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2016 (4) TMI 710 - ITAT KOLKATA

2016 (4) TMI 710 - ITAT KOLKATA - TMI - Admission fees - nature of income - Held that:- Bombay Stock Exchange towards broker contingency fund and admission fees are capital in nature.

Payment in the nature of penalty in terms of section 37 - Held that:- The assessee paid penalty for various defaults Bombay Stock Exchange like that of National Stock Exchange conducting their business control under SEBI during the course of its business transactions, therefore, we are of the opinion th .....

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ethra Ravi, J.M. For the Appellant : Shri D.C.Modok, FCA For the Respondent : Shri Uday Kumar Sardar, Addl.CIT, Sr.DR ORDER Per Shri S. S. Viswanethra Ravi, J.M. This appeal is filed by the assessee against the order dated 03.09.2012 passed by the CIT(Appeals)-VI, Kolkata for the assessment year 2006-07 framed under section 143(3) of the I.T.Act. 2. The grounds raised by the assessee are placed as below: 01. That on the facts and in the circumstances of the case, the learned Commissioner of Inco .....

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count of infringement of law . 03. That on the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals)-VI, Kolkata has erred in law in upholding the addition of ₹ 57,500/- treating the same 'as a Prior Period Expenses though the crystallization of liability occurred during the period of assessment. 04. That the appellant craves to add, alter and / or delete any grounds of appeal at later stage, if necessary. 3. The brief facts of the case are that t .....

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it of ₹ 1 crore was required to pay the following amount to Bombay Stock Exchange Ltd:- 1) Base Minimum Capital - ₹ 10,00,000 2) Trade Guarantee Fund - ₹ 10,00,000 3) Admission Fees (non-refundable) - ₹ 2,50,000 + 12.36% Service Tax 4) Broker Contingency Fund (non-refundable) -Rs.2,50,000 +12.36% Service Tax 5) Annual Subscription - 7000/- + Service tax of 12.36% 6) Initial Contribution towards TGF -10000/- + 12.36% Service Tax 7) Any other amount so required by BSE Ltd T .....

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nature, so as to make the expenditure fall in the capital field. 3) Payment of admission fee as well as contribution to Fund is like nature of licence fee and it is paid only for carrying on the business effectively and efficiently. By becoming a member, the appellant is permitted to make use the facilities provided by the Stock Exchange 4. During the assessment proceedings, the AO was of the view that payments towards fee for broker contingency fund and admission fee of each ₹ 2,50,000/- .....

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n nature and such payment was made to trade in the stock exchange, while confirming the view of AO, relied on the Judgements of Hon ble Jurisdictional Calcutta High Court in the case of Rajendra Kumar Bahavat -vs- CIT reported in 276 ITR 567 and also relied on the orders of ITAT at Kolkata and Chandigarh benches and treated the said amounts as capital expenditure. 6. In challenge by the assessee before us, the ld. AR reiterated the submissions made before the ld. CIT(A) and relied on the case la .....

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ck Exchange towards broker contingency fund and admission fees, both are stated to be non-refundable are capital expenditure or revenue expenditure. In this regard, the assessee relied on two judgements of Hon ble Delhi High Court and Hon ble Delhi High Court and Hon ble Madras High Court. Hon ble Delhi High Court held in the case of Neset Holdings Pvt. Ltd. -vs- CIT reported in [2006] 282 ITR 601 held that amounts paid to stock exchange as a non-refundable deposits for acquiring OTC membership .....

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ant portion of which is reproduced as herein below. The assessee paid a sum of ₹ 25 lakhs for development purposes for the purpose of becoming a member of the Calcutta Stock Exchange. In the assessment years in question, viz., 1992-93 and 1993-94, the assessee made two types of claims in regard to the said sum. 2. Firstly, the assessee s contention was that the amount is by way of revenue expenditure and is not by way of capital expenditure. Secondly, the assessee submitted that it was ent .....

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any authority given in the IT Act, for carrying forward revenue expenditure, after dividing it, as per the assessee s own wish into subsequent assessment years. 5. In this view of the matter, no point of law worth the name arises out of the Tribunal s order dt. 21st Sept., 2001. The petition of appeal is dismissed. 9. The ITAT, Kolkata Bench in the case of ACIT vs Ajoy Bhhauwala reported in 80 ITD 79 the relevant held portion and discussion thereon reproduced herein below: Held: On a reading of .....

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he exchange without which it was not possible for him to carry on the business and, therefore, it would be an expenditure of capital in nature. The mere fact that although incidental, the expenditure would certainly help in the business of the assessee and may also help in profit-making, would not be sufficient to treat the same as revenue expenditure because it still retains the character of capital expenditure since the expenditure is directly related to the acquiring of right of carrying on o .....

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plied; CIT vs. New India Sugar Mills (1992) 107 CTR (Cal) 280 distinguished. 17. To incur expenditure by way of development fee was to ensure the source for operating in the floor of the Exchange without which it was not possible for him to carry on the business and, therefore, it would be an expenditure of capital in nature. 19. The payment made by the assessee to the Stock Exchange is a condition for carrying on of the trade on the floor of the Exchange and, therefore, in our opinion, it is cl .....

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acquiring of right of carrying on of the business or to ensure the source of carrying on of the business. 20. Reference of the decision of the Calcutta High Court by the learned counsel of the assessee in the case of CIT vs. New India Sugar Mills (1992) 107 CTR (Cal) 280 : (1993) 68 Taxman 356 (Cal), is of no help as in that case the contribution made by the assessee-company which was engaged in manufacture of sugar towards Molasses Storage Reserve Fund created under U.P. Sheera Niyantran (Sansh .....

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nd restore that of the AO. 21. In the result, the appeal is allowed. 10. Respectfully following the aforesaid decisions and we hold that that the payments made to Bombay Stock Exchange towards broker contingency fund and admission fees are capital in nature, accordigly, ground no-1 fails and it is dismissed 11. Regarding ground no.2, the AO has narrated above the facts of the case that the assessee is a registered stock broker and obtained deposit based membership of Bombay Stock Exchange Ltd. T .....

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nfringement of law. This order was confirmed by the CIT(A). According to CIT(A) that the assessee did not file any copy of ledger and any such evidence regarding the nature of penalties and violation committed by the assessee. 13. Having aggrieved, the assessee before us by this ground no.2. The assessee submitted that it is a stock exchange penalty and such bodies having no authority of law, the amounts being paid towards various defaults cannot be treated as penalty. It does not constitute any .....

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iary punishment. 15. Further, The penalty proceedings are not criminal proceedings. These proceedings are distinct and separate from tax proceedings or criminal proceedings. Penalty proceedings are certainly of a penal nature, i.e., intended to punish for the defaults. The word penalty', however, is also used with reference to criminal proceedings in the sense of punishment. All penalties do not flow from an offence but all offences lead to penalties. Whereas the former flows from disregard .....

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n recorded by the AO that the payment of ₹ 48,158 was made by the assessee for breach of contract as a speculative transaction in terms of s. 43 of the Act. This transaction, cannot, therefore, be equated in the circumstances of the case on hand. Thus, the case law supplied by the Ld.AR does not fit into the facts of present case. 17. We find support, in the case of INCOME TAX OFFICER vs. GDB SHARE & STOCK BROKING SERVICES LTD BY ITAT, KOLKATA 'C BENCH reported in 88 TTJ(KOL)352, t .....

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s been paid by the assessee to compensate for delay in payment of the dues to the National Stock Exchange and for various other obligations. We, therefore, agree with the learned CIT(A) that the disallowance is, therefore, not justified and he has rightly directed the AO to delete ₹ 13,967 from the total income 18. In the aforesaid order the assessee paid penalty for delay in payment of the dues and for various other obligations arising out of carrying on business activities and the ITAT a .....

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portion of order is reproduced herein below: 10. We have heard the rival contentions and perused the orders carefully. The short question arising here is that whether violations of the Rules and Regulations of NSE Ltd. by its members could be treated as an offence or as an act prohibited by law. In case, it can be termed as an offence or an act prohibited by law, no doubt such expenditure would fall within the ambit of s. 37(1) of the Act. Rule. 1(1) of the NSE Ltd clearly brings out that it has .....

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rticles of association of NSE Ltd. The Board is having power for penalizing any disobedience or contravention of its rules, bye-laws and regulations by its member. No doubt, the board of directors of NSE has therein nominees of SEBI, but, in our opinion, this by itself would not make NSE a statutory body on par with SEBI. Members of NSE Ltd are bound through the articles of association to abide by the rules, regulations and bye-laws of the NSE Ltd. Nevertheless, such rules, regulations and bye-l .....

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be equated with violation of a statutory rule or law. Though, the learned CIT(A) has referred r. 4C in Appendix 222 to SEBI Rules, 1992, this rule only specifies the condition to be satisfied for the SEBI Board to grant a certificate to a stock broker. It is true that working of stock exchanges can be regulated by SEBI under the SEBI enactment but violation of rules and regulations framed by such stock exchanges cannot be per se considered as violation of any provision of SEBI enactment. The fi .....

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