M/S. OPG SECURITIES PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

(A) This appeal by Assessee is filed against the order of the Learned Commissioner of Income Tax (Appeals)-7, Delhi-110092, [“Ld. CIT(A)” for short], dated 02.03.2015, for Assessment Year 2008-09, on the following grounds:

“1. That the learned CIT(A) has grossly erred in law and on facts and in the circumstances of the appellant’s case in upholding the action of the AO in restricting the rebate u/s 88E at Rs. 6,16,44,627/- as against Rs. 6,45,33,420/- claimed by the appellant. 2. That the learned CIT(A) has failed to appreciate that if the other income included in the ‘profits and gains of business’ was to be ITA No.-3500/Del/2015. M/s OPG Securities Private Ltd. excluded, then the proportionate corresponding expenses attributable to the same were also to be excluded.

(B) Although, there are seven grounds of appeal, but effectively the issue involved in the grounds of appeal is only one, relating to assessee’s claim of rebate U/s 88E of Income Tax Act, 1961 (“I.T. Act”, for short). As per provisions of section 88E of I.T.

Act, rebate U/s 88E of I.T. Act is admissible in respect of income of an assessee,

ITA No.-3500/Del/2015. M/s OPG Securities Private Ltd. chargeable under the head “Profits and gains of business or profession”, arising from taxable securities transaction. For ready reference, the provisions of section 88E of I.T.

Act are reproduced as under:

“[Rebate in respect of securities transaction tax. 88E. (1) Where the total income of an assessee in a previous year includes any income, chargeable under the head "Profits and gains of business or profession", arising from taxable securities transactions, he shall be entitled to a deduction, from the amount of income-tax on such income arising from such transactions, computed in the manner provided in sub-section (2), of an amount equal to the securities transaction tax paid by him in respect of the taxable securities transactions entered into in the course of his business during that previous year: Provided that no deduction under this sub-section shall be allowed unless the assessee furnishes along with the return of income, evidence of payment of securities transaction tax in the prescribed form: Provided further that the amount of deduction under this sub-section shall not exceed the amount of income-tax on such income computed in the manner provided in sub-section (2). (2) For the purposes of sub-section (1), the amount of income-tax on the income arising from the taxable securities transactions, referred to in that sub-section, shall be equal to the amount calculated by applying the average rate of income-tax on such income. [(3) No deduction under this section shall be allowed in, or after, the assessment year beginning on the 1st day of April, 2009.] Explanation.—For the purposes of this section, the expressions, "taxable securities transaction" and "securities transaction tax" shall have the same meanings respectively assigned to them under Chapter VII of the Finance (No. 2) Act, 2004.]”re (B.1) During the assessment proceedings, the Assessing Officer (“AO”, for short) noticed that the assessee had claimed rebate U/s 88E of I.T. Act in respect of other income also, in addition to income under the head “Profits and gains of business or profession”. The AO asked the assessee to explain why the claim U/s 88E of I.T. Act should not be restricted to the profits and gains of business arising from taxable security transaction only. In response, the assessee filed revised working of claim U/s ITA No.-3500/Del/2015. M/s OPG Securities Private Ltd. 88E of I.T. Act during assessment proceedings. However, in the revised working submitted by the assessee, the assessee claimed that proportionate expenses should also be allocated against the incomes which have been excluded from the profits of the business for computing the rebate U/s 88E of I.T. Act. The AO, however, did not accept the request of the assessee, stating that the other income on which deduction U/s 88E was not allowable was only 3.32% of the total income; and further, that most of the incomes would not require any expenditure for the income to be earned.

(B.2) The Ld. CIT(A) agreed with the AO and rejected the request of the assessee for allocation of expenses on proportionate basis. Aggrieved, the assessee has filed this appeal in Income Tax Appellate Tribunal (“ITAT”, for short). During the appellate proceedings in ITAT, the assessee filed a synopsis, relevant portion of which is reproduced as under:

“Section 88E of the Income Tax Act as it stood for the relevant assessment year, allowed tax rebate from income tax liability of an amount equal to STT paid in respect of taxable securities transactions entered into by the assessee during the course of his business of taxable security transactions. There is no dispute that assessee is eligible to this tax rebate as deduction from the income tax liability u/s 88E of the Income Tax Act.

During the course of assessment proceedings, the AO required the assessee to re- compute its rebate under the said section by excluding other income such as brokerage, interest received etc. from the business income for the purpose of computing the rebate u/s 88E. The assessee had returned the taxable income under the head ‘Profit & Gains of business’ at Rs. 22,58,32,329/- which included income by way of brokerage, interest received, liability no longer required etc. The said computation of rebate was done as per AO’s directions and the amount of ITA No.-3500/Del/2015. M/s OPG Securities Private Ltd. rebate u/s 88E was re-worked at Rs. 6,16,44,627/- as against Rs. 6,45,33,420/- which was made in the return of income. While working out this revised claim u/s 88E as per the directions of the AO, it was pointed out that whole of the income is taxable under the head ‘Business Income’ and has also been taxed by the AO under the head ‘Business Income’ yet if some part of income is to be excluded from the nature of business income to which section 88E is applicable, then corresponding expenses should also be excluded.

Various submissions which were made before the Ld. AO as well as before the Ld. CIT(A) are reproduced by the Ld. CIT(A) in his order. The operating expenses for running the business were allocated in the ratio of business income from share trading and other income and it was requested that based on such computation, deduction u/s 88E should be allowed to the extent of Rs. 6,34,04,246/- as against Rs. 6,16,44,627/- which computation was filed as per the directions of AO.

AO rejected this claim of the assessee, although in Para 3, AO accepts that assessee can claim certain expenses against brokerage income of Rs. 72,23,087/-. However, even such allocation by the AO was not done and rebate u/s 88E was restricted to the extent of Rs. 6,16,44,627/- by excluding all the income as not eligible for rebate u/s 88E but without allocating any expenses towards earning of such income. The AO was of the view that substantial expenses are towards the earning of STT income and only about 3.32% of total income included in the taxable income may not require any allocation from the expenses. The Ld. CIT(A) has agreed with the view of AO in a summary manner.

It is prayed that once AO also accepts that certain expenses are required to be allocated towards earning of the other income, he was not justified in denying such claim of the assessee and thereby restricting the rebate u/s 88E of the Income Tax Act. It is prayed that assessee has allocated the expenses in a very judicial manner in the ratio of ‘STT paid income’ and non STT paid income’ as also reproduced at Page 6 & 7 of CIT(A)’s Order and no faults have been found or can be found with such computation, the same may kindly be allowed to the assessee

ITA No.-3500/Del/2015. M/s OPG Securities Private Ltd. by holding that assessee would be eligible to rebate u/s 88E to the extent of Rs. 6,34,04,046/-.

Without prejudice to this since AO himself accepts that expenses against the brokerage income could have been claimed by the assessee it may please be held that proportionate expenses should be allocated to earning of brokerage income in the ratio of STT paid income and non-STT paid income by including at least brokerage income into the non-STT income. Although the AO has claimed non-STT income as other income, but finally the same has been assessed as business income, therefore it would be unfair to tax whole of the non-STT income business income on gross basis without allocating any expense to the same.

Therefore, on the basis also, the allocation done by the assessee at Page 6 & 7 of CIT(A)’s order is prayed to be upheld.”

(C) At the time of hearing before us, the Ld. Authorized Representative (“AR”, for short) reiterated the submissions made in the aforesaid synopsis. He also placed reliance on the order of ITAT, Kolkata Bench, in the case of M/s Ashika Stock Broking Ltd. vs. Deputy Commissioner of Income Tax, 2011-TIOL-54-ITAT-KOL and order of Hon’ble Bombay High Court in the case of Commissioner of Income Tax-4 vs. Shri Manish D Innani, 2015-TIOL-893-HC-MUM-IT. The Ld. AR of the assessee drew our particular attention to paragraphs 12 to 15 of M/s Ashika Stock Broking Ltd (Supra) and paragraph 9 of CIT vs. Manish D Innani (Supra). He also referred to the inconsistency in the action of the AO, by pointing out that in the Assessment Order, there was no segregation of business income and non-business income. In turn, the Ld. Departmental Representative (“DR” for short) placed reliance on the orders of the lower authorities namely Ld. CIT(A) and the AO. Page 6 of 9

ITA No.-3500/Del/2015. M/s OPG Securities Private Ltd. (D) We have heard both sides patiently. We have perused the materials available on record carefully. We have also considered the judicial precedents brought to our notice.

There is no ambiguity regarding statutory provisions U/s 88E of I.T. Act, to the extent that rebate U/s 88E of I.T. Act is admissible to the assessee only in respect of the income of an assessee in a previous year, chargeable under the head “Profits and gains of business or profession”, arising from taxable securities transactions. Therefore, orders of the lower authorities, namely Ld. CIT(A) and AO, restricting the rebate U/s 88E to income chargeable under the head “Profits and gains of business or profession”, arising from taxable security transaction, is upheld. However, the assessee’s claim to allocate expenses against such incomes which had been excluded from the profits of the business in computing rebate U/s 88E of I.T. Act, is a reasonable claim. Merely, because income on which rebate U/s 88E of I.T. Act was not allowable was only 3.32% of the total income, such allocation of expenses cannot denied. Moreover, the opinion expressed by the AO as well as Ld. CIT(A) that such incomes would not require expenditure of substantial amounts is not based on any credible materials. Neither the AO nor the Ld. CIT(A) has supported this view, on the basis of facts of the case.

Therefore, we disapprove this approach adopted by the AO and the Ld. CIT(A), in refusing to allocate any expenses towards incomes on which rebate U/s 88E of I.T. Act was not allowed to the assessee. We direct the AO to allocate expenses to incomes on which rebate U/s 88E of I.T. Act has been denied to the assessee and re-compute the rebate U/s 88E of I.T. Act, accordingly. For this limited purpose, we are setting aside the order of the Ld. CIT(A) and remanding the matter to the file of the AO. The issue

ITA No.-3500/Del/2015. M/s OPG Securities Private Ltd. in dispute regarding assessee’s claim of rebate U/s 88E of I.T. Act is accordingly remanded to the AO for fresh order, on this limited issue, in accordance with our aforesaid views and directions.

(E) For statistical purposes, appeal of the assessee is partly allowed.

Order Pronounced in the open court on 7th day of June, 2019.