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Income Tax Appellate Tribunal, MUMBAI BENCHES “H”, MUMBAI
Before: SHRI JOGINDER SINGH & SHRI ASHWANI TANEJA
O R D E R
Per ASHWANI TANEJA, AM
This appeal has been filed against the order of Ld. Commissioner of Income-tax(Appeals) [hereinafter called CIT(A)] dt 18-08-2014 passed against the order u/s 201(1) / 201(1A) dt 31-03-2012 for A.Y. 2010-11 on the following grounds :
Ground I The Commissioner of Income-tax (Appeals) - 14, Mumbai, [herein after a) referred to as 0T (A)
] has erred in confirming the penalty levied by the Assessing Officer [herein after referred to as "AO"] u/s 201(1)/201(1A) of the Act without appreciating merits of the case. b) The CIT (A) should have appreciated that the appellant had requested for adjournment of hearing as there was change in the Authorised Representative through a request letter dated 12th September 2014 and the same was accepted. However, the order was passed ex-parte without giving appellant the opportunity of being heard. Thereby not serving the purpose of natural justice. c) The CIT (A) did not appreciate the fact that appellant cannot be subjected to penalty when he acted under bonafide belief that it always acted as an agent of the Stock Exchange for payment of transaction charges such activity cannot be in the nature of any professional fees as defined in Explanation 2 to section 9(1)(vii) of the Act. Also it is evident from the specific observation given by Hon'ble Jurisdictional High Court that even the High Court that the stock brokers and revenue department were under the bonafide belief that the transaction charges would not constitute professional fees and, therefore, no fault could be found with the assessee for non deduction of income- tax at source out of transaction charges during the earlier years d) The appellant prays that the penalty proceeding should, therefore, quashed in the interest of justice and appropriate relief be granted to the appellant. Ground 2 a) The appellant craves leaves to add, alter, amend and/or supplement any ground or grounds, if necessary, at the time of hearing of the appeal.”
The solitary ground raised in this appeal is against the action of the lower authorities in holding the assessee in default on account of non deduction of tax at source u/s 194J on the amount of transaction charges paid by the assessee to National Stock Exchange of India (in short, NSE).
During the course of hearing, it was submitted by the Ld. Counsel that the Ld.CIT(A) decided this issue against the assessee by relying upon the judgement of Hon’ble Bombay High Court in the case of Kotak Securities Ltd 340 ITR 333 (Bom) wherein it was held that the transaction charges paid to NSE was on account of managerial services rendered by NSE to the assessee and consequently the transaction charges constituted fee for technical services u/s 194J of the Act and, therefore, assessee ought to have deducted tax at source. However, the aforesaid judgement of Hon’ble Bombay High Court was carried to Hon’ble Supreme Court wherein the view taken by the Hon’ble High Court has not been accepted. It has been held by the Hon’ble Supreme Court that transaction charges paid go NSE are meant for the facility and they did not constitute technical service or managerial service and, therefore, there was no liability to deduct tax at source on such payment u/s 194J r.w.s 9(i)(ii).
Per contra, the Ld.DR supported the orders passed by the lower authorities, submissions made by both the sides as well as judgements placed before us.
It is noted that undoubtedly, the Ld.CIT(A) decided this issue against the assessee relying upon the judgement of Hon’ble Bombay High Court in the case of Kotak Securities Ltd (supra) wherein it was held that transaction charges paid by the member of stock exchange to transact business of sale and purchase of shares amounted to payment of fee for “technical services” rendered by the stock exchange and, therefore, under the provisions of section 194J of the Act, TDS was deductible on such payments. Subsequently the assessee carried the matter before the Hon’ble Supreme Court wherein Hon’ble Supreme Court has reversed the order of the High Court by passing a detailed order in a batch of appeals reported as Kotak Securities Ltd Vs CIT 383 ITR 1 (SC). The Hon’ble Supreme Court has analysed the provisions of section 194J as well as 9(i)(vii) and based on the conclusion that transaction charges did not constitute fee for technical or managerial services. Relevant observations of Hon’ble Supreme Court are reproduced hereunder, for the sake of reference:- “A reading of the very elaborate order of the Assessing Officer containing a lengthy discourse on the services made available by the stock exchange would go to show that apart from facilities of a faceless screen based transaction, a constant upgradation of the services made available and surveillance of the essential parameters connected with the trade including those of a particular/single transaction that would lead credence to its authenticity is provided for by the stock exchange. All such services, fully automated, are available to all members of the stock exchange in respect of every transaction that is entered into. There is nothing special, exclusive or customised service that is rendered by the stock exchange. "Technical services" like "Managerial and consultancy service" would denote seeking of services to cater to the special needs of the consumer user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish or identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would therefore stand out in distinction to the former. The service provided by the stock exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialised exclusive and individual requirement of the user or consumer who may approach the service provider for such assistance or service. it is only service of the above kind that, according to us, should come within the ambit of the expression "technical services" appearing in Explanation 2 to section 9(1)(vii) of the Act. In the absence of the above distinguishing feature, service, though rendered, would be merely in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act. 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 availablel 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 no 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 spe- cial 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 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. 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 in the nature of payments made for facilities provided by the stock exchange. No deduction of tax at source on such payments would, therefore, be deductible under section 194J of the Act.”
Thus, from observations of the Hon’ble Supreme Court, it is clear that services provided by the stock exchange to the assessee does not fall in the category of “technical services” as has been envisaged in section 194J and, therefore, respectfully following the judgement of Hon’ble Supreme Court it is hereby held that assessee was not required to deduct tax at source from the payment made to NSE. Thus, grounds raised by the assessee are allowed.
As a result, appeal filed by the assessee is allowed.
Order pronounced in the court at the conclusion of hearing.