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TMI Blog2010 (9) TMI 1090X X X X Extracts X X X X X X X X Extracts X X X X ..... changes. The transaction charges are being levied by BSE/NSE for utilizing their trading platforms. Transaction charges are levied on each transaction carried out by the member of stock exchange on behalf of its clients and the charges are being debited on the gross value of each such transaction. During the previous year the assessee has not deducted tax at sources on such payments made to NSE/BSE. The Assessing Officer has treated the above charges as expenses for technical services falling within the purview of 194J of I.T. act. Consequently, the Assessing Officer disallowed the above payments u/s.40(a)(ia) of I.T. Act 1961 on the ground that the assessee had failed to deduct tax on such charges. The assessee submitted that the Mumbai Bench in the case of Kotak Securities Ltd. Vs ACIT (25 SOT 440 Mum) has held that such payments would not constitute fees for technical services falling within the Sec.9(1)(vii) and hence the provision of Sec.194J are also not applicable. However, the Assessing Officer analyzed the various systems and procedures offered by the stock exchanges and concluded that these services involve specialized knowledge, experience and skill in the field of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es" for technical services has wide import in its meaning as it includes rendering any managerial, technical consultancy services. Now it needs to be examined whether in the present case services rendered by the stock exchange falls within the ambit of fees for technical services. As far as VSAT charges are concerned I am of the view that they were in the nature of reimbursement charges paid by the members of stock exchange in lieu of infrastructure and trading facilities provided by the stock exchange, trading on the stock exchange is facilitated through satellite based communication network which enables the trading member to trade on exchange from their respective places spread across the country. The DOT has granted licence to stock exchange for installing and setting of close user group telecommunication network based on VSAT and lease line. It may also be noted that the stock exchange is not supposed to derive any profit on such VSAT and lease line charges received by them as these charges are simply to be passed on to the other agencies or government departments. In my opinion such payments cannot come within the ambit of 'fee for technical services', within the meaning of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges are concerned, the order of the First Appellate Authority has to be necessarily reversed as the findings are not in consonance with the decision of the Tribunal in the case Pacific Internet (India) (P) Ltd (supra) as well as the decision of the Mumbai A-Bench of the Tribunal in the case of Kotak Securities Ltd vs Addl CIT 25 SOT 440(Mum) wherein it is held as follows: "Section 194J, read with section 40a(ia) of the Income-tax Act 1961 Deduction of tax at source-Technical services fee- Assessment Year 2005-06 paid transaction fees to various stock exchanges and claimed same as deduction-Assessing Officer applying section 40(a)(ia) disallowed said transaction fee on ground that stock exchanges were [providing technical services to the assessee, so transaction fee was a fee paid for rendering technical services to it and assessee in terms of section 194J ought to have deducted tax at source on such amounts Whether since stock exchanges do not render any ,technical service nor do they render any technical consultancy service. Therefore transaction fee paid could not be said to be a fee paid in consideration of stock exchange rendering any technical services to assessee. Held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on u/s.37." 8. However, the AO has held that after the amendment of I.T. Rules w.e.f. 1.4.2003 definition of computer included computer software and therefore the expenses on software should be treated as depreciable assets and hence the deduction claimed as above have to be disallowed. 9. Aggrieved the assessee filed an appeal before the CIT(A). The Ld. CIT(A) dismissed the grounds of the assessee by observing as under: "In respect of ground no.4 it is contended that AO disallowed website development expenses of ₹ 37,32,299/- without appreciating the nature and purpose of each individual expenses incurred under different heads for different purposes and instead treated the same as capital expenditure and clubbed them all as expenditure incurred for website development. The appellant contended that the AO further failed to appreciate that the assessee being a share broker, the business of the assessee requires extensive use of computers. The various services offered by the assessee also require specialized software. Further, in line with the trend of the industry, the assessee not only has to develop/purchase various software, but has to incur expenditure for day to day m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement expenses 15,73,459 Database expenses 3,57,625 Computer Maintenance expenses 15,67,110 Bandwidth expenses (46,490) Internet connection charges (2,64,000) Web space charges 5,158 CTCL Software expenses 1,22,374 Software expenses for web research 16,400 Other software maintenance and upgrades expenses 4,00,663 Total 37,32,299 12. From the above we see that the first item of expenditure is website development and financial content management expenses. This is merely for the development of web site for the assessee. There is no asset of enduring nature created by the same. The web site is merely hosted to enable the clients to know about the assessee as well as to transact business with the assessee. This is only for the convenience and for carrying out the day to day business of the assessee and cannot be said to be for the development of any asset of the Single Member in the case of Radial Marketing Pvt Ltd vs. ITO (210 2 ITR Trib 641(Mum)(SMC). In the circumstances, the web site development and financial content management expenses are allowable as revenue expenditure. The other items of expenditure are data base expenses, computer maintenance expenses, band ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction charges of ₹ 16,96,577. Therefore the department has no grievance in so far as the lease line and transaction charges paid by the assessee. As regards VSAT charges paid, we find that the Tribunal in the assessee's own case has upheld the allowance of VSAT charges in ITA No.4347/M/09 for the A.Y 2005-06 dt.4.6.10 wherein it has been observed as under: "Ground No.1 of the Revenue appeal is in respect of deletion of an addition on account of VSAT charges. The first appellate authority held that no tax need be deducted at source from VSAT charges by holding as follows: "From the reading of the above explanation (2) it is apparent that the term "fees" for technical services has wide import in its meaning as it includes rendering any managerial, technical consultancy services. Now it needs to be examined whether in the present case services rendered by the stock exchange falls within the ambit of fees for technical services. As far as VSAT charges are concerned I am of the view that they were in the nature of reimbursement charges paid by the members of stock exchange in lieu of infrastructure and trading facilities provided by the stock exchange, trading on the stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernet excess to its customers. These are standard facilities availed by the assessee. The payment made by the assessee company to VSNL, MTNL and other concerns for availing the services of the bandwidth net work infrastructure cannot be said to be technical services within the meaning of s.194J r/w Expln.2 to cl. (vii) of s.9(1). The order passed by the AO under s.201(1) and 201(1A) is cancelled. CIT vs. Estel Communications (P) Ltd (2008) 217 CTR(Del) 102 relied on." 18. Respectfully following the order of Co-ordinate Bench in the assessee's own case and the decision in 27 SOT 523, we uphold the order of the Ld. CIT(A) deleting the disallowance made in respect of VSAT charges and dismiss the departmental appeal on this issue. 19. The second issue is regarding the deletion of disallowance on depreciation on motor cars. The assessee had purchased motor car from its own fund and reflected the same in the balance sheet of the company. It is also not disputed that the cars were used for the business of the assessee. However, the AO had disallowed the depreciation on motor cars on the ground that the registration is not done in the name of the company. On appeal, the Ld. CIT(A) allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue." 21. Following the decision of the Tribunal in assessee's own case on this issue, we uphold the order of the First Appellate Authority directing the grant of depreciation on motorcars and dismiss the revenue's appeal on this issue. 22. The last issue on the department's appeal is regarding the allowance of claim for bad debt of ₹ 13,330/-. The AO has disallowed the claim holding as under: "Thus the majority view of High Court is that the debt must be established to have become bad before it is written off u/s 36(1)(vii). This was the view of the dissenting member in the case of DCIT v Oman International Bank (100 ITD 285 Mum SB)." 23. On appeal the Ld. CIT(A) allowed the same following the decision of Mumbai High Court in the case of DIT vs. Oman International Bank. Aggrieved the department is on appeal. We find that this issue has reached the finality in view of the decision of Supreme Court in the case of TRF Ltd 323 ITR 397 where the Apex Court has held that after 1st April 1989 it is not necessary for the assessee to establish that the debt in fact has become irrecoverable and it is enough the bad debt is written off as irrecoverable in the hands of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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