2018 (2) TMI 1649 - HC - Income Tax

Addition towards STT and service tax - non deuction of tds - Held that - As the Respondent was not claiming any expenditure in its Profit and Loss Accounts on account of STT and service tax, no occasion to disallow the same for nondeduction of tax at source under Section 40(a)(ia) of the Act can arise. - Decided against revenue Income from transaction of purchase of sale of shares - Short Term Capital Gain or business income - Appeal is admitted on the substantial question of law at Sr.No.2

Summary

Issues:
1. Deletion of addition towards STT and service tax
2. Characterization of transaction of purchase and sale of shares as Short Term Capital Gain

Analysis:

Issue 1: Deletion of addition towards STT and service tax
The Revenue contended that the entire payment of ?3,39,515 towards Security Transaction Tax (STT) and service tax should be disallowed under Section 40(a)(ia) of the Income Tax Act, 1961 as tax was not deducted at source. The Commissioner of Income Tax (Appeals) (CIT(A)) found that the STT and service tax were not claimed as expenditure in the Profit and Loss Accounts of the Assessee. Consequently, the CIT(A) allowed the Assessee's Appeal. The Tribunal upheld the CIT(A)'s decision, emphasizing that since the Assessee did not claim any expenditure in its Profit and Loss Accounts on account of STT and service tax, there was no basis to disallow it for non-deduction of tax at source under Section 40(a)(ia) of the Act. The Tribunal criticized the Revenue for failing to provide any material to challenge the CIT(A)'s findings, highlighting the casual approach of the Revenue in the matter. The Tribunal dismissed the Revenue's Appeal, stating that the Appeal did not raise any substantial question of law.

Issue 2: Characterization of transaction as Short Term Capital Gain
The Appeal was admitted on the substantial question of law regarding the characterization of the transaction of purchase and sale of shares as Short Term Capital Gain instead of income from business. The Court directed the Registry to inform the Tribunal about the order to ensure the availability of papers and proceedings related to the appeal. The case was scheduled to be heard along with another Income Tax Appeal related to a similar issue in the earlier assessment year.

In conclusion, the High Court of Bombay upheld the Tribunal's decision regarding the deletion of the addition towards STT and service tax, emphasizing the lack of basis for disallowance due to non-deduction of tax at source. The Court also admitted the Appeal on the issue of characterizing the transaction as Short Term Capital Gain for further consideration.