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M/s Millennium Stock Broking (P) Ltd. Versus DCIT Circle-6, P-7, Kolkata

2015 (12) TMI 141 - ITAT KOLKATA

Rebate of claim u/s 88E - whether section 88E is a specific provision and, therefore, it has to be given preference over other provisions and the computation had to be made as contemplated under that section? - set off being claimed u/s 70 of the Act in regard to loss incurred by assessee on account of arbitrage and jobbing transactions on which admittedly STT was paid - Held that:- The object of Section 88E clearly is to protect the assessee from double taxation. Firstly, by way of payment of S .....

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cisions relied upon by ld. Counsel cannot be made applicable to the facts of the case which is in context to Section 88E. Therefore, we do not find any reason to interfere with the order of Ld. CIT(A) in holding that business loss occurred on arbitrage and job which were STT paid transactions could not be adjusted against the non-STT transaction belonging to clients. It had to be deducted from STT paid transactions only on assessee’s own account. There is one more reason. The rebate u/s. 88E is .....

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, ITA No.677/Kol /2011, ITA No. 676/Kol /2011 - Dated:- 29-9-2015 - Shri, S.V. Mehrotra, Accountant Member and Shri Mahavir Singh, Judicial Member For The Assessee : Shri J.P.Khaitan, Senior Advocate Shri Anirban Ghosh, Advocate For The Revenue : Shri Pinaki Mukherjee, JCIT-SR-DR PER S.V.Mehrotra, Accountant Member:- These three appeals - two by assessee and one by Revenue are against the different orders of Ld. Commissioner of Income Tax (Appeals)-VI Kolkata dated 28.02.2011 for the assessment .....

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u/s 148 of the Income Tax Act, for allowing inaccurate rebate of claim u/s 88E. The AO in the assessment order u/s. 147/143(3) dated 31-12-09 of the Act has observed that the STT paid income of ₹ 4,91,73,037/- was computed by assessee by debiting expenses of ₹ 65,15,839/- from STT income of ₹ 5,56,88,876/- (as per assessee). He noted that assessee had allocated total expenses of ₹ 1,66,63,904/- in the ratio of 25% / 75% basis between STT income of ₹ 55,688,876/- an .....

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2/- 4] Donation 3,000/- Add: As discussed above: A] u/s 14A 1,500/- B] Expenses 27,892/- 29,392/- 5,03,18,061 Less: Dividend [Exempt] 29,974/- Depreciation [As per I.T. Rules] 5,02,003/- 5,31,977/- Total Income 4,97,86,084/- R.O. Rs.4,97,86,080/- CALCULATIN OF TAX Income Tax thereon 1,49,35,824/- Less: Rebate u/s. 8E @ 30% of ₹ 4,91,73,037/- 1,47,51,911/- [Actual paid ₹ 1,80,13,120/-] Tax on Non-STT Income of ₹ 6,13,047/- @ 30% 1,83,914/- Add: S.C @ 10% 18,391/- Add: Education .....

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67,722/- related to both STT income and non-STT income. The Assessing Officer determined the common expenses attributable to non-STT income as under:- Rs.(1,07,61,694) x ₹ 20,67,722 Rs.5,85,71,389/- Rs.98,45,114 + ₹ 9,16,580 - ₹ 3,79,916 2.5 Therefore, net non-STT income was arrived at ₹ 1,03,81,778/- as under:- (Rs.98,45,114 + ₹ 9,16,580) - ₹ 3,79,516 = ₹ 1,03,81,778/- 2.6 He, accordingly determined non-STT at ₹ 1,03,81,778/- and STT income at  .....

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l assessment. On merits, assessee explained the calculation u/s. 88E as under:- The detail of appellant returned income is as below: Business Amount Share Trading 4605962 Jobbing, arbitrage dealings 2856925 F/O profit 53939839 Brokerage/others 10731720 Expenses as per Returned of Income (16663904) Returned income 49756692 The expenses were bifurcated on overall business and actual in the under mentioned basis Particulars Own Client Total Remarks Transactions charges 7464182 2488061 99522443 75:2 .....

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4 49173037 b) Non STT income 10731720 Less: Expenses etc. 7291140 Less: Set off u/s 70 2856925 583655 3.1 The first contention of the assessee was that out of the expenses debited to the profit and loss account under head others , of ₹ 40,39,049/-, the sum pertaining to client s account was at ₹ 40,34,526/- and on own account was only ₹ 4,523/-. The assessee had given the justification in the following manner We have to state that our basic work is carrying of brokerage busines .....

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us expenses of Vsat & lease line charges, repair & maintenance, printing & stationary, stamp expenses on brokerage, bank charges, Salary & Bonus etc., Books & Periodicals, Rent & Maintenance charges, rates & taxes, insurance, telephone, Misc. expenses, audit fees etc., are very much part and parcel of carrying on brokerage business. The same have to be incurred irrespective of the business generated on account of brokerage and is directly attributable to brokerage bus .....

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ical ad systemic development in stock markets. In a nutshell maintaining of structure of business as well as carrying of brokerage business thus entails substantial expenditures. Expenses are allocate done the basis of overall business and actual for rebate u/s. 88E. 4. The second dispute was in regard to loss of ₹ 28,56,925/- from jobbing and arbitrage dealings which had been set off by assessee against non-STT income on the ground that it was non STT income. Ld. CIT(A) did not accept thi .....

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appeal proceedings assessee was required to provide details about the volume of transactions done by the assessee on its own account and on account of its client s from which it transpired as under:- Own transactions Rs.249141541578.47 Client transactions Rs.51113102336.90 4.2. He, accordingly, observed that 83% of the transactions were assessee s own transactions and only 17% were transactions belonging to the clients. Thus, he observed that the substantial portion of the transactions were asse .....

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t of total expenses of ₹ 1,66,63,904/-, the common expenses were at ₹ 1,44,31,965/- (1,66,63,904 - 22,31,939) and these had to be apportioned between the STT and non-STT income which he allocated in the ratio 83% to 17% of the common expenses amounting to ₹ 24,53,434/- related to non-STT income. He computed net STT and non-STT income as under:- STT Income Rs.5,85,45,801 Less: Jobbing & arbitrage loss Rs.28,56,925 Less: Related Exp. ₹ 1,19,78,531 Net STT Income Rs.4,37 .....

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s Ld. CIT(A) allowed excess rebate of ₹ 12,86,352/- u/s.88E of the Act. 6. First we take up assessee s appeal raising the following grounds of appeal:- 1) That on the facts and circumstances of the case the CIT(A) erred in concluding that proceedings u/s. 147 initiated by the AO, recorded reason as well as completing the assessment was as per law. 2) That on the facts and circumstances of the case the CIT(A) erred in not setting off the arbitrage/jobbing loss of ₹ 2856925/- from non .....

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ated 12-11-2009 are contained and pointed out that the same does no refer to any escapement of income but allowing of excess rebate. Ld. Counsel submitted that rebate u/s 88E depends on income determined. He submitted that assessee s income remains unaltered and, therefore, there was no 4escapement of income. He referred pages 29 and 30 of the Paper Book filed by assessee wherein the Form No. 10DB is contained to demonstrate that STT was paid on assessee s own transactions. He relied the followi .....

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d out that no opinion was formed by AO in original assessment on various aspect in regard to determination of STT income and non-STT income as per the provision of u/s 88E. 9. We have considered the submission of both the parties and have perused the record of the case. As far as the first proposition advanced by Ld. Counsel for the assessee that there is no escapement of income, is concerned, we do not find any merit in the same. As per the deeming provisions contained in Explanation to section .....

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position u/s. 88E. If a claim is not legally sustainable and reassessment proceedings have been initiated in ordered to arrive at the correct taxable income on which the rebate is admissible, then it cannot be said to a case of change of opinion because if the law has not correctly been applied then the same cannot be equated with a situation where two views are possible. For allowing proper rebate u/s 88E, total income arising from taxable security transaction had to be computed. The AO recorde .....

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essment proceedings. This ground of assessee is dismissed. 10. Now coming to the merits of the case. The first dispute raised by ld. Counsel in course of hearing is regarding allocation of establishment expenses incurred by assessee. Before, we proceed to consider this aspect, we may point out that assessee has not taken any ground on this issue, but in course of hearing ld. Senior counsel raised this issue. Since the issue arises from ld. CIT(A) s order and all facts are there on record, we pro .....

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nted out that in subsequent year the AO himself has allocated only 15% of the establishment expenses towards own transactions resulting into STT income. 10.1 Ld. DR has submitted that merely because in subsequent year the AO has accepted 15% expenses towards STT transactions that can not automatically be applied for current year. After considering submissions of both the parties and taking into consideration the explanation reproduced earlier, we are of the opinion that there is considerable for .....

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enses. On other expenses there is no dispute. 11. Now the second issue is regarding the set off being claimed u/s 70 of the Act in regard to loss incurred by assessee on account of arbitrage and jobbing transactions on which admittedly STT was paid. Assessee s contention is that it is entitled to set off the loss from jobbing / arbitrage transaction against the non-STT transaction for computing rebate u/s 88E. In this regard, Ld. Counsel for assessee relied on the case law in the case of CIT v. .....

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total income of an assessee in a previous year includes any income, chargeable under the head Profits and gains of business or profession , arising from table securities transactions, he shall be entitled to a deduction, from the amount of income-tax on such income arising from such transactions, computed in the manner provided in sub-section (2), of an amount equal to the securities transaction tax paid by him in respect of the taxable securities transactions entered into in the course of his .....

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rising from the taxable securities transactions, referred to in that sub-section, shall be equal to the amount calculated by applying the average rate of income- tax on such income. [(3) No deduction under this section shall be allowed in, or after, the assessment year beginning on the 1st day of April, 2009.] Explanation.-For the purposes of this section, the expressions, taxable securities transaction and securities transaction tax shall have the same meanings respectively assigned to them und .....

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has to be ascribed the meaning as contemplated in the context in which Section 88E has been inserted by the Finance Act 2004 with effect from 1.4.2005. The object of Section 88E clearly is to protect the assessee from double taxation. Firstly, by way of payment of STT and secondly by way of income tax on the income earned from STT transaction. The concept of total income as contemplated under Section 2 sub-section (45) cannot be imputed here. The opening words of section 2 dealing with the defin .....

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red on arbitrage and job which were STT paid transactions could not be adjusted against the non-STT transaction belonging to clients. It had to be deducted from STT paid transactions only on assessee s own account. There is one more reason. The rebate u/s. 88E is allowable from the tax paid. However, in case of arbitrage loss assessee had admittedly not paid any income tax. Therefore, if assessee s plea is accepted then it would lead to double relief to assessee - firstly, by allowing set off u/ .....

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12,86,352/- u/s.88E of the Act to the assessee though the AO has calculated the same in a correct manner. 14. We find that AO had computed STT income of ₹ 4,78,09,695/- which was rectified by Ld. CIT(A) by observing as under:- As regards the calculation done by the AO I find that it is erroneous because while taking STT income of ₹ 4,78,09,695/-. From the GP calculation sheet the AO forgot to add the value of closing stock of ₹ 78,79,181/-. Though in the direct expenses he inc .....

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