2010 (2) TMI 789 - AT - Income Tax

Deduction of Tax at Source - AO disallowed Leaseline charges and V. sat charges paid by stock broker to Stock exchange - Held that - In view decision of co-ordinate Bench of Tribunal - Kotak Securities Limited (2008 -TMI - 207417 - ITAT MUMBAI) wherein it was held that stock exchanges did not render any managerial or technical services and therefore fees paid to them cannot be subjected to deduction of tax at source u/s. 194J. - Thus appeal of revenue is set aside.

Summary

Issues: Disallowance of Leaseline charges and V. Sat charges under section 40(a)(ia); Disallowance of penalty imposed by stock exchange

Issue 1: Disallowance of Leaseline charges and V. Sat charges under section 40(a)(ia)
The appeal involved a common issue regarding the disallowance made by the Assessing Officer (A.O.) under section 40(a)(ia) on account of Leaseline charges and V. Sat charges paid to the stock exchange. The A.O. contended that these charges were for technical and managerial services, thus requiring tax deduction at source under Section 194J. However, the Commissioner of Income Tax (Appeals) (CIT(A)) held that these charges were reimbursement for infrastructure and trading facilities, not subject to tax deduction. The Tribunal cited a previous decision in the case of Kotak Securities Limited, ruling that fees paid to stock exchanges did not warrant tax deduction, and upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Issue 2: Disallowance of penalty imposed by stock exchange
Another issue raised by the Revenue was the disallowance of penalty imposed by the stock exchange. The A.O. had disallowed this amount, but the CIT(A) overturned the decision. The Tribunal referred to previous decisions where penalties for violations were considered part of regular business expenses, not penalties for infractions of the law. Following these precedents, the Tribunal upheld the CIT(A)'s decision to delete the disallowance of the penalty paid by the assessee to the stock exchange. Consequently, the Revenue's appeal on this issue was dismissed.

Conclusion
The Tribunal dismissed the Revenue's appeal regarding the disallowance of Leaseline charges and V. Sat charges under section 40(a)(ia) and the penalty imposed by the stock exchange. The decision was based on the nature of the charges and penalties, considering them as reimbursements and regular business expenses, respectively. The Tribunal's rulings were consistent with previous decisions and upheld the relief granted by the CIT(A) to the assessee. The assessee's Cross-Objection (C.O.) was allowed, and the delay in filing the C.O. was condoned. The Tribunal directed the A.O. to delete the disallowance of transaction charges paid to the stock exchange, following the precedent set in the case of Kotak Securities Limited.