JAICO SECURITIES P. LTD, MUMBAI V. ACIT 4(3), MUMBAI

ITA 5268/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1725 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Assessee
• Bench Allotted: J
• Assessment Year: 2005-2006
• Appeal Filed On: 14-09-2009
• Court: TRIBUNAL
• Department Lawyers: L K AGRAWAL
• Assessee Lawyers: H S RAHEJA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J BEFORE SHRI N.V. VASUDEVAN (JM) & SHRI B. RAMAKOTAI AH (AM) I.T.A.NO. 5268/MUM/2009 (ASSESSMENT YEAR : 2006-0 7) JAICO SECURITIES PVT. LTD. 12 BELL LANE FORT, MUMBAI-400 023. VS. ACIT 4(3) MUMBAI APPELLANT RESPONDENT PAN/GIR NO. : AAACJ1347G ASSESSEE BY : SHRI H.S. RAHEJA DEPARTMENT BY : SHRI L.K. AGRAWAL ORDER PER N.V. VASUDEVAN, JM :- THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 13.8.2009 OF LEARNED CIT(A)-XIV, MUMBAI RELATING TO A.Y. 2006-07. 2. ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL BY THE ASSESSEE IS AS TO WHETHER LEARNED CIT(A) WAS JUSTIF IED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER THEREBY THE ASSESSIN G OFFICER HELD THAT TRANSACTION CHARGES PAID BY THE ASSESSEE TO NATIONA L STOCK EXCHANGE IS IN THE NATURE OF FEES FOR TECHNICAL SERVICES U/S. 1 94J OF THE ACT AND IN VIEW OF THE FAILURE OF THE ASSESSEE TO DEDUCT TAX A T SOURCE, THE AFORESAID TRANSACTION CHARGES CANNOT BE ALLOWED AS A DEDUCTIO N IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA). 3. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF STOCK BROKING AND IS A MEMBER OF NSE. AS A MEMBER OF NSE, THE ASSESSEE HAD PAID A SUM OF RS.1,10,000/- AS VSAT CHARGES AND RS. 2,28,590/- AS TRANSACTION CHARGES THUS TOTALING RS.3,38,590/-. TH E NATURE OF VSAT AND TRANSACTION CHARGES ARE AS FOLLOWS :- JAICO SECURITIES PVT. LTD. 2 VSAT CHARGES : - MEMBERS OF THE STOCK EXCHANGES TRADE (PURCHASE A ND SELL) ON BEHALF OF THEIR CLIENTS. AS A PART OF INFR ASTRUCTURE PROVIDED TO THE MEMBERS A TRADING SYSTEM, KNOWN AS ON SCREEN TRADIN G IS PROVIDED BY STOCK EXCHANGES. SUCH TRADING FACILITIES ARE ESTABL ISHED BY STOCK EXCHANGES TO ENABLE TRADING ANYWHERE IN THE TERRITO RY OF INDIA. SUCH TRADING SYSTEMS ARE CENTRALIZED TO ENABLE TRADING I N VARIOUS STOCK EXCHANGES. EACH STOCK EXCHANGE IS CONNECTED TO THE MEMBERS WORKSTATIONS THROUGH APPROPRIATE COMMUNICATION NETW ORK USING A VERY SMALL APERTURE TERMINAL (VSAT) NETWORK. MEMBERS WIL L BE CONNECTED TO THE CENTRAL TRADING SYSTEM THROUGH THE HUB OF THE V SAT NETWORK. DEPARTMENT OF TELECOMMUNICATIONS (DOT) HAS TO ISSUE A LICENSE FOR THE INSTALLATION AND OPERATION OF PRIVATE CLOSED USER G ROUP (CUG) VSAT NETWORK. ALL CAPITAL AND REVENUE INVESTMENTS TOWARD VSATS AND CENTRAL INFRASTRUCTURE WILL BE MET BY CONCERNED STOCK EXCHA NGE. TO ALLOW THE MEMBERS THE BENEFIT OF SUCH OF VSAT NETWORK, THE ST OCK EXCHANGES CHARGES FEES FROM ITS MEMBERS. TRANSACTION CHARGES : - CHARGES LEVIED BY THE STOCK EXCHANGES ON ITS MEMBERS BASED ON THE VOLUME OF THE TRANSACTIONS DON E BY THE MEMBERS ON ITS ONLINE TRADING SYSTEM. 4. ACCORDING TO THE ASSESSING OFFICER, AFORESAID S UMS PAID BY THE ASSESSEE TO STOCK EXCHANGE WERE IN CONSIDERATION FO R THE STOCK EXCHANGE PROVIDING TECHNICAL SERVICES TO THE ASSESSEE. U/S. 194J OF THE AC, IF A PERSON PAYS ANY SUM AS FEES FOR TECHNICAL SERVICES, HE HAS DEDUCT TAX AT SOURCE ON SUCH PAYMENT. U/S. 40(A)(IA) OF THE ACT, IF A PERSON FAILS TO DEDUCT TAX AT SOURCES, WHICH HE WAS BOUND TO DEDUCT UNDER ANY PROVISIONS OF THE INCOME TAX ACT AND WHERE HE CLAIM S AS DEDUCTION IN COMPUTING HIS INCOME ANY FEES FOR TECHNICAL SERVICE S AND WHERE HE HAS NOT DEDUCTED TAX AT SOURCE ON SUCH FEES FOR TECHNIC AL SERVICES, THEN, NO DEDUCTION OF SUCH EXPENDITURE WILL BE ALLOWED WHILE COMPUTING HIS TOTAL INCOME. ACCORDING TO THE ASSESSING OFFICER, SUM OF RS.3,38,590 /- PAID BY THE ASSESSEE TO THE STOCK EXCHANGE WAS A FEE FOR TECHNICAL SERVICES JAICO SECURITIES PVT. LTD. 3 AND THEREFORE THE ASSESSEE OUGHT TO HAVE DEDUCTED T AX AT SOURCE ON WHICH PAYMENT. SINCE, THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON SUCH PAYMENT, THE AFORESAID SUM CLAIMED AS DEDUCTIO N WAS DISALLOWED BY THE ASSESSING OFFICER. ACCORDING TO THE ASSESSI NG OFFICER, TRADING IN STOCK EXCHANGE IS CARRIED ON THROUGH COMPUTER TERMI NALS, WHICH ARE CONNECTED TO NSE AND BSE AND VARIOUS STOCK BROKERS, WHO ARE MEMBERS OF VARIOUS STOCK EXCHANGES. VSAT ACTIVITY ENABLES T HE BROKERS OVER THE LENGTH AND BREADTH OF THE COUNTRY TO GET CONNECTED WITH EACH OTHER AND DO TRADING. VSAT CONNECTIONS ARE PROVIDED BY THE ST OCK EXCHANGES AND THEY CHARGE FEES FOR DOING SO. THUS, IT WAS NOT A C ASE OF PROVIDING A SIMPLE SERVICE FOR A FEE. IT WAS A PAYMENT OF A FEE S OF A TECHNICAL SERVICES RENDERED. 5. ON APPEAL BY THE ASSESSEE, LEARNED CIT(A) CONF IRMED THE ORDER OF AO. BEFORE CIT(A) THE ASSESSEE HAD RELIED ON THE D ECISION OF THE MUMBAI ITAT IN THE CASE OF KOTAK SECURITIES LTD. VS. ADDL. CIT 318 ITR (AT) 268 (MUM) WHEREIN ON THE ISSUE OF DEDUCTIBILITY OF VSAT AND LEASELINE AND TRANSACTION CHARGES, THE TRIBUNAL HAD DELETED SIMIL AR DISALLOWANCES MADE BY THE ASSESSING OFFICER. THE CIT(A) HOWEVER WAS OF THE VIEW THAT THE ISSUE HAS NOT ATTAINED FINALITY AND THEREFORE H E WOULD PREFER TO FOLLOW THE RULING OF THE AAR IN THE CASE OF CARGO COMMUNIT Y NETWORK PVT.LTD. 228 ITR 355 (AAR) AND ITAT AHMEDABAD BENCH IN THE C ASE OF CANARA BANK VS. ITO. IN THE CASE OF CARGO COMMUNITY NETWO RK PVT.LTD. (SUPRA) PAYMENT FOR ACCESS OF INTERNET BASED IN AIRCARGO PO RTALS OUTSIDE INDIA WOULD BE ROYALTY, BECAUSE IT IS NOT MERELY FOR GETT ING ACCESS TO DATA BUT USE OF PORTAL FOR BOOKING CARGO BESIDES TRAIONING O F SUBSCRIBERS AND RENDERING HELP CONNECTED THEREWITH. IN THE CASE OF CANARA BANK VS. ITO PAYMENTS MADE TOWARDS MICR CHARGES SUCH AS MICR PROCESSING, SERVICE TAX, FLOPPY CHARGES ETC., TO THE MICR CENTR E MANAGED BY THE SBI WERE HELD TO BE PAYMENT FOR RENDERING TECHNICAL SER VICES. JAICO SECURITIES PVT. LTD. 4 6. THE LEARNED D.R. RELIED ON THE ORDER OF THE TRIB UNAL IN THE CASE OF DCIT VS. ANGEL BROKING LTD. (2010)VOL. 35 SOT 457 ( MUM) WHEREIN ON AN IDENTICAL ISSUE THE TRIBUNAL HAS HELD THAT IDENTICA L PAYMENTS WERE NOT FEES FOR TECHNICAL SERVICES RENDERED. BEFORE US, LE ARNED DEPARTMENTAL REPRESENTATIVE REITERATED THE STAND OF THE REVENUE AS REFLECTED IN THE ORDER OF THE ASSESSING OFFICER. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE TRIBUN AL IN THE CASE OF DCIT VS. ANGEL BROKING LTD. (SUPRA) HAS DEALT WITH SIMILAR ISSUE AND HAS HELD THAT STOCK EXCHANGES AS MEASURE OF PROVIDING I NFRASTRUCTURE TO ITS MEMBERS INSTALLS VSAT AND LEASE LINE FACILITIES TO ITS MEMBERS. FEES COLLECTED IN THIS REGARD IS NOTHING BUT FEE PAID FO R USE OF FACILITIES PROVIDED BY THE STOCK EXCHANGE. SUCH FACILITIES ARE AVAILABLE FOR USE BY ANY MEMBER. SATELLITE BASED TRADING ENABLES TRADING MEMBER TO TRADE ON EXCHANGE FROM THEIR PLACE OF WORK ACROSS THE COUNTR Y. STOCK EXCHANGE HAS TO GET PERMISSION OF DEPARTMENT OF TELECOMMUNIC ATION FOR INSTALLING AND SETTING UP VSAT OR LEASE LINE SYSTEM. CHARGES L EVIED BY THE STOCK EXCHANGE ON ITS MEMBERS ARE FOR THE PURPOSE OF RECO VERY OF ITS COST IN PROVIDING THESE FACILITIES TO THE MEMBERS. STOCK EX CHANGES DO NOT PROVIDE ANY TECHNICAL SERVICES BY INSTALLING VSAT N ETWORK. IT IS THE FACILITY PROVIDED TO ITS MEMBERS, SUCH PAYMENT CANN OT BE SAID TO BE NATURE OF FEES FOR ANY TECHNICAL SERVICES RENDERED. STOCK EXCHANGES MERELY PROVIDE FACILITIES FOR ITS MEMBERS TO PURCHA SE AND SELL SHARES WITHIN FRAME WORK OF ITS BYLAWS. IT ALSO PROVIDES F OR A MECHANISM FOR SETTLEMENT OF DISPUTE BETWEEN THE BROKERS AND ITS C USTOMERS. STOCK EXCHANGES DO NOT INVOLVE THEM IN PROVIDING ANY TECH NICAL SERVICES TO ANY OF ITS MEMBERS. 8. THE DECISION IN THE CASE OF CARGO COMMUNITY NET WORK PVT.LTD. (SUPRA) WAS A CASE THE APPLICANT BEFORE THE AAR WAS A COMPANY INCORPORATED IN SINGAPORE AND WAS ENGAGED IN THE BU SINESS OF PROVIDING ACCESS TO AN INTERNET BASED AIR CARGO PORTAL AT SIN GAPORE. IT WAS THE BUSINESS OF THE APPLICANT BEFORE AAR TO PROVIDE DAT A THROUGH PORTAL AND JAICO SECURITIES PVT. LTD. 5 THEREFORE THE QUESTION BEFORE THE AAR WAS AS TO WHE THER THE RECEIPT CONSTITUTES ROYALTY OR FEES FOR TECHNICAL SERVICES. AS ALREADY STATED STOCK EXCHANGES ARE NOT IN THE BUSINESS OF PROVIDING DATA THROUGH PORTAL. AS A MEASURE OF PROVIDING INFRASTRUCTURE TO ITS MEMBERS, STOCK EXCHANGE INSTALLS VSAT AND LEASE LINE FACILITIES TO ITS MEMB ERS. THE AFORESAID DECISION IS THEREFORE NOT APPLICABLE TO THE FACTS O F THE CASE OF THE ASSESSEE. THE DECISION IN THE CASE OF CANARA BANK (SUPRA) WAS A CASE WHERE CLEARING SERVICES WERE PROVIDED WHICH WAS CON SIDERED AS RENDERING MANAGERIAL SERVICES. WE ARE OF THE VIEW THAT THE D ECISION IN THE CASE OF ANGEL BROKING LTD. IS APPLICABLE TO THE FACTS OF TH E PRESENT CASE. RESPECTFULLY FOLLOWING THE SAME WE HOLD THAT THE AS SESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE AND CONSEQUENTLY THE DISALL OWANCE MADE U/S.40(A)(I) OF THE ACT CANNOT BE SUSTAINED. THE S AME IS DIRECTED TO BE DELETED. THE APPEAL OF THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED ON THE 11 TH DAY OF JUNE, 2010. SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER DATED : 11 TH JUNE, 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS