2011 (10) TMI 172 - HC - Income Tax

TDS on various charges paid to Stock Exchange - disallowance u/s 40(a)(ia) - Held that - Charges paid to Stock Exchange viz. VSAT charges lease line charges Transaction charges are in the nature of reimbursement of charges paid by the Members of Stock Exchange in lieu of infrastructure and trading facilities provided by the stock exchange and cannot be said to be a fee paid in consideration of the stock exchange rendering any technical or managerial services to the assessee. The provisions of section 194J are not attracted. - Consequently the provisions of section 40(a)(ia) are not attracted . See The Income Tax Commissioner Mumbai City 4 vs. Angel Capital & Debit Market Ltd. Kotak Securities Ltd. Vs ACIT 2008 (8) TMI 592 - ITAT MUMBAI . - Decided in favor of the assessee. Disallowance of penalty u/s 37 of the Act - Business expenditure - Held that -penalty/payments made by the Assessee to the Stock Exchange for violation of their regulation being risk management oriented are not an account of an offence which is prohibited by law.Hence the invocation of explanation to section 37 is not justified.See Master Capital Services Ltd. Vs. DCIT 2007 (2) TMI 241 - ITAT CHANDIGARH-A . - Decided against the Revenue.

Summary

Issues:
1. Whether the Tribunal was justified in deleting additions made by the Assessing Officer under section 40(a)(ia) of the Income Tax Act, 1961 for VSAT charges, NSE lease line charges, and transaction charges.
2. Whether the Tribunal was justified in deleting additions made under the proviso to section 37(1) of the Income Tax Act, 1961 for penalties imposed by the National Stock Exchange.

Analysis:

Issue 1:
The first issue pertains to the deletion of additions under section 40(a)(ia) of the Income Tax Act, 1961 for various charges paid by the Assessee Firm without deducting tax at source. The Revenue raised concerns about the Tribunal's decision to delete these additions. However, citing a previous case, the counsel for the Revenue acknowledged that a similar question had been answered against the Revenue in a prior judgment. Therefore, the High Court concluded that the first question could not be entertained due to the precedent set by the earlier case.

Issue 2:
Regarding the second issue, the focus was on the deletion of additions under the proviso to section 37(1) of the Income Tax Act, 1961 for penalties imposed by the National Stock Exchange on the Assessee. The CIT (A) and ITAT had found that the payments made by the Assessee were not due to an offense or a violation of the law. The Court agreed with this finding, stating that the penalties were not on account of any offense or prohibition by law. Consequently, the Court upheld the decision of the ITAT, concluding that no fault could be found with their decision. Therefore, the second question was also deemed not entertainable.

In conclusion, the High Court disposed of the appeal without any order as to costs, with the judges J.P. Devadhar and K.K. Tated presiding over the judgment.