2012 (9) TMI 913 - AT - Income Tax

Disallowance u/s 40(a)(ia) - VSAT leaseline and transaction charges - Held that - there is no bifurcation of the amounts of VSAT lease line and transaction charges. In the case of CIT vs. Angel Broking Ltd (2014 (5) TMI 584 - BOMBAY HIGH COURT) the Hon ble High Court held that VSAT and lease line charges paid to the Stock Exchange are not paid in consideration of technical services. Therefore there is no need for deducting tax. The same principles were reiterated by the Hon ble Bombay High Court in the case of CIT vs. Stock and Bond Trading Company in 2011 (10) TMI 172 - BOMBAY HIGH COURT wherein VSAT charges NSE lease line charges and transaction charges were considered and held against the Revenue following the decision in the case of DCIT vs. Angel Broking Ltd (2009 (12) TMI 498 - ITAT MUMBAI). The same principles were reiterated in the case of CIT vs. Kotak Securities Ltd 2011 (10) TMI 24 - Bombay High Court . To the extent of VSAT lease line charges the Revenue did not even contest. Even though the Hon ble Court held that the transaction charges paid to the Stock Exchange constitute fees for technical services on bonafide belief it was considered that the disallowance cannot be made in that year as the Revenue did not proceed on the footing that assessee is not liable to deduct the tax at source after introduction of the provisions. Since the CIT (A) has only given partial relief of Rs..2, 50, 000/- after considering the ITAT orders in the cases of Kotak Securities ltd 2008 (8) TMI 592 - ITAT MUMBAI and Angel Broking Ltd 2009 (12) TMI 498 - ITAT MUMBAI we are of the opinion that there is no need to disturb the order of the CIT (A). - Decided against Revenue.

Summary

Issues:
1. Disallowance of expenses under section 40(a)(ia) for VSAT, lease line, and transaction charges.
2. Applicability of TDS provisions on charges paid to the Stock Exchange.
3. Maintainability of the Revenue appeal based on the relief granted by the CIT (A).

Analysis:
1. The Revenue appealed against the CIT (A)'s order deleting the disallowance of Rs. 10,42,298 under section 40(a)(ia) for VSAT, lease line, and transaction charges. The AO had disallowed these amounts as technical charges under section 194J, citing non-deduction of TDS. The CIT (A) referred to previous decisions and held that no TDS was deductible on payments to the Stock Exchange, hence section 40(a)(ia) was not applicable. However, the CIT (A) directed the deletion of only Rs. 2,50,000.

2. The Revenue contested the entire disallowance amount, arguing that the relief granted was only Rs. 2,50,000, making the appeal not maintainable due to the tax effect. The absence of a bifurcation of charges raised concerns. Citing various court decisions, it was established that VSAT and lease line charges were not for technical services, thus not subject to TDS. Transaction charges were considered fees for technical services, but the disallowance was not justified as the Revenue did not proceed under the assumption of non-liability for TDS. The ITAT upheld the CIT (A)'s order based on previous rulings and dismissed the Revenue's appeal.

3. The judgments in cases such as Kotak Securities Ltd and Angel Broking Ltd were considered, leading to the conclusion that the CIT (A)'s partial relief was appropriate. The grounds raised by the Revenue were dismissed, and the appeal was ultimately dismissed by the Tribunal. The decision was pronounced in an open court on 28th September 2012.