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TMI Blog2010 (7) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... tween Jobbers and assessee is on principal to principal basis and in these circumstances the provisions of section 194C are not attracted because in essence and substance the amounts paid to the jobbers or arbitragers did not in reality represent the expense of the assessee company but represented payment of the share of the jobbers / arbitragers under the agreement entered into with them. In such a case the assessee is right in saying that there was no question of deducting any tax at source. - I T A No: 1488/Mum/2009 - - - Dated:- 16-7-2010 - SHRI R V EASWAR, AND SHRI B RAMAKOTAIAH, JJ. Represented By: Appellant by: Shri Rajarshi Dwivedy Respondent by: Shri Rajeev Waglay ORDER R V EASWAR, PRESIDENT: This is an appeal by the Revenue and it relates to the assessment year 2005-06. The assessee is a Private Limited Company and a Corporate Member of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). It is engaged in the business of broking and trading in shares and securities. The present appeal arises out of the assessment order passed on 15.04.2008 under section 143(3) of the Income Tax Act, 1961. 2. The first six grounds are directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He accordingly held that no tax was deductible from these two payments. As regards the other expenses such as transaction charges and Stock Exchange expenses, the CIT(A), following the order of the Mumbai Bench of the Tribunal in ITA No: 1955/Mum/2008 (assessment year 2005-06) in the case of Kotak Securities Ltd. vs. Additional CIT (order dated 26.08.2008), held that the Stock Exchange does not provide any managerial services to the Members nor does the fee paid by the Member represent fees for any technical services. The CIT(A) accordingly held that no tax was deductible from these two payments also. Since no tax was deductible under section 194J from any of the four payments made by the assessee, he held that section 40(a)(ia) was not applicable and accordingly deleted the disallowance of Rs.28,69,560/-. 4. The Revenue is in appeal to reiterate that the payment made to the Stock Exchanges represented fees for technical services within the meaning of section 194J read with Explanation 2 to clause (vii) of sub-section (1) of section 9. This issue has been considered in the order of the Mumbai Bench of the Tribunal cited supra, which is now reported in (2009) 124 TTJ (Mum) 241 eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9(1)(vii) were examined and the observations as noted earlier were made. 5. Having regard to the order of the Mumbai Bench of the Tribunal supra, which is binding on us, as also to the judgments of the Madras and Delhi High Courts cited above and in the absence of any other order or judgment taking a contrary view having been brought to our notice, we have to hold that the expenses aggregating to Rs.28,69,560/- cannot be considered as fees for technical services within the meaning of section 194J. The Revenue has not disputed the nature and purpose for which the payments were made by the assessee to the Stock Exchange. We, therefore, uphold the decision of the CIT(A) and dismiss the first six grounds taken by the Revenue. 6. Ground Nos. 7 to 10 relate to the applicability of section 194C of the Act in respect of the payment made by the assessee to the jobbers / arbitragers. The AO noted that the assessee paid Rs.1,42,24,997/- to jobbers and Rs.19,46,576/- to arbitragers. According to him the assessee ought to have deducted tax from these payments under section 194C of the Act. This section deals with payments to contractors and provides that any person responsible for paying a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on principal to principal basis. The jobbers traded on their own account with a view to maximizing their profits and in view of the growing volume of transaction they do enter into agreements for facilitation of their trade and minimizing the market risks. The CIT(A) further found that the jobbers act on their own account, deal in shares and securities as mutually decided between them and the brokers, and the ultimate profit or loss arising out of the joint venture between the jobber and the broker is shared between the two. Thus according to the CIT(A) the relationship between the jobbers and the assessee was that of co-sharers of profit / loss. In this view of the matter he held that section 194C was not applicable and consequently the payment to jobbers / arbitragers cannot be disallowed for non deduction of tax under section 40(a)(ia). He deleted the disallowance of the aggregate amount of Rs.1,61,71,573/-. 9. The Revenue is in appeal. We have examined the facts and the rival contentions. Whereas the learned Senior DR strongly relied on the order passed by the AO and the statutory provisions, the basic contention of the assessee before us was that there was a joint venture be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. More importantly it provides that all applicable expenses will be deducted / added before the distribution of the profit / loss as agreed upon in clause 2 above . Clause 6 says that the parties will abide by the Rules prescribed by NSE and SEBI and clause 7 provides for discontinuance of the agreement by giving one day s notice. All the agreements filed before us are identically worded. It has been argued on behalf of the assessee on the basis of these agreements that there was a joint venture between it and the jobbers or arbitragers for trading in shares and securities in the Stock Exchanges on the company s own account and the profits or losses on such trading were to be divided equally between the assessee and the concerned jobber or arbitrager. It was further represented before us that no expenditure or payment made to the jobber or arbitrager was claimed in the assessee s books of account from which TDS had to be made and it was only the net income from the joint venture that was accounted for in the assessee s books. In other words, the submission was that the payment to the jobbers and arbitragers was not debited to the assessee s Profit and Loss Account at all and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the assessee s share of profit in the joint ventures. The total share of the jobber out of the gross receipts and paid to them comes to Rs.1,42,24,997/- and the total share paid to the arbitragers came to Rs.19,46,576/-. The aggregate of the two comes to Rs.1,61,71,573/- which is the amount that has been disallowed by the AO by invoking section 194C read with section 40(a)(ia) of the Act. The facts show that there were separate joint ventures entered into by the assessee with several jobbers / arbitragers and payments have been made to them under such agreements and the assessee s share in the profits has been taken to the Profit and Loss Account. In these circumstances the provisions of section 194C are not attracted because in essence and substance the amounts paid to the jobbers or arbitragers did not in reality represent the expense of the assessee company but represented payment of the share of the jobbers / arbitragers under the agreement entered into with them. In such a case the assessee is right in saying that there was no question of deducting any tax at source. The above facts also establish that the relationship between the assessee and the jobbers / arbitragers was n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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