C.I.T-4 MUMBAI vs. M/S KOTAK SECURITIES LTD

C.A. No.-003141-003141 - 2016Supreme Court29 March 2016Bench: RANJAN GOGOI PRAFULLA C. PANT11 pages
For Petitioner: ANIL KATIYARFor Respondent: RUSTOM B. HATHIKHANAWALA
AI SummaryAllowed

What did the Supreme Court hold?

The Supreme Court held that the transaction charges paid by members to the Bombay Stock Exchange are not fees for 'technical services' as contemplated under Explanation 2 to Section 9(1)(vii) of the Income Tax Act, 1961. The Court reasoned that 'technical services', akin to managerial and consultancy services, imply services rendered for specific, exclusive, or customized needs of a user or consumer. The services provided by the BSE, such as screen-based transactions, upgradation of services, and surveillance of trading parameters, are automated, available to all members, and not exclusive or tailored to individual requirements. These are essentially facilities provided for transacting business rather than technical services. Therefore, no TDS was deductible under Section 194J on such payments. Consequently, the issue of disallowance under Section 40(a)(ia) did not require examination. All appeals were disposed of in light of these findings.

What were the facts?

The assessee, Kotak Securities Ltd., paid transaction charges to the Bombay Stock Exchange (BSE) for trading in shares. The Assessing Officer disallowed these charges under Section 40(a)(ia) of the Income Tax Act, 1961, on the grounds that the assessee failed to deduct Tax Deducted at Source (TDS) under Section 194J, treating the transaction charges as fees for 'technical services'. The Bombay High Court, while agreeing that these charges constituted fees for technical services, granted relief to the assessee by holding that the disallowance was incorrect due to a long-standing understanding between the assessee and the revenue regarding TDS liability on such charges. The assessee appealed against the High Court's finding that transaction charges were for technical services, while the Revenue challenged the relief granted. The appeals were filed for Assessment Year 2005-2006 and subsequent years.

What were the issues?

1. Whether the transaction charges paid by a member of the Bombay Stock Exchange to the Exchange for transacting business of sale and purchase of shares amount to payment of a fee for 'technical services' rendered by the Exchange, thereby attracting TDS under Section 194J of the Income Tax Act, 1961? (Question of law) Assessee's contention: The transaction charges paid to the Stock Exchange are not fees for technical services. They are payments for facilities provided, not specialized or exclusive services catering to individual needs. The services are common and mandatory for all members to conduct trading. Revenue's contention: The transaction charges paid to the Stock Exchange are fees for 'technical services' rendered by the Exchange, and therefore, TDS was deductible under Section 194J. The High Court erred in granting relief despite this finding.

Which sections of the Income-tax Act were involved?

Section 194J,Section 40(a)(ia),Section 9(1)(vii)

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Page 1 JUDGMENT 1 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURI ICTION CIVIL APPEAL NO.3141 OF 2016 [Arising out of S.L.P.(C) No.19907 of 2012] C.I.T.-4, MUMBAI

...APPELLANT(S) VERSUS M/S KOTAK SECURITIES LTD. ...RESPONDENT(S) WITH CIVIL APPEAL NO. 3143 OF 2016 [Arising out of Special Leave Petition (Civil) No.19908 of 2012], CIVIL APPEAL NO.3145 OF 2016 [Arising out of Special Leave Petition (Civil) No.19909 of 2012], CIVIL APPEAL NO.3146 OF 2016 [Arising out of Special Leave Petition (Civil) No.33059 of 2012], CIVIL APPEAL NO.3150 OF 2016 [Arising out of Special Leave Petition (Civil) No.37694 of 2012], CIVIL APPEAL NO.3151 OF 2016 [Arising out of Special Leave Petition (Civil) No.17553 of 2015], CIVIL APPEAL NO._3152 OF 2016 [Arising out of Special Leave Petition (Civil) No.5893 of 2015], CIVIL APPEAL NO.3154 OF 2016 [Arising out of Special Leave Petition (Civil) No.17549 of 2015], CIVIL APPEAL NO.3155 OF 2016 [Arising out of Special Leave Petition (Civil) No.18394 of 2015] AND CIVIL APPEAL NO.3156 2016 [Arising out of Special Leave Petition (Civil) No.8294 of 2016

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