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2016 (6) TMI 1087 - AT - Income TaxDisallowance u/s. 40(a)(ia) - non TDS on SMS charges - Held that - We find that the nature of services rendered by the two parties are just to provide an Internet platform wherein the software of stock broker gets automatically interfaced with Internet platform without any human intervention and SMS gets automatically generated and sent to customers of assessee. It can at best be considered only as these two parties selling SMS credits to the assessee. It is nobody s case that the transactions fall under the ambit of section 194J of the Act. In order to apply the provisions of section 194C of the Act, there should be two main ingredients (i) the existence of contract (whether oral or written) and (ii) such contract should be for carrying out any work requiring the human intervention. In the instant case, there is no contract entered into by and between the assessee with two parties as we find that SMS credits sold by two parties were just consumed by the assessee on need basis. We find that the activity carried on in the instant case does not fall under the definition of work in terms of section 194C of the Act as it does not involve any human intervention - Decided in favour of assessee Eligibility for getting rebate u/s. 88E - Held that - We direct the Ld. AO to disallow the rebate u/s. 88E of the Act at 10% on the claim of the assessee and grant relief for the remaining amount. See Destiny Securities Ltd. Versus Deputy Commissioner of Income Tax 2016 (6) TMI 880 - ITAT KOLKATA
Issues Involved:
1. Disallowance under section 40(a)(ia) of the Income Tax Act for SMS charges. 2. Eligibility for rebate under section 88E of the Income Tax Act. 3. Levy of interest under section 234D of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance under section 40(a)(ia) of the Income Tax Act for SMS charges: The first issue pertains to whether the disallowance under section 40(a)(ia) of the Act could be made towards SMS charges amounting to ?6,22,008/-. The assessee, a registered stock broker, had made payments to Max Motilities Pvt. Ltd. and E Biz Technology Pvt. Ltd. for SMS charges without deducting tax at source. The Assessing Officer (AO) disallowed these payments under section 40(a)(ia). The assessee argued that the payments were not covered under Chapter XVII of the Act and thus, no tax was required to be deducted. The CIT(A) observed that the service providers acted as contractors between the assessee and the telecom operators, making section 194C applicable, not section 194J. The assessee contended that there was no contract, and the services provided did not involve human intervention, relying on the Tribunal's decision in ITO Vs. Saha Agency and the Calcutta High Court's decision in M/s. Stumm India. The Tribunal found that the services provided were merely an interface for sending SMS without human intervention, thus not constituting "work" under section 194C. It concluded that no contract existed between the assessee and the service providers, and the provisions of section 194C were not applicable. The Tribunal allowed the assessee's appeal on this ground. 2. Eligibility for rebate under section 88E of the Income Tax Act: The second issue concerns the assessee's eligibility for rebate under section 88E. The assessee claimed a rebate of ?17,34,845/-, but the AO restricted it to ?2,66,312/- based on certain calculations. The CIT(A) determined that the correct basis for calculation involved the gross receipts from various heads of income, resulting in an STT-related taxable income of 4.741% of the total taxable income. The assessee argued that the infrastructure was required only for stock broking activity, and no expenses were incurred for trading in shares. The Tribunal relied on the decision in Destiny Securities Ltd. Vs. DCIT, which allowed a proportionate disallowance of indirect expenses. It directed the AO to disallow the rebate under section 88E at 10% of the claim and grant relief for the remaining amount, thus partly allowing the assessee's appeal. 3. Levy of interest under section 234D of the Income Tax Act: The third issue regarding the levy of interest under section 234D was deemed consequential and did not require adjudication. Conclusion: The appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the first issue, partly allowing the rebate claim on the second issue, and not adjudicating the third issue. The order was pronounced in open court on 01.06.2016.
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