TMI Blog2010 (11) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... 5943/Mum/2009 for A.Y.2005-06 - Appeal is dismissed The payments made are in lieu of services rendered for carrying out certain work and the payments made therein fall within the purview of sec. 194C of the I.T. Act since it is the assessee who has to carry out the work of jobbing through one set of jobbers or another year after year - Appeal is allowed for statistical purpose - ITA No. 6168/Mum/2009, ITA No. 6446/Mum/2009 - - - Dated:- 4-11-2010 - N.V. Vasudevan, Rajendra Singh, JJ. Mahesh Rajora for the Appellant P.N. Devdasan for the Respondent ORDER N.V. Vasudevan: ITA No. 6168/Mum/2009 is an appeal by the assessee while ITA No.6446/Mum/2009 is an appeal by the revenue. Both these appeals are directed against the order dated 17th September, 2009 of the Commissioner of Income-tax (Appeals)-VIII, Mumbai for the assessment year 2006-07. 2. We shall first take up for consideration the appeal in ITA No.6168/Mum/2009 filed by the assessee. 3. Ground No. 1 raised by the assessee reads as follows: "The Commissioner of Income-tax (Appeals)-8 erred in confirming the disallowance of Rs.12,43,824/- u/s.14A of the Income-tax Act r.w.Rule 8D of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits declared, distributed or paid is a charge on a component of the profits of the company. The company is chargeable to tax on its profits as a distinct taxable entity and it pays tax in discharge of its own liability and not on behalf of or as an agent for its shareholders. In the hands of the shareholder as the recipient of dividend, income by way of dividend does not form part of the total income by virtue of the provisions of Section 10(33). Income from mutual funds stands on the same basis; iii) The provisions of sub sections (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid; iv) The provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more particularly sub section (2) and do not offend Article 14 of the Constitution; v) The provisions of Rule 8D of the Income Tax Rules which have been notified with effect from 24 March 2008 shall apply with effect from Assessment Year 2008-09; vi) Even prior to Assessment Year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub section (1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties levied by the stock exchange/Clearing Corporation and hence no disallowance is called for in the matter." 9. During the previous year the assessee had made a payment of Rs.24,221/- to the Stock Exchange. According to the assessee these payments were made towards certain delays/technical non-compliances etc., and therefore, not hit by Explanation to Section 37(1) of the Act. The Assessing Officer, however, held that the penalty was paid under SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1955. The A.O. held that the payment in question was a penalty imposed for violation of law and, therefore, hit by Explanation to Section 37(1) of the Act. Accordingly a sum of Rs.24,221/- was disallowed and added to the total income of the assessee. 10. On appeal by the revenue, the learned CIT(A) confirmed the order of the A.O. 11. Aggrieved by the order of the CIT(A), the assessee has raised ground No.2 before the Tribunal. 12. We have heard the rival submissions. The learned counsel for the assessee submitted that both the A.O. and the CIT(A) proceeded on an erroneous assumption that the sum in question was paid to SEBI whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suffer from any infirmity, who has followed the decision of the Tribunal. Accordingly, the same is upheld and the ground raised by the Revenue is dismissed." 15. Respectfully following the aforesaid decision of the Tribunal, ground No.1 raised by the revenue is dismissed. 16. Ground No. 2 raised by the revenue is with regard to the action of the CIT(A) in deleting the addition made by the A.O. on account of payment to jobbers/arbitrage of Rs.65,50,269/-. According to the A.O. at the time of making these payments the assessee ought to have deducted tax at source as required under section 194C of the Act. Since the assessee did not deduct the tax at source, the A.O. invoking the provisions of section 40(a)(ia) of the Act, disallowed the claim of the assessee for deduction of the aforesaid amount. According to the assessee, the aforesaid amount the aforesaid transactions as jobbers/arbitragers were on principal to principal basis and they were dealing with on their own accounts and therefore, there was no obligation on the part of the assessee to deduct tax at source while making payments under section 194C of the Act. This issue had come up for consideration in the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their own account and in view of growing volume of transactions, the jobbers entered into agreement for felicitation of their trade and minimization of market risks. The jobbers are in fact clients acting on their own account and the jobbers deal in shares and securities on profit/loss sharing basis as decided mutually and periodically the profit/loss incurred by a jobber is ascertain and shares between the appellant and the jobber after deducting the cost. The relationship between the jobber and the appellant company is that of co-sharer of profit/loss, therefore, provisions of section 194C is not attracted. As provisions of section 194C is not attracted, the disallowance u/s. 40(a)(ia) is held to be not proper." Aggrieved with such order of CIT(A), the Revenue is in appeal before us. 9. The ld. D.R. relied on the order of the CIT(A). 9.1 The ld. counsel for the assessee, on the other hand, relied on the order of CIT(A) as well as the terms and conditions of the MOU and submitted that it is share of profit and not even payment of any salary since the AO has also not invoked provisions of sec. 192 of the I.T. Act. 10. After hearing both the sides, we find the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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