2012 (9) TMI 124 - AT - Income Tax

Dis allowance of depreciation on membership cards of BSE and NSE - Held that - As depreciation in this case had been allowed in the earlier year and therefore depreciation has to be allowed and only in the year in which the asset is sold or discarded, demolished, destroyed, the money payable in respect of the asset has to be reduced from the WDV under the provisions of section 43(6) as in the present case, it was pointed out that the card was neither sold nor discarded nor destroyed/demolished and therefore, depreciation had to be allowed on the basis opening WDV - restore the issue to the file of AO for passing a fresh order after examining all aspects - in favour of assessee for statistical purposes. Disallowance of software expenses - Revenue OR Capital expenditure - Held that - As decided in Alembic Chemical Works Company Limited Versus CIT, Gujarat (1989 (3) TMI 5 - SUPREME COURT) that the assessee had acquired application software to execute jobs in the field of inventory management etc. which had to be updated from time to time based on the changing needs and is to be allowable as revenue expenditure - against revenue. Disallowance of rebate under section 88E in respect of Security Transaction Tax - Held that - AO himself has calculated income from derivative transactions amounting to Rs.30,89,407/- which is included in the total income and as regards the normal share transaction, the AO has calculated loss which is not included in total income this year and has been carried forward as speculation loss. Therefore, rebate has to be calculated with respect to the income from derivative transaction included in the total income @ 30% subject to the limit of STT actually paid. The STT paid in respect of derivative transaction was Rs.2,56,449/-, therefore, deduction has to be limited to Rs.2,56,449/-. Disallowance of claim of deduction against the share of profit in the branch - non deduction of TDS - Held that - In this case, the assessee was only sharing profit with M/s. JSMS who was managing only day to day affairs of the branch whereas policy decisions were taken by the assessee and the entire investments had also been made by the assessee therefore, hold that the arrangement was not a case of joint venture, thus claim need to be allowed - the word payable used in section 40(a)(ia) has to be given its natural meaning and would be applicable only to expenditure which is payable as on March 31 of every year and can not be invoked to disallow amount which have already been paid during the previous year - allow the claim of the assessee subject to verification of the claim that no amount remained outstanding at the end of the year - in favour of assessee

Issues Involved:
1. Depreciation on membership cards of BSE and NSE.
2. Disallowance of software expenses.
3. Disallowance of rebate under Section 88E of the IT Act.
4. Disallowance of claim of deduction against the share of profit in the branch.
5. Charging of interest under Sections 234B and 234C.

Detailed Analysis:

1. Depreciation on Membership Cards of BSE and NSE:
The assessee claimed depreciation at 25% on NSE membership rights and BSE derivatives membership rights, which the AO disallowed based on a previous year's decision. The CIT(A) upheld this disallowance, referencing the Bombay High Court's judgment in CIT vs. Techno Shares & Stocks Ltd. The assessee argued that depreciation should be allowed based on the Supreme Court's judgment in Techno Shares & Stocks Ltd. vs. CIT. However, the Tribunal in Sino Securities P. Ltd. had disallowed such claims post-dematualization and corporatization of stock exchanges. The Tribunal noted distinctive features in the assessee's case, such as holding both NSE and BSE membership rights, and restored the issue to the AO for fresh examination, considering all aspects and providing an opportunity for a hearing.

2. Disallowance of Software Expenses:
The assessee claimed a deduction for software expenses related to licenses for ODIN Front Office software and Moneyware Integra. The AO treated these as capital expenses and allowed only 30% depreciation. The CIT(A) confirmed this disallowance. The assessee argued that the Delhi High Court in Amway India Enterprises and CIT vs. M/s. Asahi India Safety Glass Ltd. had allowed such expenses as revenue expenditure. The Tribunal, following these judgments, set aside the CIT(A)'s order and allowed the claim as revenue expenditure.

3. Disallowance of Rebate under Section 88E:
The AO allowed a rebate under Section 88E only on the net income from derivative transactions after allocating expenses, resulting in a reduced rebate. The CIT(A) further reduced the rebate. The assessee argued that the rebate should be allowed on the income from security transactions included in the total income. The Tribunal upheld the CIT(A)'s order, agreeing that the rebate should be limited to the STT paid on derivative transactions, which was Rs.2,56,449/-.

4. Disallowance of Claim of Deduction Against the Share of Profit in the Branch:
The AO disallowed the claim of Rs.29.36 lacs paid to M/s. J.S. Financial Services for managing a branch, treating it as a joint venture and alternatively as managerial services requiring TDS under Section 194J. The CIT(A) upheld this disallowance. The assessee argued that the arrangement was not a joint venture and that Section 194J was not applicable. The Tribunal disagreed with the joint venture characterization but agreed that the services were managerial, thus requiring TDS. However, following the Special Bench decision in Merilyn Shipping and Transports, the Tribunal allowed the claim subject to verification that no amount was outstanding at the year's end.

5. Charging of Interest under Sections 234B and 234C:
The assessee's ground regarding interest under Sections 234B and 234C was deemed consequential. The Tribunal directed the AO to re-compute the interest when giving effect to the order.

Conclusion:
The appeal was partly allowed, with the Tribunal providing detailed directions on each issue for further examination or re-computation by the AO. The significant phrases and legal terminology have been preserved to maintain the judgment's integrity.

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