ITO 12(2)(3), MUMBAI vs. GOLDMAN SECURITIES P. LTD, MUMBAI

Brief facts of the case are that the assessee, M/s. Goldman Securities P. Ltd., engaged in the business of Global Money Transfer (GTM) under the brand name ‘Instant Cash’(IC), filed its return of income, declaring the total income of Rs. 10,45,663/-. Since the tax liability as per MAT being Book Profit u/s 115JB of the Income Tax Act, 1961 (in short ‘the Act’) was higher than the computation as per income tax, the assessee company paid the tax liability as per MAT computation. The assessment order was completed u/s 143(3) of the Act, determining the total income at Rs. 2,55,52,778/- after making disallowance of Rs. 2,44,94,440/- claimed by the assessee company towards payment of commission and disallowance of Rs 12,665/-u/s 14A of the Act. In the first appeal, the Ld. CIT(A deleted the additions made by the AO. The revenue is in appeal before the Tribunal against impugned order passed by the Ld. CIT(A) on the following effective grounds of appeal:-

Before us the Ld. DR submitted the appellant/assessee is engaged in the business of Global Money Transfer (GTM) under the brand name ‘Instant Cash’. The assessee became 100% subsidiary of Wall Street Finance Ltd. (WSFL), in pursuance of a scheme of demerger approved by the Hon,ble Bombay High Court vide order dated 17/07/2009. During the assessment year under consideration the assessee showing gross receipt of Rs. 2.84 crores from the said business, claimed expenses of Rs. 2.44 crores towards payment of commission to 143 sub-agents. The AO noticed that the sub agents confirmed the transactions in question with WFSL and not with the assessee; the original license for the GTM business was in the name of WSFL. And the Reserve Bank of India granted the license in the name of the appellant/assessee only in Sept., 2010. The Ld. DR further submitted that in view of the aforesaid facts the Ld. CIT(A) has wrongly allowed the expenses of Rs. 2.44 crores claimed by the assessee towards payment of commission to sub-agents contrary to the reasoned findings of the AO.

On the other hand the Ld. authorised representative (AR) of the assessee submitted that in pursuance of a scheme of demerger approved by the Hon,ble Bombay High Court vide order dated 17/07/2009, the appellant/assessee became a 100% subsidiary of Wall Street Finance Ltd.(WSFL). The order approving the demerger of the assessee from WSFL passed by the Hon’ble High Court has validated the appellant’s action. Since the assessee has carried on business in during the assessment year under consideration in terms of the approved scheme, the disallowance under section 14A of the Act is not permissible under law. Moreover, when the AO is not disputing the business, he should also allow the expenses claimed by the assessee. Therefore, the order passed by the Ld. CIT(A) does not suffer from any legal or factual infirmities.

We have heard the rival submissions and also perused the documents placed on record by the parties. We notice that the AO has not accepted the explanation of the assessee for the reasons that all the confirmations filed by the sub-agents are in the name of WFSL, all certificates for tax deduction at source are in the name of WFSL and not in the name of the assessee. The assessee failed to submit any proof to establish any correspondence with the sub-agents with reference to its continuation of the ‘Instant Cash’ business after the demerger. The order of the Hon’ble High Court does not contain any clause which authorizes the assessee to continue the said business in the name of WSFL even after demerger. Moreover, the assessee made an application to the RBI for money charge license only in December 2009 and the said license was granted on 30 September 2010.

On the other hand, the learned CIT(A) has allowed the appeal of the assessee holding that it is not the case of AO that the assessee did not carry on the business during the relevant period. The appellant had shown gross receipts of Rs. 2.84 crores from the Instant Cash business against which it had claimed expenses of Rs. 2.44 crores paid to 143 sub-agents as commission. Since business of the assessee is not in dispute the AO should have allowed the business expenditure of the assessee. Therefore, we are of the considered view that the Ld. CIT(A) has rightly allowed the business expenditure of the assessee. No doubt the original license for the GTM business was in the name WSFL and the RBI granted the license in the name of the appellant only in September, 2010. But the reasons pointed out by the AO do not suggest that the business was not carried on by the assessee during the assessment year under consideration.

As pointed out by the Ld. CIT(A), the relevant Clauses of the scheme contemplate as under: Clause 4.1.3- With effect from the appointed date and upon the scheme becoming effective, any statutory licenses, permissions or approvals or consents held by WSFL required to carry on operations of the Instant Cash Division shall stand vested in or transferred to GSPL without any further act or deed, and shall be appropriately mutated by the statutory authorities concerned therewith in favour of GSPL and the benefit of all statutory and regulatory permissions, environmental approvals and consents, registration or other licenses and consents shall vest in and become available to GS PL as if they were originally obtained by GSPL.

From the contents of the scheme aforesaid it can be concluded that the appellant was authorised to carry on the business in question without fulfilling any further conditions. The appellant/assessee carried on the business during the relevant assessment year under the aforesaid scheme approved by the Hon’able High Court. Hence, the Ld CIT(A) has rightly held that since the conduct of the appellant has been completely and absolutely governed by the approved scheme, the assessee has rightly claimed the expenses incurred in connection with its business. Therefore, in our opinion, the impugned order passed by the Ld CIT(A) does not suffer from any legal or factual infirmity to interfere with. We accordingly uphold the findings of the learned CIT (A) and dismiss the grounds of appeal of the revenue.