2016 (10) TMI 496 - AT - Income Tax

TDS u/s 194J - TDS on settlement and custody fees paid to NSDL/CDSL - human intervention - Held that - There is no human element and services are fully automated. Moreover, there is no exclusivity and the NSDL/CDSL renders service to many other clients. Since the facts are similar to the facts in the case of Kotak Securities Ltd 2016 (3) TMI 1026 - SUPREME COURT , we are of the opinion that settlement and custody fees paid to NSDL/CDSL are not covered by the provisions of Section 194J, as they cannot be considered as technical services . Consequently, there can not be any disallowance on the reason that TDS was not made, u/s 40(a)(ia). Moreover, these companies have also treated these amounts as incomes and offered to tax. The amendment brought to provisions of Section 40(a)(ia) do apply to the facts as well. In view of these reasons the disallowance made u/s. 40(a)(ia) is hereby deleted. - Decided in favour of assessee

Summary

Issues:
1. Interpretation of Section 40(a)(ia) of the Income Tax Act regarding the deduction of tax at source.

Analysis:
The case involves an appeal by the assessee against the order of the Commissioner of Income Tax (Appeals)-III, Hyderabad for the Assessment Year 2007-08. The sole issue in appeal pertains to the addition of a specific amount under Section 40(a)(ia) of the Income Tax Act. The dispute arises from the nature of services provided by the assessee, a registrar and share transfer agent, and whether TDS was applicable on the charges paid to NSDL/CDSL under the head 'Settlement and Custody Fees'. The Assessing Officer disallowed the expenditure as TDS was not deducted, invoking Section 40(a)(ia) of the Act.

The assessee contended that the services provided were not technical or professional in nature, thus TDS was not required. The dispute escalated to the ITAT after the CIT(A) upheld the AO's decision. The ITAT had earlier confirmed the addition for the subsequent year but later admitted to a mistake in applying a previous judgment. The CIT(A) maintained that the ITAT's decision was binding and applicable, rejecting the assessee's arguments.

During the proceedings, the assessee cited a Supreme Court judgment reversing a decision related to technical services, emphasizing the lack of human element in the services provided to NSDL/CDSL. The ITAT, considering the similarity of facts to the Supreme Court case, ruled in favor of the assessee. It concluded that the 'settlement and custody' fees were not covered under Section 194J as technical services, thus no disallowance under Section 40(a)(ia) was warranted. The ITAT allowed the assessee's appeal, deleting the disallowance and emphasizing the treatment of the amounts as income by the respective companies.

In summary, the judgment delves into the interpretation and application of Section 40(a)(ia) concerning TDS on specific services provided by the assessee. The ITAT's decision was influenced by the absence of technical services, aligning with a Supreme Court ruling, ultimately leading to the deletion of the disallowance.