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2020 (12) TMI 1358 - AT - Income TaxTDS u/s 194J - Disallowance of deduction claimed towards payment made to National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) for lease line charges/V SAT and transaction charges - As per AO payment made to NSE and BSE is in the nature of fee for technical and managerial services requiring deduction of tax at source - Disallowance u/s 40(a)(ia) for non deduction of tax at source - assessee objected to the proposed disallowance by stating that the payment made is not for availing technical or managerial services - whether the payment made by the assessee towards online trading service made available by NSE and BSE is in the nature of technical services? - HELD THAT - As relying on Hon'ble Supreme Court in case of CIT Vs. Kotak Securities Ltd 2016 (3) TMI 1026 - SUPREME COURT we hold that the payment made by the assessee towards lease line/V SAT and transaction charges not being in the nature of fee for technical services will not be amenable to section 194J of the Act. Accordingly, we delete the disallowance made under section 40(a)(ia). Ground no.1, raised by the assessee is allowed. Disallowance of Security Transaction Tax (STT) u/s 43B(a) - assessee has not actually paid STT during the year under consideration, the Assessing Officer invoked the provisions of section 43B(a) of the Act and disallowed the deduction claimed - HELD THAT - As section 101 r/w rule 6 and 7, requires ever recognized Stock Exchange and mutual fund to furnish prescribed return to pay STT to the credit of Central Government. Thus, on a conjoint reading of the aforesaid provisions, it is very much clear that the liability to pay STT is on the Stock Exchanges. Assessee is merely acting as an agent of the Stock Exchanges for collecting STT from the buyers and sellers of the shares while facilitating those transactions as a broker. Thus, it is very much clear that the liability to pay STT is not on the assessee. As evident, the assessee has not debited the STT to the Profit Loss Account. Rather, he has shown it as a Balance Sheet item under the head Liability. That being the case, the liability of STT which the assessee is merely a custodian of, cannot be treated as liability of the nature coming within the ambit of section 43B(a) of the Act. The decisions relied upon by assessee also supports this view. Accordingly, we direct the deletion of disallowance made under section 43B(a) of the Act. These grounds are allowed. TP adjustment on brokerage commission - adjustment relates to brokerage commission charged to the AE for providing broking services - TPO has made the disputed adjustment by applying the commission charged to non AE @ 0.28% as CUP - HELD THAT - On a perusal of the decision of the Tribunal in assessment year 2013 14, 2020 (12) TMI 1051 - ITAT MUMBAI we find that the disputed issue on which the Tribunal has restored back the issue to the AO/TPO relating to arm's length price adjustment of intra group services. It is very much clear from the reading of the said order, wherein, it has been discussed that while the assessee had determined the arm's length price of intra group service applying TNMM, TPO, though, had applied CUP, however, ultimately he had determined the arm's length price by estimating the cost of employee on man hour basis. Therefore, it is very much clear that the issue dealt with and decided by the Tribunal in assessment year 2013 14 is not similar to the issue with which we are presently concerned. Rather, on appreciation of relevant facts, we are of the view that the issue arising in these grounds is squarely covered by the decision of the Tribunal in assessment year 2011 12 as reproduced above. In view of the aforesaid, we delete the addition made by the Assessing Officer. The grounds raised are allowed. TP Adjustment on the brand fee - HELD THAT - As decided in own case 2002 03 2013 (11) TMI 927 - ITAT MUMBAI expenditure incurred by the assessee on royalty and business development could not be considered as excessive compared to the comparable parties. CIT(A) has also applied the TNMM method for benchmarking international transactions. There are 29 comparables selected details of which have already been given earlier which gave an average margin of -5.5% and, in case, loss making companies were excluded, the average margin came to 16.06% whereas in case of the assessee the margin declared was 57.58%. CIT(A) has therefore held that no TP adjustment is required to be made in case of the assessee with which, on the facts of case, we fully agree. We, therefore, see no infirmity in the order of CIT(A) in deleting the addition made and the same is therefore, upheld - Thus we delete the addition made on account of transfer pricing adjustment. This ground is allowed. Non grant of credit of TDS - HELD THAT - We direct the AO to consider the claim of the assessee by verifying the material on record and allow credit for TDS as per law. Levy of dividend distribution tax (DDT) - HELD THAT - The submission of assessee that the assessee has already paid the DDT, we direct the Assessing Officer to verify assessee s claim of payment of DTT and decide the issue accordingly. The ground raised by the assessee is allowed for statistical purposes.
Issues Involved:
1. Disallowance of deduction for lease line/V-SAT and transaction charges. 2. Disallowance of Security Transaction Tax (STT) under section 43B(a) of the Act. 3. Transfer pricing adjustment on brokerage commission. 4. Transfer pricing adjustment on brand fee. 5. Non-grant of credit of TDS. 6. Levy of dividend distribution tax (DDT). Detailed Analysis: 1. Disallowance of Deduction for Lease Line/V-SAT and Transaction Charges: The assessee challenged the disallowance of ?4,20,98,353 claimed towards lease line/V-SAT and transaction charges paid to NSE and BSE. The Assessing Officer (AO) treated these payments as fees for technical services, requiring tax deduction at source under section 194J. The AO disallowed the deduction under section 40(a)(ia) for non-deduction of tax at source. The Dispute Resolution Panel (DRP) upheld this view. However, the Tribunal referred to the Supreme Court’s decision in CIT v/s Kotak Securities Ltd., which clarified that such payments are for facilities provided by stock exchanges and not for technical services. Consequently, the Tribunal deleted the disallowance, allowing the assessee's claim. 2. Disallowance of Security Transaction Tax (STT) Under Section 43B(a) of the Act: The AO disallowed ?40,84,513 shown as liability for STT collected but not paid during the relevant financial year, invoking section 43B(a). The DRP sustained this disallowance. The assessee argued that it acts merely as an agent collecting STT on behalf of stock exchanges, which are responsible for paying STT. The Tribunal agreed, stating that the liability to pay STT is on the stock exchanges, not the assessee, and since the STT was not debited to the Profit & Loss Account but shown as a liability, section 43B(a) does not apply. The Tribunal directed the deletion of the disallowance. 3. Transfer Pricing Adjustment on Brokerage Commission: The AO made an adjustment of ?27,89,68,070, treating the commission charged to non-AEs as a comparable uncontrolled price (CUP) and finding the commission charged to AEs lower. The DRP upheld this adjustment. The assessee argued that the issue was covered by the Tribunal's decision in its favor for the assessment year 2011-12, where the Tribunal had accepted the Transactional Net Margin Method (TNMM) as the most appropriate method. The Tribunal found the facts similar to the previous year and deleted the adjustment, allowing the assessee's claim. 4. Transfer Pricing Adjustment on Brand Fee: The AO proposed an adjustment of ?1,13,36,547 for royalty paid for the use of a brand name, treating the arm's length price as nil. The DRP sustained this adjustment. The assessee cited a previous Tribunal decision in its favor for the assessment year 2002-03, where the Tribunal had rejected the CUP method due to lack of comparable transactions and accepted the TNMM method. The Tribunal followed the earlier decision and deleted the adjustment, allowing the assessee's claim. 5. Non-Grant of Credit of TDS: The assessee raised the issue of non-grant of credit for TDS. The Tribunal directed the AO to verify the material on record and allow credit for TDS as per law. 6. Levy of Dividend Distribution Tax (DDT): The assessee challenged the levy of DDT, arguing that the AO lacks jurisdiction to determine DDT while completing the assessment under section 143(3) r/w section 144C(1). The assessee claimed to have already paid the DDT. The Tribunal directed the AO to verify the payment of DDT and decide the issue accordingly. Conclusion: The appeal was partly allowed, with the Tribunal providing relief to the assessee on several grounds including the disallowance of lease line/V-SAT and transaction charges, STT, transfer pricing adjustments on brokerage commission and brand fee, and directing the AO to verify and grant credit for TDS and DDT payments.
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