DCIT CIR 4(2), MUMBAI V. NNM SECURITIES LTD, MUMBAI

ITA 3686/MUM/2010

• Counselvise Citation: 368619914 RSA 2010
• Duration Of Justice: 1 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 07-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G P TRIVEDI
• Assessee Lawyers: REEPAL G TRALSHAWALA
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI R.S. SYAL (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO.3686/MUM/2010 ASSESSMENT YEAR- 2006-07 THE DCIT, CIR 4(2), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. NNM SECURITIES LTD., 1111 STOCK EXCHANGE TOWER, DALAL STREET, FORT, MUMBAUI-400 023 PAN-AACN 8070G (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI G.P. TRIVEDI RESPONDENT BY: SHRI REEPAL G. TRALSHAWALA O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 17.2.2010 PASSED BY THE LD. CIT(A)-8 FOR THE ASSESSMENT YEAR 2006-07. 2. THE ONLY GROUND RAISED BY THE REVENUE IS THAT TH E DELETION BY THE LEARNED CIT(A) THE DISALLOWANCE OF EXPENSES LIKE VS AT, LEASELINE AND TRANSACTION CHARGES AMOUNTING TO RS.10,88,883. THE AO HELD THAT THE CHARGES PAID TO STOCK EXCHANGE WERE FOR TECHNICAL S ERVICES AND COME WITHIN THE PURVIEW OF SEC. 194J AND 194C OF THE I. T. ACT AND THEREFORE LIABLE FOR DEDUCTION OF TAX. 3. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED THA T THE VSAT AND LEASE LINE CHARGES, TRANSACTION CHARGES AND OTHER C HARGES ARE ITA NO. 3686/M/2010 2 REIMBURSEMENT CHARGES PAID BY THE MEMBERS OF THE ST OCK EXCHANGE IN LIEU OF INFRASTRUCTURE AND TRADING FACILITIES PROVI DED BY THE STOCK EXCHANGE. THE VSAT AND LEASLINE, TRANSACTION CHARG ES ETC. PAID TO STOCK EXCHANGE ARE NOT PAYMENTS WHICH COME WITHIN THE DOM AIN OF FEE FOR TECHNICAL SERVICES AND THEY ARE ALSO NOT FOR ANY W ORKDONE BY STOCK EXCHANGE FOR THE MEMBER BROKER. THE LD. CIT(A) RELY ING ON THE DECISION OF ITAT MUMBAI BENCH IN ITA NO. 1955/M/08 FOR A.Y. 2005-06 IN THE CASE OF KOTAK SECURITIES LTD. VS ACIT 4(3) ORDER D T. 26.8.2008 (25 SOT 440) HAS HELD THAT THE STOCK EXCHANGE DOES NOT PRO VIDE MANAGERIAL SERVICES AND THE FEES PAID BY THE MEMBER TO THE STO CK EXCHANGE IS NOT FOR ANY TECHNICAL SERVICES RENDERED AND THEREFORE TDS IS NOT DEDUCTIBLE ON THE SAME. 4. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. HAV ING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AN D PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE FACTS ARE NOT IN DISPUTE. IN ANGEL BROKING LTD RELIED ON BY THE LD. COUNSE L FOR THE ASSESSEE IT HAS BEEN HELD BY THE TRIBUNAL IN PARA-10 OF ITS ORDER D ATED 9.12.2009 AS UNDER : WE HAVE ALREADY GIVEN NATURE OF VSAT CHARGES AND LEASE LINE CHARGES, OTHER CHARGES, BOLT CHARGE S, DEMAT CHARGES, PAID BY THE ASSESSEE. STOCK EXCHAN GES AS MEASURE OF PROVIDING INFRASTRUCTURE TO ITS ME MBERS INSTALLS VSAT, LEASE LINE FACILITIES, BOLT CHARGES AND DEMAT CHARGES TO ITS MEMBERS. FEES COLLECTED IN TH IS REGARD IS NOTHING BUT FEE PAID FOR USE OF FACILITIES PROVIDED BY THE STOCK EXCHANGE. SUCH FACILITIES ARE AVAILABLE FOR US E BY ANY MEMBER. SATELLITE BASED TRADING ENABLES TRADING MEMBER TO TRADE ON EXCHANGE FROM THEIR PLACE OF WORK ACROSS THE COUNTRY. STOCK EXCHANGE HAS TO GET PERMISSION OF DEPARTMENT OF TELECOMMUNICATION FOR INSTALLING AND SETTING UP VSAT OR LEASE LINE SYSTEM. CHARGES LEVIED B Y THE STOCK EXCHANGE ON ITS MEMBERS ARE FOR THE PURPOSE OF REC OVERY OF ITA NO. 3686/M/2010 3 ITS COST IN PROVIDING THESE FACILITIES TO THE MEM BERS. STOCK EXCHANGES DO NOT PROVIDE ANY TECHNICAL SERVICES BY INSTALLING VSAT NETWORK. IT IS THE FACILITY PRO VIDED TO ITS MEMBERS, SUCH PAYMENT CANNOT BE SAID TO BE NATU RE OF FEES FOR ANY TECHNICAL SERVICES RENDERED. STOCK EXCHANGES MERELY PROVIDE FACILITIES FOR ITS MEMBERS TO PURCH ASE AND SELL SHARES WITHIN FRAME WORK OF ITS BYE-LAWS. IT ALSO PROVIDES FOR A MECHANISM FOR SETTLEMENT OF DI SPUTE BETWEEN THE BROKERS AND ITS CUSTOMERS. STOCK EXCHANGES DO NOT INVOLVE THEM IN PROVIDING ANY TECHNICA L SERVICES TO ANY OF ITS MEMBERS. WE ARE OF THE VIEW THAT THIS RATIO OF HON'BLE MADRAS HIGH COURT WILL APPLY TO THE FA CTS OF THE PRESENT CASE. THE ASSESSING OFFICER IN COMING TO THE CONCLUSION THAT THE PAYMENT WAS FOR FEE FOR T ECHNICAL SERVICES HAS RELIED ON THE FACT THAT THE SCREE N BASED TRADING IS SOPHISTICATED METHOD OF TRADING. THIS BY ITSELF WILL NOT BE SUFFICIENT TO HOLDING TECHNICAL SE RVICES BEING RENDERED. THE ASSESSING OFFICER HAS ALSO HELD THAT SERVICES ARE NOT AVAILABLE TO THE PUBLIC AT LARGE BUT ONLY T O REGISTERED MEMBERS, AGAIN THIS BY ITSELF WILL NOT MAKE TH E SERVICES IN QUESTION AS TECHNICAL SERVICES. ANOTHER REASON GIV EN BY THE ASSESSING OFFICER IS THAT SPEED AT WHICH TRAN SACTIONS WERE COMPLETED AND THE EASE WITH WHICH TRANSACTIONS ARE DONE IN SCREEN BASED TRADING. THIS AGAIN IS NOT REL EVANT CRITERIA FOR HOLDING THAT THE SERVICES RENDERE D WERE TECHNICAL SERVICES. FACT THAT THE DATA PROVIDE D ON SCREEN WILL PROVIDE BETTER DATA FOR CARRYING OUT TRA NSACTION WILL NOT AGAIN BE SUFFICIENT TO HOLD THAT TECHNICA L SERVICES ARE BEING RENDERED. ALL THE ABOVE FEATURES PRESENT IN SCREEN BASED TRADING SAVES TIME. THIS IS THE RESULT OF IMPROVED TECHNOLOGY. THAT DOES NOT MEAN THAT STOCK EXC HANGE IS PROVIDING TECHNICAL SERVICES. MEMBERS OF THE STOCK EXCHANGE AND THE PUBLIC AT LARGE ARE BENEFIC IARIES OF THESE TECHNICAL IMPROVEMENTS. STOCK EXCHANGES ARE NOT THE OWNER OF THIS TECHNOLOGY TO PROVIDE THEM FOR A FEE TO PROSPECTIVE USE. THEY ARE THEMSELVES CONSUMERS OF THE TECHNOLOGY. WE ARE THEREFORE OF THE VIEW THA T LEARNED CIT(A) WAS RIGHT IN HOLDING THAT THE PAYMENT IN QUESTION IS NOT FEE FOR TECHNICAL SERVICES RENDERED. WE T HEREFORE ITA NO. 3686/M/2010 4 CONFIRM THE ORDER OF LEARNED CIT(A) AND DISM ISS THIS APPEAL OF THE REVENUE. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGH T ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL SUPRA, HOLD THAT THE PAYMENT OF V-S AT CHARGES AND LEASELINE CHARGES CANNOT BE CONSIDERED AS FEES FOR TECHNICAL SERVICES RENDERED AND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE ORDER OF THE LD. CIT(A) IN D ELETING THE DISALLOWANCE MADE BY THE AO. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJECTED. 5. WE ALSO FIND THAT THE TRANSACTION CHARGES ARE C OVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF KOTAK SECURITIES LTD. VS ADDL. CIT IN 25 SOT 440, WHEREIN IT HAS BEEN HELD AS UNDER: TO CALL A PAYMENT AS FEES FOR TECHNICAL SERVICES I T SHOULD HAVE BEEN SAID IN CONSIDERATION FOR RENDERIN G BY THE RECIPIENT OF PAYMENT OF ANY (A) MANAGERIAL SERVICE (B) TECHNICAL OR CONSULTANCY SERVICES; STOCK EXCHANGES MERELY PRO VIDE FACILITY FOR ITS MEMBERS TO PURCHASE AND SELL SHARE S, SECURITIES ETC. WITHIN THE FRAMEWORK OF ITS BYE LAWS. IN THE EVENT OF DISPUTE IT PROVIDES MECHANISM FOR SETTLEMENT OF DIS PUTES. IT REGULATES CONDITIONS SUBJECT TO WHICH A PERSON CAN BE A MEMBER AND WHEN AND IN WHAT CIRCUMSTANCES MEMBERSHI P CAN BE TRANSFERRED , CANCELLED, SUSPENDED. THE EX CHANGE PROVIDES A PLACE WHERE THE MEMBERS MEET AND TRANSAC T BUSINESS. THE TRANSACTION FEE IS NOT PAID IN CONSI DERATION OF ANY SERVICE PROVIDED BY THE STOCK EXCHANGE. IT IS A PAYMENT FOR USE OF FACILITIES PROVIDED BY THE STOCK EXCHANG E AND SUCH FACILITIES ARE AVAILABLE FOR USE BY ANY MEMBER. TH E PROVISION OF S. 194J WHICH CASTS A BURDEN ON A PERSON TO DEDU CT AT SOURCE AND TREAT HIM A DEFAULTER ON FAILURE TO DEDU CT TAX AT SOURCE, NEEDS TO BE INTERPRETED STRICTLY AND IN THE ABSENCE OF A CLEAR OBLIGATION ON THE PART OF A PERSON SPELT OUT IN UNAMBIGUOUS TERMS BY THE PROVISIONS OF S. 194J R/W EXPLN. 2 TO S. 9(1)(VII). SUCH OBLIGATION CANNOT BE IMPLIED OR LEFT TO THE DIXIT OF THE REVENUE AUTHORITIES. THEREFORE TRANS ACTION FEE PAID CANNOT SAID TO BE A FEE PAID IN CONSIDERATION OF THE STOCK EXCHANGE RENDERING A TECHNICAL SERVICES TO THE ASSE SSEE. THE ITA NO. 3686/M/2010 5 PROVISIONS OF S. 194J ARE THEREFORE NOT ATTRACTED. THEREFORE, THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE. CONSEQUENTLY, THE PROVISIONS OF S. 40(A)(IA) WERE ALSO NOT ATTRACTED AND THEREFORE THE DISALLOWA NCE MADE DIRECTED TO BE DELETED. TRANSACTION FEE PAID TO STOCK EXCHANGE ON THE BASIS OF VOLUME OF TRANSACTION IS PAYMENT FOR USE OF FACILIT IES PROVIDED BY STOCK EXCHANGE AND NOT FOR ANY SERVICES, EITHER TECHNICAL OR MANAGERIAL, HENCE PROVISIONS OF S. 194J ARE NOT ATT RACTED AND NO DISALLOWANCE CAN BE MADE BY INVOKING 40(A)(IA). RESPECTFULLY FOLLOWING THE DECISION IN THE CASE OF KOTAK SECURITIES (SUPRA), WE DELETE THE DISALLOWANCE OF RS. 10,88,88 3/- MADE U/S. 40(A)(IA). 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON THIS 25 TH DAY OF MAY, 2011 SD/- SD/- (R.S. SYAL ) (A SHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI, DATED 25 TH MAY , 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 3686/M/2010 6 DATE INITIALS 1 DRAFT DICTATED ON: 23 . 05. 201 1 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 23.05.2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10 . DATE OF DISPATCH OF ORDER: _________ ______