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TMI Blog2010 (8) TMI 1089X X X X Extracts X X X X X X X X Extracts X X X X ..... ed CIT(A) erred in confirming the disallowance of adhoc expenses of ₹ 1,85,943/- treating the same as incurred towards the speculation business. Ground raised by the revenue : 2) On the facts and circumstances of the case and in law, learned CIT(A) erred in restricting the disallowance at 50% i.e. ₹ 1,85,843/- as against total disallowance of ₹ 3,71,888/- made by the Assessing Officer on account of expenditure attributable to speculative business. 4. Facts giving rise to the aforesaid grounds are as follows :- The assessee is in the business of share broking. The assessee has a website providing internet based services to the investors to execute and settle their orders/trades in securities on Stock Exchange. The assessee as a service provider offers its clients servicing and marketing for various financial products offered online. The assessee is also member of both NSE and BSE and acts as a broker. In course of assessment proceedings, the Assessing Officer noticed that the assessee had shown share trading loss of ₹ 81,942/-. As per explanation to section 73, where the assessee is a company and if the assessee engages itself in purchase and sale of sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture of ₹ 24.7 crores. The aforesaid expenditure of ₹ 3,71,886/- was disallowed and added to the total income of the Assesse. The said expenditure was however treated as part of the speculative loss and allowed to be carried forward. 7. On appeal by the assessee, learned CIT(A) confirmed the action of the Assessing Officer in treating the loss of sale of share of ₹ 81,942/- as speculative loss. With regard to disallowance of expenses incurred in doing business of sale of securities which resulted in speculative loss, learned CIT(A) reduced the disallowance made by the Assessing Officer from ₹ 3,71,886/- to ₹ 1,85,943/-. 8. Aggrieved by the order of learned CIT(A) not treating the loss on sale of securities as normal business loss; and not deleting entire disallowance of expenses incurred in doing business of purchase and sale of securities, assessee has raised Ground No. (A) before the Tribunal. Aggrieved by the order of learned CIT(A) in reducing the head of disallowance of expenses from ₹ 3,71,886/- to ₹ 1,85,943/-, the revenue has raised ground No. 2 before the Tribunal. 9. We have heard the rival submissions. Identical issue had com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not call for any interference. The learned CIT(A) had taken into consideration all activities involved in share broking on behalf of the clients by the Assessee, viz., identification of shares to be traded, valuation of shares in the market, transaction cost in purchase and sale of share and cost of utilization of funds deployed for the share trading activity. Keeping in mind these parameters, learned CIT(A) thought it fit to reduce the disallowance made by the Assessing Officer to ₹ 1,85,943/-. We are therefore of the view that action of learned CIT(A) cannot be said to be without any basis. Consequently, order of learned CIT(A) is confirmed on this issue also. Thus, ground No. A of the assessee and Ground 2 of the revenue are dismissed. 12. Ground No. B raised by the assessee and Ground No. 3 raised by the revenue can be conveniently decide together. These grounds reads as follows :- Assessee's ground (B) disallowance of marketing agency frees paid ₹ 1,84,64,577/- Learned CIT(A) erred in restricting deduction for marketing agent fees paid to ICICI Bank Ltd. to ₹ 1,84,64,577/- against the claim of appellant at ₹ 3,69,29,155/- as per provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt back to the branches who in turn ask the BSE to complete them and send them back to IWTL's office at Mumbai. vii) All queries pertaining to pre account opening like status of applications, progress in account opening etc. is handled by the branches in consultation with IWTL. ICICI Bank branches arrange for franking of the account opening forms. The people in the branches are constantly trained so that they are up to date on the new features and products of ICICI direct.com. viii) All post account opening queries/complaints like account locked, fund allocation, problems with the site etc. ix) ICICI bank branches arrange for dispatching contract notes to the customers at their addresses. x) Call on the customers regularly to maintain relationship and allow them to trade through the website provided by IWTL at the branch if there is a connectivity problem. 14. The assessee further pointed out that it had not engaged any other agents. The assessee also explained that internet based trading is relatively a new concept and awareness of the same has to be created among the public at large. The assessee also pointed out that even after a demat account and client's account is op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer, generally recipient of such brokerage undertakes entire gamut of activities right from the sourcing of new clients upto the settlement of the transaction including delivery, payment and also bearing the risk element involved in the share market transaction in the case of default by any of the clients. The Assessing Officer found that the ICICI Bank was not shouldering any such responsibility. For all the above reasons, the Assessing Officer held that the payment of 50% of the net brokerage received by the assessee of ₹ 3,69,29,155/- was unreasonable, excessive having regard to the fair market value of the service provided by ICICI Bank Ltd. The Assessing Officer, however, allowed deduction of ₹ 35,91,150/- which was payment of ₹ 75/- per account introduced by ICICI Bank Ltd. 17. On appeal by the assessee, learned CIT(A) reduced the disallowance made by the Assessing Officer from ₹ 3,69,29,155/- to ₹ 1,84,64,577/-. 18. Aggrieved by the order of learned CIT(A) in not deleting the entire disallowance, assessee has raised ground No. (B) before the Tribunal. Aggrieved by the order of learned CIT(A) in reducing the disallowance made by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llip;……………………………………………………………………………………………… …… Explanation.--For the purposes of this sub-section, a person shall be deemed to have a substantial interest in a business or profession, if,-- (a) in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, the benef icial owner of shares (not being shares entitled to a f ixed rate of dividend whether with or without a right to participate in prof its) carrying not less than twenty per cent. of the voting power; and (b) in any other case, such person is, at any time during the previous year, benef icially entitled to not less than twenty per cent. of the prof its of such business or profession." 14. We find force in the submission of the learned AR that section 40A is not applicable as the assessee does not fall in category (b) of section of sub-section (2) of section 40A of the Act. The learned AR referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n no objection raised by the assessee either before the Assessing Officer or before the learned CIT(A); and therefore it was submitted by him that the issue should be sent back to the Assessing Officer for fresh examination because the Tribunal in the aforesaid order has held that the Assessee and ICICI Bank Ltd. were not related parties within the meaning of Sec.40-A(2)(b) of the Act. As far as merits of the addition made by the Assessing Officer are concerned, learned DR reiterated the stand of the Assessing Officer as contained in the assessment order. 21. Learned counsel for the assessee on the other hand relied on the order of Tribunal and reiterated the stand of the Assessee as was taken before the revenue authorities. 22. We have considered the rival submissions. In our view the Tribunal has considered all aspects of the matter in the aforesaid decision and reasons given by the Tribunal for deleting the addition on merits will equally apply to the present assessment year also. In our view, services rendered by the assessee have not been disputed by the Assessing Officer. In the present year through ICICI Bank Ltd. 47,882 customers had been introduced as assessee's customer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch, the Assessing Officer is directed not to levy interest u/s. 234D of the Act. 25. In the result, appeal by the assessee is partly allowed. ITA No. 6560/Mum/2006 : Revenue's appeal 26. What remains for consideration in revenue's appeal is only Ground No. 1 which reads as follows :- On the facts and circumstances of the case and in law, learned CIT(A) erred in deleting the addition of ₹ 69,92,118/- thereby allowing depreciation on BSE/NSE stock Exchange membership card relying on the decision in Techno Shares and Stocks Ltd, as in that case :- i) it was held that the BSE card is a capital asset even though as per the decision of Hon'ble Supreme Court in the case of Stock Exchange, Ahmedabad Vs. ACIT, membership of Stock Exchange is only a personal privilege granted by the Stock Exchange to the member. ii) It was held that the BSE card is an intangible asset within the definition of section 32(1)(ii) of the I.T. Act, as the 'personal permission' granted by the BSE is not a descendent of common ancestry or akin to know-how, copyrights, patents, trademarks, franchises in origin, nature and quality but far wary from intangible assets mentioned in section 32(1)(ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 32(1)(ii) is preceded by the expressions know-how, patents, copyrights, trade marks and succeeded by the expression 'franchises' which are all relatable to intellectual property rights, the term 'licences' in s. 32(1)(ii) is, applying the principle of Noscitur a sociis, intended to be used restrictively and as applying only to licences relating to acquisition / user of intellectual property rights; (2) A BSE card is also not a "business or commercial right" because what s. 32(1)(ii) contemplates is "business or commercial rights" relating to intellectual properties and not all categories of business or commercial rights. Since a BSE card is not a business or commercial right relating to intellectual property rights depreciation cannot be allowed on it; (3) The fact that a BSE card is a capital asset and liable for capital gains tax is irrelevant because s. 32 does not allow depreciation on all capital assets but only on capital assets which fall in the enumerated categories. 28. In view of the above decision of the Hon'ble Bombay High Court, the assessee is not entitled to claim deprecation on BSE card. We therefore reverse the order of learned CIT(A) and restore the or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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