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TMI Blog2010 (7) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... rges Rs.12,73,034/- (iv) VSAT charges Rs. 6,25,174/- ------------------ Rs.28,69,560/- ------------------ The aforesaid expenses were debited to the Profit & Loss Account and it was claimed that they were payable for the services provided by the Stock Exchange with regard to transactions in securities. The Assessing Officer invoked section 40(a)(ia) of the Act, under which any interest, commission or brokerage, rent, royalty, fees for professional or technical services payable to a resident for carrying out any work, including supply of labour for carrying out any work shall not be allowed as a deduction in computing the business profits unless the tax is deducted from such payment and deposited within a particular time limit. According to the AO the aforesaid expenses amounted to fees for technical services and the assessee ought to have deducted tax under section 194J at the prescribed rate. Since the assessee did not deduct the tax from the aforesaid payment to the Stock Exchange as required by section 194J, the AO disallowed the entire expenses invoking section 40(a)(ia) of the Act. 3. On appeal, the CIT(A) held that so far as the leaseline charges and VSAT char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a)(ia) are not attracted. In coming to this conclusion the Tribunal has relied on the judgment of the Madras High Court in Skycell Communications Ltd. vs. DCIT (2001) 251 ITR 53 (Mad). The learned representative for the assessee has also drawn our attention to the judgment of the Delhi High Court in CIT vs. Bharti Cellular Ltd. (2009) 319 ITR 139 (Del) in which the identical issue has been decided by holding that section 194J read with Explanation 2 below section 9(1)(vii) of the Act is not applicable to payments made by the companies engaged in providing cellular telephone facilities to the interconnection providers, access charges and port charges. In this judgment it was held that the services rendered qua interconnection / port access did not involve any human interface and, therefore, the services could not be regarded as technical services as contemplated by section 194J. It was observed that though the facility of interconnection and port access was technical in the sense that it made use of sophisticated technology, but the expression "technical services" in section 194J was not to be construed in the abstract and general sense but in the narrower sense as circumscribed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and two per cent in the case of other contracts. The AO apparently was of the view that the payment to the jobbers and arbitragers was for the purpose of carrying out a work in pursuance of a contract between the contractor and a specified person. Since no tax was deducted by the assessee from such payments, he again invoked section 40(a)(ia) and disallowed the entire payment. 7. In the course of the assessment proceedings, it would appear that the assessee took a plea that there was a joint venture with the jobber / arbitrager under agreements entered into with them, under which the assessee and the jobber / arbitrager shared the profits and losses equally and it was only the net profit or loss that was incorporated in the assessee's accounts and thus the provisions of section 194C were not in the very nature of things attracted to the assessee's case. This submission does not appear to have been accepted by the AO who was of the view that the assessee had engaged the services of the jobbers / arbitragers for carrying out the work which primarily was the responsibility of the assessee. 8. On appeal, the CIT(A) called upon the assessee to furnish the copies of the agreements w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness done by the assessee on its own account in the Stock Exchange and not for or on behalf of its clients for brokerage and for the purpose of trading in shares and securities in the Stock Exchange on its own account, the assessee entered into agreements with several jobbers / arbitragers with the understanding that the ultimate profit or loss in such trade would be divided between them equally. At our instance the learned representative for the assessee has filed copies of the agreements entered into with the jobbers / arbitragers. The agreements are in standard form. We may refer to the agreement with Mr Amit Zaveri, which is at page 23 of the paper Book. The preamble to the agreement states that Mr Amit Zaveri has shown his willingness to accept the agreement for dealing and trading in the Cash and F&O segment of NSE in accordance with the Rules prescribed by SEBI and that he has accepted to share the profit and loss in the transactions made by him on behalf of the assessee company as mutually agreed upon by the parties from time to time. Clause 1 of the agreement says that the assessee has given to the dealer (Mr Amit Zaveri) the right to trade in the Cash and F&O segment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " to the audited Profit and Loss Account and it was pointed out that out of the above trading income, jobbing income amounted to Rs.1,57,75,393/- and arbitrage income amounted to Rs.14,90,112/-. Out of the balance, the own trading income, which arose to the assessee apparently without the help of the jobbers / arbitragers, amounted to Rs.3,07,47,989/-. The balance of Rs.2,10,92,703/- represented security transaction tax collected by the assessee. The total of the trading income formed part of the figure of Rs.10,38,05,456/- which was credited to the Profit and Loss Account for the year ended 31.03.2006 as "broking, trading and depository income". It was this figure which was explained in Schedule "G" to the accounts. The assessee again wrote a letter dated 11th April 2008 to the AO explaining the jobbing / arbitrage income which was included in the figure of Rs.6,91,06,196/-. In this letter it was submitted to the AO that the jobbing / arbitrage activity was carried out by the assessee in association with the jobbers /arbitragers in accordance with profit sharing agreements entered into with them. It was pointed out in this letter that the share of the jobbers and arbitragers were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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