The Commissioner Of Income Tax-4 v. M/S. Jhp Securities Ltd

srk IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL LODGING NO.1095 OF 2011 The Commissioner of Income Tax-4 ...Appellant Versus M/s. JHP Securities Ltd. ...Respondent Ms.P.S.Cardozo for appellant.Mr.Sanjiv Shah for respondent. CORAM: DR.D.Y. CHANDRACHUD & M.S.SANKLECHA, JJ. February 28, 2012. P.C. 1. The following questions of law have been raised by the Revenue in this Appeal under Section 260A of the Income Tax Act, 1961 (a)Whether on the facts and circumstances of the case and in law, the Assessee, who is a share broker, is entitled to deduction by way of bad debts under Section 36(1)(vii) read with Section 36(2) of the Income Tax Act, 1961 in respect of the amount which could not be recovered from its clients in respect of transactions effected by him on behalf of his client apart from the commission earned by him; (b)Whether on the facts and circumstances of the case and in law, the Tribunal was justified in allowing the claim of the assessee as bad debt overlooking the provision of section 36(2) which provides that unless such debt or part thereof have been included in the computation of income of previous year or earlier years it cannot be allowed as bad debt under Section 36(1)(vii); and (c)Whether on the facts and circumstances of the case and in law, the ITAT was right in deleting the disallowance of Rs.2,91,739/- made in respect of Lease Line charges and Rs.22,25,588/- on account of transaction charges, without realizing the fact that these were composite charges for professional and technical services rendered by the exchange to its members and the assessee has failed to deduct TDS thereon? 2. The Appeal arises out of the Assessment proceedings for Assessment Year 2005-06 and the judgment of the Tribunal is dated 9 September 2010. Counsel appearing on behalf of the Revenue and the itxa-1095-11counsel appearing on behalf of the assessee are agreed that the first two questions of law are covered in favour of the assessee and against the Revenue by the judgment delivered today in Commissioner of Income Tax, Central-II, Mumbai Vs. Shri Shreyas S. Morakhia.[1] In so far as question (c) is concerned, the deletion of the disallowance in respect of lease line charges would stand covered by the judgment of the Division Bench of this Court in The Income Tax Commissioner, Mumbai City-4 Vs. Angel Capital & Debit Market Ltd.[2] The Division Bench held that the lease line charges paid by the assessee to the stock exchange constitute reimbursement of the charges payable by the stock exchange to the Department of Telecommunications. Since the lease line charges do not have any element of income, it was held that the provisions for withholding tax could not apply. As regards the transaction charges, the issue is covered by the judgment of the Division Bench of this Court in Commissioner of Income Tax Vs. Kotak Securities[3]. The Division Bench held that the transaction charges payable to the Stock Exchange would constitute fees for technical services and are covered under Section 194J of the Act and hence the 1. Income Tax Appeal No.89 of 2011 decided on 28/2/2011 2. Income tax Appeal (L) No.475 of 2011 decided on 28 July 20113. (2011) 62 DTR 3393. (2011) 62 DTR 339 itxa-1095-11 1. Income Tax Appeal No.89 of 2011 decided on 28/2/2011 2. Income tax Appeal (L) No.475 of 2011 decided on 28 July 20113. (2011) 62 DTR 3393. (2011) 62 DTR 339 itxa-1095-11 assessee was liable to deduct tax at source while crediting transaction charges to the account of the stock exchange. However, since both the Revenue and assessee were under the bona fide belief for nearly a decade that taxes would not be deductible at source on payment of transaction charges, the Division Bench held that no fault could be found with the assessee in not deducting the tax at source for AY 2005-06. Consequently, the disallowance made by the AO under Section 40(a)(ia) in respect of the transaction charges was not sustainable. In the present case, the issue relates to the same Assessment Year 2005-06. In view of the Judgment of the Division Bench in Kotak Securties Ltd. (Supra), no substantial question of law would arise in respect of the transaction charges as well. In the circumstances, the appeal does not raise any substantial question of law and the same is dismissed. (DR.D.Y. CHANDRACHUD,J.) (M.S.SANKLECHA, J.)