2013 (5) TMI 785 - AT - Income Tax

Disallowance under section 40(a)(ia) - VSAT transaction and lease line charges paid to the stock exchange - Non deduction of TDS - Held that - Transaction charges paid by the assessee to stock exchange constitute fees for technical services under section 194J of the Act and therefore the assessee was liable to deduct tax at source while crediting the transaction charges to the account of stock exchange. - transaction charges paid to the stock exchange constitute fees for technical services on bona fide 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. - there is no need to disturb the order of the Commissioner of Income-tax (Appeals) - no tax at source was required to be deducted by the assessee with regard to lease line charges and VSAT charges. - Matter remanded back this case to the file of the Assessing Officer to verify whether the return for the assessment year 2007-08 was filed by the assessee before the completion of assessment proceedings for the assessment year 2006-07 and whether the assessee was of the bona fide belief in view of assessment made for the earlier years that it was not liable to deduct tax from transaction charges under section 194J and if found so he will allow the deductions of the transaction charges accordingly - Following decision of Kotak Securities 2011 (10) TMI 24 - Bombay High Court First Global Stockbroking Pvt. Ltd 2012 (9) TMI 913 - ITAT MUMBAI and CIT v. DICGC Ltd. 2012 (4) TMI 240 - ITAT MUMBAI - Decided partly in favour of assessee.

Summary

Issues:
Challenge to deletion of addition under section 40(a)(ia) for VSAT, transaction, and lease line charges paid to stock exchange.

Analysis:
The appeal was filed by the Revenue against the deletion of addition made by the Assessing Officer under section 40(a)(ia) for charges paid to the stock exchange. The assessee, a company engaged in share trading and stock broking, claimed deductions for charges paid to the stock exchange. The Assessing Officer disallowed the deduction treating it as payment for technical services requiring tax deduction at source under section 194J. The Commissioner of Income-tax (Appeals) deleted the additions based on precedents like Kotak Securities Ltd. The Revenue had previously appealed to the Bombay High Court in a similar case, where it was held that transaction charges constituted fees for technical services necessitating tax deduction at source.

The Tribunal referred to similar cases like Deputy CIT v. Angel Broking Ltd. and CIT v. Stock and Bond Trading Company where it was held that VSAT and lease line charges were not paid for technical services, hence no tax deduction was required. The Tribunal also noted that the Revenue did not contest the VSAT and lease line charges. Regarding transaction charges, the Tribunal referred to Asst. CIT v. DICGC Ltd., where it was observed that the provisions of section 40(a)(ia) may not be applicable if the assessee had a bona fide belief that tax deduction was not required based on past assessments. The Tribunal remanded the case to the Assessing Officer to verify if the assessee filed returns before assessment proceedings for previous years and if there was a genuine belief regarding tax deduction.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes, confirming the deletion of VSAT and lease line charges while remanding the case back to the Assessing Officer for verification and possible deduction of transaction charges based on the assessee's belief and past assessments.