DCIT, NEW DELHI vs. M/S. PARASRAM HOLDINGS PVT. LTD, NEW DELHI

Brief facts of the case are that the assessee is NSE/BSE broker and is also a depository participant of NSDL, deriving income from brokerage, clearing charges, depository receipts, dividends, interest and from securities transactions. For AY 2006-07 the assessee filed its return declaring an income of Rs. 12,65,26,600/-. The AO noticed that assessee had claimed deduction u/s 88E amounting to Rs. 2,01,95,009/-, which was worked out as under: “Total income as per COI 12,65,26,600/- Tax on above income 3,79,57,980/- Total STT paid 2,01,95,009/- Deduction u/s 88E restricted to Rs. 2,01,95,009/- i.e. upto total tax payable as per computation of income.”

AO pointed out that the assessee’s income/ receipts comprised of following: 1. Brokerage income & other receipts 23,97,91,622/- 2. Income from Security transaction 10,23,41,879/- 3. Other income 2,60,16,534/- Total receipts/ incomings 36,81,50,076/- 4. From this computation the AO concluded that assessee had claimed deduction u/s 88E on incomes apart from income from security transactions. He computed the admissible deduction u/s 88E at Rs. 1,88,85,064/- as under: a) Brokerage etc. 23,97,91,663 Less: Sub Brokerage 13,19,26,012 10,78,65,651 b) Income from Securities Transactions 10,23,41,879 c) Other income 2,60,16,534 Less: Interest paid 87,74,910 Less: NSDL Exp. 36,34,151 1,36,07,473 2,38,15,003 STT Claimable Tax x Income from securities Total Income =4,13,00,042 x 10,23,41,879 22,38,15,003 = 1,88,85,064 Total STT Claimable.

Before ld. CIT(A) the assessee had pointed out that to justify the amount of claim, the assessee had given two basis of calculation. One was based on total turnover figures as certified by NSE and BSE. On this basis, total claimable amount on average rate of income tax comes to Rs. 2.75 crores. As against it, the assessee had restricted the claim only to Rs. 2.02 crores i.e. on actual payment basis. The second basis was calculation of STT claimable on the basis of income after deduction of direct expenses. STT claimable amounted to Rs. 2.05 crores but restricted to 2.02 crore.

The assessee further pointed out that AO accepted the second method of calculation of average rate of income tax but arbitrarily deleted direct expenditure incurred on Broker Stamp duty, VSAT expenses and NSEIL/BSE expenses.

Ld. CIT(A) while partly allowing the assessee’s appeal directed the AO to grant full rebate on STT paid by the assessee.

We have considered the submissions of both the parties and have gone through the detailed computation submitted by assessee which is Annexure I & 2 to CIT(A)’s order. Since the AO has primarily gone by the second mode of computation, therefore, we are considering Annexure II only. The short controversy is that how much expense debited to P&L a/c are attributable to income from securities transaction which is Rs. 10,23,41,879/-. The AO simply reduced sub-brokerage from brokerage income and reduced interest paid and NSEIL expenses from other income for arriving at total income. He did not take into consideration the brokerage, stamp duty and VSAT expenses, which were also required to be allocated to brokerage income. The nature of expenses itself suggests that they were directly relatable to the earning of brokerage income hence they were to be allocated to the brokerage income which would reduce brokerage income by that amount.