THE ITO, TDS-3,, AHMEDABAD vs SHAH INVESTOR'S HOME LTD.,, AHMEDABAD

Income Tax Appellate Tribunal, “ SMC ” BENCH, AHMEDABAD izlkn] U;kf;d lnL; ds le{kA loZJh iznhi dqekj dsfM;k] ys[kk lnL; ,oa egkohn loZJh iznhi dqekj dsfM;k] ys[kk lnL; ,oa egkohn izlkn] U;kf;d lnL; ds le{kA loZJh iznhi dqekj dsfM;k] ys[kk lnL; ,oa egkohn loZJh iznhi dqekj dsfM;k] ys[kk lnL; ,oa egkohn izlkn] U;kf;d lnL; ds le{kA izlkn] U;kf;d lnL; ds le{kA

Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD

For Respondent: Shri H. V. Gandhi, A.R

Pronounced: 22/02/2018

आदेश / O R D E R

PER MAHAVIR PRASAD, JUDICIAL MEMBER : This is an appeal by the department against the order of the Commissioner of Income Tax(Appeals)-10, Ahmedabad, vide appeal no.CIT(A)-10/ITO.TDS-3/95/15-16 dated 29/04/2016 for the Assessment Year (AY) 2011-12.

ITA No. 1768/Ahd/2016 ITO Vs. Shah Investors Home Ltd. Asst.Year –2011-12 - 2 - 2. Department has taken following grounds of appeals: “1. That the Ld.CIT has erred in law and on facts by making disallowance of Rs.1,08,74,884/- regarding the payment of transaction charges and other charges paid to NSE and BSE, on the alleged ground that TDS is deducted U/s.194C instead of U/s.194J of the I.T. Act, 1961 and disallowed the entire expenditure / payment U/s. 40(a)(ia) oftheI.T.Act,1961. 2. That the Ld CIT has erred in law and on facts by making disallowance of Rs.32,76,404/- regarding the payment of NSDL charges and CDSL charges, on the alleged ground that TDS is deducted U/s.194C instead of 194J of the I.T. Act, 1961 and disallowed the entire expenditure / payment U/s. 40(a)(ia) of the I.T. Act, 1961. 3. Without appreciating the fact that the assessee has deducted and deposited TDS to the tax U/s.194C of the I.T. Act AO has imposed consequences of failure to deduct tax U/s. 201(1) and raised demand of Rs.20,94,390/- along with interest U/s. 201(1A) of the I.T. Act, 1961.” 3. Briefly stated facts as culled out from the records are that order u/s. 201(1) & 201(1A) of the Act was passed by the ITO(TDS)-3, Ahmedabad. In the said order, it has been contended by the ITO that the assessee has failed to deduct TDS on various payments such as commission, rent, contract charges and professional charges, which has been disallowed by the AO u/s.40(a)(ia) of the Act while passing order u/s.143(3) of the I.T. Act. The appellant submitted before the ITO(TDS) that it has deducted the tax u/s.194C as contractor payment and paid such tax to the Government within the time. Therefore, the proceedings u/s.201(1) and 201(1A) are not warranted. It was held by the ITO(TDS) that the assessee should have deducted tax u/s.194J of the I.T. Act and

ITA No. 1768/Ahd/2016 ITO Vs. Shah Investors Home Ltd. Asst.Year –2011-12 - 3 - accordingly demand a demand of Rs.14,15,130/- u/s.201(1) and Rs.6,79,260/- u/s. 201(1A) of the Act was raised against the assessee.

Against the said order assessee preferred appeal before the ld.CIT(A) who allowed the appeal of the assessee.

Now department’s appeal is before us.

We have gone through the relevant record and impugned order. Ground no.1 and 2 are interconnected and ground no.3 is consequential. Ld. AR cited an order of Gujarat High Court in assessee’s own case in Tax Appeal No.658 of 2017. In this order Supreme Court has held that the brokers make payment to the stock exchange for the facilities of faceless screen based transactions made available at the stock exchange which was compulsory for the brokers to use. In the opinion of the Supreme Court, this was not a payment of fee for technical service rendered by the stock exchange inviting deduction at source under section 194J of the Act. This being the position, second question is not admitted.

In the above said matter assessee got relief from the Jurisdictional High Court and Hon’ble High Court has held that whatever payment has been made to the stock exchange is not a fee for technical services.

Ld. AR also cited a judgment of Hon’ble Supreme Court in the matter of CIT-4, Mumbai vs. M/s. Kotak Securities Ltd. in Civil Appeal

ITA No. 1768/Ahd/2016 ITO Vs. Shah Investors Home Ltd. Asst.Year –2011-12 - 4 - No.3141 of 2016. Hon’ble Supreme Court decided that the transaction charges paid to the concerned stock exchange are not to be considered as fees for technical services and hence the same are not covered under the provisions of Section 194J of the I.T. Act. The relevant finding of the Hon’ble Supreme Court order is reproduced here as under: “9. There is yet another aspect of the matter which, in our considered view, would require a specific notice. The service made available by the Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which the charges in question had been paid by the appellant - assessee are common services that every member of the Stock Exchange is necessarily required to avail of to carry out trading in securities in the Stock Exchange. The view taken by the High Court that a member of the Stock Exchange has an option of trading through an alternative mode is not correct. A member who wants to conduct his daily business in the Stock Exchange has option but to avail of such services. Each and every transaction by a member involves the use of the services provided by the Stock Exchange for which a member is compulsorily required to pay an additional charge (based on the transaction value) over and above the charges for the membership in the Stock Exchange. The above features of the services provided by the Stock Exchange would make the same a kind of a facility provided by the Stock Exchange for transacting business rather than a technical service provided to one or a section of the members of the Stock Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. In other words, there is no exclusivity to the services rendered by the Stock Exchange and each and every member has to necessarily avail of such services in the normal course of trading in securities in the Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provided by the Stock Exchange on payment and does not amount to "technical services" provided by the Stock Exchange, not being services specifically sought for by the user or the consumer. It is the aforesaid latter feature of a service rendered which is the essential hallmark of the expression "technical services" as appearing in Explanation 2 to Section 9(1)(vii) of the Act.

ITA No. 1768/Ahd/2016 ITO Vs. Shah Investors Home Ltd. Asst.Year –2011-12 - 5 - 10. For the aforesaid reasons, we hold that the view taken by the Bombay High court that the transaction charges paid to the Bombay Stock Exchange by its members are for 'technical services’ rendered is not an appropriate view. Such charges, really, are nature of payments made for facilities provided by the Stock Exchange. No TDS on such payments would, therefore, be deductible under Section 194J of the Act.” 9. In the above said matter Hon’ble Supreme Court has held that nature of such services being provided by the Stock Exchange would undoubtedly be appropriate to be termed as facilities provided by the Stock Exchange on payment and does not amount to "technical services" provided by the Stock Exchange, not being services specifically sought for by the user or the consumer. Therefore, the same cannot be held to be technical services.

10.

In our considered opinion, ld. CIT(A) has passed detailed and reasoned order and respectfully following the CIT-4, Mumbai Vs. M/s. Kotak Securities Ltd (supra), we dismiss appeal of the department.

11.

In the result, appeal filed by the department is dismissed. This Order pronounced in Open Court on 22/02/2018

Sd/- Sd/- ¼iznhi dqekj dsfM;k½ ¼iznhi dqekj dsfM;k½ ¼egkohj izlkn½ ¼egkohj izlkn½ ¼iznhi dqekj dsfM;k½ ¼iznhi dqekj dsfM;k½ ¼egkohj izlkn½ ¼egkohj izlkn½ Yks[kk ln Yks[kk ln Yks[kk lnL; Yks[kk ln L; L; L; U;kf;d lnL; U;kf;d lnL; U;kf;d lnL; U;kf;d lnL; (PRADIP KUMAR KEDIA) (MAHAVIR PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 22/02/2018 Priti Yadav, Sr.PS

ITA No. 1768/Ahd/2016 ITO Vs. Shah Investors Home Ltd. Asst.Year –2011-12 - 6 -

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-10, Ahmedabad. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 05/02/2018 (dictation-pad 2 pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member …06/02/2018 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…19/02/2018 6. Date on which the fair order is placed before the Dictating Member for pronouncement 19/02/2018 7. Date on which the fair order comes back to the Sr.P.S./P.S……. 8. Date on which the file goes to the Bench Clerk………………… 9. Date on which the file goes to the Head Clerk…………………………………... 10. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………

THE ITO, TDS-3,, AHMEDABAD vs. SHAH INVESTOR'S HOME LTD.,, AHMEDABAD