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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: Shri Joginder Singh, & Shri Ramit Kochar
आदेश / O R D E R Per Joginder Singh (Judicial Member)
Both these appeals are by the assessee for the A.Y. 2009- 10 and 2010-11, aggrieved by the separate impugned orders dated 11/10/2012 and 04/10/2013 of the Ld. First Appellate Authority, Mumbai-39.
First we shall take up appeal for Assessment year 2009- 10 (ITA No. 335/MUM/2013) wherein the first ground raised by the assessee pertains to disallowing depreciation on membership right amounting to Rs.80,156/-. At the outset, the learned counsel for the assessee Shri Vijay Mehta claimed that the impugned issue is covered in favour of the assessee by the order of the Tribunal dated 07/05/2014 in the case of assessee itself (ITA No. 7375 & 8217/MUM/2010). This factual assertion of the ld. AR was not controverted by Shri Neil Philiph, ld. DR. 2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the order of the Tribunal dated 07/05/2014 (Assessment year 2007-08) for ready reference and analysis:-
―4. In so far as the appeal of the assessee is concerned, the solitary issue involved therein relates to the disallowance of Rs. 1,42,500/- made by the A.O. and confirmed by the ld. CIT(A) on account of assessee’s claim
3 M/s. Motilal Oswal Commodities Broker P. Ltd. /Mum/2013 & for depreciation on membership rights of Multi Commodity Exchange Ltd. (MCX).
5. The assessee in the present case is a company which is engaged in the business of commodities broking in respect of commodities exchange and dealing in shares and securities and commodities. The return of income for the year under consideration was filed by it on 28-10-2007 declaring total income at ―nil‖. In the said return, depreciation of Rs. 1,42,500/- was claimed by the assessee @ 25% on the amount of Rs. 7,60,000/- paid for acquiring rights of Multi Commodities Exchange claiming that it was intangible asset in the form of commercial right as per provisions of section 32(1)(ii) of the income Tax Act, 1961 as amended w.e.f. 1-4-1998. This claim of the assessee, however, was not found acceptable by the A.O. for the following reasons:- ―1) The MCX membership right is not an asset but a deposit or a personal privilege granted to a member for trading rights on the MCX platform. 2) Depreciation is allowable on an asset on account of wear and tear and obsolescence. The MCX card is not subject to such wear and tear on account of use.‖ 6. For the reasons given above and relying on the decision of Hon’ble Bombay High Court in the case of CIT vs. Techno Shares and Stock Ltd., 323 ITR 69 wherein depreciation on BSE cards was held to be not allowable, the A.O. disallowed the claim of the assessee for depreciation on the membership right of Multi Commodities Exchange. On appeal, the ld. CIT(A) confirmed the said disallowance made by the A.O. holding that the issue was already settled against the assessee by the Hon’ble Bombay High Court in the case of CIT vs. Techno Shares & Stocks Ltd. (supra). Aggrieved by the order of the ld. CIT(A), the assessee has preferred this appeal before the Tribunal.
We have heard the arguments of both the sides and also perused relevant material available on record. As submitted by the ld. Counsel for the assessee, the decision of Hon’ble Bombay High Court in the case of Techno
4 M/s. Motilal Oswal Commodities Broker P. Ltd. /Mum/2013 &
Shares and Stocks Ltd. (supra) relied upon by the authorities below has already been overruled by the Hon’ble Supreme Court vide its judgment in [2010] 327 ITR 323 (SC) holding that the stock exchange membership cards are eligible for depreciation u/s 32 of the Act being in the nature of intangible asset. Although the ld. D.R. has relied in support of the Revenue’s case on this issue on the decision of co-ordinate bench of this Tribunal in the case of Sino Securities (P.) Ltd. Vs. ITO [2012] 134 ITD 321 (Mum) and in the case of Sunidhi Consultancy Services vs. DCIT reported in [2012] 50 SOT 223 (Mum), it is observed that the claim of depreciation made by the assessee in these cases was in respect of shares issued by the Bombay Stock Exchange in lieu of membership cards under the scheme of Corporatisation and Demutualisation and keeping in view the said scheme, it was held by the Tribunal that depreciation claimed by the assessee on the shares of Bombay Stock Exchange could not be allowed. The facts involved in the cases of Sino Securities (P.) Ltd. (supra) and Sunidhi Consultancy Services (supra) decided by the Tribunal thus are materially different from the facts of the present case inasmuch as the assessee in the present case has paid non-refundable admission fees for acquiring trading rights in Multi Commodity Exchange Ltd. The ld. Counsel for the assessee in this regard has relied on the decision of co-ordinate Bench of this Tribunal in the case of Pyramid Commodities vs. ITO rendered vide its order dated 28-8-2013 passed in for A.Y. 2007-08. In the said case, the assessee had paid a sum of Rs. 6,99,000/- to MCX and the amount so paid was claimed to be a revenue expenditure by the assessee. The ld. CIT(A), however, treated the same as capital expenditure and directed the A.O. to allow depreciation thereon. On further appeal, the Tribunal upheld the order of the ld. CIT(A) treating the payment of membership fees to MCX as capital expenditure relying on the decision of Hon’ble Supreme Court in the case of Techno Shares and stocks Ltd. (supra) and also held that the said capital expenditure was eligible for depreciation u/s 32 of the Act. The issue involved in the present case thus is squarely covered in favour of the assessee by the decision of the Tribunal in the case of Pyramid Commodities (supra) as well as the decision of Hon’ble Supreme Court in the case
5 M/s. Motilal Oswal Commodities Broker P. Ltd. /Mum/2013 & of Techno Shares and Stocks Ltd. (supra) and respectfully following these judicial pronouncements, we direct the A.O. to delete the disallowance made by the A.O. and confirmed by the ld. CIT(A) on account of assessee’s claim for depreciation on membership right of Multi Commodity Exchange.‖ 2.2 In the aforesaid order the Tribunal has duly considered the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. Techno Shares and Stock Ltd. (323 ITR 69), decision from Hon'ble Apex Court in the case of (2010) 327 ITR 323 (SC) holding that the stock exchange membership cards are eligible for depreciation under section 32 of the Act being in the nature of intangible asset. Respectfully following the decision from the Coordinate Bench that too in the case of assessee itself for Assessment year 2007-08, we allow the impugned ground raised before us, thus, this ground is decided in favour of the assessee.
2.3 Our above decision will be applicable to the ground No.1 in the appeal No. 650/MUM/2014 for Assessment year 2010- 11, therefore, this ground is allowed for Assessment year 2010-11 also.
The next ground raised pertains to disallowance of lease line charges amounting to Rs 2,45,179/- under section 40(a)(ia) of the Act. The learned counsel for the assessee claimed that this issue is also decided by the Hon'ble Jurisdictional High Court in the case of CIT vs. Angel Capital & Debit Market Ltd. (ITA No. 475/2011, order dated
6 M/s. Motilal Oswal Commodities Broker P. Ltd. /Mum/2013 & 28/07/2011). This factual matrix consented to be correct by ld. DR.
We have considered the rival submissions and perused the material available on record. We find that the Tribunal for Assessment Year 2008-09 in the case of Dy. CIT vs. M/s. Angel Commodities (ITA No. 7026/Mum/2011, dated 10/07/2013) considered the issue. The relevant portion of the same is reproduced hereunder:-
"2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs..10,08,586/- by holding that VSAT and lease line charges cannot be considered as rendering of technical services and hence provisions of section 40(a)(ia) were not attracted." 3.1 The issue is with reference to deletion of the addition of Rs.18,08,586/- by holding that V-SAT and lease line charges cannot be considered as rendering of technical services, hence, provisions of section 40(a)(ia) are not applicable. The AO disallowed the above amount invoking section 40(a)(ia) on the ground that the assessee failed to comply with the applicable TDS provisions. The ld. CIT(A) following the decision of co- ordinate Benches in the case of Kotak Mahindra Securities (25 SOT 44) and Angel Broking (35 SOT 457) allowed the claim of the assessee . This issue is also covered by the decision of the Hon'ble A.Y.08-09 M/s. Angel Commodities Broking P. Ltd. Bombay High Court in assessee's own case for the assessment year 2006-07 wherein the Hon'ble High Court upheld the orders of ITAT following its own decision in the case of CIT vs. Angel Capital and Debit Market Ltd. in Income Tax Appeal(L) No.475 of 2011 dated 28th July,2011. Since CIT's order is in line with the principle laid down by the Hon'ble High Court in this 7 M/s. Motilal Oswal Commodities Broker P. Ltd. /Mum/2013 & matter, the same is upheld. The Revenue ground is dismissed.‖ It is noted that the Hon'ble Jurisdictional High Court vide order dated 28/07/2011 (ITA No. 475/2011) in the case of assessee dismissed the appeal of the Revenue, upholding the order of the Tribunal. It was held by Hon'ble High Court that VSAT and Lease line charges paid by the assessee, do not have any element of income, therefore, deducting tax on such payment do not arise. It is also noted that Hon'ble Apex Court in the case of CIT vs. M/s. Kotak Securities Ltd. (Civil Appeal No. 3141/2016, order dated 29/03/2016) deliberated upon the issue and held as under:-
―3. By the impugned order dated 21st October, 2011 passed in the aforesaid appeal, the High Court of Bombay has held that the transaction charges paid by a member of the Bombay Stock Exchange to transact business of sale and purchase of shares amounts to payment of a fee for 'technical services' rendered by the Bombay Stock Exchange. Therefore, under the provisions of Section 194J of the Income Tax Act, 1961 (for short ―the Act‖), on such payments TDS was deductible at source. The said deductions not having been made by the appellant – assessee, the entire amount paid to the Bombay Stock Exchange on account of transaction charges was not deducted in computing the income chargeable under the head ―profits and gains of business or profession‖ of the appellant – assessee for the Assessment Year in question i.e. 2005-2006. This is on account of the provisions of Section 40(a)(ia) of the Act. Notwithstanding the above, the Bombay High Court held that in view of the apparent understanding of both the assessee and the Revenue with regard to the liability to deduct TDS on transaction charges paid to the Bombay Stock Exchange right from the year 1995 i.e. coming into effect of Section 194J till the Assessment Year in question, benefit, in the facts of the 8 M/s. Motilal Oswal Commodities Broker P. Ltd. /Mum/2013 & case, should be granted to the appellant – assessee and the disallowance made by the Assessing Officer under Section 40(a)(ia) of the Act must be held to be not correct.
4. Aggrieved by the finding that transaction charges paid to the Stock Exchange are fees for ―technical services‖, the assessee – Kotak Securities Ltd. is in appeal before us whereas the Revenue seeks to challenge the later part of the order of the High Court set out above. The assessee is also in appeal against similar orders passed in respect of subsequent assessment orders in the case of the assessee itself. As the order of the High Court, with regard to transaction charges being in the nature of fee for technical services, has been made applicable to the assessments in case of other assessees, such of the assessees who are aggrieved thereby have filed the other appeals before us.
The relevant provisions of the Act which have a material bearing to the issues arising for determination in the present appeals may now be noticed. Section 194J; Section 40(a)(ia) of the Act introduced by Finance (No.2) Act, 2004 with effect from 1st April, 2005; and Explanation 2 of Section 9(1)(vii) which are relevant for the purpose of the present case reads as under: ―194J. Fees for professional or technical services. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of— (a) fees for professional services, or (b) fees for technical services or (c) royalty, or (d) any sum referred to in clause (va) of section 28 shall at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income-tax on income comprised therein:
9 M/s. Motilal Oswal Commodities Broker P. Ltd. /Mum/2013 & ….............................. ….............................. Explanation.—For the purposes of this section,— (a)............................ (b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub- section (1) of section 9; …..............................
Amounts not deductible. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head ―Profits and gains of business or profession‖ (a) in the case of any assessee- (i) …...... ….. …... (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200 such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation..........
9. Income deemed to accrue or arise in India
10 M/s. Motilal Oswal Commodities Broker P. Ltd. /Mum/2013 & (1) The following incomes shall be deemed to accrue or arise in India:- (i)..................... …...................... …...................... (vii) income by way of fees for technical services payable by— (a) ............... (b) ............... (c) ............... Explanation 2.—For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".
What meaning should be ascribed to the word ―technical services‖ appearing in Explanation 2 to clause (vii) to Section 9(1) of the Act is the moot question. In Commissioner of Income-Tax Vs. Bharti Cellular Ltd.1 this Court has observed as follows: ―Right from 1979, various judgments of the High Courts and Tribunals have taken the view that the words ―technical services‖ have got to be read in the narrower sense by applying the rule of noscitur a sociis, particularly, because the words ―technical services‖ in section 9(1)(vii) read with Explanation 2 comes in between the words ―managerial and consultancy services‖. 7. ―Managerial and consultancy services‖ and, therefore, necessarily ―technical services‖, would obviously involve services rendered by human efforts.
11 M/s. Motilal Oswal Commodities Broker P. Ltd. /Mum/2013 & This has been the consistent view taken by the courts including this Court in Bharti Cellular Ltd. (supra). However, it cannot be lost sight of that modern day scientific and technological developments may tend to blur the specific human element in an otherwise fully automated process by which such services may be provided. The search for a more effective basis, therefore, must be made.
A reading of the very elaborate order of the Assessing Officer containing a lengthy discourse on the services made available by the Stock Exchange would go to show that apart from facilities of a faceless screen based transaction, a constant upgradation of the services made available and surveillance of the essential parameters connected with the trade including those of a particular/ single transaction that would lead credence to its authenticity is provided for by the Stock Exchange. All such services, fully automated, are available to all members of the stock exchange in respect of every transaction that is entered into. There is nothing special, exclusive or customised service that is rendered by the Stock Exchange. ―Technical services‖ like ―Managerial and Consultancy service‖ would denote seeking of services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish/identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would therefore stand out in distinction to the former. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialized, exclusive and individual requirement of the user or consumer who may approach the service provider for such assistance/service. It is only service of the above kind that, according to us, should come within the ambit of the expression ―technical services‖ appearing in Explanation 2 of Section 9(1)(vii) of the Act. In the absence of the above distinguishing feature, service,
12 M/s. Motilal Oswal Commodities Broker P. Ltd. /Mum/2013 & though rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act.
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 which the charges in question had been paid by the appellant – assessee are common services that every member of the Stock Exchange is necessarily required to avail of to carry out trading in securities in the Stock Exchange. The view taken by the High Court that a member of the Stock Exchange has an option of trading through an alternative mode is not correct. A member who wants to conduct his daily business in the Stock Exchange has no option but to avail of such services. Each and every transaction by a member involves the use of the services provided by the Stock Exchange for which a member is compulsorily required to pay an additional charge (based on the transaction value) over and above the charges for the membership in the Stock Exchange. The above features of the services provided by the Stock Exchange would make the same a kind of a facility provided by the Stock Exchange for transacting business rather than a technical service provided to one or a section of the members of the Stock Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. In other words, there is no exclusivity to the services rendered by the Stock Exchange and each and every member has to necessarily avail of such services in the normal course of trading in securities in the Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provided by the Stock Exchange on payment and does not amount to ―technical services‖ provided by the Stock Exchange, not being services specifically sought for by the user or the consumer. It is the aforesaid latter feature of a service rendered which is the essential hallmark of the 13 M/s. Motilal Oswal Commodities Broker P. Ltd. /Mum/2013 & expression ―technical services‖ as appearing in Explanation 2 to Section 9(1)(vii) of the Act.
For the aforesaid reasons, we hold that the view taken by the Bombay High court 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.”
3.1 In the light of the foregoing discussion, decision from Hon'ble Jurisdictional High Court/Apex Court this ground of the assessee is allowed. Our view will be applicable to the identical ground raised for Assessment year 2010-11. Finally, both the appeals of the assessee are allowed. This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 02/11/2016.