IN INCOME TAX APPELLATE TRIBUNAL "F" Bench, Mumbai Before Shri Jason P. Boaz, Accountant Member and Shri Sandeep Gosain, Judicial Member ITA No. 1243/Mum/2014 (Assessment Year: 2010-11) First Global Stockbroking P. Ltd. DCIT, Range 4(1) 2, Crescent Chambers Room No. 640, 6th Floor th Floor, Tamarind Lane Vs. 4 Aayakar Bhavan, M.K. Road Fort, Mumbai 400001 Mumbai 400020 PAN AAACF0661K Appellant Respondent Appellant by: Shri Satish R. Mody Respondent by: Shri Mallikarjun Utture Date of Hearing: 03.10.2016 Date of Pronouncement: 05.10.2016 ORDER Per Jason P. Boaz, A.M. This appeal by assessee is directed against order of CIT(A)- 8, Mumbai dated 10.12.2013 for A.Y. 2010-11. 2. facts of case, briefly, are as under: - 2.1 assessee, company engaged in business as share broker filed its return of income for A.Y. 2010-11 on 08.10.2010 declaring total income of Rs.50,49,390/- after setting off business loss of Rs.2,01,95,300/-. Book Profits under section 115JB of Act was computed at Rs.1,28,29,061/-. return was processed under section 143(1) of Income Tax Act, 1961 (in short, 'the Act') and case was subsequently taken up for scrutiny. assessment was completed under section 143(3) of Act vide order dated 12.12.2012, wherein income of assessee under normal provisions was determined at Rs.64,58,213/- in view of following additions/disallowances: - (i) Under section 14A `4,90,318/- (ii) Under section 40(a)(ia) `9,18,509/- 2 ITA No. 1243/Mum/2014 First Global Stockbroking P. Ltd. Book Profits under section 115JB of Act was computed at `1,33,19,379/- . 2.2 Aggrieved by order of assessment dated 12.12.2012 for A.Y. 2010-11, assessee preferred appeal before CIT(A)-8, Mumbai. learned CIT(A) dismissed assessee s appeal vide impugned order dated 10.12.2013. 3. Aggrieved by order of CIT(A)-8, Mumbai dated 10.12.2013 for A.Y. 2010-11, assessee has preferred this appeal raising following grounds: - 1. Ld. CIT(Appeals)-8 has erred in confirming disallowance of amount of Rs. 4,90,318/- u/s 14A of l.T. Act made by Ld. Assessing Officer. This disallowance is against law and facts of case and may please be deleted. 2. Ld. CIT(Appeals)-8 has erred in confirming disallowance of amount of Rs.9,18,509/- u/s 40(a)(ia) of Act made by Ld. Assessing Officer for non-deduction of TDS by appellant for payment made to stock exchanges. This disallowance is against law and facts of case and may please be deleted. 3. Ld. CIT(Appeals)-8 has erred in dismissing ground as infractuous whereby Ld. Assessing Officer had erred in computing amount of Rs.14,60,000/- as Deemed Dividend u/s 2(22)( e) of Act purportedly to be disallowed in hands of Virta Trade and Agencies Pvt. Ltd. This computation by Ld. Assessing Officer may please be deleted. 4. Appellant craves leave to add, amend, modify or alter ground at time of hearing. effective ground of appeal are at Sr.Nos. 1 to 3 (supra). 4. Ground No. 1: Disallowance under section 14A r.w.s. Rule 8D 4.1 In this ground, assessee contends that learned CIT(A) erred in confirming disallowance of `4,90,318/- under section 14A r.w. Rule 8D of I.T. Rules. It is submitted by learned counsel for assessee that very same issue of disallowance under section 14A r.w. Rule 8d was before Coordinate Bench of this Tribunal in assessee s own case for A.Y. 2009-10 and Coordinate Bench in its order in ITA 966/Mum/2013 dated 19.03.2015 had restored matter to file of Assessing Officer (AO) to re-work disallowance, if any, thereunder 3 ITA No. 1243/Mum/2014 First Global Stockbroking P. Ltd. after taking into consideration assessee s contention that no such disallowance should have been made by AO since its investments are entirely in group concerns which are foreign entities, income from which investments are taxable as income of assessee. It is submitted that factual situation being same in year under consideration, matter of re-working disallowance under section 14A r.w. Rule 8D be restored back to file of AO for verification of assessee s claim. 4.2 Per contra, learned D.R. for Revenue placed reliance on orders of authorities below. 4.3.1 We have heard rival contentions and perused and carefully considered material on record, including judicial pronouncements cited. In this year, assessee has earned dividend income of Rs.15,60,000/-. AO computed disallowance under section 14A r.w. Rule 8D(2)(iii) of Act at Rs.4,90,318/-; only with respect to expenses which will be amount equal to % of average value of investment, income from which does not form part of total income, as appearing in Balance Sheet of assessee as on first and last day of previous year under consideration. According to learned A.R., assessee had made certain strategic investments in shares of group concerns which are foreign entities, income from which are exigible to tax as income of assessee, i.e. First Global (UK) Ltd. and FG Market Inc. and submitted that to this extent at least, investments therein should be excluded from total investments while computing disallowance under section 14A r.w. Rule 8D of I.T. Rules. 4.3.2 We find that Coordinate Bench of this Tribunal in assessee s own case for A.Y. 2009-10 in its order in ITA No. 966/Mum/2013 dated 19.03.2015 has restored this issue to file of AO for verification of assessee s similar contentions holding as under at para 4 thereof: - 4. We have heard both parties and their contentions have carefully been considered. calculation prescribed under Rule 8D itself describe that basis of calculation will be % of average of value of investment, income from which does not or shall not form part of total income. Therefore, investment out of which income is 4 ITA No. 1243/Mum/2014 First Global Stockbroking P. Ltd. taxable, cannot be included for purpose of computation of disallowance. In this view of situation, we restore this issue to file of AO with direction to verify such contention of assessee and grant appropriate relief. This ground is considered to be partly allowed for statistical purposes in manner aforesaid. 4.3.3 Following decision of Coordinate Bench of this Tribunal in assessee s own case for A.Y. 2009-10 (supra), we set aside order of learned CIT(A) and restore issue of re-working disallowance under section 14A r.w. Rule 8D of I.T. Rules, to file of AO to verify contention of assessee that investments made by it in group concerns, foreign entities , income of which is exigible to tax be excluded while computing disallowance under Rule 8D(2)(iii), which is in respect % of average value of investment, income of which does not form part of total income. We hold and direct accordingly. Ground No. 1 of assessee s appeal is treated as partly allowed for statistical purposes as indicated above. 5. Ground No. 2 Disallowance under section 40(a)(ia) 5.1 In this ground, assessee assails order of learned CIT(A) in confirming disallowance of `9,18,509/- under section 40(a)(ia) of Act made by AO for non-deduction of tax by assessee for transaction charges payments made to Stock Exchanges, i.e. BSE and NSE. learned counsel for assessee submitted that this issue is now settled in favour of assessee by decision of Hon'ble Apex Court in case of CIT vs. Kotak Securities Ltd. (2016) 383 ITR 1 (SC), wherein it was held that transaction charges paid to BSE, etc. by its members are not technical services rendered, but nature of such payments are for facilities provided by Stock Exchange and therefore no TDS on such payments would be deductible under section 194C or 194J of Act. 5.2 Per contra, learned D.R. supported impugned order of learned CIT(A) on this issue. 5.3.1 We have heard rival contentions and perused and carefully considered material on record; including judicial pronouncements cited. facts of matter on this issue are that in period under 5 ITA No. 1243/Mum/2014 First Global Stockbroking P. Ltd. consideration, assessee paid transaction charges amounting to `9,18,509/- to BSE and NSE. authorities below following decision of Hon'ble Bombay High Court in case of Kotak Securities Ltd. (ITA No. 3111 of 2009) held that assessee was liable to deduct tax at source while crediting transaction charges to account of Stock Exchange and failure to do so called for said payment to be disallowed under section 40(a)(ia) of Act. We find that this very issue was up for consideration before Hon'ble Apex Court in case of Kotak Securities Ltd. (2016) 383 ITR 1 (SC) and Hon'ble Apex Court held that transaction charges paid to Bombay Stock Exchange by its members are not for technical services rendered but are payments made for facilities provided by Stock Exchange and therefore no TDS was deductible on such payments under section 194J/194C of Act. In its order at paras 8 to 10, Hon'ble Apex Court has held as under: - 8. reading of very elaborate order of Assessing Officer containing lengthy discourse on services made available by Stock Exchange would go to show that apart from facilities of faceless screen based transaction, constant upgradation of services made available and surveillance of essential parameters connected with trade including those of particular/ single transaction that would lead credence to its authenticity is provided for by Stock Exchange. All such services, fully automated, are available to all members of stock exchange in respect of every transaction that is entered into. There is nothing special, exclusive or customised service that is rendered by Stock Exchange. "Technical services" like "Managerial and Consultancy service" would denote seeking of services to cater to special needs of consumer/user as may be felt necessary and making of same available by service provider. It is above feature that would distinguish/identify service provided from facility offered. While former is special and exclusive to seeker of service, latter, even if termed as service, is available to all and would therefore stand out in distinction to former. service provided by Stock Exchange for which transaction charges are paid fails to satisfy aforesaid test of specialized, exclusive and individual requirement of user or consumer who may approach service provider for such assistance/service. It is only service of above kind that, according to us, should come within ambit of expression "technical services". appearing in Explanation 2 of Section 9(1)(vii) of Act. In absence of above distinguishing feature, service, though rendered, would be mere in nature of facility offered or available which would not be covered by aforesaid provision of Act. 6 ITA No. 1243/Mum/2014 First Global Stockbroking P. Ltd. 9. There is yet another aspect of matter which, in our considered view, would require specific notice. service made available by Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which charges in question had been paid by appellant - assessee are common services that every member of Stock Exchange is necessarily required to avail of to carry out trading in securities in Stock Exchange. view taken by High Court that member of Stock Exchange has option of trading through alternative mode is not correct. member who wants to conduct his daily business in Stock Exchange has no option but to avail of such services. Each and every transaction by member involves use of services provided by Stock Exchange for which member is compulsorily required to pay additional charge (based on transaction value) over and above charges for membership in Stock Exchange. above features of services provided by Stock Exchange would make same kind of facility provided by Stock Exchange for transacting business rather than technical service provided to one or section of members of Stock Exchange to deal with special situations faced by such member(s) or special needs of such member(s) in conduct of business in Stock Exchange. In other words, there is no exclusivity to services rendered by Stock Exchange and each and every member has to necessarily avail of such services in normal course of trading in securities in Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provided by Stock Exchange on payment and does not amount to "technical services" provided by Stock Exchange, not being services specifically sought for by user or consumer. It is aforesaid latter feature of service rendered which is essential hallmark of expression technical services as appearing in Explanation 2 to Section 9(1)(vii) of Act. 10. For aforesaid reasons, we hold that view taken by Bombay High Court that transaction charges paid to Bombay Stock Exchange by its members are for technical services rendered is not appropriate view. Such charges, really, are in nature of payments made for facilities provided by Stock Exchange. No TDS on such payments would, therefore, be deductible under section 194J of Act. 5.3.2 Respectfully following decision of Hon'ble Apex Court in case of Kotak Securities Ltd. (2016) 383 ITR 1 (SC), we hold that transaction charges of `9,18,509/- paid by assessee to BSE and NSE as member is in nature of payments made for facilities provided by Stock Exchange and therefore no TDS on such payment would be deductible under section 194C/194J of Act. orders of authorities below making disallowance under section 40(a)(ia) for non- 7 ITA No. 1243/Mum/2014 First Global Stockbroking P. Ltd. deduction of tax on such payment of transaction charges are accordingly reversed. Consequently, ground No. 2 of assessee s appeal is allowed. 6. Ground No. 3 Deemed Dividend under section 2(22)(3) 6.1 This ground No. 3 was not pressed by learned counsel for assessee and therefore this ground is dismissed as not pressed. 7. In result, assessees appeal for A.Y. 2010-11 is partly allowed. Order pronounced in open court on 5th October, 2016. Sd/- Sd/- (Sandeep Gosain) (Jason P. Boaz) Judicial Member Accountant Member Mumbai, Dated: 5th October, 2016 Copy to: 1. Appellant 2. Respondent 3. CIT(A) -8, Mumbai 4. CIT - 4, Mumbai 5. DR, F Bench, ITAT, Mumbai By Order //True Copy// Assistant Registrar ITAT, Mumbai Benches, Mumbai n.p. First Global Stockbroking P. Ltd. v. DCIT, Range-4(1), Mumbai