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2014 (11) TMI 8 - AT - Income TaxNon deduction of TDS - VSAT charges and transaction charges paid to stock exchange disallowed u/s 40(a)(ia) - Whether the charges were composite charges for professional and technical services rendered by the stock exchange to its members and the assessee has failed to deduct TDS Held that - Insofar as the transaction charges are concerned, the assessee was liable to deduct TDS u/s 194J as held in Commissioner of Income-tax - 4(3) Versus Kotak Securities Ltd. 2011 (10) TMI 24 - Bombay High Court - the disallowance under section 40(a)(ia), has rightly been made by the AO As regards V-SAT charges are concerned for sum amounting to ₹ 1.10 lakhs, following the decision in The Income Tax Commissioner Mumbai City-4 Versus Angel Capital & Debit Market Ltd. 2014 (5) TMI 584 - BOMBAY HIGH COURT - these are not in the nature of technical services, no TDS was required and consequently, no disallowance under section 40(a)(ia) is called for. Dividend income disallowed u/s 14A r/w Rule 8D Held that - CIT(A) rightly held that rule 8D is not applicable for the AY 2007-08 as it is applicable from the AY 2008-09 as decided in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT - disallowance cannot be made on the basis of formula laid down by the rule 8D in the AY 2007-08 and some reasonable basis has to be adopted Decided against revenue.
Issues Involved:
1. Disallowance under section 40(a)(ia) for VSAT charges and transaction charges. 2. Deletion of addition under section 14A read with Rule 8D by the Assessing Officer. Issue-wise Detailed Analysis: 1. Disallowance under section 40(a)(ia) for VSAT charges and transaction charges: The Revenue challenged the deletion of disallowance of Rs. 3,00,009 under section 40(a)(ia) concerning VSAT charges and transaction charges paid to the stock exchange. The Assessing Officer (AO) argued that these charges were for professional and technical services, necessitating TDS deduction under section 194J. The assessee contended that no TDS was required as these charges did not constitute professional or technical services, citing the Tribunal's decision in Kotak Securities Ltd. The AO, however, disallowed the payment, asserting that the Tribunal's decision was under appeal in the High Court. Both parties acknowledged that the disallowance of Rs. 2,90,009 for transaction charges was upheld by the Jurisdictional High Court in Kotak Securities Ltd. However, the assessee referenced another High Court decision in The Stock and Bond Trading Company, which ruled that transaction charges were not covered under section 194J. The Tribunal held that the later decision in Kotak Securities Ltd. was binding, thus affirming the AO's disallowance under section 40(a)(ia) for transaction charges. Regarding the Rs. 1,10,000 VSAT charges, the Tribunal noted that the Jurisdictional High Court in Angel Capital and Debit Market Ltd. had ruled that VSAT charges were not technical services, thus no TDS was required. Consequently, the Tribunal held that no disallowance under section 40(a)(ia) was warranted for VSAT charges. The assessee's alternative plea was that all payments were made by 31st March 2007, and thus, no disallowance under section 40(a)(ia) should be made, referencing the Allahabad High Court decision in Vector Shipping Services Pvt. Ltd. The Tribunal, however, noted that this decision did not constitute the ratio decidendi on the issue of "paid" versus "payable" and was merely obiter dicta. The Tribunal preferred the more detailed judgments of the Calcutta High Court in Crescent Exports Syndicate and the Gujarat High Court in Sikandarkhan N. Tunvar, which overruled the Special Bench decision in Merilyn Shipping & Transports. Thus, the Tribunal partially allowed the Revenue's ground, affirming the disallowance for transaction charges but not for VSAT charges. 2. Deletion of addition under section 14A read with Rule 8D by the Assessing Officer: The AO disallowed Rs. 4,41,221 under section 14A, applying Rule 8D, against the assessee's dividend income of Rs. 4,76,670. The Commissioner (Appeals) held that Rule 8D was not applicable for the assessment year 2007-08, as established by the Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. The Commissioner provided a reasonable basis for determining the disallowance, proportionate to the total expenditure and the value of transactions yielding exempt income. The Tribunal found no reason to deviate from the Commissioner (Appeals)'s findings, affirming that disallowance under Rule 8D could not be applied for the assessment year 2007-08. Thus, the Tribunal dismissed the Revenue's ground on this issue. Conclusion: The Tribunal's order resulted in a partial allowance of the Revenue's appeal, affirming the disallowance of transaction charges under section 40(a)(ia) but rejecting the disallowance of VSAT charges. Additionally, the Tribunal upheld the deletion of the disallowance under section 14A read with Rule 8D for the assessment year 2007-08. The order was pronounced in open Court on 22.8.2014.
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