2010 (1) TMI 919 - AT - Income Tax

Rebate - Security transaction tax has been paid - Under section 88-E of the Act the assessee is entitled for payment of Income-tax on profit and gains of business or profession arising from taxable security transactions computed in the manner provided in sub-section (2) of an amount equal to security transaction tax paid in respect of taxable security transactions - According to sub section (2) the amount of Income/tax arising from taxable security transactions shall be equal to the amount calculated by applying the average rate of income on which income Held that - rebate is to be allowed in the manner given in sub section (2) on average rate of tax assessing officer directed to allow the rebate under section 88-E in respect of security transaction assessed to tax as per provisions of law after affording the assessee an reasonable opportunity of being heard appeal filed by the Revenue is partly allowed for statistical purposes.

Summary

Issues:
1. Addition of SEBI registration fee as an expense.
2. Recalculation of rebate under section 88-E of the Act.

Issue 1: Addition of SEBI Registration Fee as an Expense

The appeal by the Revenue for assessment year 2005-06 challenged the deletion of an addition of Rs.3,84,01,623/- on account of SEBI registration fees. The assessee, a share broker, had paid this amount as a one-time settlement fee to SEBI under a scheme in 2004. The assessing officer contended that the liability to pay the fee arose in earlier years, and thus, the payment should have been made earlier. However, the CIT (Appeals) allowed the claim, stating that the fee was for a special service rendered by SEBI to its members and was covered under section 43-B of the Act. The ITAT, Delhi upheld this decision, citing precedents that supported the deductibility of SEBI registration fees as a statutory liability under section 43-B.

Issue 2: Recalculation of Rebate under Section 88-E of the Act

The second issue involved the calculation of rebate under section 88-E of the Act. The assessing officer had initially allowed a rebate of Rs.2,76,81,059/-, which was challenged by the assessee. The CIT (Appeals) recalculated the rebate at Rs.3,95,27,704/- based on the security transaction tax paid by the assessee. During the ITAT proceedings, it was argued that the tax payable on the assessed income entitled the assessee to a higher rebate. The ITAT directed the assessing officer to recompute the rebate under section 88-E after considering the total assessed income and the tax payable, providing the assessee with a reasonable opportunity to be heard. This issue was set aside for further assessment.

In conclusion, the ITAT, Delhi partially allowed the appeal filed by the Revenue for statistical purposes, upholding the deletion of the SEBI registration fee addition as an expense and directing a reevaluation of the rebate under section 88-E of the Act. The judgment clarified the deductibility of SEBI registration fees under section 43-B and emphasized the need for accurate computation of rebates based on the provisions of the law.