By K. B. Bhujle
Advocate
14. Principal CIT vs. National Stock Exchange [2020]
425 ITR 588 (Bom) Date
of order: 3rd February, 2020 A.Ys.: 2006-07
Securities
Transaction Tax Act, 2004 – Stock exchange – Duty only to ensure tax collected,
determined in accordance with Act and Rules and that amount collected deposited
with Central Government – Stock exchange cannot collect securities transaction
tax beyond client code – Addition to income of stock exchange on the ground
that higher securities transaction tax ought to have been collected – Not
justified
The
assessee is the National Stock Exchange of India Limited. For the A.Y. 2006-07,
the A.O. was of the view that there was a discrepancy between the total amount
of securities transaction tax collected by at least nine brokers from their foreign institutional investors and the amount of securities
transaction tax collected by the assessee. After considering the response of
the assessee, the A.O. passed an assessment order raising securities
transaction tax collectible by the assessee by an additional amount of Rs. 5 crores
over and above the securities transaction tax collected and deposited by the
assessee during the year under consideration. Penalty proceedings were also
initiated.
The
Tribunal deleted the addition made on this count as modified by the first
appellate authority, holding that the assessee had not committed any default
and that under the statute the assessee was not liable for any alleged short
deduction of securities transaction tax. Consequently, the levy of interest and
penalty were also deleted.
On appeal
by the Revenue, the Bombay High Court upheld the decision of the Tribunal and
held as under:
‘i) Chapter VII of the Finance (No. 2) Act, 2004
deals with securities transaction tax. Securities transaction tax is charged at
a specified rate in accordance with section 98. Securities transaction tax is
payable either by the purchaser or by the seller and not by the stock exchange.
The value of taxable securities transaction has to be determined in accordance
with section 99 and the proviso
thereto. Rule 3 of the Securities Transaction Tax Rules, 2004, including the
Explanation thereto, have been notified prescribing how the value of the
securities transaction tax is to be determined.
ii) The responsibility of the stock exchange is to
ensure firstly that securities transaction tax is collected as per section 98;
secondly, that it has been determined in accordance with section 99 read with
rule 3 and Explanation thereto; and lastly, such securities transaction tax
collected from the purchaser or seller is credited to the Central Government as
provided u/s 100. The stock exchange can only ensure determination of the value
of the taxable securities transaction of purchase and sale through a client
code at the prescribed rate. However, there is no mechanism provided enabling
the stock exchange to collect securities transaction tax beyond the client
code.
iii) The Securities and Exchange Board of India
issued a circular to the stock exchanges for using two client codes, one for
sale and the other for purchase in respect of investors such as foreign
institutional investors whose transactions are to be settled through delivery
mode pursuant to which the stock exchange had issued a circular dated 30th
September, 2004 to its member brokers to use the two client codes. If a broker
had not taken any separate client code the stock exchange cannot be held
responsible. Such failure cannot be ascribed to the stock exchange because the
client codes are not provided by the stock exchange but by the member brokers.
iv) The Tribunal had returned a finding of fact
that the securities transaction tax collected by the assessee was through and
under the client codes of the member brokers and the collected securities
transaction tax had been credited into the account of the Central Government.
Hence the deletion of the addition and the consequent interest and penalty were
justified.’
