2017 (12) TMI 420 - AT - Income Tax

TDS u/s 194J - Disallowance u/s 40(a)(ia) - transaction charges paid by the assessee to the Stock exchange - whether transaction charges not to be held as fees for technical services ? - Held that - We are of the considered view that after the judgment of the Hon ble Supreme Court in the case of CIT Vs. Kotak Securities Limited. (2016 (3) TMI 1026 - SUPREME COURT), the issue as to whether transaction charges fall within the sweep of fees for technical services , or not, had been settled once and for all and is no more found to be res integra. We find that the Hon ble Apex Court deliberating at length on the issue under consideration, had therein concluded that transaction charges being in the nature of charges paid by a stock broker for facilities provided by the Stock exchange, thus, the same cannot be characterised as fees for technical services Thus, we are of the considered view that now when the transaction charges paid by the assessee to the Stock exchange cannot be held as fees for technical services , therefore, no disallowance of the aforesaid amount would be called for in the hands of the assessee under Sec. 40(a)(ia). No disallowance under Sec. 40(a)(ia) of the transaction charges was called for in the hands of the assessee.- Decided in favour of assessee.

Summary

Issues:
Appeal against CIT(A) order on non-deduction of TDS on transaction charges under Sec. 40(a)(ia) for A.Y. 2007-08.

Detailed Analysis:
1. The assessee failed to deduct tax at source on transaction charges, leading to disallowance under Sec. 40(a)(ia) by the AO during scrutiny assessment for A.Y. 2007-08.
2. The CIT(A) deleted the disallowance, following ITAT's decision in the assessee's case for A.Y. 2009-10, based on the judgment of the Hon'ble High Court in the case of CIT Vs. Kotak Securities Limited.
3. The revenue challenged the CIT(A) order before ITAT, arguing that the High Court's judgment was specific to A.Y. 2005-06 and could not be applied for A.Y. 2007-08.
4. The assessee contended that the High Court's decision was reversed by the Supreme Court in the case of CIT Vs. Kotak Securities Limited, where it was held that transaction charges were not 'fees for technical services' under Sec. 194J.
5. ITAT upheld the CIT(A) order, citing the Supreme Court's judgment that transaction charges were not 'fees for technical services', therefore no disallowance under Sec. 40(a)(ia) was warranted.
6. ITAT dismissed the revenue's appeal, concluding that the issue was settled by the Supreme Court's decision, and no TDS was required on transaction charges paid to the Stock exchange.

This detailed analysis provides a comprehensive understanding of the legal judgment involving the non-deduction of TDS on transaction charges under Sec. 40(a)(ia) for the relevant assessment year.