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Destiny Securities Ltd. Versus Deputy Commissioner of Income Tax

Eligibility to rebate claim u/s. 88E - Held that:- The assessee’s self transactions are to the tune of 41% and brokerage/clients’ transactions pertained to 59%. The proposition of law laid down by this Coordinate bench in the case of M/s. Millennium Stock Broking (P) Ltd.,[2015 (12) TMI 141 - ITAT KOLKATA], if we go by that then at the best revenue can disallow rebate u/s. 88E of the Act qua brokerage income at 10%, both on indirect expenses as well as interest - Decided partly in favour of asse .....

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Tax Act, 1961 (hereinafter referred to as the Act ) for Assessment Years 2007-08 and 2008-09 vide his separate orders both dated 23.12.2011. 2. The only common issue in these two appeals of assessee is against the order of CIT(A) in restricting the disallowance made by AO in respect to rebate claimed by assessee u/s. 88E of the Act. The facts and circumstances are exactly identical in both the years and hence, we reproduce the grounds as raised in ITA No. 1447/Kol/2012 for AY 2007-08, which rea .....

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s which were chargeable to Securities Transaction Tax (STT). During the course of assessment proceedings, the assessee company filed tabular chart disclosing computation of segment wise profit from its income which are charged to STT and the profits which are not charged to STT. The AO finally disallowed credit for rebate u/s. 88E of the Act to the extent of ₹ 6,87,921/- in respect to the claim made on account of clients turnover. The assessee in the calculation provided in the said tabula .....

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ted to STT paid trading profit and brokerage income from the gross profit. Further, it allocated the indirect expenses in the ratio of turnover. According to AO, certain expenses like rent, repairs and maintenance, electricity, director s remuneration, staff welfare, auditor s remuneration, travelling, miscellaneous expenses, depreciation etc. were claimed by the assessee exclusively against the brokerage income and on perusal of detail, the AO was not satisfied that the expenses both direct and .....

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considering the allocation of expenses restricted the disallowance at ₹ 2,66,654/- by observing in para 5 as under: 5. I have considered the submission of the appellant and perused the assessment order. I have also gone through the calculation made by the appellant as well as the AO for the purpose of rebate u/s 88E as per the assessment order. On going through the said calculation, I am of the opinion that neither the claim of the appellant is correct and nor the view taken by the AO to a .....

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company was executing the transactions in shares and securities and F&O segment, both on behalf of its clients as well as its own account. Hence, whatever expenses were incurred by the appellant are attributable to this composite activity and, therefore, allocable to both STT and non STT paid receipts, unless an expenditure may be linked directly to a specific category of income. The appellant company cannot say that the FORs were taken out of the borrowed money only and that the benefit of .....

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On this point also I agree with the view of the AO that these expenses are allocable between both types of activities. However, I am of the opinion that the view taken by the AO that the expenses as per profit and loss account are allocable in the ratio of income from STT paid and non STT paid transactions, is not correct. In the case of composite business activities where the common or indirect expenses are required to be allocated amongst different categories of transactions, the most appropr .....

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expenses were incurred only to achieve the turnover from where there is positive income and no expenditure is related to the negative income. I am of the opinion that this proposition is not correct and, therefore, all the indirect expenses are to be allocated on turnover criteria. In the case of appellant company, the ratio of turnover of non STT and STT paid transactions is 59% and 41% respectively. Hence, after deduction of direct expenses, the indirect expenses are to be deducted on the bas .....

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llocation of Direct Expenses Direct Expenses Non STT STT Transaction Fees 714440 Vasat Expense 127750 Lease Line Expenses 153396 Client Intro fees 1712352 Pledge Charges 85978 Total 2079476 714440 In view of above, the AO is directed to allow credit of rebate u/s. 88E at ₹ 35,01,403/- i.e. (Rs.1,16,49,947 / ₹ 1,61,24,025) x ₹ 48,46,092/-. The ground no.2 is partly allowed. Aggrieved, now assessee is in appeal before Tribunal. 4. Before us Ld. Counsel for the assessee filed copy .....

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e transactions belonging to the clients. Thus, he observed that the substantial portion of the transactions were assessee's own transaction and it was wrong for the ae to claim that it mainly maintain its establishment for its clients. He pointed out that out of the total expenses, other than the STT charges debited in the profit and loss account only the expenses for stamp duty charges amounting to ₹ 22,31,939/- could be said to be fully related to client's transactions. All remai .....

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as allocated 25% of establishment expenses towards assessee s own transaction and 75% are allocated towards client s transaction i.e. non STT income in respect of establishment expenses. The Tribunal has adjudicated this issue vide para 10.1 as under: 10.1. Ld. DR has submitted that merely because in subsequent year the AO has accepted 15% expenses towards STT transactions that cannot automatically be applied for current year. After considering submissions of both the parties and taking into con .....

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and 75% are allocated towards client s transaction (non STT income) in respect of establishment expenses. On other expenses there is no dispute. 5. In view of this, ld. Counsel for the assessee stated that in the present case there is no dispute in regard to direct expenses whereas dispute is limited to indirect expenses and the nature of expenses are fixed and do not change with the volume of self business, hence should be apportioned over the core business of brokerage but Ld. Counsel for the .....

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