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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: Shri Joginder Singh,
आदेश / O R D E R The assessee is aggrieved by the impugned order dated 19/01/2015 of the Ld. First Appellate Authority, Mumbai. The only ground argued by the ld. counsel for the assessee, Shri N.C. Jain, is with respect to disallowance u/s 40(a)(ia) of the Act for non-deduction of tax out of payment to stock exchanges. The ld. counsel claimed that the impugned issue is covered in favour of the assessee by the decision of the Tribunal for Assessment Year 2010-11, for which copy of the order dated 13/10/2015 (ITA No.888/Mum/2014) was furnished. On the other hand, the ld. DR, Shri V.S. Jadhav, did not controvert the factual matrix by explaining that the issue may be sent to the file of the Assessing Officer as has been done by the Tribunal.
2. I have considered the rival submissions and perused the material available on record. In view of the above, I am reproducing hereunder the relevant portion from aforesaid order of the Tribunal for ready reference:-
“This appeal is by the Assessee directed against the Order of the Commissioner of Income Tax (Appeals)-8, Mumbai, (‘CIT(A)’ for short) dated 08.11.2013 for the assessment year 2010-11 .The Assessee has raised following grounds of appeals. a) The learned CIT(A) erred in confirming the disallowance of Rs.37,77,626 made under section 40(a)(ia) of the Act basing his decision on the pronouncement in CIT v. Kotak Securities Ltd.(|ITA No.3111 of 2009). b) The learned CIT(A) while relying on the decision of the Hon’ble Bombay High Court in the case of Kotak Securities which held such payments as ‘fee for technical services’ failed to take note of the fact that even though such payments are held to be subjected to TDS, the Hon’ble High Court did not approve disallowance u/s 40(1)(ia) on the ground of the disputed nature of the issue. c) The learned CIT(A) failed to take note of the fact that the provision of Section 194J and 40(1)(ia) are two distinct and independent provisions and application of the TDS provision does not necessary involve application of disallowance provision u/s 40(1)(ia) . By holding the provisions of Section 40(1)(ia) not applicable to assessment year 2005-06 which was the year before them, the Hon’ble Court gave legal cognizance and relevance to the existence of reasonable cause in making disallowance under the section. d) The learned CIT(A) failed to take note of the fact that the reasons which prompted the court to hold the provision inapplicable to ay 2005-06 apply with equal force to the year under appeal. Such payment and were also treated as not of the nature of ‘fees of technical services’ and not objected to by department for several years. When the issue arose, the Hon’ble ITAT Mumbai held it as not the ‘fees for technical services’. It is for the time in 2011 that the issue was decided differently by the Bombay High Court. e) The learned CIT(A) failed to appreciate that the issue was highly contentious and was decided by the ITAT in assessee’s favour which constituted a reasonable cause for not deducting tax at source. Existence of such dispute has been accepted by Hon’ble Bombay High Court as reasonable cause justifying non- deduction of tax and consequent non-application of Section 40(1)(ia).”
The assessee company is a wholly owned subsidiary of IDBI Bank Limited , engaged in fully integrated financial services provider viz Investment Banking , Portfolio & Fund Management , Institutional Broking & Distribution, Retail Broking & Distribution and Mutual fund advisory services and distribution etc .
3. During course of assessment proceeding , the Assessing officer observed that the assessee company has claimed an amount of Rs 37,77,626/- on account of transaction charges paid to Stock Exchanges on which TDS was not deducted u/s 194J of the Income Tax Act,1961(“the Act”). On being asked by AO, the assessee company explained that there is no requirement to deduct TDS on transaction charges payable to Stock exchange. The assessee relied upon the decision of Tribunal in in Kotak Securities Limited v. Addl. CIT wherein such services were held to be not technical in nature and there is no requirement to deduct TDS.
The Assessing Officer observed that the afore-stated decision of the Tribunal is over-ruled by Hon’ble Bombay High Court . The Assessing Officer relied upon the decision of Hon’ble Bombay High Court in Kotak Securities Limited in dated 21.10.2011 for assessment year 2005-06 by which judgment Hon’ble Bombay High Court held that these transaction charges payable to stock exchanges constitute ‘fees for technical services’ and are covered u/s 194J of the Act and hence TDS is to be deducted. Therefore, The assessing officer relying on the aforesaid judgment of jurisdictional High Court made the addition u/s 40(1)(ia) of the Act of Rs 37,77,626/- disallowing the expenses so claim on account of transaction charges payable to stock exchanges for failure of the assessee to deduct TDS u/s 194 J of the Act.
Aggrieved , The assessee filed first appeal with CIT(A) and contended that the assessee was under bona-fide belief that no TDS is to be deducted u/s 194 J as the transaction charges payable by the assessee does not constitute the ‘fees for technical services’ which view has been approved by Tribunal in Kotak Securities Limited (supra) and the said decision of the Tribunal is reversed by Hon’ble Bombay High Court in Kotak Securities case only in October 2011 while the impugned year is assessment year 2010-11 which ended on 31-3-2010 which is a date prior to judgment of Hon’ble Bombay High Court in Kotak Securities case(supra) . Thus, assessee contended that it was under bona-fide belief TDS was not deductible and no disallowance be made u/s 40(1)(ia) as during the financial year view held by Tribunal Mumbai in will hold the field that transaction charges does not constitute ‘fees for technical services’. The ld. CIT(A) respectfully following jurisdictional High Court in Kotak Securities(supra) upheld the decision of the assessing officer and confirmed the addition.
Aggrieved, the assessee is in appeal before us. The assessee reiterated its submissions and contended that the assessee was under bona-fide belief that no TDS is to be deducted u/s 194 J as the transaction charges payable by the assessee does not constitute the ‘fees for technical services’ which view has been approved by Tribunal in Kotak Securities Limited (supra) and the said decision of the Tribunal is over-ruled by Hon’ble Bombay High Court in Kotak Securities case only in October 2011 while the impugned year is assessment year 2010-11 which ended on 31-3-2010 which is a date prior to judgment of Hon’ble Bombay High Court in Kotak Securities case(supra). Thus, assessee contended that it was under bona-fide belief that TDS was not deductible on these payments and no disallowance be made as during the financial year view held by Tribunal Mumbai in will hold the field that the transaction charges does not constitute ‘fees for technical services’. The assessee also contended that Tribunal has given relief to the assessee in its appeal for assessment year 2008- 09 in ITA no. 618/Mum/2012 dated 18th February 2015 and also for assessment year 2009-10 in ITA no. 1404/Mum/2013 dated 08th May 2015, and hence the matter is covered in favour of the assessee.
The Ld DR relied on the decision of the authorities below.
We have considered the rival contentions and perused the material on record. We observe that in the decision by the Tribunal in Kotak Securities Limited v. Addl. CIT (in it held that services in respect of transaction charges paid/allowed by brokers to a stock exchange do not constitute technical services and, as such, there is no requirement to deduct TDS. However, the Hon’ble Bombay High Court in Kotak Securities Limited in ITA No. 3111/2009 dated 21.10.2011 (for assessment year 2005-06) held that these transaction charges payable to stock exchanges constitute ‘fees for technical services’, and are covered u/s 194J of the Act, and hence TDS is to be deducted. The Hon’ble Bombay High Court also held that since last decade, i.e., 1995 (when Section 194J was introduced in the Act) to 2005 (till the impugned assessment year), both the Revenue and the assessee have accepted the position that no TDS is payable. The Hon’ble Court noted that for the immediate succeeding year, i.e., assessment year 2006-07, the assessee (Kotak Securities) had deposited TDS on the transaction charges, and also that no prejudice is caused to Revenue for non-deduction of TDS as the stock exchanges must have presumably included these charges in their income. The Hon’ble High Court directed that no disallowance be made for assessment year 2005-06, having noted that immediately succeeding year onwards, the assessee, i.e., Kotak Securities Ltd., had duly discharged the tax liability by deducting TDS u/s 194J on these transaction charges.
We further observe that the Tribunal for assessment years 2008-09 and 2009-10 has given the assessee relief on the ground that the Tribunal in Kotak Securities Ltd. (supra) has taken a view that these transaction charges do not constitute ‘fees for technical services’ and TDS is not deductible u/s194J of the Act, which view of the Tribunal has since been over-ruled by the Hon’ble Bombay High Court in October 2011 and, hence, for the two assessment years 2008-09 and 2009-10, the view of the Tribunal in Kotak Securities Ltd. (supra) will hold the field. A decision by a Court of law relates back to the year of assessment, if not to the year from which the provision(s) being interpreted stands brought on the statute. The decision by Hon’ble jurisdictional High Court in Kotak Securities Ltd. (supra) shall apply to A.Y. 2005-06 and the subsequent years. The Hon’ble High Court has held that transaction charges paid to a stock exchange by its brokers is fees for technical charges, liable to TDS u/s. 194J of the Act. The Hon’ble High Court further observing the matter to be disputed since long, i.e., between the assessee and the Department, drew an exception for A.Y. 2005-06, further noting that the assessee in that case had from the succeeding year, i.e. A.Y. 2006-07, itself deposited the tax, while inferring that for A.Y. 2005-06 it would have been paid by the stock exchange itself, so that no prejudice would stand caused to the Revenue. The matter thus has been treated as disputed up to that year. This we understand to be the ratio of the said decision, binding on us. Continuing further, therefore, if the stock exchange has deposited the tax for the current year, the principle as laid down by the Hon’ble Court, i.e., of the saving from the provision where no prejudice is caused to the Revenue, would hold. In fact, the provision stands amended by Finance Act, 2012 w.e.f. 1st April, 2013 by way of second proviso to section 40(a)(ia) of the Act. The said amendment has been held as retrospective by the Hon’ble Delhi High Court in CIT vs. Ansal Landmark Township Pvt. Ltd. vide its decision in and 161 of 2015 dated 26/08/2015. This then coincides with our understanding of the decision by the Hon’ble jurisdictional High Court. We accordingly hold that no tax on the transaction charges paid/allowed by the assessee to the stock exchange shall require being deducted for tax at source u/s 194J of the Act where the assessee is able to show that tax on the same has been paid by the payee, i.e., has been offered as income subject to tax. The assessee is obliged to bring the relevant facts on record so as to satisfy the Assessing Officer with regard to the satisfaction of the condition, i.e., payment of tax on the impugned sum, subject to which only relief stands allowed to the assessee. We decide accordingly.
In the result, the appeal of the assessee is allowed for statistical purposes.” 2.1. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, order of the Tribunal dated 13/10/2015, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that the Tribunal in the aforesaid order dated 13/10/2015 has discussed the decision from Hon’ble Jurisdictional High Court in Kotak Securities and by following the decision for A.Y. 2008-09 (ITA No.618/Mum/2012) order dated 18/02/2015 and also Assessment year 2009-10 (ITA No.1404/Mum/2013) order dated 08/05/2015, issued direction to the ld. Assessing Officer. Therefore, on the same reasoning, the appeal of the assessee, is allowed for statistical purpose.
Ground no.2 with respect to disallowance of depreciation on stock exchange card was not pressed by the ld. counsel for the assessee, therefore, it is dismissed as not pressed. Finally, the appeal of the assessee is partly allowed for statistical purposes. This order was pronounced in the open in the presence of ld. representative from both sides at the conclusion of the hearing on 18/01/2016. Sd/- (Joginder Singh) �या�यक सद�य / JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 18/01/2016 f{x~{tÜ? P.S /�नजी स�चव