2016 (10) TMI 203 - AT - Income Tax

TDS u/s 194J - assessee in default on account of non deduction of tax at source u/s 194J on the amount of transaction charges paid by the assessee to National Stock Exchange of India (in short, NSE) - Held that - Services provided by the stock exchange to the assessee does not fall in the category of technical services as has been envisaged in section 194J and, therefore, respectfully following the judgement of Kotak Securities Ltd Vs CIT (2016 (3) TMI 1026 - SUPREME COURT) it is hereby held that assessee was not required to deduct tax at source from the payment made to NSE. Thus, grounds raised by the assessee are allowed.

Summary

Issues:
1. Confirmation of penalty under section 201(1)/201(1A) without appreciating merits of the case and violation of natural justice.
2. Liability for deduction of tax at source under section 194J on transaction charges paid to National Stock Exchange of India.

Issue 1:
The appellant challenged the penalty levied by the Assessing Officer under section 201(1)/201(1A) without proper appreciation of the case's merits. The appellant argued that the change in the Authorized Representative was communicated, and a request for adjournment was made, but the order was passed ex-parte, denying the appellant the opportunity to be heard, thus violating the principles of natural justice. The appellant contended that they acted under a bona fide belief that they were acting as an agent of the Stock Exchange for payment of transaction charges, not constituting professional fees. The appellant cited the Hon'ble Jurisdictional High Court's observation that both stockbrokers and the revenue department believed transaction charges did not constitute professional fees. The appellant sought quashing of the penalty proceedings in the interest of justice.

Issue 2:
The main issue in this appeal was whether the assessee was liable to deduct tax at source under section 194J on transaction charges paid to the National Stock Exchange of India (NSE). The Lower Authorities held the assessee in default based on the judgment of the Hon'ble Bombay High Court in Kotak Securities Ltd case, considering the transaction charges as fees for technical services under section 194J. However, the Hon'ble Supreme Court, in the Kotak Securities Ltd Vs. CIT case, reversed the High Court's decision, ruling that transaction charges paid to NSE were for facilities and did not constitute technical or managerial services. The Supreme Court emphasized that the services provided by the stock exchange were not specialized or exclusive but were common services available to all members, akin to facilities, and not technical services. Consequently, the Supreme Court held that no tax deduction at source was required on such payments under section 194J read with section 9(i)(vii). The Appellate Tribunal, following the Supreme Court's judgment, allowed the appeal, holding that the assessee was not obligated to deduct tax at source on payments made to NSE.

In conclusion, the appeal was allowed, and the order was pronounced after the hearing.