2013 (12) TMI 526 - AT - Income Tax

Disallowance u/s. 40(a)(ia) Leaseline and transaction charges - Held that - Following DCIT Vs Sonal Shares & Stock Brokers (P) Ltd 2010 (2) TMI 910 - ITAT, Mumbai - The stock exchange do not provide any technical services by installing VSAT net work. It is the facility provided to its members. Therefore payment of VSAT cannot be said to be of the nature of fees for any technical services rendered and hence the assessee is not required to deduct tax u/s. 194J on such payment Decided in favour of assessee. Rebate u/s 88E Deduction of STT - Held that - Following Horizon Capital Ltd. Vs ITO 2011 (10) TMI 489 - KARNATAKA HIGH COURT The provisions of Sec. 87 & 88A to 88E also apply after the total income is computed u/s. 115JB of the Act - If the transaction on which STT is paid is included in the total income of the assessee where the total income is assessed either under the provisions of the Act or under Section 115JB when tax chargeable on such income is arrived at & it is from that tax which is chargeable, the tax paid u/s 88E is given deduction, by way of rebate, u/s 87 - The assessee is entitled to a deduction of the amount equal to the STT paid Decided against Revenue. Disallowance of mark to market loss Held that - Following CIT Vs Arjan Khimji & Co 1978 (7) TMI 35 - BOMBAY High Court - As per guidelines of SEBI, it is imperative to all who have open position, in the F&O segment on the end of the financial year i.e. 31st of march to show mark to market loss in their books of account - The losses booked on the close of the financial year in respect of open positions in futures is a crystallized liability and therefore allowable Decided in favour of assessee.

Summary

Issues involved:
1. Appeal against deletion of addition made under section 40(a)(ia) for leaseline and transaction charges.
2. Appeal against deletion of tax liability under section 115JB.
3. Appeal against disallowance of mark to market loss on derivative transactions.

Analysis:

Issue 1: Appeal against deletion of addition under section 40(a)(ia)
The Revenue appealed the deletion of the addition made under section 40(a)(ia) for leaseline and transaction charges. The Tribunal referred to relevant case law to determine the tax liability. It was established that transaction charges were considered fees for technical services under section 194J, requiring tax deduction at source. However, leaseline charges were deemed not to be fees for technical services, absolving the assessee from the obligation to deduct tax under section 194J. Consequently, the Tribunal directed the AO to differentiate between transaction and leaseline charges, instructing the deletion of additions related to leaseline charges.

Issue 2: Appeal against deletion of tax liability under section 115JB
The Revenue contested the deletion of tax liability under section 115JB, specifically concerning the credit of Securities Transaction Tax (STT). Both parties agreed that the issue was resolved in favor of the assessee based on a previous Tribunal decision. The Tribunal upheld that deductions under sections 87 and 88A to 88E applied after computing total income under section 115JB. As the assessee's total income included taxable securities transactions, the deduction equivalent to STT paid was allowed. Consequently, the Tribunal dismissed the Revenue's grievance regarding the tax liability under section 115JB.

Issue 3: Appeal against disallowance of mark to market loss on derivative transactions
The assessee challenged the disallowance of mark to market loss on derivative transactions amounting to Rs. 22,77,095. The AO contended that losses on forward contracts materialized only upon squaring off the contract. However, the Tribunal disagreed, citing SEBI guidelines that mandated showing mark to market loss for open positions in the F&O segment at the end of the financial year. The Tribunal recognized the validity of the losses incurred on derivative transactions based on Accounting Standards and SEBI guidelines. Therefore, the Tribunal reversed the CIT(A)'s decision, allowing the loss of Rs. 22,77,095. The related grounds of appeal were also allowed in favor of the assessee.

In conclusion, the Tribunal partially allowed the Revenue's appeal and fully allowed the assessee's appeal based on the detailed analysis and application of relevant legal principles and precedents.