SAFFRON GLOBAL MARKETS P.LTD, MUMBAI V. ITO TDS 3(2), MUMBAI

ITA 6843/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3210 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 24-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 10-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Assessee Lawyers: JITENDRA SINGH
• Keywords: Opportunity of being heard; Principle of natural justice
• Section: 201(1)

Judgement Text

1 I.T.A. NO.6843 /MUM/2014 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. NO. 6843/MUM/2014 (ASSESSMENT YEAR : 2010-11) SAFFRON GLOBAL MARKETS PVT LTD H-130, BHOOMI GREEN, RAHEJA ESTATE KULUPWADI, BORIVALI(E), MUMBAI 400 066 VS ITO TDS-3(2) MUMBAI PAN : AALCS2019K (APPELLANT) (RESPONDENT) APPELLANT BY SHRI JITENDRA SINGH RESPONDENT BY SHRI RAJESH KUMAR YADAV DATE OF HEARING : 24-08-2016 DATE OF PRONOUNCEMENT : 24-08-2016 O R D E R PER ASHWANI TANEJA, AM THIS APPEAL HAS BEEN FILED AGAINST THE ORDER OF LD . COMMISSIONER OF INCOME-TAX(APPEALS) [HEREINAFTER CALLED CIT(A)] DT 18-08-2014 PASSED AGAINST THE ORDER U/S 201(1) / 201(1A) DT 31-03-2012 FOR A. Y. 2010-11 ON THE FOLLOWING GROUNDS : GROUND I A) THE COMMISSIONER OF INCOME-TAX (APPEALS) - 14, MUMBAI, [HEREIN AFTER REFERRED TO AS 0T (A)'] HAS ERRED IN CONFIRMING THE PENALTY LEVIED BY 2 I.T.A. NO.6843 /MUM/2014 THE ASSESSING OFFICER [HEREIN AFTER REFERRED TO AS 'AO'] U/S 201(1)/201(1A) OF THE ACT WITHOUT APPRECIATING MERI TS OF THE CASE. B) THE CIT (A) SHOULD HAVE APPRECIATED THAT THE APPELLANT HAD REQUESTED FOR ADJOURNMENT OF HEARING AS THERE WAS C HANGE IN THE AUTHORISED REPRESENTATIVE THROUGH A REQUEST LET TER DATED 12 TH SEPTEMBER 2014 AND THE SAME WAS ACCEPTED. HOWEVER, THE ORDER WAS PASSED EX-PARTE WITHOUT GIVING APPELLANT THE OPPORTUNITY OF BEING HEARD. THEREBY NOT SERVING THE PURPOSE OF NATURAL JUSTICE. C) THE CIT (A) DID NOT APPRECIATE THE FACT THAT APPELL ANT CANNOT BE SUBJECTED TO PENALTY WHEN HE ACTED UNDER BONAFIDE B ELIEF THAT IT ALWAYS ACTED AS AN AGENT OF THE STOCK EXCHANGE FOR PAYMENT OF TRANSACTION CHARGES SUCH ACTIVITY CANNOT BE IN THE NATURE OF ANY PROFESSIONAL FEES AS DEFINED IN EXPLANATION 2 TO SE CTION 9(1)(VII) OF THE ACT. ALSO IT IS EVIDENT FROM THE SPECIFIC OBSERVATI ON GIVEN BY HON'BLE JURISDICTIONAL HIGH COURT THAT EVEN THE HIGH COURT THAT THE STOCK BROKERS AND REVENUE DEPARTMENT WERE UNDER THE BONAF IDE BELIEF THAT THE TRANSACTION CHARGES WOULD NOT CONSTITUTE PROFES SIONAL FEES AND, THEREFORE, NO FAULT COULD BE FOUND WITH THE ASSESSE E FOR NON DEDUCTION OF INCOME- TAX AT SOURCE OUT OF TRANSACTION CHARGES DURING THE EARLIER YEARS D) THE APPELLANT PRAYS THAT THE PENALTY PROCEEDING SHO ULD, THEREFORE, QUASHED IN THE INTEREST OF JUSTICE AND A PPROPRIATE RELIEF BE GRANTED TO THE APPELLANT. GROUND 2 A) THE APPELLANT CRAVES LEAVES TO ADD, ALTER, AMEND AND/OR SUPPLEMENT ANY GROUND OR GROUNDS, IF NECESSARY, AT THE TIME OF HEARING OF THE APPEAL. 2. THE SOLITARY GROUND RAISED IN THIS APPEAL IS AGAINS T THE ACTION OF THE LOWER AUTHORITIES IN HOLDING THE ASSESSEE IN DEFAULT ON A CCOUNT OF NON DEDUCTION OF TAX AT SOURCE U/S 194J ON THE AMOUNT OF TRANSACTION CHARGES PAID BY THE ASSESSEE TO NATIONAL STOCK EXCHANGE OF INDIA (IN SH ORT, NSE). 3. DURING THE COURSE OF HEARING, IT WAS SUBMITTED BY T HE LD. COUNSEL THAT THE LD.CIT(A) DECIDED THIS ISSUE AGAINST THE ASSESS EE BY RELYING UPON THE 3 I.T.A. NO.6843 /MUM/2014 JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF KOTAK SECURITIES LTD 340 ITR 333 (BOM) WHEREIN IT WAS HELD THAT THE TRAN SACTION CHARGES PAID TO NSE WAS ON ACCOUNT OF MANAGERIAL SERVICES RENDERED BY N SE TO THE ASSESSEE AND CONSEQUENTLY THE TRANSACTION CHARGES CONSTITUTED FE E FOR TECHNICAL SERVICES U/S 194J OF THE ACT AND, THEREFORE, ASSESSEE OUGHT TO H AVE DEDUCTED TAX AT SOURCE. HOWEVER, THE AFORESAID JUDGEMENT OF HONBLE BOMBAY HIGH COURT WAS CARRIED TO HONBLE SUPREME COURT WHEREIN THE VIEW TAKEN BY THE HONBLE HIGH COURT HAS NOT BEEN ACCEPTED. IT HAS BEEN HELD BY THE HON BLE SUPREME COURT THAT TRANSACTION CHARGES PAID GO NSE ARE MEANT FOR THE F ACILITY AND THEY DID NOT CONSTITUTE TECHNICAL SERVICE OR MANAGERIAL SERVICE AND, THEREFORE, THERE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE ON SUCH PAYMENT U /S 194J R.W.S 9(I)(II). 4. PER CONTRA, THE LD.DR SUPPORTED THE ORDERS PASSED B Y THE LOWER AUTHORITIES, SUBMISSIONS MADE BY BOTH THE SIDES AS WELL AS JUDGEMENTS PLACED BEFORE US. 5. IT IS NOTED THAT UNDOUBTEDLY, THE LD.CIT(A) DECIDED THIS ISSUE AGAINST THE ASSESSEE RELYING UPON THE JUDGEMENT OF HONBLE BOMB AY HIGH COURT IN THE CASE OF KOTAK SECURITIES LTD (SUPRA) WHEREIN IT WAS HELD THAT TRANSACTION CHARGES PAID BY THE MEMBER OF STOCK EXCHANGE TO TRANSACT BUSINES S OF SALE AND PURCHASE OF SHARES AMOUNTED TO PAYMENT OF FEE FOR TECHNICAL SE RVICES RENDERED BY THE STOCK EXCHANGE AND, THEREFORE, UNDER THE PROVISIONS OF SECTION 194J OF THE ACT, TDS WAS DEDUCTIBLE ON SUCH PAYMENTS. SUBSEQUENTLY THE ASSESSEE CARRIED THE MATTER BEFORE THE HONBLE SUPREME COURT WHEREIN HON BLE SUPREME COURT HAS REVERSED THE ORDER OF THE HIGH COURT BY PASSING A D ETAILED ORDER IN A BATCH OF APPEALS REPORTED AS KOTAK SECURITIES LTD VS CIT 3 83 ITR 1 (SC). THE HONBLE SUPREME COURT HAS ANALYSED THE PROVISIONS OF SECTIO N 194J AS WELL AS 9(I)(VII) AND BASED ON THE CONCLUSION THAT TRANSACTION CHARGE S DID NOT CONSTITUTE FEE FOR 4 I.T.A. NO.6843 /MUM/2014 TECHNICAL OR MANAGERIAL SERVICES. RELEVANT OBSERVA TIONS OF HONBLE SUPREME COURT ARE REPRODUCED HEREUNDER, FOR THE SAKE OF REF ERENCE:- A READING OF THE VERY ELABORATE ORDER OF THE ASSESS ING 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 UPGRA DATION OF THE SERVICES MADE AVAILABLE AND SURVEILLANCE OF THE ESS ENTIAL PARAMETERS CONNECTED WITH THE TRADE INCLUDING THOSE OF A PARTI CULAR/SINGLE TRANSACTION THAT WOULD LEAD CREDENCE TO ITS AUTHENT ICITY IS PROVIDED FOR BY THE STOCK EXCHANGE. ALL SUCH SERVICES, FULLY AUTOMATED, ARE AVAILABLE TO ALL MEMBERS OF THE STOCK EXCHANGE IN R ESPECT OF EVERY TRANSACTION THAT IS ENTERED INTO. THERE IS NOTHING SPECIAL, EXCLUSIVE OR CUSTOMISED SERVICE THAT IS RENDERED BY THE STOCK EX CHANGE. 'TECHNICAL SERVICES' LIKE 'MANAGERIAL AND CONSULTANCY SERVICE' WOULD DENOTE SEEKING OF SERVICES TO CATER TO THE SPECIAL NEEDS O F 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 OR IDENTIFY A SERVICE PROVIDED FROM A FACILITY OFFE RED. WHILE THE FORMER IS SPECIAL AND EXCLUSIVE TO THE SEEKER OF TH E SERVICE, THE LATTER, EVEN IF TERMED AS A SERVICE, IS AVAILABLE T O ALL AND WOULD THEREFORE STAND OUT IN DISTINCTION TO THE FORMER. T HE SERVICE PROVIDED BY THE STOCK EXCHANGE FOR WHICH TRANSACTION CHARGES ARE PAID FAILS TO SATISFY THE AFORESAID TEST OF SPECIALISED EXCLUSIVE AND INDIVIDUAL REQUIREMENT OF THE USER OR CONSUMER WHO MAY APPROAC H THE SERVICE PROVIDER FOR SUCH ASSISTANCE OR SERVICE. IT IS ONLY SERVICE OF T HE ABOVE KIND THAT, ACCORDING TO US, SHOULD COME WITHIN THE AMBIT OF THE EXPRESSION 'TECHNICA L SERVICES' APPEARING IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. IN THE ABSENCE OF THE ABOVE DISTINGUISHING FEATURE, SERVICE, THOUGH RENDERED, W OULD BE MERELY IN THE NATURE OF A FACILITY OFFERED OR AVAILABLE WH ICH WOULD NOT BE COVERED BY THE AFORESAID PROVISION OF THE ACT. 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 ) SYSTEM) FOR WHICH THE CHARGES IN QUESTION HAD BEEN PAID BY THE APPELLANT ASSESSEE ARE COMMON SERVICES THAT EVERY MEMBER OF T HE STOCK EXCHANGE IS NECESSARILY REQUIRED TO AVAILABLE L OF TO CARRY OUT TRADING IN SECURITIES IN THE STOCK EXCHANGE. THE VIEW TAKEN BY THE HIGH COU RT THAT A MEMBER OF THE STOCK EXCHANGE HAS AN OPTION O F TRADING THROUGH AN ALTERNATIVE MODE IS NOT CORRECT. A MEMBE R WHO WANTS TO CONDUCT HIS DAILY BUSINESS IN THE STOCK EXCHANGE HA S NO OPTION BUT TO AVAIL OF SUCH SERVICES. EACH AND EVERY TRANSACTION BY A MEMBER INVOLVES THE USE OF THE SERVICES PROVIDED BY THE ST OCK EXCHANGE FOR WHICH A MEMBER IS COMPULSORILY REQUIRED TO PAY AN A DDITIONAL CHARGE (BASED ON THE TRANSACTION VALUE) OVER AND AB OVE THE CHARGES FOR THE MEMBERSHIP IN THE STOCK EXCHANGE. T HE ABOVE FEATURES OF THE SERVICES PROVIDED BY THE STOCK EXCH ANGE WOULD 5 I.T.A. NO.6843 /MUM/2014 MAKE THE SAME A KIND OF A FACILITY PROVIDED BY THE STOCK EXCHANGE FOR TRANSACTING BUSINESS RATHER THAN A TECHNICAL SERVIC E PROVIDED TO ONE OR A SECTION OF THE MEMBERS OF THE STOCK EXCHANGE T O DEAL WITH SPE- CIAL SITUATIONS FACED BY SUCH A MEMBER(S) OR THE SP ECIAL NEEDS OF SUCH MEMBER(S) IN THE CONDUCT OF BUSINESS IN THE STOCK E XCHANGE. IN OTHER WORDS, THERE IS NO EXCLUSIVITY TO THE SERVICE S 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 UNDOUBTEDLY BE APPROPRIATE TO BE TERMED AS FACILITIES PROVIDED BY THE STOCK EXCHANGE ON PAYMENT AND DOES NOT AMOUNT TO 'TECHNIC AL SERVICES' PROVIDED BY THE STOCK EXCHANGE, NOT BEING SERVICES SPECIFICALLY SOUGHT BY THE USER OR THE CONSUMER. IT IS THE AFORESAID LA TTER FEATURE OF A SERVICE RENDERED WHICH IS THE ESSENTIAL HALLMARK OF THE EXPRESSION 'TECHNICAL SERVICES' AS APPEARING IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. 10 FOR THE AFORESAID REASONS, WE HOLD THAT THE VIEW TAKEN BY THE BOMBAY HIGH COURT THAT THE TRANSACTION CHARGES PAID TO THE BOMBAY STOCK EXCHANGE BY ITS MEMBERS ARE FOR 'TECHN ICAL 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 DEDUCTION OF TAX AT SOURCE ON SUCH PAY MENTS WOULD, THEREFORE, BE DEDUCTIBLE UNDER SECTION 194J OF THE ACT. 6. THUS, FROM OBSERVATIONS OF THE HONBLE SUPREME COUR T, IT IS CLEAR THAT SERVICES PROVIDED BY THE STOCK EXCHANGE TO THE ASSE SSEE DOES NOT FALL IN THE CATEGORY OF TECHNICAL SERVICES AS HAS BEEN ENVISA GED IN SECTION 194J AND, THEREFORE, RESPECTFULLY FOLLOWING THE JUDGEMENT OF HONBLE SUPREME COURT IT IS HEREBY HELD THAT ASSESSEE WAS NOT REQUIRED TO DEDUC T TAX AT SOURCE FROM THE PAYMENT MADE TO NSE. THUS, GROUNDS RAISED BY THE A SSESSEE ARE ALLOWED. 7. AS A RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWE D. 6 I.T.A. NO.6843 /MUM/2014 ORDER PRONOUNCED IN THE COURT AT THE CONCLUSION OF HEARING. SD/- SD/- (JOGINDER SINGH) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 25TH AUGUST, 2016 PK/- COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , H-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES