M/s Karvy Computershare Private Limited, Hyderabad V. Addl.CIT, Range-2, Hyderabad

ITA 1301/HYD/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6147 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 29-09-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 07-07-2014
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: P MURALIKRISHNA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1301/HYD/2014 ASSESSMENT YEAR: 2007-08 M/S. KARVY COMPUTERSHARE PRIVATE LIMITED, HYDERABAD [PAN: AACCK2193D] VS ADDL. COMMISSIONER OF INCOME TAX, RANGE-2, HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. MURALI KRISHNA , AR FOR REVENUE : S HRI A. SITARAMA RAO , DR DATE OF HEARING : 2 9 - 0 9 - 201 6 DATE OF PRONOUNCEMENT : 0 5 - 1 0 - 201 6 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, HYDERABAD DATED 15-04-2014 FOR THE AY. 2007-08. 2. BRIEFLY STATED, ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF REGISTRAR AND SHARE TRANSFER AGENT. IT HAS FILE D ITS RETURN OF INCOME FOR THE AY. 2007-08 ON 31-10-2007, DECLARING TOTAL INCOME OF RS. 15,23,08,609/-. THE ASSESSING OFFICER (AO) COMPLETED THE I.T.A. NO. 1301/HYD/2014 M/S. KARVY COMPUTERSHARE PRIVATE LIMITED :- 2 -: ASSESSMENT ON 31-12-2009 U/S. 143(3) OF THE OF THE INCOME TAX ACT [ACT], DETERMINED THE TOTAL INCOME AT RS. 17,13 ,36,028/-. 3. THERE IS ONLY ONE ISSUE IN APPEAL AND THAT RELAT ES TO THE ADDITION OF RS. 1,76,25,313/- U/S. 40(A)(IA) OF THE ACT. THE FACTS ARE THAT ASSESSEE IS A REGISTRAR AND SHARE TRANSFER AGENT. THE AO FOUND THAT UNDER OPERATING EXPENSES , ASSESSEE HA D DEBITED THE AFOREMENTIONED AMOUNT UNDER THE HEAD SETTLEMENT AN D CUSTODY FEES. ASSESSEE EXPLAINED THAT IT WAS A REGISTRAR TO ISSUE OF SHARES. ON ALLOTMENT OF SHARES IN PUBLIC ISSUE, IT REQUESTS THE NSDL/CDSL TO CREDIT THE SHARES TO THE ACCOUNT OF THE RESPECTI VE SHAREHOLDERS. THIS ACT OF CREDITING OF SHARES TO THE RESPECTIVE S HAREHOLDERS ACCOUNT IS TECHNICALLY KNOWN AS CORPORATE ACTION. FURTHER, THE LISTED COMPANIES IN THE STOCK EXCHANGE ARE INTEREST ED TO KNOW THE PRECISE MOVEMENT OF THEIR SHAREHOLDING OVER A PERIO D OF TIME. THEY REQUEST ASSESSEE, WHO FURTHER REQUESTS THE NSDL/CDS L TO PROVIDE THE DATABASE. UPON RECEIVING THE REQUEST, ASSESSEE IS ALLOWED TO RETRIEVE SUCH DATA FROM THEIR WEBSITE AND APPROPRIA TE FEE IS CHARGED. THE CHARGES PAID TO NSDL/CDSL ARE DEBITED TO AN ACCOUNT CALLED SETTLEMENT AND CUSTODY FEES. ASSE SSEE ARGUED THAT THE AFOREMENTIONED ACTIVITY WAS NEITHER IN THE NATURE OF A CONTRACT AND NOR A PROFESSIONAL/TECHNICAL SERVICE. THEREFORE, TDS WAS NOT DEDUCTIBLE AND SUBSEQUENTLY THERE WAS NO AP PLICABILITY OF SECTION 40(A)(IA) IN THE CASE OF ASSESSEE. THE AO DISAGREED WITH THE SAME AND HELD THAT PROVISIONS OF SECTION 194J W ERE ATTRACTED. SINCE ASSESSEE HAD NOT DEDUCTED TAX, THE EXPENDITUR E OF RS. 1,76,25,313/- WAS DISALLOWED U/S. 40(A)(IA) OF THE ACT. I.T.A. NO. 1301/HYD/2014 M/S. KARVY COMPUTERSHARE PRIVATE LIMITED :- 3 -: 4. BEFORE THE LD. CIT(A) IT WAS ARGUED THAT THE AFO REMENTIONED ADDITION FOR THE AY. 2008-09 HAD BEEN CONFIRMED IN APPEAL BY THE CIT(A) AND ALSO BY THE HON'BLE ITAT, HYDERABAD. HO WEVER, A MISCELLANEOUS APPLICATION WAS FILED WITH THE HON'BL E ITAT AND VIDE THEIR ORDER, M.A. NO. 173/HYD/2013 ARISING OUT OF I TA NO. 328/HYD/2012 THE HON'BLE ITAT HAD ADMITTED THAT IT HAD MADE A MISTAKE. ASSESSEE EXPLAINED THAT THE HON'BLE ITAT HAD FOLLOWED THE ORDER OF THE BOMBAY BENCH IN THE CASE OF KOTAK SECURITIES LTD., VS. ADDL. CIT [124 TTJ 214], WHICH WAS NOT APPLICAB LE AS THE FACTS WERE DIFFERENT. THE SAID ORDER RELATED TO PROFESSI ONAL OR TECHNICAL SERVICES AND IN THE CURRENT CASE, THERE WERE NO SUC H PROFESSIONAL OR TECHNICAL SERVICES, ACCORDINGLY, IT WAS REQUESTE D BY ASSESSEE THAT THE ADDITION BE DELETED AND THE ORDER OF THE H ON'BLE ITAT CONFIRMING THE SAME ADDITION SHOULD NOT BE CONSIDER ED AS BINDING. 5. HOWEVER, LD. CIT(A) DID NOT AGREE AND CONFIRMED THE ACTION OF AO BY STATING AS UNDER: 4.3 I HAVE SEEN CAREFULLY THE FACTS, THE EVIDENCE AND I HAVE ALSO GONE THROUGH THE ORDERS OF THE HON'BLE CIT(A) AND T HE HON'BLE ITAT FOR THE ASSESSMENT YEAR 2008-09 REFERRED TO SUPRA ON THE SA ME ISSUE. BOTH THE AUTHORITIES HAVE CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. I HAVE ALSO SEEN THE MISCELLANEOUS APPLICATION AND TH E ORDER OF THE HONOURABLE ITAT ON THE APPLICATION. FIRSTLY, THE H ONOURABLE ITAT HAS DISMISSED THE MISCELLANEOUS APPLICATION. THIS CLEA RLY MEANS THAT THE ORDER OF THE ITAT CONFIRMING THE ADDITION STANDS. THE WORDS ON WHICH THE APPELLANT IS RELYING ARE MENTIONED IN PARA-14 OF TH E ORDER OF THE MISCELLANEOUS APPLICATION REFERRED TO SUPRA. THIS PARA IS REPRODUCED BELOW:- 14. WE MAY MENTION HEREIN THAT WE MIGHT HAVE COMMI TTED AN ERROR OF JUDGEMENT IN WRONGLY APPLYING/INTERPRETING THE JUDG EMENT OF THE BOMBAY HIGH COURT AS MENTIONED ON THE MATTER, BU THE ASSESSEE I S FREE TO EXPLORE THE REMEDY AVAILABLE UNDER THE LAW. 15. IN THE RESULT, MA FILED BY THE ASSESSEE IS DISM ISSED. I.T.A. NO. 1301/HYD/2014 M/S. KARVY COMPUTERSHARE PRIVATE LIMITED :- 4 -: 4.4 A PLAIN READING OF THE ABOVE PARA ONLY INDICATE S THAT THE HONOURABLE ITAT HAS EXPRESSED ITS VIEW STATING THAT THE ORDER OF THE HONOURABLE BOMBAY HIGH COURT IN THE CASE OF KOTAK S ECURITIES APPLIED BY THEM MAY OR MAY NOT BE DIRECTLY APPLICABLE. THE WO RD MAY DOES NOT IMPLY THAT THE HONOURABLE ITAT HAS ADMITTED THAT IT HAD MADE A MISTAKE. IT ONLY SHOWS THAT THE ITAT EXPRESSES ITS VIEW THAT IN CASE THE APPELLANT FEELS THE ISSUE TO BE DEBATABLE, IT HAS FULL RIGHT TO GO TO THE HONOURABLE HIGH COURT OF ANDHRA PRADESH FOR REDRESSAL. 4.5 GIVEN THE ABOVE FACTS AND CIRCUMSTANCES, I HOL D THAT THE ORDER OF THE HONOURABLE ITAT IN THE CASE OF THE APPELLANT AND ON THE SAME ISSUE IS FULLY APPLICABLE AND BINDING. RESPECTFULLY FOLL OWING THE ORDER OF THE HONOURABLE ITAT, I HOLD THAT THE APPELLANT WAS BOUN D TO DEDUCT TAXES AND NOT HAVING DONE SO SECTION 40(A)(IA) FULLY APPLIES AND I FIND NO REASON TO INTERFERE WITH THE ADDITION MADE BY THE ASSESSING O FFICER. 6. BEFORE US, LD. COUNSEL SUBMITTED THAT THE ORDER OF ITAT IN EARLIER YEAR HAS RELIED ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF KOTAK SECURITIES LTD., VS. ADD L. CIT [124 TTJ 214] (SUPRA) WHICH WAS REVERSED BY THE HON'BLE SUPR EME COURT IN THE CASE OF CIT VS. KOTAK SECURITIES LTD., IN CIVIL APPEAL NO. 3141 OF 2016 DT. 29-03-2016 AND THE FACTS OF THE CASE AR E SIMILAR. 7. LD. DR HOWEVER, FAIRLY RELIED ON THE ORDERS OF I TAT IN EARLIER YEARS AND SUPPORTED THE ORDERS OF LD. CIT(A). 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. CO-OR DINATE BENCH IN ASSESSEES OWN CASE HAS HELD THAT THE FACTS OF T HE TRANSACTION ARE SIMILAR TO THE FACTS IN THE CASE OF KOTAK SECUR ITIES LTD., (SUPRA) AND HAS FOLLOWED THE PRINCIPLES LAID DOWN BY THE HO N'BLE BOMBAY HIGH COURT IN THE ABOVE SAID CASE IN AN EARLIER YEA R. THE HON'BLE SUPREME COURT HAS REVERSED THE DIRECTIONS OF THE HO N'BLE BOMBAY HIGH COURT IN THE ABOVE REFERRED JUDGMENT. HON'BLE SUPREME COURT HAS HELD AS UNDER: I.T.A. NO. 1301/HYD/2014 M/S. KARVY COMPUTERSHARE PRIVATE LIMITED :- 5 -: 7. MANAGERIAL AND CONSULTANCY SERVICES AND, THE REFORE, NECESSARILY TECHNICAL SERVICES, WOULD OBVIOUSLY I NVOLVE SERVICES RENDERED BY HUMAN EFFORTS. THIS HAS BEEN THE CONSIS TENT VIEW TAKEN BY THE COURTS INCLUDING THIS COURT IN BHARTI CELLULAR LTD. (SUPRA). HOWEVER, IT CANNOT BE LOST SIGHT OF THAT MODERN DAY SCIENTIFIC AND TECHNOLOGICAL DEVELOPMENTS MAY TEND TO BLUR THE SPECIFIC HUMAN EL EMENT IN AN OTHERWISE FULLY AUTOMATED PROCESS BY WHICH SUCH SER VICES MAY BE PROVIDED. THE SEARCH FOR A MORE EFFECTIVE BASIS, TH EREFORE, MUST BE MADE. 8. A READING OF THE VERY ELABORATE ORDER OF THE ASS ESSING OFFICER CONTAINING A LENGTHY DISCOURSE ON THE SERVICES MADE AVAILABLE BY THE STOCK EXCHANGE WOULD GO TO SHOW THAT APART FROM FAC ILITIES OF A FACELESS SCREEN BASED TRANSACTION, A CONSTANT UPGRADATION OF THE SERVICES MADE AVAILABLE AND SURVEILLANCE OF THE ESSENTIAL PARAMET ERS CONNECTED WITH THE TRADE INCLUDING THOSE OF A PARTICULAR/ SINGLE TRANS ACTION THAT WOULD LEAD CREDENCE TO ITS AUTHENTICITY IS PROVIDED FOR BY THE STOCK EXCHANGE. ALL SUCH SERVICES, FULLY AUTOMATED, ARE AVAILABLE TO ALL MEM BERS OF THE STOCK EXCHANGE IN RESPECT OF EVERY TRANSACTION THAT IS EN TERED INTO. THERE IS NOTHING SPECIAL, EXCLUSIVE OR CUSTOMISED SERVICE TH AT IS RENDERED BY THE STOCK EXCHANGE. TECHNICAL SERVICES LIKE MANAGERI AL 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/IDENTIFY A SERVICE PROVIDED FROM A FACI LITY OFFERED. WHILE THE FORMER IS SPECIAL AND EXCLUSIVE TO THE SEEKER OF TH E SERVICE, THE LATTER, EVEN IF TERMED AS A SERVICE, IS AVAILABLE TO ALL AND WOU LD 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 SPECIALIZED, EXCLUSIVE AND INDIVIDUAL REQUIREMENT O F THE USER OR CONSUMER WHO MAY APPROACH THE SERVICE PROVIDER FOR SUCH ASSI STANCE/SERVICE. IT IS ONLY SERVICE OF THE ABOVE KIND THAT, ACCORDING TO U S, SHOULD COME WITHIN THE AMBIT OF THE EXPRESSION TECHNICAL SERVICES AP PEARING IN EXPLANATION 2 OF SECTION 9(1)(VII) OF THE ACT. IN THE ABSENCE O F THE ABOVE DISTINGUISHING FEATURE, SERVICE, THOUGH RENDERED, WOULD BE MERE IN THE NATURE OF A FACILITY OFFERED OR AVAILABLE WHICH WOULD NOT BE COVERED BY THE AFORESAID PROVISION OF THE ACT. 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) SY STEM] FOR WHICH THE CHARGES IN QUESTION HAD BEEN PAID BY THE APPELL ANT ASSESSEE ARE COMMON SERVICES THAT EVERY MEMBER OF THE STOCK EXCH ANGE IS NECESSARILY REQUIRED TO AVAIL OF TO CARRY OUT TRADING IN SECURI TIES IN THE STOCK EXCHANGE. THE VIEW TAKEN BY THE HIGH COURT THAT A MEMBER OF T HE STOCK EXCHANGE HAS AN OPTION OF TRADING THROUGH AN ALTERNATIVE MOD E IS NOT CORRECT. A MEMBER WHO WANTS TO CONDUCT HIS DAILY BUSINESS IN T HE STOCK EXCHANGE HAS NO OPTION BUT TO AVAIL OF SUCH SERVICES. EACH A ND EVERY TRANSACTION BY I.T.A. NO. 1301/HYD/2014 M/S. KARVY COMPUTERSHARE PRIVATE LIMITED :- 6 -: 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 FEATURE S OF THE SERVICES PROVIDED BY THE STOCK EXCHANGE WOULD MAKE THE SAME A KIND OF A FACILITY PROVIDED BY THE STOCK EXCHANGE FOR TRANSACTING BUSI NESS RATHER THAN A TECHNICAL SERVICE PROVIDED TO ONE OR A SECTION OF T HE MEMBERS OF THE STOCK EXCHANGE TO DEAL WITH SPECIAL SITUATIONS FACED BY S UCH A MEMBER(S) OR THE SPECIAL NEEDS OF SUCH MEMBER(S) IN THE CONDUCT OF B USINESS IN THE STOCK EXCHANGE. IN OTHER WORDS, THERE IS NO EXCLUSIVITY T O THE SERVICES RENDERED BY THE STOCK EXCHANGE AND EACH AND EVERY MEMBER HAS TO NECESSARILY AVAIL OF SUCH SERVICES IN THE NORMAL COURSE OF TRAD ING IN SECURITIES IN THE STOCK EXCHANGE. SUCH SERVICES, THEREFORE, WOULD UND OUBTEDLY 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 SOU GHT 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 TECHNI CAL SERVICES AS APPEARING IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. 10. FOR THE AFORESAID REASONS, WE HOLD THAT THE VIE W 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 TDS ON SUCH PAYMENTS WOULD, THEREFORE, BE DEDUCTIBLE UNDER SECT ION 194J OF THE ACT. 9. SIMILARLY, IN ASSESSEES CASE ALSO THERE IS NO H UMAN ELEMENT AND SERVICES ARE FULLY AUTOMATED. MOREOVER, THERE IS NO EXCLUSIVITY AND THE NSDL/CDSL RENDERS SERVICE TO MANY OTHER CLI ENTS. SINCE THE FACTS ARE SIMILAR TO THE FACTS IN THE CASE OF K OTAK SECURITIES LTD DECIDED BY THE HON'BLE SUPREME COURT, WE ARE OF THE OPINION THAT SETTLEMENT AND CUSTODY FEES PAID TO NSDL/CDSL ARE NOT COVERED BY THE PROVISIONS OF SECTION 194J, AS THEY CANNOT B E CONSIDERED AS TECHNICAL SERVICES. CONSEQUENTLY, THERE CAN NOT B E ANY DISALLOWANCE ON THE REASON THAT TDS WAS NOT MADE, U /S 40(A)(IA). MOREOVER, THESE COMPANIES HAVE ALSO TREATED THESE A MOUNTS AS INCOMES AND OFFERED TO TAX. THE AMENDMENT BROUGH T TO PROVISIONS I.T.A. NO. 1301/HYD/2014 M/S. KARVY COMPUTERSHARE PRIVATE LIMITED :- 7 -: OF SECTION 40(A)(IA) DO APPLY TO THE FACTS AS WELL. IN VIEW OF THESE REASONS THE DISALLOWANCE MADE U/S. 40(A)(IA) IS HER EBY DELETED. 10. ASSESSEES GROUNDS ARE ALLOWED AND IN THE RESUL T, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 5 TH OCTOBER, 2016 SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMB ER HYDERABAD, DATED 5 TH OCTOBER, 2016 TNMM COPY TO : 1. M/S. KARVY COMPUTERSHARE PRIVATE LIMITED, HYDERA BAD C/O. SRI P. MURALI KRISHNA, ADVOCATE, 5-9-22/1, ADARSHNAGAR, HYD ERABAD. 2. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE-2, HYDERABAD. 3. CIT (APPEALS)-III, HYDERABAD. 4 . C IT - II , HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.