2005-VIL-364-ITAT-MUM

Equivalent Citation: [2006] 284 ITR (A. T.) 160

Income Tax Appellate Tribunal MUMBAI

Date: 31.08.2005

INCOME-TAX OFFICER

Vs

SURESH CHAND JAIN

BENCH

Order

JUDGMENT

Sunil Kumar Yadav (Judicial Member).—These appeals of the Revenue are directed against the order of the Commissioner of Income-tax (Appeals) on a solitary ground that the Commissioner of Income-tax (Appeals) has erred in holding that turnover charges of Rs. 10,95,843 in the assessment year 1997-98 and Rs. 26,25,569 in the assessment year 1998-99, payable to SEBI is neither tax nor duty payable to any State or Central Government and not covered under the provisions of section 43B of the Income-tax Act.

The facts in this regard borne out from the orders of the lower authorities are that the assessee who is a member of the National Stock Exchange has debited a sum of Rs. 26,25,569 in the assessment year 1997-98 and Rs. 10,95,853 in the assessment year 1998-99 under the head SEBI turnover charges. The assessee has also given a note in its Schedule “L” on this issue stating that Rs. 26,25,569 debited to the profit and loss account relating to SEBI turnover charges has not been paid by the entity because of the dispute with SEBI and members of the National Stock Exchange and this amount is shown in the current liability in the balancesheet. The treatment given by the assessee was objected to by the Assessing Officer and he accordingly, asked the assessee to explain as to why section 43B be not applied to this claim of SEBI turnover charges. In response thereto, the assessee has filed a written submission stating therein that the assessee is a member of the National Stock Exchange and after the assessee took over the membership, SEBI turnover charges were introduced. The said introduction has been challenged by the NSC brokers. Pending the decision, the assessee has collected the charges from the clients/jobber and credited the same to the SEBI turnover charges. In the subsequent year, i.e., for the year ended March 31, 1999 and March 31, 2000, the clients/jobber even refused to pay on the ground that the law has not become applicable. It was also contended before the Assessing Officer that the turnover charges payable by the assessee to the SEBI are not covered under the purview of section 43B of the Income-tax Act and, therefore, allowable in the year of accrual although such charges are not paid to the SEBI and the assessee can claim deduction in respect thereof. He further contended that the SEBI turnover charges is distinguished from the words “tax, duties, cess or fees” as defined by section 43B of the Act. He placed reliance upon the judgment of the Calcutta High Court in the case of CIT v. Varas International P. Ltd. [1997] 225 ITR 831.

The contentions of the assessee were not accepted by the Assessing Officer. He observed that any amount collected by way of bills raised by the assessee has to be considered as part of a receipt and the Revenue has to be recognised with the raising of the bills in the case of mercantile system of accounting. Admittedly, the assessee maintained its accounts on mercantile basis and, therefore, the amount has accrued as income in the year in which bills have been raised. Therefore, the assessee is right in showing it as receipt in the trading account. With regard to the applicability of section 43B in this case, the Assessing Officer observed that the SEBI is a Government regulatory body and has levied fees for all brokers based on turnover. The Assessing Officer further observed that any sum payable by the assessee by way of tax, duty, cess or fees by whatever name called under any law for the time being in force, shall be allowed in computing the income referred to under section 28 of the Act of that previous year in which that sum is actually paid by him. The judgment referred to by the assessee is not applicable to the assessee’s case as the said judgment is in respect of levying the fees by the State Government of West Bengal to permit contractors to manufacture and sale of liquor. The fee levied by the SEBI based on turnover is clearly of the nature which is covered under section 43B of the Act. He, accordingly, disallowed the claim of deductions after invoking the provision of section 43B as the SEBI turnover charges were not paid during the year.

An appeal was filed before the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) relying upon the judgment of the Calcutta High Court allowed the claim of the assessee. Aggrieved, the Revenue has preferred an appeal before the Tribunal and placed heavy reliance upon the order of the Assessing Officer.

The learned Departmental Representative invited our attention to the Securities and Exchange Board of India Act, 1992 with the submission that this Act has been enacted by Parliament and under its section 3, the Central Government by notification constitutes a Board by the name of the Securities and Exchange Board of India. Management of the Board is also to be constituted by the Government as per section 4 of the Act. The term of office and conditions of services of the Chairman and member of the Board were also defined under this Act. The powers and function of the Board are enshrined in section 11 of the Act under Chapter IV according to which, the Board is empowered to levy fees of the charges for carrying out the purposes of this section. The Board has also been conferred with the powers as vested in the civil court under the Code of Civil Procedure. The Board is also empowered to issue directions, conduct investigations and grant registration to stock brokers, sub-brokers, transfer agents, etc. The Board is also empowered to impose penalties for certain defaults, etc. Since the Board is a creation of an Act and is armed with all powers. The turnover charges paid to the SEBI cannot be called any other charges except the cess, duty or tax or charges payable by the assessee as per section 43B of the Income-tax Act. Since the turn over charges are to be paid to the SEBI under the Securities and Exchange Board of India Act, 1992, section 43B is attracted and the Assessing Officer was justified in invoking the provisions of the same.

Learned counsel for the assessee on the other hand has placed reliance upon the order of the Commissioner of Income-tax (Appeals) with the submissions that the turnover charges does not amount to tax, duty, cess or fees recovered under any law as per the provisions of section 43B(a) of the Income-tax Act.

Having carefully examined the orders of the lower authorities in the light of the rival submissions, we are of the view that the sole questions involved before us is—

1. Whether the turnover charges are required to be paid by the assessee under any law or Act ?, If yes, whether it falls within the purview of section 43B of the Income-tax Act ?

Undisputedly, the SEBI turnover charges is payable on the basis of the turnover undertaken by the assessee. It is not a fixed amount which has to be paid by the assessee to acquire a licence or the permission to do business of share broker. It depends upon the turnover of the assessee. Admittedly, the SEBI is a creature of the Act, namely, the Securities and Exchange Board of India Act, 1992. Through section 11 of this Act, a duty has been cast on the Board to protect the interests of the investors in securities and to promote the development and to regulate the securities market by such measures as it think fit. The Board may issue the instructions to regulate the business in a stock exchange and the Securities Market. The Board has also armed with the same powers as are vested in the civil court under the Civil Procedure Code, 1908 while trying a suit in respect of certain matters. The Board is also conferred with the powers to issue directions and conduct investigations in certain matters and also to grant registration to a stock broker, sub-broker and share transfer agent, etc. The Board is also empowered to levy penalty in case of default by any person who is required to do a particular act as per the instructions of the Board. The decisions of the Board are subject to an appeal before the Securities Appellate Tribunal meaning thereby, the Board is a creature of an Act and is an authority under the Law to collect fees or charges notified by it. It is not a case where a one time licence fees or the charges are required to be paid by the assessee. It is a case where particular percentage of turnover is to be charged as turnover charges by the SEBI.

We are therefore, of the view that the turnover charges is also in the nature of the tax, duty, cess or fees payable under a law. Nothing had been brought on record during the course of the hearing by the assessee to prove that the said turnover charges are not payable under the law enacted by the Central Government. We have also carefully examined the judgment referred to by learned counsel for the assessee and we find that the facts of the case in the case of CIT v. Varas International P. Ltd. [1997] 225 ITR 831 (Cal), are different as in that case the assessee has paid certain licence fees to the State Government for manufacturing of liquor. It was not a regular tax which has to be payable regularly on the basis of the turnover like sales tax and excise duty. Since the Board has been given all powers by the Government to regulate the business and to recover its dues, the turnover charges payable by the assessee is certainly a cess or duty to be payable under the law. We, therefore, do not find ourselves in agreement with the order of the Commissioner of Income-tax (Appeals). Accordingly, we, set aside the order of the Commissioner of Income-tax (Appeals) and restore that of the Assessing Officer.

In the result, the appeals of the Revenue are allowed.

 

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