2016 (3) TMI 1026 - SC - Income Tax

TDS u/s 194J - transaction charges paid by a member of the Bombay Stock Exchange to transact business of sale and purchase of shares - whether amounts to payment of a fee for 'technical services' rendered by the Bombay Stock Exchange? - Held that - There is no exclusivity to the services rendered by the Stock Exchange and each and every member has to necessarily avail of such services in the normal course of trading in securities in the Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provided by the Stock Exchange on payment and does not amount to technical services provided by the Stock Exchange, not being services specifically sought for by the user or the consumer. It is the aforesaid latter feature of a service rendered which is the essential hallmark of the expression technical services as appearing in Explanation 2 to Section 9(1)(vii) of the Act. The view taken by the Bombay High court that the transaction charges paid to the Bombay Stock Exchange by its members are for 'technical services' rendered is not an appropriate view. Such charges, really, are in the nature of payments made for facilities provided by the Stock Exchange. No TDS on such payments would, therefore, be deductible under Section 194J of the Act.

Summary

Issues:
Interpretation of "technical services" under Section 9(1)(vii) of the Income Tax Act, 1961; Applicability of Section 194J and Section 40(a)(ia) to transaction charges paid to the Bombay Stock Exchange.

Interpretation of "Technical Services":
The judgment revolves around determining the meaning of "technical services" under Explanation 2 to clause (vii) of Section 9(1) of the Income Tax Act, 1961. The court analyzed past judgments and emphasized that "technical services" should involve specialized, exclusive services catering to individual needs, distinct from general facilities. The court highlighted that modern technological advancements may blur the human element in services but emphasized the need for a distinctive basis for categorization.

Applicability of Section 194J and Section 40(a)(ia):
The court examined the implications of Sections 194J and 40(a)(ia) concerning transaction charges paid to the Bombay Stock Exchange. It was noted that the High Court considered such charges as fees for "technical services," necessitating TDS deduction. However, the Supreme Court disagreed, asserting that these charges were payments for facilities provided by the Stock Exchange, not specialized services. Consequently, the court ruled that TDS was not applicable to these payments under Section 194J.

Conclusion:
The Supreme Court concluded that the transaction charges paid to the Bombay Stock Exchange were not for "technical services" but for facilities provided. Therefore, TDS was not deductible under Section 194J. This decision obviated the need to address the correctness of the High Court's ruling on the disallowance under Section 40(a)(ia) of the Income Tax Act, leading to the disposal of all appeals based on the court's interpretation and findings.

This detailed analysis of the judgment showcases the intricate legal considerations surrounding the interpretation of "technical services" and the application of relevant sections of the Income Tax Act to transaction charges paid to the Bombay Stock Exchange.