TMI Blog2008 (8) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the provisions of section 40(a)(ia) were also not attracted and therefore the disallowance made is directed to be deleted. - ITA No. 1955/Mum/08 - - - Dated:- 26-8-2008 - SHRI N.V. VASUDEVAN AND SHRI D.K.RAO JJ. Represented By: Farrokh Irani for the Assessee. Daya Shanker for the Department Order N. V. Vasudevan (Judicial Member).-This is an appeal by the assessee against the order dated March 3, 2008, of the learned Commissioner of Income-tax (Appeals)-XV, Mumbai relating to the assessment year 2005-06. The first ground of appeal of the assessee is with regard to the claim for depreciation on the membership right of the Stock Exchange, Mumbai (BSE) claimed by the assessee, which was disallowed by the Revenue authorities. The assessee is a company. It is engaged in the business of share broking, depositories, mobilisation of deposits and marketing of public issues. In the year 1995-96, the assessee purchased BSE membership card for a sum of Rs. 2 crores ; and further incurred Rs. 13,25,000 as incidental and transfer charges. The assessee claimed depreciation at 25 per cent. On the written down value (WDV) of the BSE membership card. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tangible asset; it cannot be treated as plant. The Assessing Officer further held that the membership right in stock exchange did not fall within any of the categories of intangible assets mentioned in section 32(1)(ii) of the Act. Assessing Officer further referred to the decision of the Bombay Bench of the Tribunal in the case of Deputy CWT v. Ashwin C. Shah [2002] 254 ITR (AT) 90 ; [2002] 82 ITD 573 and the decision of the hon'ble Supreme Court in the case of Stock Exchange, Ahmedabad v. Asst. CIT [2001] 248 ITR 209 and held that in the aforesaid decisions, it has been held that the membership in a stock exchange cannot be said to be a property and it was merely a personal privilege granted to the member, which is not transferable or alienable by the member except to a limited extent. The Assessing Officer held that in view of the above observations of the hon ble Supreme Court, the assessee cannot claim to own any asset and claim depreciation on the same. He also held that the membership right is not capable of diminishing in value; and therefore, it is not a depreciable asset. He also held that the purchase consideration of a membership card not only enables a person, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our observations made above indicating clearly, inter alia, as to whether the BSE card is capable of diminishing in value on account of factors indicated by the hon' ble Gujarat High Court in its observations referred to above and also as to whether the assessee can be said to be the owner of the card under the rules notified by the BSE. Reasonable opportunity of hearing shall be given to the assessee. The appeal filed by the assessee is treated as allowed for statistical purposes." Learned counsel for the assessee submitted that, even the three parameters laid down in the above decision are satisfied in the case of the assessee. In respect of the condition that the membership card in stock exchange is capable of diminishing in value, learned counsel for the assessee drew our attention to the decision of the Cochin Bench of the Incometax Appellate Tribunal in the case of Peninsular Capital Market Ltd. v. Asst. CIT [2008] 19 SOT 421, wherein the hon' ble Cochin Bench has observed that the value of the membership card is known to fluctuate; and therefore, it is not correct to say that the same is not capable of depreciating in value. In the aforesaid decision, the Bench has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten off amounting to Rs. 45,31,150. The Assessing Officer refused to allow the claim of the assessee for deduction for the reason that sum written off as bad debt was not taken into account in computing the income of the assessee in the previous year or earlier previous year. To appreciate the stand of the Assessing Officer, the nature of business of the assessee has to be explained. The assessee acts as broker in buying and selling securities on behalf of its clients. On the settlement date, the assessee has to collect delivery of the shares, where client has sold shares. He has to collect the amount for the value of shares, where he effects purchase on behalf of the clients. Whenever, clients fail to give delivery for shares sold or payment for purchase of shares, the assessee has to make good the delivery of shares or payment to the stock exchange. The claim of the assessee for bad debt written off partly arises out of the assessee having to make good the delivery of shares for shares sold, payment for purchase made on behalf of the clients. The assessee accounts only for brokerage income in the books of account and does not account for value of the transaction of sale or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of debts written off are at page Nos. 122 to 189 of the assessee' s paper book. Perusal of the details reveals that debts relates to several clients of the assessee and the amount written off in each case ranges from Rs. 2 to Rs. 10,000. In the case of a very few customers, larger sums having written off, in our view, loss arising on account of such write off, is clearly allowable under section 28 of the Act. These are incidental to the business of the assessee and going by the quantum of loss written off in individual cases, the wisdom of the assessee in writing them off as bad and irrecoverable, considering the cost of litigation etc. ; in our view should be considered as bona fide and plea irrecoverability should be accepted. The claim is therefore clearly allowable under section 28 of the Act. We, therefore, direct that the deduction as claimed by the assessee be allowed. The third issue that arises for consideration is with regard to action of the Revenue authorities in disallowing sum of Rs. 5,17,65,182 on account of transaction charges paid by the assessee to stock exchange by invoking the provisions of section 40(a)(ia) of the Act. As already stated, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent. of such sum as income-tax on income comprised therein : Explanation .-For the purposes of this section, (a) ` professional services' means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section ; (b) ` fees for technical services' shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9 ;" The provisions of section 9(1)(vii) Explanation 2 is as follows : " Explanation 2.- For the purposes of this clause, ` fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facet of one\qs life is linked to science and technology inasmuch as numerous things used or relied upon in everyday life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service. When a person hires a taxi to move from one place to another, he uses a product of science and technology, viz., an automobile. It cannot on that ground be said that the taxi driver who controls the vehicle, and monitors its movement is rendering a technical service to the person who uses the automobile. Similarly, when a person travels by train or in an aeroplane, it cannot be said that the railways or airlines' s rendering a technical service to the passenger and, therefore, the passenger is under an obligation to deduct tax at source on the payments made to the railway or the airline for having used it for travelling from one destination to another. When a person travels by bus, it cannot be said that the undertaking w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... important role in making life smoother and more convenient. Section 194J, as also Explanation 2 in section 9(1)(vii) of the Act were not intended to cover the charges paid by the average house-holder or consumer for utilising the products of modern technology, such as, use of the telephone fixed or mobile, the cable T.V., the internet, the automobile, the railway, the aeroplane, consumption of electrical energy, etc. Such facilities which when used by individuals are not capable of being regarded as technical service cannot become so when used by firms and companies. The facility remains the same whoever the subscriber may be individual, firm or company. ` Technical service referred in section 9(1)(vii) contemplates rendering of a ` service' to the payer of the fee. Mere collection of a ` fee for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received for technical services." The above observations of the hon' ble Madras High Court are clearly applicable to the facts of the present case. The learned Commissioner of Income-tax (Appeals) in coming to the conclusion that transaction charges are in the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax (Appeals) in the later part of his order on this issue has expressed the view that transaction fee may not be strictly fees for technical services (FTS). The learned Commissioner of Income-tax (Appeals) further has gone on to hold that even if a doubt exists by way of abundant caution TDS should have been made. This in our view is not a proper approach. The liability to deduct tax at source in given facts and circumstances either exists or does not exist. There cannot be any legal obligation by way of abundant caution. To call a payment as fees for technical services it should have been paid in consideration for rendering by the recipient of payment of any (a) managerial service (b) technical or consultancy services ; the stock exchanges merely provide facility for its members to purchase and sell shares, securities etc., within the framework of its bye laws. In the event of dispute if provides a mechanism for settlement of disputes. It regulates conditions subject to which a person can be a member and when and in what circumstances membership can be transferred, cancelled, suspended etc. The exchange provides a place where the members m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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