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Market Creators Limited Versus ITO, Ward 4 (1) , Baroda

Treatment as business income instead of dividend income - Held that:- The assessee is dealing in shares and securities, which means that it is buying and selling shares for its customers. The shares purchased, often, are kept by the assessee and such shares may have been purchased as cum dividend. The assessee is duty bound to remit the dividend as and when received to the purchasers of the shares. Therefore, there are credit and debit entries in the ledger account. At times, due to the ignoranc .....

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surplus as income of the assessee - Disallowance of interest expenses invoking provisions of Section 40A(2)(b) - Held that:- A perusal of the returned income of the payees shows that all the payees are assessed at the highest rate of tax. Since both, the payer and payees, are assessed at the same rate of tax, in our considered opinion, there is no basis of any Revenue leakage. As decided in case of PWS Engineers Limited [2016 (6) TMI 596 - GUJARAT HIGH COURT ] a certain income has already be .....

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rendered is not an appropriate view. Such charges, really, are in the nature of payments made for facilities provided by the Stock Exchange. No TDS on such payments would, therefore, be deductible under Section 194J of the Act. - Decided in favour of the appellant-assessee - Disallowance of depreciation on electrical fittings - Held that:- We find that under Rule 5 of the Income-tax Rules, which contains the depreciation table for various block of assets and under Part A(II) depreciation on .....

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Revenue : Shri Jayant Javeri, Sr DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER: ITA Nos. 1746, 1747 & 1748/Ahd/2013 are three appeals by the assessee preferred against three separate orders of the CIT(A)-III, Baroda dated 18.04.2013, 19.04.2013 and 18.04.2013 pertaining to AYs 2007-2008, 2009-2010 and 2010-2011 respectively. Since all these appeals have common issues, therefore, they were heard together and are disposed of by this common order for the sake of convenience. ITA No.1746/Ahd/201 .....

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edit of ₹ 2,41,866/- has been claimed by the assessee as dividend income and accordingly claimed the exemption. The AO was of the firm belief that since the assessee was not holding any investment, therefore, there is no question of earning any dividend income. The AO treated ₹ 2,41,866/- as income of the assessee. 2.2 The assessee carried the matter before the CIT(A) and reiterated its contention but without any success. 2.3 Before us, the Counsel for the assessee once again claimed .....

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d as and when received to the purchasers of the shares. Therefore, there are credit and debit entries in the ledger account. At times, due to the ignorance of the buyers who may not be aware that they have purchased shares as cum dividend and therefore, did not claim the dividend amount from the broker. Because of such ignorance, the amount remained with the assessee. This is nothing but a benefit derived by the assessee from the transactions done in its ordinary course of business. Therefore, s .....

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eturn of income, the AO found that the assessee has paid interest @ 24% to related persons covered u/s 40A(2)(b) of the Act; whereas, at the same time, the assessee has also paid interest to others @ 8% to 12 %. The assessee was asked to justify the payments of interest @ 24%. The assessee submitted that the nature of business activities carried on by it is so volatile and risky that it has to pay higher rate of interest to some parties. This contention of the assessee did not find any favour wi .....

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is so volatile that at times it has to pay different rate of interest to different parties as per the needs. The DR strongly supported the findings of the Revenue Authorities. 3.4 We have carefully perused the orders of the authorities below. The interest payment made by the assessee can be understood from the following chart:- Interest payment covered under 40A(2)(b) FY 2006-07 AY 2007-08 Sr. No. Name of party Amount Rs. @ 24% Amount Rs. @ 18% Difference 1 J.H. Shah (HUF) 20,11,745 15,08,809 5 .....

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d by the decision of Hon ble High Court of Gujarat in the case of PWS Engineers Limited in Tax Appeal No. 209 of 2015, wherein the Hon ble High Court had the occasion to consider the following substantial question of law and held as under:- "(ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in law and in overlooking the fact that the entire exercise was revenue neutral in nature because the company as well as the Directors were taxable at the same rate a .....

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e Revenue can tax the same income in the hands of the company on which the Directors had already paid the tax at the same rate at which the company would have been liable to be assessed. In this context, we may recall that consistently before Assessing Officer, CIT(Appeals) and Tribunal, the assessee had canvassed that all the four Directors who had received such remuneration, were taxed in the highest bracket of 30%; at the same rate at which the assessee company at the relevant time was assess .....

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d it not been so distributed; would have been taxed in the hands of the company. In that view of the matter, the question of revenue neutrality would immediately arise. A certain income has already been taxed in the hands of the Directors. Permitting the Revenue to tax the same income again at the same rate in the hands of the principal payer would amount to double taxation. Only on this count, we answer question in favour of the appellant-assessee and against Revenue, allow the Appeal and set a .....

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ovisions of the law. 5. Ground No.4 relates to the initiation of penalty u/s 271(1)(c) of the Act. This ground is premature and accordingly dismissed. 6. In the result, the appeal filed by the assessee is partly allowed. ITA No.1747/Ahd/2013 : AY 2009-10 7. The first ground relates to the disallowance of turnover charges (transaction charges) of ₹ 38,56,887/- paid to the stock exchange by invoking provisions of Section 40(a)(ia) of the Act. 7.1 While scrutinizing the return of income, the .....

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the aforesaid decision of the Hon ble Bombay High Court has been reversed by the Hon ble Supreme Court vide order dated 29.03.2016 in Civil Appeal No.3143 of 2016 and 3146 of 2016. The relevant findings of the Hon ble Supreme Court read as under:- 9. There is yet another aspect of the matter which, in our considered view, would require a specific notice. The service made available by the Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which the charges in question had been paid by .....

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ices provided by the Stock Exchange for which a member is compulsorily required to pay an additional charge (based on the transaction value) over and above the charges for the membership in the Stock Exchange. The above features of the services provided by the Stock Exchange would make the same a kind of a facility provided by the Stock Exchange for transacting business rather than a technical service provided to one or a section of the members of the Stock Exchange to deal with special situatio .....

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al services provided by the Stock Exchange, not being services specifically sought for by the user or the consumer. It is the aforesaid latter feature of a service rendered which is the essential hallmark of the expression technical services as appearing in Explanation 2 to Section 9(1)(vii) of the Act. 10. For the aforesaid reasons, we hold that the view taken by the Bombay High court that the transaction charges paid to the Bombay Stock Exchange by its members are for 'technical services&# .....

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the light of our views and observations as indicated above. 7.5 Since the decision of Hon ble Bombay High Court relied upon by the Revenue Authorities has been reversed by the Hon ble Supreme Court, we set aside the findings of the CIT(A) and direct the AO to delete the addition of ₹ 38,56,887/-. Ground No.1 is accordingly allowed. 8. Ground No.2 relates to the ad-hoc disallowance @ 50% of the financial charges of ₹ 9,37,500/- by invoking provisions of Section 40A(2)(b) of the Act. .....

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.H. Shah Rs.1,75,000 6 Kalpana M. Merwana Wife of Director s brother Rs.2,62,500 7 Yatish H. Shah Brother of Director, Dr. J.H. Shah Rs.1,75,000 8 Yatish H. Shah (HUF) Brother of Director, Dr. J.H. Shah Rs.1,75,000 9 Yesha Y. Shah Wife of Director s Brother Rs.2,62,500 8.2 The assessee was asked to justify its claim of financial charges. The assessee filed a detailed reply in justification of its claim which was rubbished by the AO. The AO was of the firm belief that 50% of the total payments to .....

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R simply relied upon the findings of the CIT(A). 8.5 We find force in the contention of the ld. Counsel. The Co-ordinate Bench in ITA No.2590/Ahd/2012 on identical issue has held as under:- We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The undisputed fact remains that the payments have been made to the related parties. It is also settled position of law that for invoking the provisions of section 40A(2), the AO .....

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such payments of financial charges because the basis of quantification of such payments are not clear and instances of utilization of such services do not fully justify the payment This finding of the AO was confirmed by the Id.CIT(A) on the basis that the total bank guarantee for the period 1.4.2007 to 31.3.2008 was ₹ 56,500,000/- 1% of such amount comes to ₹ 5,65,000/-. Thus, this a reasonable amount to be paid as guarantee commission to the related parties, on the basis of such pa .....

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ered view that this issue is to be restored to the file of the AO to decide the same afresh in the light of the information furnished at page No.4 of the paper-book No.2. The AO is directed to decide this issue afresh, after providing reasonable opportunity of being heard to the assessee and verifying the details submitted by the assessee. Thus, this ground of assessee's appeal is allowed for statistical purposes only. 8.6 Respectfully following the findings of the Co-ordinate Bench, we rest .....

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ly allowed. 9. Ground No.4 relates to the disallowance of depreciation on electrical fittings at ₹ 90,992/-. 9.1 On verification of depreciation chart, the AO noticed that the assessee has claimed depreciation @ 15% on electrical installation. The AO was of the opinion that on electrical installation depreciation @ 10% is allowable and accordingly disallowed depreciation of ₹ 90,992/-. 9.2 The assessee carried the matter before the CIT(A) and strongly contended that deprecation @ 15% .....

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he assessee reiterated the claim of deprecation under the block plant and machinery . Per contra, the DR strongly supported the findings of the Revenue Authorities. 9.5 After giving a thoughtful consideration to the orders of the authorities below vis-à-vis the rival contention, we find that under Rule 5 of the Income-tax Rules, which contains the depreciation table for various block of assets and under Part A(II) depreciation on furniture and fittings is @ 10%. It has been further explai .....

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on of penalty u/s 271(1)(c) of the Act. This ground is premature and accordingly dismissed. 12 In the result, the appeal filed by the assessee is partly allowed. ITA No.1748/Ahd/2013 : AY 2010-11 13. First ground relates to the disallowance of ₹ 19,83,919/- being turnover charges (transaction charges) paid to the stock exchanges u/s 40(a)(ia) of the Act. An identical issue has been decided by us in ITA No.1747/Ahd/2013 qua Ground No.1 of that appeal. For our detailed discussion therein, we .....

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