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2019 (1) TMI 1274 - HC - Income TaxTDS u/s 194J - Addition in respect of transaction charges - tds liability - Held that - This issue now stands concluded in favour of the assessee and against the revenue by virtue of the decision of the Supreme Court in CIT Vs. Kotak Securities Ltd. 2016 (3) TMI 1026 - SUPREME COURT . In the above decision it is held that no tax is deductible on the transaction charges under Section 194J of the Act. Transfer pricing adjustments - determination of ALP - Additional interest earned by the Assessee while computing the brokerage income earned by the Assessee by rendering brokerage services to its AEs - Held that - The impugned order of the Tribunal while agreeing with the orders of the lower authorities held that an adjustment on account of interest earned on the margin money deposited by the AE should be factored in to determine the ALP. However, it held that instead of determining it on the basis of turnover of AE s and unrelated parties, it should be done on the basis of interest earned on the margin money placed by AE s and unrelated parties with the respondent. Thus, restored the issue to the Assessing Officer to determine the ALP on the above basis. The Revenue has not pointed out any reason why the above methodology adopted by the Tribunal is bad or does not give the correct ALP as compared to the turnover basis adopted by the TPO. We find that the view taken by the Tribunal on these facts is a reasonable view, being directly linked to the interest earned on the margin money deposited by the AE s and unrelated parties while engaging the services of the respondent as a broker in future and option trade. Rejecting Keynote Corporate Services Limited as a comparable on the ground of it being undergone an amalgamation during the year - Held that - If merger/amalgamation have taken place and it is not a normal event then such a company would cease to be comparable. This ofcourse is subject to the Revenue being able to show that amalgamation/merger did not have any effect of the profitability of the company. This has not been shown by the Revenue either to the Tribunal or before us. Therefore, this issue stands covered by the decision of this Court in Aptara Technology Pvt. Ltd. (2018 (4) TMI 404 - BOMBAY HIGH COURT) and PTC Software (I) Pvt.Ltd. (2018 (4) TMI 1002 - BOMBAY HIGH COURT) in favour of the respondent. This more particularly in view of the absence of the Revenue even attempting to show that the merger and amalgamation that took place in the case of comparable M/s Keynote Corporate Securities Limited was such that it would not have any impact on its profitability. Exclude Khandwala Securities Limited from the list of comparables to determine the ALP of its merchant banking services rendered by Assessee to its AEs - Held that - Services are rendered by M/s Khandwala Securities Limited being different from the service rendered by the respondent to its AE s, the exclusion of M/s Khandwala Securities Limited from the list of comparison cannot be disturbed. This in the absence of the respondent pointing out how function of the two are similar. The mere fact that the respondent had included M/s Khandwala Securities Ltd as a comparable, would not bar the respondent from contending otherwise. The object and purpose of the entire exercise of determining the ALP is by having proper comparables. Thus, there is no merit in the above objection taken by the Revenue.
Issues:
1. Disallowance of transaction charges under Section 40(a)(i) of the Income Tax Act. 2. Adjustment of interest earned on margin money while computing brokerage income. 3. Exclusion of Keynote Corporate Services Limited as a comparable. 4. Inclusion of Khandwala Securities Limited in the list of comparables for determining ALP of merchant banking services. Issue 1: Disallowance of transaction charges The Tribunal deleted the disallowance of transaction charges made to the Stock Exchange due to failure to deduct tax at source. The appellant's counsel acknowledged the issue is resolved in favor of the respondent by a Supreme Court decision. The court upheld the decision, concluding no substantial question of law arises. Issue 2: Adjustment of interest earned on margin money The TPO factored in additional interest earned from related parties while determining ALP of brokerage services. The Tribunal agreed with the TPO but modified the method of calculation. The court found the Tribunal's approach reasonable and directly linked to interest earned on margin money, dismissing the proposed question. Issue 3: Exclusion of Keynote Corporate Services Limited The Tribunal excluded Keynote Corporate Services Limited as a comparable due to an amalgamation affecting its profitability. The appellant argued the issue should be admitted based on a pending case, but the respondent cited court decisions supporting the Tribunal's stance. The court upheld the exclusion, citing the impact of mergers on financial results. Issue 4: Inclusion of Khandwala Securities Limited The Tribunal excluded Khandwala Securities Limited from comparables for merchant banking services, noting differences in services provided. The court agreed with the Tribunal's factual findings, emphasizing the need for proper comparables in determining ALP. The objection raised by the Revenue was dismissed, and no substantial question of law was found. In conclusion, the appeal was dismissed, and no costs were awarded. The court upheld the Tribunal's decisions on all issues, emphasizing the importance of factual findings and proper comparables in transfer pricing assessments.
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