By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Chartered Accountants
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30 (2008) 25 SOT 440 (Mum.)
Kotak Securities Ltd. v. Addl.CIT
ITA No. 1955 (Mum.) of 2008
A.Y. : 2005-06. Dated : 26-8-2008
S. 194J read with S. 40(a)(ia) of the Income-tax Act, 1961 —
S. 194J does not apply to transaction fees paid by stockbroker to stock
exchanges.
For the relevant assessment year, the Assessing Officer
invoked S. 40(a)(ia) in respect of transaction charges paid by the
assessee-broker to the stock exchanges and disallowed the transaction charges
paid on account of non-deduction of tax at source. The CIT(A) upheld the
disallowance.
The Tribunal, relying on the decisions in the following
cases, deleted the disallowance :
(a) Techno Shares & Stocks Ltd. v. ITO, [ITA No. 778
(Mum.) of 2004]
(b) Tata Warehouse Securities v. Dy. CIT, [ITA No.
6600 (Mum.) of 2004]
(c) Kandwalla Finance Ltd. [ITA No. 6986 (Mum.) of 2002]
(d) Manjesh J. Patel [ITA No. 3710 (Mum.) of 1997]
(e) Peninsular Capital Market Ltd. v. Asst. CIT,
(2008) 19 SOT 421 (Cochin)
(f) Omprakash B. Salicha [ITA No. 11 (Mum.) of 2007, dated
12-3-2008]
(g) Skycell Communications Ltd. v. Dy. CIT, (2001)
251 ITR 53/119 Taxman 496 (Mad.)
The Tribunal noted as under :
(1) To call a payment as ‘fees for technical services’ it
should have been paid in consideration of rendering by the recipient of
payment of (a) Managerial Service or (b) Technical or Consultancy Service.
(2) The stock exchanges merely provide facility to its
members to purchase and sell shares, securities, etc., within the framework of
its bye-laws. In the event of dispute it provides for mechanism for settlement
of dispute. It regulates conditions subject to which a person can be a member
and as to when and in what circumstances membership can be transferred,
cancelled, suspended, etc. The exchange provides for a place where the members
can meet and transact business. The stock exchanges do not render any
managerial service, nor do they render any technical consultancy service.
(3) The transaction fee paid is on the basis of volume of
transaction effected by a member. The transaction fee is not paid in
consideration of any service provided by the stock exchange. It is a payment
for use of facilities provided by the stock exchange and such facilities are
available for use by any member.
(4) Therefore, the transaction fee paid could not be said
to be a fee paid in consideration of any technical services rendered by the
stock exchange to the assessee. The provisions of S. 194J were, thus, not
attracted.
