2016 (10) TMI 891 - AT - Income Tax

Disallowance u/s 14A - Held that - Following the decision of the Coordinate Bench of this Tribunal in the assessee s own case for A.Y. 2009-10 we set aside the order of the learned CIT(A) and restore the issue of re-working the disallowance under section 14A r.w. Rule 8D of the I.T. Rules, to the file of the AO to verify the contention of the assessee that the investments made by it in group concerns, foreign entities , the income of which is exigible to tax be excluded while computing the disallowance under Rule 8D(2)(iii), which is in respect % of the average value of investment, the income of which does not form part of total income. Disallowance under section 40(a)(ia) - non-deduction of tax by the assessee for transaction charges payments made to Stock Exchanges, i.e. BSE and NSE - Held that -Respectfully following the decision of the Hon ble Apex Court in the case of Kotak Securities Ltd. (2016 (3) TMI 1026 - SUPREME COURT ), we hold that the transaction charges paid by the assessee to BSE and NSE as a member is in the nature of payments made for facilities provided by the Stock Exchange and therefore no TDS on such payment would be deductible under section 194C/194J of the Act. The orders of the authorities below making disallowance under section 40(a)(ia) for non-deduction of tax on such payment of transaction charges are accordingly reversed

Issues Involved:
1. Disallowance under section 14A read with Rule 8D.
2. Disallowance under section 40(a)(ia) for non-deduction of TDS on transaction charges.
3. Deemed Dividend under section 2(22)(e).

Detailed Analysis:

1. Disallowance under section 14A read with Rule 8D:
The assessee contended that the CIT(A) erred in confirming the disallowance of ?4,90,318/- under section 14A read with Rule 8D of the Income Tax Rules. The assessee argued that the same issue was previously addressed by a Coordinate Bench of the Tribunal for A.Y. 2009-10, where the matter was restored to the AO to re-work the disallowance after considering the assessee’s claim that no disallowance should be made since investments were in group concerns which are foreign entities, and their income is taxable. The Tribunal noted that the same factual situation applied for the year under consideration and thus restored the matter to the AO for verification. The AO was directed to exclude investments in group concerns whose income is taxable while computing the disallowance under Rule 8D(2)(iii). The ground was partly allowed for statistical purposes.

2. Disallowance under section 40(a)(ia) for non-deduction of TDS on transaction charges:
The assessee challenged the CIT(A)’s confirmation of the disallowance of ?9,18,509/- under section 40(a)(ia) for non-deduction of TDS on transaction charges paid to BSE and NSE. The assessee cited the Supreme Court decision in CIT vs. Kotak Securities Ltd., which held that transaction charges paid to stock exchanges are not for technical services but for facilities provided by the exchange, hence no TDS is deductible under section 194C or 194J. The Tribunal, following the Supreme Court’s decision, held that the transaction charges paid by the assessee were for facilities provided by the stock exchange and not technical services, thus no TDS was required. The orders of the authorities below were reversed, and the ground was allowed.

3. Deemed Dividend under section 2(22)(e):
The assessee did not press this ground during the hearing. Therefore, it was dismissed as not pressed.

Conclusion:
The appeal for A.Y. 2010-11 was partly allowed. The Tribunal restored the issue of disallowance under section 14A read with Rule 8D to the AO for re-verification and allowed the ground regarding disallowance under section 40(a)(ia) based on the Supreme Court’s decision. The ground on deemed dividend was dismissed as not pressed.

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