TMI Blog2011 (5) TMI 687X X X X Extracts X X X X X X X X Extracts X X X X ..... AO noticed that assessee has installed VSAT net work after obtaining a license from Department of Tele Communication (DTC for short) to operate a closed user group VSAT net work for the purpose of enabling screen basis trading in the capital market through out the country. The DTC has given license and assessee was to act as a main hirer of the net work and the approved user and broker could be termed as subsidiary user of the net work. The assessee being the main hirer was supposed to fulfill all the obligations and formalities including payment of rental, license fees, installation fees and all other dues for all the circuit equipment and components of this net work. This net work was approved to be run at no profit no loss basis. The net work mainly consisted of Hub Equipment which is located in the premises of the assessee and VSAT antenna and coding equipment was located in the member's premises. On the basis of this position, AO concluded that VSAT net work was being used by the members for the purpose of conducting their business and, therefore, this net work was not exclusively used for the purpose of business of the assessee. Therefore, assessee was asked to explain as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company was floated by banks and financial institutions. For starting the screen based trading telecommunication net work in the form of VSAT net work was required to be installed. Since permission from DOT was sought and was granted with some conditions. It was further explained that VSAT net work was consisted of a hub which was installed in the premises of the assessee and VSAT antenna and monitor was installed at the premises of the brokers. The stock exchange transactions had to be routed through the system provided by the assessee company and the brokers were not authorised to carry out the trading on any VSAT system. Since as per the DOT conditions, assessee company was required to own the equipment and VSAT net work in its own name, the same were acquired by the assessee. It was explained that in the absence of VSAT at the premises of the members, no trade could have been possibly executed. Therefore, such VSAT net work was basically used for the purpose of business of the assessee. 15. It was further argued that VSAT was installed at the remote location by the assessee for the purpose of exclusive use of its business and merely equipments were installed at the membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emphasised by the AO because the same was governed by the license granted by the DOT, Government of India. It was a case of closed user group and only the members of stock exchange could use this system. He observed that the assessee could not recover more than the cost in the operating system, but simply allowing an apparatus on cost basis, does not mean that assessee was not earning profit. In fact, the recovery of capital cost and revenue had an element of recuperation. He also noted that members of directors could not have utilised VSAT system for any other purpose than the purpose laid down in the contract i.e. to deal with the NSE. The assessee could not have offered this facility to any other person other than the member and, therefore, it could not be said that the equipment was installed in the premises of a third party. The net work was providing as a facility to the trading members, registered participants and other institutions such as custodians, clearing agents, depositories, who were required to contact directly to the exchange in execution of trade clearing or settlement of funds and all securities and the only purpose of installation of such net work was to achiev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he premises of member brokers through which members could place orders from the screen which were to be executed electronically. Since telecommunication is strictly controlled by the government, the system was installed after obtaining the approval of the DOT and under those conditions the assessee company was required to own the system and assessee company would collect only user charges from the members and the whole system was to be operated on no profit no loss basis. Without installing the VSAT antenna and monitor at the premises of the members, the members could not have executed any trade. There was other condition of DOT by which members would not have taken their own VSAT system and, therefore, compulsorily assessee had to install such system with the members for which even user charges have been charged to the members. Merely because part of the equipment was installed in the members premises, it cannot be said that the same has not been used for the exclusive business of the assessee. Such system could not have been used for any other purpose by the members except for execution of the trade through the exchange of the assessee. Therefore, the whole system has been instal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brokers, but was for the purpose of the business of the assessee. 22. We have considered the rival submissions carefully and find that with a view to give boost to the financial reforms Government of India decided to ensure improvement in trading practices for transparency and speedy settlement a National Stock Exchange was supposed to be established in the budget for F.Y 1993-94. Ultimately, assessee company was incorporated by nationalized banks to start screen based trading to replace the existing floor based trading in stocks and shares. For this screen based trading the assessee company was required to install VSAT net work which consisted of a hub and VSAT antenna and monitor. The hub was installed in the premises of the assessee company, whereas VSAT antenna and monitor were installed in the premises of member brokers. The whole electronic system was installed with a prior permission of DOT under which the whole system was required to be owned by the assessee and was to be operated on no profit no loss basis because certain concessions were given in respect of customs duty. There was a further condition that all transactions were to be carried out through this system only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual benefits and even some benefit accrued to the other party, it cannot be said that the same was not for carrying on the business of the assessee. Again the Hon'ble Supreme Court in the case of Chandulal Keshavlal Co. [supra] at page-610 has held as under: "Another fact that emerges from these cases is that if the expense is incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purpose outside the course of business then the expense is not deductible. In deciding whether a payment of money is a deductible expenditure one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If the payment or expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may inure to the benefit of a third party (Usher's Wiltshire Brewery Ltd. v. Bruce) Another test is whether the transaction is properly entered into as a part of the assessee's legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby. But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of the trade or business of the assessee." In the above background, it was ultimately held that the machine was used exclusively for the business and profession of the assessee. 25. As far as the decision relied on by the ld. DR in the case of L.P. Hospitality (P) Ltd. [supra] is concerned, in that case the assessee company during the assessment year had entered into an agreement with Moet's Kababs by virtue of which it transferred 85% of its daily restaurant and bar sales to Moet's Kababs in lieu of material and labour supplied by it. The AO in this case observed that assessee did not run the business of bar and restaurant during the year as it had not purchased any raw material or employed any man power and it was Moet's who did everything and even the bar license fee has not been paid by the assessee. on these facts, disallowance of depreciation u/s.39(2) was upheld by the Hon'ble High Court because fixed ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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