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TMI Blog2016 (12) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 40A(2)(b) - Held that:- A perusal of the returned income of the payees shows that all the payees are assessed at the highest rate of tax. Since both, the payer and payees, are assessed at the same rate of tax, in our considered opinion, there is no basis of any Revenue leakage. As decided in case of PWS Engineers Limited [2016 (6) TMI 596 - GUJARAT HIGH COURT ] a certain income has already been taxed in the hands of the Directors. Permitting the Revenue to tax the same income again at the same rate in the hands of the principal payer would amount to double taxation. Only on this count, we answer question in favour of the appellant-assessee and against Revenue TDS u/s 194J - Non deduction of tds on turnover charges (transaction charges) paid to the stock exchange - Held that:- The transaction charges paid to the Bombay Stock Exchange by its members are for 'technical services' rendered is not an appropriate view. Such charges, really, are in the nature of payments made for facilities provided by the Stock Exchange. No TDS on such payments would, therefore, be deductible under Section 194J of the Act. - Decided in favour of the appellant-assessee Disallowance of depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.4 We have carefully perused the orders of the authorities below. The assessee is dealing in shares and securities, which means that it is buying and selling shares for its customers. The shares purchased, often, are kept by the assessee and such shares may have been purchased as cum dividend. The assessee is duty bound to remit the dividend as and when received to the purchasers of the shares. Therefore, there are credit and debit entries in the ledger account. At times, due to the ignorance of the buyers who may not be aware that they have purchased shares as cum dividend and therefore, did not claim the dividend amount from the broker. Because of such ignorance, the amount remained with the assessee. This is nothing but a benefit derived by the assessee from the transactions done in its ordinary course of business. Therefore, such surplus has a direct nexus with the business of the assessee and therefore, an income of the assessee. The Revenue Authorities have rightly taxed the surplus as income of the assessee. We, therefore, do not find any error or infirmity in the findings of the CIT(A). Ground No.1 is accordingly dismissed. 3. With Ground No.2, the assessee has challen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforementioned payees. A perusal of the returned income of the payees shows that all the payees are assessed at the highest rate of tax. Since both, the payer and payees, are assessed at the same rate of tax, in our considered opinion, there is no basis of any Revenue leakage. Our view is also fortified by the decision of Hon ble High Court of Gujarat in the case of PWS Engineers Limited in Tax Appeal No. 209 of 2015, wherein the Hon ble High Court had the occasion to consider the following substantial question of law and held as under:- (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in law and in overlooking the fact that the entire exercise was revenue neutral in nature because the company as well as the Directors were taxable at the same rate and that the Directors had paid off the taxes and taking into consideration it ought not to have confirmed any part of the disallowance made by the authorities ? 6. We have heard learned counsel for the parties. The question of applicability of Section40A(2) of the Act to the restricted disallowance of ₹ 47,90,178/- is already concluded by this Court by the said order dated 31.3.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound relates to the disallowance of turnover charges (transaction charges) of ₹ 38,56,887/- paid to the stock exchange by invoking provisions of Section 40(a)(ia) of the Act. 7.1 While scrutinizing the return of income, the AO noticed that the assessee has paid transactions charges of ₹ 38,56,887/- to the Bombay Stock Exchange/National Stock Exchange on which no tax has been deducted at source. Drawing support from the decision of the Hon ble High Court of Bombay in the case of CIT vs. Kotak Securities Limited, [2012] 340 ITR 333 (Bom), the AO made the disallowance. 7.2 The assessee carried the matter before the CIT(A) but without any success. 7.3 Aggrieved by this, the assessee is before us. 7.4 We find that the aforesaid decision of the Hon ble Bombay High Court has been reversed by the Hon ble Supreme Court vide order dated 29.03.2016 in Civil Appeal No.3143 of 2016 and 3146 of 2016. The relevant findings of the Hon ble Supreme Court read as under:- 9. There is yet another aspect of the matter which, in our considered view, would require a specific notice. The service made available by the Bombay Stock Exchange [BSE Online Trading (BOLT) System] for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the Bombay High Court with regard to the issue of the disallowance under Section 40(a)(ia) of the Act. All the appeals, therefore, shall stand disposed in the light of our views and observations as indicated above. 7.5 Since the decision of Hon ble Bombay High Court relied upon by the Revenue Authorities has been reversed by the Hon ble Supreme Court, we set aside the findings of the CIT(A) and direct the AO to delete the addition of ₹ 38,56,887/-. Ground No.1 is accordingly allowed. 8. Ground No.2 relates to the ad-hoc disallowance @ 50% of the financial charges of ₹ 9,37,500/- by invoking provisions of Section 40A(2)(b) of the Act. 8.1 While scrutinizing the return of income, the AO noticed that the assessee has paid financial charges to the persons specified u/s 40A(2)(b) of the Act as under:- Sr. No. Name of the person Relationship Amount 1 H.D. Shah (HUF) HUF in which director is interested Rs.5,25,000 2 J.H. Shah (HUF) HUF in which director is interested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges aggregating to ₹ 20,70,000/- to the persons specified under section 40A(2)(b) of the Act is somewhat unreasonable having regard to the legitimate needs of the assessee-company's business vis-a-vis the benefits derived by or accruing to the assessee-company as a result of such payments of financial charges because the basis of quantification of such payments are not clear and instances of utilization of such services do not fully justify the payment This finding of the AO was confirmed by the Id.CIT(A) on the basis that the total bank guarantee for the period 1.4.2007 to 31.3.2008 was ₹ 56,500,000/- 1% of such amount comes to ₹ 5,65,000/-. Thus, this a reasonable amount to be paid as guarantee commission to the related parties, on the basis of such payments made by the appellant itself in the earlier year. Balance amount allowed by the A.O. amounting to ₹ 4,70,000/- can be attributed to the amount paid by the appellant on account of interest free fund provided by the related parties from time to time. In page-4 of the paper-book No.2, the assessee has given the utilization of sources under LLMS guaranteed by the parties to whom the financial charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that under Rule 5 of the Income-tax Rules, which contains the depreciation table for various block of assets and under Part A(II) depreciation on furniture and fittings is @ 10%. It has been further explained that electrical fittings include electrical wiring, switches, sockets, other fittings and fans, etc. In the light of the depreciation table provided under the Income-tax Rules, we do not find any error or infirmity in the findings of the CIT(A). Ground No.4 is accordingly dismissed. 10. Ground No.5 relates the levy of interest. Levy of interest is mandatory though consequential. The AO is directed to charge as per the provisions of the law. 11. Ground No.6 relates to the initiation of penalty u/s 271(1)(c) of the Act. This ground is premature and accordingly dismissed. 12 In the result, the appeal filed by the assessee is partly allowed. ITA No.1748/Ahd/2013 : AY 2010-11 13. First ground relates to the disallowance of ₹ 19,83,919/- being turnover charges (transaction charges) paid to the stock exchanges u/s 40(a)(ia) of the Act. An identical issue has been decided by us in ITA No.1747/Ahd/2013 qua Ground No.1 of that appeal. For our detailed di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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