DCIT CIR 2(2), MUMBAI V. MANUBHAI MANGALDAS SECURITIES P. LTD, MUMBAI

ITA 6436/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62571 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 01-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P C MOURYA
• Assessee Lawyers: DEEPAK P TIKEKA R; Y M AGARWA LA
• Keywords: Business expenditure; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH BEFORE SHRI G.E. VEERABHADRAPPA, PRESIDENT AND SHRI S.S.GODARA, JUDICIAL MEMBER ITA NO. 6436/M/2010 ASSESSMENT YEAR: 2007-08 DCIT CIR-2(2), AAYAKAR BHAVAN, ROOM NO. 545, 5 TH FLOOR, M.K. ROAD, MUMBAI 400 020 . . APPELLANT VS. MANUBHAI MANGALDAS SECURITIES P. LTD., HERITAGE PLAZA, 4 TH FLOOR, JP ROAD, OPP. INDIAN OIL NAGAR, ANDHERI (W), MUMBAI 400 053. PAN: AAACM8035G .. RESPONDENT APPELLANT BY: SHRI P.C. MOURYA RESPONDENT BY: SHRI DEEPAK P TIKEKAR & Y.M. AGARWAL A DATE OF HEARING: 9.5.2012 DATE OF ORDER: 15.6.20 12 ORDER PER S.S. GODARA, JM: IN THIS APPEAL, REVENUE HAS CHALLENGED ORDER DATED 28.6.2011 PASSED BY CIT (A), FOR ASSESSMENT YEAR 2007-08. 2. THE ISSUE RAISED IN APPEAL IS IN THE FOLLOWING G ROUNDS:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT NO TAX IS REQUIRED TO BE DEDUCTED UNDER THE PROVISIONS OF CHAPTER XVIIB OF T HE I.T. ACT ON THE PAYMENTS MADE BY THE ASSESSEE TO THE STOCK EXCHANGE S ON ACCOUNT OF VSAT CHARGES. 2 ITA NO. 6436/M/2010 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT NO TAX IS REQUIRED TO BE DEDUCTED UNDER THE PROVISIONS OF CHAPTER XVIIB OF T HE I.T. ACT ON THE TRANSACTION CHARGES PAID BY THE ASSESSEE TO THE STO CK EXCHANGES. 3. AS REGARDS FIRST ISSUE, UNDISPUTED FACTS OF THE CASE ARE THAT IN ITS RETURN FILED ON 30.10.2007, THE ASSESSEE DECLARED INCOME OF `. 1,72,42,845/- DERIVED FROM THE BUSINESS OF DEALING IN SHARE BROKING. THE ASSESS EE IN ITS PROFIT AND LOSS ACCOUNT, HAD DEBITED CERTAIN PAYMENTS UNDER DIFFERENT HEADS AS EXPENSES. THE ASSESSING OFFICER FOUND FROM ASSESSEES DETAILS THAT IT HAD N OT DEDUCTED TDS UNDER THE HEAD VSAT CHARGES OF `. 4,47,855/-. 4. IN EXPLANATION, THE ASSESSEE SUBMITTED THAT : VSAT ARE INCLUSIVE OF BANDWIDTH CHARGES WHICH BSE AND NSE CHARGES US FOR PROVIDING RECURRING BANDWIDTH TO THE END VSAT USER. BANDWIDTH ALLOWS TRANSMISSION OF DATA FROM BROKERS OFFICE TO THE END USER AND VICE-VERSA. TRANSACTION OF DATA IS MADE T HROUGH THE VSATS AND WE ARE PAYING FOR THE USAGE. AT NO STAGE THE S TOCK EXCHANGES HAVE PROVIDED ANY TECHNICAL SERVICES. IN VIEW OF THE ABOVE PARA, WE HAVE NOT DEDUCTED ANY TAX ON THE PAYMENTS MADE TO THEM DURING THE YEAR. HOWEVER, WE PLACE OUR RELIANCE ON THE JUDGEMENT DELIVERED BY THE ITAT D B ENCH, MUMBAI IN THE CASE OF PACIFIC INTERNET (INDIA) PVT. LTD. VS. ITO TDS. FOR YOUR READY REFERENCE WE ARE ENCLOSING HEREWITH THE EXTRA CT OF THE JUDGEMENT. 5. THE A.O. IN ASSESSMENT ORDER NEGATED THE ASSESSE E S PLEAS BY HOLDING AS UNDER : THE ASSESSEES SUBMISSION IS STUDIED CAREFULLY, HO WEVER IT IS NOT ACCEPTABLE. THE ABOVE EXPENSES ARE VERY CLEARLY LI ABLE FOR TDS UNDER THE PROVISION OF CHAPTER XVII-B. AS PER PROV ISIONS OF SECTION 40(A)(IA) ANY INTEREST, COMMISSION OR BROKERAGE, RENT ROYALTY , FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNT PAYABLE TO THE CON TRACTOR OR A SUB-CONTRACTOR BEING RESIDENT, FOR CARRYING OUT AN Y WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK ), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVI I-B AND SUCH TAX HAS NOT BE DEDUCTED OR AFTER DEDUCTION HAS NOT BEEN PAID, SHALL NOT BE ALLOWED AS A DEDUCTION. 3 ITA NO. 6436/M/2010 THE ABOVE SUBMISSION OF THE ASSESSEE HAS BEEN CONSI DERED, HOWEVER, THE JUDGEMENT PASSED BY THE HON'BLE ITAT H AS NOT ATTAINED FINALITY. HENCE, THE AMOUNT OF `. 4,47,855/- CLAIMED AS EXPENDITURE UNDER THE HEAD VSAT CHARGES, WHEREON THE PROVISIO NS OF TDS ARE APPLICABLE IS DISALLOWED U/S.40(A)(IA) OF THE ACT A ND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 6. IN APPEAL, THE CIT(A) HAS ACCEPTED ASSESSEES C ONTENTION BY OBSERVING THAT: I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS AND FI ND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE APPELLANT BY THE AFORESAID DECISION OF HON'BLE ITAT, MUMBAI. IN THE CASE OF CIT VS. A NGEL BROKING LTD. (2010) 35 SOT 457 (MUM) IT WAS HELD THAT VSAT BOLT, LEASED LINE, DEMAT FACILITIES PROVIDED BY STOCK EXCHANGE IS NOT IN THE NATURE OF TECHNICAL SERVICES. MERE COLLECTION OF FEE FOR USE OF STANDARD FACILITY PROVIDED TO ALL THOSE WILLING TO PAY FOR IT DOES NO T AMOUNT TO THE FEE HAVING BEEN RECEIVED FOR TECHNICAL SERVICES. SUCH PAYMENTS ARE NOT LIABLE TO ANY TDS AND PROVISIONS OF SECTION 40(A)(I A) ARE NOT APPLICABLE. FOLLOWED SKYCELL COMMUNICATIONS LTD. VS DCIT (2001) 251 ITR 53 (MAD). ACCORDINGLY, RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, THE ADDITION MADE IS DELETED. 7. BEFORE US, THE LD. DR HAS SUBMITTED THAT THE SER VICE IN QUESTION I.E. VSAT CHARGES PAID BY ASSESSEE TO THE STOCK EXCHANGE ARE TECHNICAL SERVICES BEING IN THE NATURE OF TECHNICAL EXPERTISE. TO BUTTRESS HIS SUB MISSION, HE HAS PLACED RELIANCE ON A.O.S FINDINGS QUA THIS ISSUE (SUPRA) OF VSAT AND TRANSACTION CHARGES PAID BY THE ASSESSEE TO BOMBAY STOCK EXCHANGE AND NATIONAL STOC K EXCHANGE. 8. OPPOSING ARGUMENTS, LD. AR HAS CONTENDED THAT TH E ISSUE IS WHETHER VSAT PAYMENTS ARE TECHNICAL SERVICES OR NOT; IS NO MORE RES INTEGRA AS HON'BLE BOMBAY HIGH COURT IN THE CASE OF ITO V/S. ANGEL CAPITAL IN ITA NO. 475/11 DECIDED ON 28.07.2011 HAS HELD THAT THE SAID SERVICE IS NOT TECHNICAL IN NATURE, AFFIRMING THE VIEW BY THE ITAT. 9. FURTHER, AR HAS ALSO ARGUED THAT HON'BLE JURISDI CTIONAL HIGH COURT HAS AGAIN FOLLOWED THE LAW LAID DOWN IN ANGEL BROKING (SUPRA) IN THEIR ORDER DATED 14.10.2011 (ITA NO. 4117/10 CIT V/S. STOCK TRADING CO.) WHICH IS ALSO PLACED ON RECORD. 4 ITA NO. 6436/M/2010 10. WE HAVE GONE THROUGH THE CASE LAW OF ANGEL CAPI TAL (SUPRA) WHEREIN, THEIR LORDSHIPS HAVE BEEN PLEASED TO HOLD THAT VSAT EXPEN SES ARE NOT TECHNICAL SERVICES PAYMENTS. IN THIS REGARD, WE DEEM IT APPROPRIATE T O REPRODUCE THE SUBSTANTIAL QUESTIONS OF LAW AS WELL AS RATIO DECIDENDI AS FOLL OWS:- (A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE TRIBUNAL WAS JUSTIFIED IN HO LDING THAT VSAT AND LEASE LINE CHARGES PAID TO THE STOCK EXCHANGE B Y THE ASSESSEE COMPANY WERE ALLOWABLE AS A DEDUCTION FROM TAXABLE INCOME EVEN THOUGH THE ASSESSEE COMPANY HAD FAILED TO DEDUCT TD S THEREON? THE QUESTION OF LAW HAS BEEN ANSWERED AS UNDER : AS REGARDS FIRST TWO QUESTIONS ARE CONCERNED, THE FINDINGS OF FACT RECORDED BY THE ITAT IS THAT VSAT AND LEASE LING CH ARGES PAID BY THE ASSESSEE TO STOCK EXCHANGE WERE MERELY REIMBURS EMENT OF THE CHARGES PAID/PAYABLE BY THE STOCK EXCHANGE TO THE D EPARTMENT OF TELECOMMUNICATION. SINCE THE VSAT AND LEASE LING C HARGES PAID BY THE ASSESSEE DO NOT HAVE ANY ELEMENT OF INCOME, DED UCTING TAX WHILE MAKING SUCH PAYMENTS DO NOT ARISE. HENCE, QUESTION NOS. (A) AND (B) CANNOT BE ENTERTAINED. THE SAID CASE LAW, ADMITTEDLY HAS BEEN FOLLOWED BY HON'BLE HIGH COURT IN CASE OF STOCK AND BOND TRADING CO. (SUPRA). WHILE EXAMININ G THE FACTS IN HAND IN THE LIGHT OF CASE LAW ABOVE LEAVES NO IOTA OF DOUBT THAT NOW IT STANDS SETTLED THAT VSAT CHARGES ARE NOT PAYMENT FOR TECHNICAL SERVICES. O NCE IT IS SO HELD THE SAME CANNOT BE SUBJECTED TO TDS PROVISIONS IN CHAPTER XVII OF T HE ACT. 11. AS REGARDS THE OTHER ISSUE, FACTS RELEVANT TO THIS ARE THAT IN ITS P & L ACCOUNT, THE ASSESSEE HAD DEBITED EXPENSES OF `. 8,21,754/- AS TRANSACTION CHARGES WITHOUT DEDUCTING TDS. BEFORE AO, ASSESSEE SUBMITTED THAT, TRANSACTION CHARGES ARE LEVIED BY THE RESPECTIVE S TOCK EXCHANGES ON EVERY TRADE EXECUTED THROUGH TERMINAL ON THEIR P LATFORM DURING THE YEAR. IT IS APPLICABLE ON EVERY BUY AS WELL AS SELL TRANSACTION. WHEN A BROKER IS NOT ACTIVE IN BUSINESS HE IS NOT C HARGED ANY TRANSACTION CHARGES. IN OTHER WORDS, A MEMBER WHO IS NOT ACTIVE AND WHO DOES NOT UNDERTAKE ANY BUSINESS TRANSACTION IS NOT REQUIRED TO MAKE ANY PAYMENT. 5 ITA NO. 6436/M/2010 THE STOCK EXCHANGE COLLECTS TRANSACTION CHARGES TO MEET THEIR ADMINISTRATIVE AND OTHER EXPENSES. THERE IS NO CON TRACTUAL OBLIGATION BETWEEN THE EXCHANGE AND THE MEMBER BROK ER. IN CASE OF A CONTRACTUAL OBLIGATION, A MEMBER BROKER IS REQUIR ED TO PAY SOME CHARGES AS STANDING CHARGES. A PERSON, WHO DOES NO T UNDERTAKE ANY TRANSACTION, IS NOT REQUIRED TO PAY ANY CHARGES. FURTHER, THE STOCK EXCHANGES DO NOT RENDER ANY MANA GERIAL SERVICE OR ANY TECHNICAL CONSULTANCY SERVICE. TRANSACTION CHA RGES ARE PAID FOR THE USAGE OF FACILITIES. THEY COLLECT IT, FOR THE TRANSACTIONS UNDERTAKEN TO MEET THEIR ADMINISTRATIVE EXPENSES OF THE EXCHANGE. TO CALL A PAYMENT AS A FEE FOR TECHNICAL SERVICES, IT SHOULD HAVE BEEN PAID IN CONSIDERATION OF RENDERING BY THE RECIPIENT OF THE PAYMENT OF ANY MANAGERIAL OR TECHNICAL SERVICES. THE STOCK EX CHANGES MERELY PROVIDE FACILITY TO ITS MEMBERS TO PURCHASE AND SEL L SHARES, SECURITIES ETC. WITHIN THE FRAMEWORK ANY BYE LAWS. IN FACT, THE STOCK EXCHANGE IS A PLACE WHERE NUMBER S CAN MEET AND TRANSACT BUSINESS. THE TRANSACTION FEES PAID IS ON THE BASIS OF VOLUME OF TRANSACTION EFFECTED BY A MEMBER. NO AMO UNT IS PAYABLE, IF NO TRANSACTION IS UNDERTAKEN. THE TRANSACTION F EES IS NOT PAID IN CONSIDERATION OF ANY SERVICE PROVIDED BY THE STOCK EXCHANGE. IT IS A PAYMENT FOR THE USE OF FACILITIES PROVIDED BY THE S TOCK EXCHANGE AND SUCH FACILITIES ARE AVAILABLE FOR THE USE BY ANY ME MBER. WE RELY ON THE JUDGEMENT OF KOTAK SECURITIES LTD. W HICH WAS DELIVERED BY THE ITAT MUMBAI BENCH A ON AUGUST 26 , 2008 PERTAINING TO THE A.Y. 2005-06 THE A.O. REJECTED ASSESSEES EXPLANATION IN VIEW OF FOLLOWING OBSERVATIONS: THE ABOVE SUBMISSION OF THE ASSESSEE HAS BEEN CONS IDERED, HOWEVER, THE JUDGEMENT PASSED BY THE HON. ITAT HAS NOT ATTAINED FINALITY. HENCE, THE AMOUNT OF `. 8,21,754/- CLAIMED AS EXPENDITURE UNDER THE HEAD VSAT CHARGES, WHEREON THE PROVISIO NS OF TDS ARE APPLICABLE IS DISALLOWED U/S.40(A)(IA) OF THE ACT A ND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 12. IN APPEAL, THE LD. CIT(A) HAS ACCEPTED ASSESSEE S PRAYER AND HELD THAT : I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS AND FI ND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE APPELLANT BY THE AFORESAID DECISION OF HON'BLE ITAT, MUMBAI. IN THE CASE OF KOTAK SECURITIES LTD. VS ADDL. CIT (2009) 25 SOT 440 (MUM), IT WAS HELD THAT TRANSACTION FEE PAID TO STOCK EXCHANGE ON THE BASIS OF VOLUME O F TRANSACTIONS IS PAYMENT FOR USE OF THE FACILITIES PROVIDED BY IT AN D NOT FOR ANY SERVICE, EITHER TECHNICAL OR MANAGERIAL TO WHICH SE CTION 194 J IS NOT ATTRACTED. ACCORDINGLY, RESPECTFULLY FOLLOWING THE ABOVE DECISION, THE ADDITION MADE IS DELETED. 6 ITA NO. 6436/M/2010 13. LD. DR BEFORE US HAS SUBMITTED THAT CHAPTER XVI I B OF THE ACT EMANCIPATING TDS ON ALL PAYMENT IN LIEU OF CERTAIN PAYMENTS IS M ANDATORY IN NATURE. COMING TO FACTS IN HAND, HE CONTENDED THAT TRANSACTION CHARG ES ARE IN FACT SERVICES IN LIEU OF SERVICES OFFERED BY STOCK EXCHANGE. HENCE, THE SAM E IS LIABLE TO TDS PROVISIONS. IN SUPPORT THEREOF, HE HAS RELIED ON A.O.S ORDER. 14. ON THE OTHER HAND, REITERATING ASSESSEES STAND BEFORE A.O. AS REPRODUCED HEREINABOVE (SUPRA), LD. AR HAS SUBMITTED THAT THE DECISION OF MUMBAI ITAT IN CASE OF KOTAK SECURITIES (2009) 25 SOT 440 HAS BEEN UPHE LD BY HON'BLE MUMBAI HIGH COURT REPORTED AS 340 ITR 332. 15. BESIDES THIS, LD. AR HAS ALSO PRODUCED BEFORE U S COPY OF MUMBAI ITAT DECISION IN CASE OF ACIT V/S. DIGC LTD. DATED 03.02 .2012 WHEREIN, THE COORDINATE BENCH HAS FOLLOWED DECISION OF KOTAK SECURITIES (SU PRA). 16. QUA THIS GROUND AS WELL, WE HAVE GIVEN OUR THOU GHTFUL CONSIDERATION. UNDISPUTEDLY, THE ASSESSEE HAS NOT DEDUCTED TDS ON TRANSACTION CHARGES PAID TO STOCK EXCHANGE BECAUSE IN ITS OPINION, THE PAYMENT WAS NOT IN LIEU OF SERVICE. WHEREAS THE A.O. HAS REJECTED ITS VERSION, THE CIT( A) HAS ACCEPTED ASSESSEES APPEAL. 17. THE MATTER WENT UP TO THE HON'BLE HIGH COURT IN KOTAK SECURITIES (SUPRA) CASE ITSELF. WE SEE THAT WHILE DECIDING THE ISSUE ON MERITS IN REVENUES FAVOUR, BENEFIT HAS BEEN GIVEN TO ASSESSEE CONCERNED. THE RATIO OF THE JUDGEMENT READS AS UNDER : IN THE RESULT, WE HOLD THAT WHEN THE STOCK EXCHANG ES ARE ESTABLISHED UNDER THE SECURITIES CONTRACTS (REGULAT ION) ACT, 1956, WITH A VIEW TO PREVENT UNDESIRABLE TRANSACTIONS IN SECURITIES BY REGULATING THE BUSINESS OF DEALING IN SHARES, IT I S OBVIOUS THAT THE STOCK EXCHANGES HAVE TO MANAGE THE ENTIRE TRADING ACTIVITY CARRIED ON BY ITS MEMBERS AND ACCORDINGLY MANAGERIAL SERVIC ES ARE RENDERED 7 ITA NO. 6436/M/2010 BY THE STOCK EXCHANGES. THEREFORE, IN THE FACTS OF THE PRESENT CASE, THE TRANSACTION CHARGES WERE PAID BY THE ASSESSEE T O THE STOCK EXCHANGE FOR RENDERING THE MANAGERIAL SERVICES WHIC H CONSTITUTES FEES FOR TECHNICAL SERVICES UNDER SECTION 194J READ WITH EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT AND HENCE THE ASSE SSEE WAS LIABLE TO DEDUCT TAX AT SOURCE BEFORE CREDITING THE TRANSACT ION CHARGES TO THE ACCOUNT OF THE STOCK EXCHANGE. THE QUESTION THEN TO BE CONSIDERED IS WHETHER THE A SSESSING OFFICER WAS JUSTIFIED IN INVOKING SECTION 40(A)(IA ) OF THE ACT AND DISALLOWING THE ENTIRE BUSINESS EXPENSES INCURRED ON ACCOUNT OF TRANSACTION CHARGES ON THE GROUND THAT THE ASSESSE E HAS FAILED TO DEDUCT TAX AT SOURCE UNDER SECTION 194J OF THE ACT ? THE OBJECT OF INTRODUCING SECTION 40(A)(IA), AS EXP LAINED IN THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO. 5, DATED JULY 15, 2005-SEE [2005] 276 ITR (ST.) 151), IS TO AUGMENT COMPLIANCE WITH THE TDS PROVISIONS IN THE CASE OF RESIDENTS AND CU RB BOGUS PAYMENTS. MOREOVER, THOUGH SECTION 194J WAS INSERT ED WITH EFFECT FROM JULY 1, 1995, TILL THE ASSESSMENT YEAR IN QUES TION THAT IS THE ASSESSMENT YEAR 2005-06 BOTH THE REVENUE AND THE AS SESSEE PROCEEDED ON THE FOOTING THAT SECTION 194J WAS NOT APPLICABLE TO THE PAYMENT OF TRANSACTION CHARGES AND ACCORDINGLY, DUR ING THE PERIOD FROM 1995 TO 2005 NEITHER THE ASSESSEE HAS DEDUCTE D TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACC OUNT OF THE STOCK EXCHANGE NOR THE REVENUE HAS RAISED ANY OBJECTION OR INITIATED ANY PROCEEDINGS FOR NOT DEDUCTING THE TAX AT SOURCE. I N THESE CIRCUMSTANCES, IF BOTH THE PARTIES FOR NEARLY A DEC ADE PROCEEDED ON THE FOOTING THAT SECTION 194J IS NOT ATTRACTED, THE N IN THE ASSESSMENT YEAR IN QUESTION, NO FAULT CAN BE FOUND WITH THE AS SESSEE IN NOT DEDUCTING THE TAX AT SOURCE UNDER SECTION 194J OF T HE ACT AND CONSEQUENTLY, NO ACTION COULD BE TAKEN UNDER SECTI ON 40(A)(IA) OF THE ACT. IT IS RELEVANT TO NOTE THAT FROM THE ASSE SSMENT YEAR 2006-07 THE ASSESSEE HAS BEEN DEDUCTING TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EX CHANGE THOUGH NOT AS FEES FOR TECHNICAL SERVICES BUT AS ROYALTY. IT IS FURTHER RELEVANT TO NOTE THAT IT IS NOT THE CASE OF THE REVENUE THAT ON ACCOUNT OF THE FAILURE ON THE PART OF THE ASSESSEE TO DEDUCT TAX A T SOURCE, THE REVENUE HAS SUFFERED PRESUMABLY BECAUSE, THE STOCK EXCHANGE HAS DISCHARGED ITS TAX LIABILITY FOR THE ASSESSMENT YEA R IN QUESTION. IN ANY EVENT, IN THE FACTS OF THE PRESENT CASE, IN VIEW OF THE UNDISPUTED DECADE OLD PRACTICE, THE ASSESSEE HAD BONA FIDE RE ASON TO BELIEVE THAT THE TAX WAS NOT DEDUCTIBLE AT SOURCE UNDER SE CTION 194J OF THE ACT AND, THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING SECTION 40(A)(IA) OF THE ACT AND DISALLOWING THE B USINESS EXPENDITURE BY WAY OF TRANSACTION CHARGES INCURRED BY THE ASSE SSEE. ACCORDINGLY, WE HOLD THAT THE TRANSACTION CHARGES P AID BY THE ASSESSEE TO THE STOCK EXCHANGE CONSTITUTE 'FEES F OR TECHNICAL SERVICES' COVERED UNDER SECTION 194J OF THE ACT A ND, THEREFORE, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK E XCHANGE. HOWEVER, 8 ITA NO. 6436/M/2010 SINCE BOTH THE REVENUE AND THE ASSESSEE WERE UNDER THE BONA FIDE BELIEF FOR NEARLY A DECADE THAT TAX WAS NOT DEDUCTI BLE AT SOURCE ON PAYMENT OF TRANSACTION CHARGES, NO FAULT CAN BE FOU ND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE IN THE ASSESSMENT YEAR IN QUESTION AND CONSEQUENTLY DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF THE ACT IN RES PECT OF THE TRANSACTION CHARGES CANNOT BE SUSTAINED. WE MAKE IT CLEAR THAT WE HAVE ARRIVED AT THE ABOVE CONCLUSION IN THE PECUL IAR FACTS OF THE PRESENT CASE, WHERE BOTH THE REVENUE AND THE ASSE SSEE RIGHT FROM THE INSERTION OF SECTION 194J IN THE YEAR 1995 TILL 2005 PROCEEDED ON THE FOOTING THAT THE ASSESSEE IS NOT LIABLE TO DEDU CT TAX AT SOURCE AND IN FACT IMMEDIATELY AFTER THE ASSESSMENT YEAR I N QUESTION, I.E., FROM THE ASSESSMENT YEAR 2006-07 THE ASSESSEE HAS B EEN DEDUCTING TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHA RGES TO THE ACCOUNT OF THE STOCK EXCHANGE. THE QUESTION RAISED IN THE APPEAL IS ANSWERED ACCOR DINGLY AND THE APPEAL IS DISPOSED OFF IN THE ABOVE TERMS WIT H NO ORDER AS TO COSTS. 18. SIMILARLY, COMING TO DICGC CASE (SUPRA), WE FIN D THAT THE LD. COORDINATE BENCH AFTER TAKING NOTE CONSIDERATION KOTAK SECURIT IES CASE LAW (AS ABOVE) HAS BEEN PLEASED TO HOLD AS UNDER :- THE SECOND PART OF THE ARGUMENT IS THAT THE HON'BL E BOMBAY HIGH COURT IN THE CASE OF CIT VS. KOTAK SECURITIES LTD. [SUPRA] HAS OBSERVED IN PARA-31 THAT BOTH THE PARTIES HAS PROCE EDED ON THE FOOTING THAT TAX WAS NOT DEDUCIBLE U/S.194J FOR THE LAST 10 YEARS, THEREFORE, PROVISIONS OF SEC.40[A][IA] COULD NOT BE INVOKED. IT WAS CONTENDED THAT IN THE LAST MANY YEARS IN THE CASE B EFORE US ALSO NO TAX WAS HELD TO BE DEDUCTIBLE, THEREFORE, ASSESSEE AND DEPARTMENT PROCEEDED ON THE FOOTING THAT NO TAX WAS DEDUCTIBLE . HOWEVER, ON QUERY BY THE BENCH LD. COUNSEL OF THE ASSESSEE ADMI TTED THAT IN A.Y. 2006-07 DISALLOWANCE U/S.40[A][IA] WAS MADE FOR THE FIRST TIME BUT THAT YEAR WAS NOT AVAILABLE BY THE TIME ASSESSMENT FOR A.Y. 2007-08 WAS COMPLETED. HOWEVER, THIS DEFENCE IS NOT AVAILA BLE IN A.Y. 2008- 09 BECAUSE BY THAT TIME REVENUE HAS ALREADY INVOKED THE PROVISIONS OF SEC.40[A][IA] AND THIS FACT WAS KNOWN TO THE ASS ESSEE. THEREFORE, IN OUR OPINION, IN VIEW OF PARA-31 OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF KOTAK SECURITIES L TD., PROVISIONS OF SEC.40[A][IA] ARE NOT APPLICABLE FOR A.Y. 2007-08 W HEREAS THE SAME ARE APPLICABLE IN A.Y. 2008-09. 19. AFTER GIVING OUR THOUGHTFUL CONSIDERATION TO IS SUE IN HAND VIS--VIS THE CASE LAW STATED ABOVE, WE ARE OF THE OPINION THAT THE HO N'BLE JURISDICTIONAL HIGH COURT HAS HELD THAT TDS PROVISIONS ARE APPLICABLE IN CASE OF TRANSACTION CHARGES PAID TO A STOCK EXCHANGE. AT THE SAME TIME, THEIR LORDSHIPS HAVE GRANTED BENEFIT TO THE 9 ITA NO. 6436/M/2010 ASSESSEE ON THE REASONING, IN ITS OWN WORDS HOWEVER, SINCE BOTH THE REVENUE AND THE ASSESSEE WERE UNDER THE BONA FIDE BELIEF FOR NEARLY A DECADE THAT TAX WAS NOT DEDUCTIBLE AT SOURCE ON PAYMENT OF TRANS ACTION CHARGES, NO FAULT CAN BE FOUND WITH THE ASSESSEE IN NOT DEDUCT ING THE TAX AT SOURCE IN THE ASSESSMENT YEAR IN QUESTION AND CONSEQUENTLY DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF TH E ACT IN RESPECT OF THE TRANSACTION CHARGES CANNOT BE SUSTAINED. 20. TO ASCERTAIN WHETHER SUCH BONA FIDE WAS ENTERTA INED IN THE EARLIER ASSESSMENT, WE REMIT ISSUE BACK TO FILE OF AO WITH A DIRECTION TO DECIDE BONA FIDES OF CONTENTION IN THIS REGARD AND TO DECIDE THE ISS UE AFRESH IN THE SPIRIT OF LAW IN CASE OF KOTAK SECURITIES (HONBLE MUMBAI HIGH COURT ). NEEDLESS TO MENTION, THE ASSESSEE SHOULD BE GIVEN FAIR OPPORTUNITY TO BE HEA RD. 21. APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOS ES. ORDER PRONOUNCED IN THE OPEN COURT ON15.6.2012 SD/- SD/- (G.E. VEERABHADRAPPA) (S.S. GODARA) PRESIDENT JUDICIAL MEM BER DATE : 15.6.2012 AT :MUMBAI OKK COPY TO : 1. DCIT CIR 2(2), MUMBAI. 2. MANUBHAI MANGALDAS SECURITIES PVT. LTD. 3. THE CIT (A)-5, MUMBAI. 4. THE CIT CONCERNED. 5. THE DR B, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// 10 ITA NO. 6436/M/2010 BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI