AJCON GLOBAL SERVICES LTD,MUMBAI vs. ITO 4(1)(1), MUMBAI

आदेश ORDER �ी अिमत शु�ला, �या स: PER AMIT SHUKLA, JM:

1 a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.8,88,154/- u/s 14A read with Rule 8D of the Income Tax Rules, 1962 by rejecting the explanations and submission given by the appellant and the reasons assigned for 2 अ�कोन �लोबल स�व�सेस �ल�मटेड Ajcon Global Services Ltd. ITA 50/Mum/2013 doing so are wrong and contrary to the provisions of Income Tax Act, 1961, and Rules made thereunder. b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-Tax(Appeals) erred in confirming the disallowance of proportionate interest u/s 14A read with rule 81)(2)(ii) of Rs.7,09,975/- without appreciating that own funds are more than the investments in shares and as such no interest should be attributed to earn exempt income and the reason assigned for doing so are wrong and contrary to the facts of the case, the provisions of Income Tax Act, 1961 and the Rules made thereunder. c) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance u/s. 14A read with rule 81)(2)(iii) of Rs.1,78,179/- without appreciating the fact that appellant has not incurred any expenditure for earning exempt dividend income, and the reason given for doing so are wrong and contrary to the facts and circumstances of the case, provisions of Income Tax Act, 1961, and Rules made thereunder. d) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-Tax(Appeals) erred in holding that even stock-in-trade have to be considered for disallowance u/s 14A read with rule 8D of the Income Tax Rules, 1962 and the reasons assigned for doing so are wrong and contrary to the facts of the case, the provisions of Income Tax Act, 1961 and the Rules made thereunder.

2. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of amount of Rs.1,71,840/- being the Transaction charges paid to the Stock Exchanges by holding that the appellant failed to deduct tax at source u/s 194J of the Income Tax Act, 1961 and invoking the provision of section 40(a)(ia) of the Income Tax Act., 1961 which is wrong and contrary to the provisions of Income Tax Act, 1916 and Rules made thereunder”.

2. The brief facts qua the issue raised vide ground No.1(a) to 1(d) are that, the assessee has shown exempt income of Rs.2,95,450/- on account of dividend income. The Ld. Assessing Officer noted that, the assessee has not allocated any expenses towards earning of the exempt income 3 अ�कोन �लोबल स�व�सेस �ल�मटेड Ajcon Global Services Ltd. ITA 50/Mum/2013 and accordingly, he required the assessee to show cause as to why the disallowance under section 14A should not be made. In response, the assessee submitted that, interest paid is mainly for loans taken for fixed assets and working capital; and in the earlier year, that is, in the AY 2007-08, the Ld. CIT(A) has deleted the interest expenses. The Ld. AO relying upon the decision of Special Bench in the case of Daga Capital Management P Ltd. computed the disallowance at Rs.8,88,154/-; which comprised of disallowance of interest of Rs.7,09,975/- under Rule 8D(2)(ii); and indirect expenditure of Rs.1,78,179/- under Rule 8D(2)(iii).

6. After considering the rival submissions and on perusal of the impugned orders, we find that so far as disallowance of interest expenditure is concerned under Rule 8D(2)(ii), we find that, at the time of making the investment, the assessee had huge surplus/own funds available which far exceeded the 5 अ�कोन �लोबल स�व�सेस �ल�मटेड Ajcon Global Services Ltd. ITA 50/Mum/2013 investment made, therefore, in view of the ratio laid down by the Hon’ble jurisdictional High Court in the cases relied upon by the assessee, no disallowance of interest should be made. Accordingly, we direct the AO to delete the disallowance of interest aggregating to Rs.7,09,975/-. As regards the disallowance of indirect expenditure under Rule 8D(2)(ii) of Rs.1,79,134/-, we agree with the contention of the Ld. Counsel that, so far as the investment made in subsidiary and Associate Companies are concerned, they are by way of strategic investments and, therefore, same should not form part of the working of average value of investment while computing the disallowance. Accordingly, we hold that investments which have been made mostly by way of strategic investments and stock-in-trade should not rope in for the purpose disallowance. Looking to the facts and circumstances of the case and in the interest of justice, we are of the opinion that the disallowance should be scaled down and some estimate disallowance should be made, having regard to the nature of expenditure debited and the exempt income earned at Rs.2,95,450/-. Accordingly, we hold that 10% of the dividend income would be reasonable for allocating the indirect expenditure for the earning of exempt income. Such an estimate is purely on the facts and circumstances of the case. Thus, grounds with regard to disallowance under section 14A are treated as partly allowed.

7. As regards the issue raised in ground No.2 regarding disallowance of Rs.1,71,840/- on account of transaction charges paid to stock-exchange by invoking of the provisions of section 40(a)(ia) by the authorities below on the ground that, assessee has not deducted the tax at source under 6 अ�कोन �लोबल स�व�सेस �ल�मटेड Ajcon Global Services Ltd. ITA 50/Mum/2013 section 194J on such payments. We find that, the Ld. CIT(A) has decided the issue following the decision of Hon’ble Bombay High Court in the case of CIT vs. Kotak Securities Ltd., reported in [2016] 340 ITR 333. Now as admitted by both the parties, the decision of Hon’ble Bombay High Court has been reversed by the Hon’ble Supreme Court in the case of CIT v. M/s Kotak Securities Ltd. in Civil Appeal No.314 of 2016, vide judgment and order dated 29th March, 2016 wherein, after analyzing the entire issue in detail, their Lordships have held that, the payments made to the stock- exchange is not in the nature of ‘technical services’ but for facilities provided by the stock-exchange and accordingly, no TDS is deductible under section 194J. The relevant observation and finding of the Hon’ble Supreme Court in this regard is as under:-

“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”.

8 अ�कोन �लोबल स�व�सेस �ल�मटेड Ajcon Global Services Ltd. ITA 50/Mum/2013 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 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 expression “technical services” as appearing in Explanation 2 to Section 9(1)(vii) of the Act.