance can be made under section 40(a)(ia) of the Act - Satellite based trading enables trading member to trade on exchange from their place of work across the country - Fact that the data provided on screen will provide better data for carrying out transaction will not again be sufficient to hold that technical services are being rendered - Decided in favor of the assessee

Issues Involved:
1. Depreciation on BSE Card.
2. Disallowance of VSAT and Lease Line Charges.
3. Deletion of Penalty Addition.
4. Disallowance of Transaction Charges Paid to NSE & BSE.

Issue-wise Detailed Analysis:

1. Depreciation on BSE Card:
The revenue challenged the CIT(A)'s order allowing depreciation on the BSE card held by the assessee, who is a member of the Bombay Stock Exchange and engaged in stock broking. The CIT(A) had allowed the claim based on ITAT Mumbai's earlier decisions, including the case of Techno Shares & Stocks Ltd. However, the Hon'ble Bombay High Court in ITA No. 971 of 2006 & ITA No. 218 of 2007 ruled that depreciation under section 32 of the Act cannot be allowed on stock exchange membership cards acquired on or after 1-4-1998. The court held that BSE cards do not fall under "licenses ... or any other business or commercial rights of similar nature" as specified in section 32(1)(ii), which is intended to apply only to intellectual property rights. Consequently, the ITAT reversed the CIT(A)'s order and restored the Assessing Officer's decision, disallowing the depreciation claim on the BSE card.

2. Disallowance of VSAT and Lease Line Charges:
The revenue contested the CIT(A)'s deletion of the disallowance of VSAT and lease line charges amounting to Rs. 96,000. The Assessing Officer had disallowed these charges, considering them as fees for technical services under section 194J, which necessitates tax deduction at source. The CIT(A) relied on the decision in Kotak Securities Ltd., where it was held that such charges are reimbursements for infrastructure and trading facilities provided by stock exchanges and do not constitute fees for technical services. The ITAT upheld the CIT(A)'s decision, noting that VSAT and lease line charges are for using standard facilities provided by stock exchanges and do not involve rendering technical services. The ITAT confirmed that these charges are not subject to section 194J, thus no disallowance under section 40(a)(ia) was warranted.

3. Deletion of Penalty Addition:
The revenue raised an issue regarding the deletion of a penalty addition of Rs. 1,49,643 by the CIT(A). The ITAT noted that a similar issue in the assessee's case for the assessment year 2004-05 had been remanded to the Assessing Officer for fresh consideration. The ITAT directed the Assessing Officer to determine whether the penalty was paid under any legislative enactment or contractual obligation. The ITAT remanded the issue back to the Assessing Officer for fresh adjudication in line with the directions given for the assessment year 2004-05.

4. Disallowance of Transaction Charges Paid to NSE & BSE:
The assessee appealed against the CIT(A)'s confirmation of the disallowance of transaction charges paid to NSE & BSE under section 40(a)(ia) read with section 194J. The ITAT referred to its decision in Kotak Securities Ltd., where it was held that transaction fees paid to stock exchanges are not fees for technical services but payments for using the facilities provided by the exchanges. The ITAT concluded that section 194J does not apply to such payments, and thus, there was no obligation to deduct tax at source. Consequently, the provisions of section 40(a)(ia) were also not attracted. The ITAT ordered the deletion of the disallowance, allowing the assessee's appeal.

Conclusion:
The ITAT Mumbai delivered a comprehensive judgment addressing multiple issues related to depreciation on BSE cards, disallowance of VSAT and lease line charges, penalty additions, and transaction charges paid to stock exchanges. The tribunal upheld the revenue's appeal on the depreciation issue, reversed the disallowance of VSAT and lease line charges, remanded the penalty issue for fresh consideration, and allowed the assessee's appeal on transaction charges.

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