S. 194J — Various charges like VSAT charges, lease line charges, BOLT charges, Demat charges, etc. paid to stock exchange by member — Not in the nature of fees for technical services.

As a member of BSE and NSE, the assessee company had paid
various charges like VSAT charges, lease line charges, BOLT charges, Demat
charges, etc. to the stock exchange. According to the AO, the aforesaid sum paid
by the assessee to the stock exchange was a fee for technical services and,
therefore, the assessee ought to have deducted tax at source on such payment.
Since, the assessee had not deducted tax at source on such payment, the
aforesaid sum claimed as deduction was disallowed by the AO.

Following the decision of Skycell Communications Ltd. v. DCIT,
251 ITR 53 (Mad.) it was held that stock exchanges do not provide any technical
services by installing VSAT network. It is the facility provided to its members
and hence such payment cannot be said to be fees for any technical services
rendered. The AO in coming to the conclusion that the payment was for fees for
technical services has relied on the fact that the screen-based trading is a
sophisticated method of trading. This by itself will not be sufficient to hold
that technical services are rendered. The AO has held that services are not
available to the public at large but only to registered members, again this by
itself will not make the services in question as technical services. Another
reason given by the AO is the speed at which transactions were completed. This
again is not a relevant criteria for holding that the services rendered were
technical services. All the above features present in screen-based trading saves
time. This is the result of improved technology. That does not mean that stock
exchange is providing technical services. Stock exchanges are not the owner of
this technology to provide them for a fee to prospective users. They are
themselves consumers of the technology. Therefore the payment in question is not
fee for technical services.