TMI Blog2014 (5) TMI 993X X X X Extracts X X X X X X X X Extracts X X X X ..... ments on account of transaction charges, V-SAT charges, lease line charges and misc. Charges were made in Pursuance of a contract - The payments were made to NSE in the normal course of business and these payments do not fall within the scope of section 194C of the Act - the provision of section 40(a)(ia) cannot be invoked with respect to the payments which are actually paid during the financial year, but it can be invoked only with respect to the payments not actually made - all the payments were made during the year and nothing was payable at the end of the year, no disallowance is called for - the order of the CIT (A) is upheld – Decided against Revenue. Rebate u/s 88E of the Act – Computation of book profits u/s 115JB of the Act – Held that:- The AO has computed the taxable income of the assessee company under the normal provisions of the Act as well as under the special provisions of section 115JB of the Act - While computing the book profit u/s 115 JB, the AO has not allowed the rebate on account of STT u/s 88E of the Act from the book profit of the assessee company – Relying upon M/s Horizon Capital Limited, the ITAT Bangalore [2011 (10) TMI 489 - KARNATAKA HIGH COURT] - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -objection by the assessee is as follows:- (i) That on the facts and circumstances of the case, CIT(A) was not justified in confirming disallowance to the extent of Rs. 9,27,981/- u/s. 14A read with rule 8D on the alleged ground that these expenses are relatable to earning of dividend income claimed as exempt. (ii) That in the absence of any claim of expenses relatable to earning of dividend income or any such finding in the assessment order, there is no factual or legal basis for any disallowance. (iii) That in the absence of any specific finding regarding disallowance u/s 14A, provisions of rule 8D are not applicable and even otherwise, same are not legal and valid. (iv) That even otherwise, income of the assessee in respect of share activities was considered under the head business and dividend income being incidental, there is no case of any disallowance u/s 14A read with rule 8D. 4. Apropos deletion of addition of Rs. 20,391/- made by the Assessing Officer on account of extra depreciation claimed by the assessee on computer peripherals. 5. Briefly stated the facts of the case is that the assessee is a Private Limited company and is engaged in the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k in isolation and also working on computer system without an output device such as printer would be futile. In view of the above, the claim of Page No. 7 ITA No. 2396/Del/2011 depreciation at 60% on printer, scanner and other computer peripherals is completely justified. The claim of depreciation of 60 % further gets justified in view of the fact that even computer software which is installed on computer system supports the computer hardware and is eligible for depreciation at 60% per cent. 9. We respectfully follow the aforesaid decision of the co-ordinate bench and therefore, we find no merit in the appeal filed by the department on this ground and therefore we confirm the order passed by the ld CIT(A) on this issue. This ground of the revenue is dismissed. 10. Apropos deletion of addition of Rs. 47,41,042/- on account of non deduction of TDS on payment made to NSE. 11. Briefly stated the facts of the case are that the assessee is a Private Limited company and is engaged in the business of share broking as well as self trading in share and securities. The appellant company filed its return of income on 30.09.2008 declaring an income of Rs. 7,15,42,030/-. The assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entions in light of the material produced and precedent relied upon. We find that Ld. Commissioner of Income Tax (A) has noted that as far as the advise of NSE relied upon by the Assessing Officer is concerned, it is general in nature and the members have been advised to evaluate the applicability of tax provisions. Ld. Commissioner of Income Tax (A) further found that for ascertaining the liability of tax deduction at source with regard to various payments, it would be necessary to refer to the relevant statutory provisions of section 194C of the Act. Ld. Commissioner of Income Tax (A) opined that the said section relates to the payments made to a contractor in pursuance of a contract between the contractor and the specified person. Ld. Commissioner of Income Tax (A) further observed that no material has been brought on record to show that the payments on account of transaction charges, V-SAT charges, lease line charges and misc. Charges were made in Pursuance of a contract. These payments were made to NSE in the normal course of business and these payments do not fall within the scope of section 194C of the Act. 13. Over and above, we find that the issue involved is also squar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to verify the STT deducted from the assessee company and then to allow the rebate u/s 88E while computing the book profit u/s 115JB as decided by the Hon ble High Court of Karnataka in the case of M/s Horizon Capital Limited. Aggrieved by the said order of the ld CIT(A) the revenue is before us. 20. The ld DR supported the order of the Assessing Officer and contended the book profit in the case of assessee as per its e-filed return works out to Rs. 7,10,65,299/- and the assessee ought to have paid tax u/s 115JB at Rs. 71,06,530/-. However, the assessee did not pay the tax on the said income u/s 115JB on account of claim of rebate u/s 88E. According to ld Dr, section 115JB is a complete code of its own and section 88E is a general provision and section 115JB starts with a non-obstante clause and section 88E rebate cannot be allowed when tax is calculate u/s 115JB and accordingly the assessee is not entitled to STT credit. According to the ld DR the rebate u/s 88E is applicable to all the assessee, whereas provision u/s 115JB is applicable only to corporate assessees. According to the ld DR section 115JB is a deeming provision and is not beneficial provision. Therefore the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit of the assessee company. In a decision in the case of M/s Horizon Capital Limited, the ITAT Bangalore (2011) 64 DTR (Kar) 306 has laid down that tax rebate in respect of STT u/s 88E is available even against tax liability u/s 115JB. 22. It is further seen that a co-ordinate bench of the Tribunal has followed the aforesaid decision in the case of MBL Securities Pvt. Ltd. and has allowed the rebate u/s 88E from the book profit of the assessee, while computing the book profit. It is also seen that the decision of ITAT Bangalore has further been confirmed by the Hon ble High Court of Karnataka in its order dated 24.10.2011 in CIT Vs., M/s. Horizoan Capital ltd. ITA 434 of 2010 wherein the Hon ble Karnataka High Court held that: 17. Therefore, the contention that this benefit is not available to the assessee whose total income is assessed u/s 115JB has no substance. In other words, when the total income is assessed and the tax chargeable is computed, it is from that tax which is chargeable, is computed, it is from that which is chargeable, the tax paid u/s 88E is given deduction, by way of rebate, u/s 87 of the Act. This is the legislative intent. That is promise to give ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld DR contended that the mandate of Section 14Ais clear. It desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail the tax incentive by way of an exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. According to the ld DR in the case of CIT Vs. Walfort Share and Stock Brokers P. Ltd (2010) 326 ITR 1 (SC), the Hon ble Supreme Court has clearly held that in the case of an income like dividend income which does not form part of the total income, any expenditure/ deduction retable to such (exempt or non-taxable ) income, even if it is of the nature specified in sections 15 to 59 of the said Act, cannot be allowed against any other income which is includible in the total income. The ld DR stated that the theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened u/s 14A. The ld DR contended that in Maxopp Investment Ltd. Vs. CIT, the Hon ble Delhi High Court held that even where the assessee claims that no expenditure has incurred in relation to income which does not form part of the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived and the ld AR cited the decision of Hon ble Karnataka High Court in the case of M/s. CCI Ltd. Vs. The Joint Commissioner of Income Tax, dated 28th February 2012 for the Assessment Year 2007-08. 30. We have heard both the parties and perused the records and has gone through the case laws cited by both the parties. 31. As per the Hon ble Delhi High court decision in the case of Maxopp Investment Ltd. Vs. Commissioner of Income-tax (2012) 347 ITR 272 (Delhi), it has been held that the Assessing Officer if not satisfied with the correctness of the claim of the assessee, the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the Act in accordance with the prescribed method. The prescribed method is the method stipulated in Rule 8D of the Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. It is, therefore, clear that the determination of the amount of expenditure in relation to exempt income under r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely:- A X B C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; B = The average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; (iii) an amount equal to one-half per cent of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant to bear in mind the fact that, in the case of Godrej Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81/194 Taxman 203 (Bom.)and dealing with a period when rule 8D was not applicable, Hon ble Bombay High Court has not only held that the Assessing Officer has to enforce the provisions of sub section (1) of section 14A, and for that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of total income under the Act , but further added, while remitting the matter to the Assessing Officer for computation of disallowance under section 14A, that the Assessing Officer shall examine whether any expenditure (direct or indirect) [Emphasis by underlining supplied by us] in relation to exempt income is incurred and that disallow the same. As a corollary to the above legal position, so far as disallowance under section 14A in a situation in which the exempt income yielding asset, such as shares in question, is held as stock in trade, and not as investment, the disallowance will be of related direct and indirect expenditure, whereas disallowance under rule 8D will be restricted to disallowance of on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical issue came up before the Hon ble Karnataka High Court in the case of M/s. CCI Ltd. Vs. The Joint Commissioner of Income Tax, wherein, the Hon ble High Court held by an order dated 28th February 2012 for the Assessment Year 2007-08. The facts of the case in brief is that the assessee was a dealer in shares and securities, the assessee had earned dividend income of Rs.46,67,190/- from shares of certain companies and 93% of shares of M/s. Kurlon Ltd, and further the assessee had purchased 24,000/- fully paid shares from M/s Kurlon Ltd., and converted its stock of partly paid shares into fully paid share by paying the outstanding amount of Rs. 8/- per share, which worked out to Rs. 5,27,97,016/-. To pay for the conversion cost, the assessee has entered into agreement with M/s Kitchen Appliances Pvt. Ltd., to avail interest free loan of Rs. 14/- crores and had paid Rs. 28/- lakhs to one Sri A. S. Krishna Iyer for brokering this loan. The Assessing Officer held that this expenditure was directly attributable to the earning of the dividend income and disallowed the same. He further considered the business expenditure claimed by the assessee and estimated the expenditure incurred by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the ld CIT(A) has stated that since Rule 8D is in force during the relevant Assessment Year 2008-09 and in the absence of any explanation regarding the expenditure relating to earning of the exempt income from the assessee company, the Assessing Officer had no other option but to estimate the disallowance relating to general and administrative expenses, staff and personal expenses and interest expenditure etc. applying Rule 8D; and therefore, addition made by the Assessing Officer was confirmed. The Assessing Officer has calculated the disallowance as under:- (i) Expenses directly attributable Nil (ii) Interest expense A*B/C 490762 (iii). 5% of the avg. investments=.5%*B 437219 Disallowable expense 927981 A Total Interest 540744 B Opening value of investment 58111358 Closing value of investment 116776394 Avg. value of the investment 87443876 C Opening va ..... X X X X Extracts X X X X X X X X Extracts X X X X
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