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2013 (8) TMI 821 - AT - Income TaxDisallowance u/s 14A - Disallowance made as per Rule 8 - Held that - calculation of disallowance was based on Rule 8D only and the same cannot be sustained in the assessment year 2007-08 - Neither the Assessing Officer nor the learned Commissioner (Appeals) has pointed out any defect in the working of the calculation of disallowance under section 14A furnished by the assessee and has not pointed out any specific expenditure incurred for earning of dividend income - Decided in favour of assessee. Depreciation - BSE Membership card - intangible asset - section 32(1)(ii) - Held that - On the analysis of the Rules of BSE, it is clear that the right of membership (including right of nomination) gets vested in the Exchange on the demise/ default committed by the member; that, on such forfeiture and vesting in the Exchange the same gets disposed of by inviting offers and the consideration received thereof is used to liquidate the dues owed by the former/ defaulting member to the Exchange, Clearing House, etc. - the right of membership (including the right of nomination) vests in the Exchange only when a member commits default. Otherwise, he continues to participate in the trading session on the floor of the Exchange; that he continues to deal with other members of the Exchange and even has the right to nominate subject to compliance of the Rules. Moreover, by virtue of Explanation 3 to Section 32(1)(ii) the commercial or business right which is similar to a licence or franchise is declared to be an intangible asset. - Therefore, the right of membership, which includes right of nomination, is a licence or akin to a licence which is one of the items which falls in Section 32(1)(ii) of the 1961 Act. The right to participate in the market has an economic and money value. It is an expense incurred by the assessee which satisfies the test of being a licence or any other business or commercial right of similar nature in terms of Section 32(1)(ii) - Following decision of Techno Shares and Stocks Ltd. v/s CIT 2010 (9) TMI 6 - SUPREME COURT OF INDIA - Decided against revenue.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Disallowance of lease rental paid on motor vehicles. 3. Allowance of depreciation on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) cards. 4. Disallowance under Section 40a(ia) on account of V-SAT and lease line charges. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A: The assessee challenged the disallowance of Rs. 10,07,850 made under Section 14A of the Income Tax Act. The assessee received dividend income of Rs. 14,80,919, which did not form part of the total income. The assessee calculated a disallowance of Rs. 53,305 based on the compensation cost of the employee handling the mutual fund activity and other related costs, offering a lumpsum disallowance of Rs. 74,046. However, the Assessing Officer applied Rule 8D and worked out a disallowance of Rs. 10,07,850. The Commissioner (Appeals) agreed that Rule 8D was not applicable for the assessment year 2007-08 but still upheld the disallowance. The Tribunal found that both the Assessing Officer and the Commissioner (Appeals) based their calculations on Rule 8D, which was not applicable for the assessment year 2007-08 as per the judgment in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT. Since no defects were found in the assessee's calculation, the Tribunal deleted the additional disallowance of Rs. 10,07,850. Thus, the assessee's grounds were allowed. 2. Disallowance of Lease Rental Paid on Motor Vehicles: The assessee challenged the disallowance of lease rental paid on motor vehicles amounting to Rs. 17,68,792. The assessee paid lease rentals to Orex Infrastructure Services Pvt. Ltd. and capitalized the value of vehicles in the books of account without claiming depreciation for income tax purposes. The Assessing Officer disallowed the deduction, treating the lease rentals as installments towards the purchase of assets. The Commissioner (Appeals) upheld the disallowance, stating that the lease was not genuine and the expenses were not business expenditures. The Tribunal noted that the facts discussed by the Commissioner (Appeals) were not dealt with by the Assessing Officer and the Supreme Court in IDCS Ltd. v/s CIT had laid down the law regarding depreciation on leased vehicles. Therefore, the Tribunal restored the issue to the Assessing Officer for a fresh adjudication. The assessee's appeal was allowed for statistical purposes. 3. Allowance of Depreciation on BSE and NSE Cards: The Revenue challenged the allowance of depreciation on BSE and NSE cards, arguing that they ceased to exist after demutualization in the financial year 2005-06. The assessee claimed depreciation on membership rights of Stock Exchange cards as intangible assets. The Assessing Officer disallowed the claim based on a jurisdictional High Court judgment. However, the Commissioner (Appeals) allowed the claim, citing the Supreme Court's reversal of the High Court's decision in Techno Shares and Stocks Ltd. v/s CIT. The Tribunal upheld the Commissioner (Appeals)'s decision, noting that the issue was concluded by the Supreme Court's judgment. The Revenue's ground was dismissed. 4. Disallowance under Section 40a(ia) on Account of V-SAT and Lease Line Charges: The Revenue challenged the disallowance under Section 40a(ia) for V-SAT and lease line charges amounting to Rs. 8,91,452, arguing that they were fees for technical services subject to TDS under Section 194J. The assessee contended that these charges were not fees for technical services and thus not liable for TDS. The Commissioner (Appeals) relied on Tribunal decisions in Kotak Securities and Angel Broking to rule in favor of the assessee. The Tribunal noted that the issue was covered by the jurisdictional High Court judgments in Angel Capital & Debit Market Ltd. and The Stock and Bond Trading Company, which held that V-SAT and lease line charges were not fees for technical services and not subject to TDS. Consequently, the Revenue's ground was dismissed. Conclusion: The Tribunal allowed the assessee's appeal on the disallowance under Section 14A and lease rental paid on motor vehicles, while dismissing the Revenue's appeal on the allowance of depreciation on BSE and NSE cards and disallowance under Section 40a(ia). The order was pronounced in the open court on 28/06/2013.
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