2008 (8) TMI 592 - AT - Income Tax

Depreciation on the membership right of the Stock Exchange - Held that - the assessee would be entitled to claim depreciation on the WDV of the membership right of the stock exchange Mumbai. Claim of bad debts - held that - These are incidental to the business of the assessee and going by the quantum of loss written off in individual cases the wisdom of the assessee in writing them off as bad and irrecoverable considering the cost of litigation etc. ; in our view should be considered as bona fide and plea irrecoverability should be accepted. The claim is therefore clearly allowable under section 28 of the Act. We therefore direct that the deduction as claimed by the assessee be allowed. TDS on transaction charges paid to stock exchange u/s 194J - disallowance u/s 40(a)(ia) - held that - transaction fee paid cannot be said to be a fee paid in consideration of the stock exchange rendering any technical services to the assessee. The provisions of section 194J are not attracted. - Consequently the provisions of section 40(a)(ia) were also not attracted and therefore the disallowance made is directed to be deleted.

Issues Involved:
1. Depreciation on the membership right of the Stock Exchange, Mumbai (BSE).
2. Deduction on account of bad debt written off.
3. Disallowance of transaction charges paid to the stock exchange under section 40(a)(ia).
4. Non-grant of credit for TDS certificate.

Issue-wise Detailed Analysis:

1. Depreciation on the Membership Right of the Stock Exchange, Mumbai (BSE):
The assessee, engaged in share broking and related activities, claimed depreciation on the BSE membership card purchased for Rs. 2 crores plus incidental charges. The claim was based on the argument that the membership right was a "plant" under section 43(3) of the Act, essential for conducting business. The Assessing Officer (AO) disallowed the claim, stating that the membership card was neither a tangible asset nor an intangible asset under section 32(1)(ii). The AO referenced the Supreme Court decision in Stock Exchange, Ahmedabad v. Asst. CIT, which held that membership was a personal privilege, not a transferable asset. The Commissioner of Income-tax (Appeals) upheld the AO's decision. However, the Tribunal referenced the case of Techno Shares and Stocks Ltd. v. ITO, which recognized the membership card as a capital asset eligible for depreciation under section 32(1)(ii). The Tribunal concluded that the assessee was entitled to claim depreciation on the WDV of the membership right, following consistent views from various Tribunal decisions.

2. Deduction on Account of Bad Debt Written Off:
The assessee claimed a deduction for bad debts amounting to Rs. 45,31,150, which the AO disallowed, stating the amount was not taken into account in computing income as required by section 36(2). The assessee argued that the loss was incidental to business and should be allowed under section 28. The Tribunal examined the breakup of the bad debt and found that Rs. 13,34,216 had been offered as income in the past, satisfying section 36(2). The remaining Rs. 31,96,935, which arose from business operations, was deemed allowable under section 28, considering the nature of the business and the cost of litigation for recovery.

3. Disallowance of Transaction Charges Paid to the Stock Exchange Under Section 40(a)(ia):
The AO disallowed Rs. 5,17,65,182 paid as transaction charges to the stock exchange, arguing it was for technical services under section 194J, requiring TDS deduction. The Tribunal reviewed the definition of "fees for technical services" and concluded that the transaction charges were not for technical or managerial services but for using the stock exchange facilities. The Tribunal referenced the Madras High Court decision in Skycell Communications Ltd. v. Deputy CIT, which clarified that using technology-based services does not constitute technical services. Therefore, the Tribunal held that section 194J did not apply, and the disallowance under section 40(a)(ia) was not justified.

4. Non-grant of Credit for TDS Certificate:
The Tribunal remanded the issue of non-grant of credit for TDS certificates to the AO for verification and directed that credit be allowed if the claim was found correct.

Conclusion:
The appeal by the assessee was partly allowed, with the Tribunal ruling in favor of the assessee on the issues of depreciation on the BSE membership card, deduction for bad debts, and disallowance of transaction charges. The issue of TDS credit was remanded for verification.

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