TAXABILITY OF SHARE TRANSFER AGENT’S SERVICES

[Dr. Sanjiv Agarwal]

Service tax was imposed on share transfer agency services by the Finance Act, 2006 with effect from 1st May, 2006 vide Notification No. 15/2006-ST dated 25.4.2006. The gross amount charged by share transfer agent to any person in relation to taxable service is chargeable to service tax.

Meaning of Share Transfer Agent [Section 65(95a)]

Section 65(95a) (as inserted by Finance Act, 2006) defines ‘share transfer agent’ as under –

“Share transfer agent” means any person who maintains the record of holders of securities and deals with all matters connected with the transfer or redemption of securities or activities incidental thereto.

According to SEBI Rules, share transfer agent means—

(i) any person, who on behalf of any body corporate, maintains the records of holders of securities issued by such body corporate and deals with all matters connected with the transfer and redemption of its securities.

(ii) a department or division (by whatever name called) of a body corporate performing the activities referred in sub-clause (i) if at any time the total number of the holders of its securities issued exceed one lakh.

According to SEBI Rules, the following work shall be undertaken by STA only and they shall be responsible for the work in addition to other responsibilities agreed to and accepted with the body corporate on whose behalf it is carrying on share transfer work—

(i) endorsement of certificates/for allotment/call monies

(ii) transmission, consolidation, sub-division of securities

(iii) dispatch of transferred securities and securities received for transmission/consolidation/sub-division, etc. directly to the investors.

Meaning of Securities [Section 65(93)]

The term ‘securities’ means as defined in clause (h) of Section (2) of Securities Contracts (Regulation) Act, 1956.

Accordingly, it would include—

(i) shares, scrips, stock, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

(ii) derivatives;

(iii) units or any other instrument issued by any collective investment scheme to the investors in such schemes;

(iv) units or any other such instrument issued to the investors under any mutual fund scheme;

(v) security receipts under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(vi) government securities;

(vii) other instruments as declared by the Central Government to be securities;

(viii) any rights or interests in securities.

Securities will also include derivatives and collective investment schemes as included recently in the definition under Section 2(h) of the Securities Contracts (Regulation) Act, 1956.

A Government security means a security created and issued, by the Central Government

or a State Government for the purpose of raising a public loan.

Taxable Service [Section 65(105)(zzzj)]

Section 65(105)(zzzj) defines taxable service as under —

Taxable service means services provided or to be provided to any person, by a share transfer agent, in relation to securities.

Taxable service means services provided by STAs to any person, in relation to securities. The services would include maintenance of record of holders of securities and dealing with all matters connected with transactions or redemption of securities.

For a service to be a taxable service, it should meet the following criteria —

(a) service should be provided by share transfer agent who should be SEBI registered

(b) service should be provided to other person

(c) specified services should be in relation to securities

(d) such services should be provided for a valuable consideration

Taxable services would cover services provided by STA to its clients and shareholders or investors of such companies. These generally include –

— transfer of securities

— transmission of securities

— endorsement on certificates

— endorsement of payments/redemption

— printing and dispatch of share certificates, warrants of interest/dividend etc.

— investors servicing – change of address, splitting or consolidation of shares, change of bank mandate

— corporate actions

— depository related activities etc.

In CCE, Hyderabad v. Satguru Management Consultants Pvt. Ltd. 2007 -TMI - 87732 - (CESTAT, BANGALORE), it was held that services of Registrar to Issue and Share Transfer Agent cannot be taxed as business auxiliary services prior to 1.5.2006, i.e., the date from which share transfer and registry services were brought under service tax net.

In Cameo Corporation Services Ltd v. CST, Chennai 2008 -TMI - 32978 - (CESTAT CHENNAI), where department demanded service tax under business auxiliary service, it was held that when a new category of service is introduced for levy of service without amending definition of a pre-existing category of service in which a given service answering requisites of new service is sought to be included by revenue for the prior period, there can be no levy of service tax in respect of such service in pre existing category. As such, share transfer services were held to be not taxable as business auxiliary service prior to 1.5.2006.

Value of Taxable service

Mailing of letters etc. to investors is part of service rendered by share transfer agent. However, cost of postal stamps is to be borne by the client or body corporate and taxability would depend upon the agreement and nature of services rendered. If the client provides the stamps, there is no question of inclusion of such value for levy of service tax. If the client reimburses the cost, one will have to look at valuation rules and subject to satisfaction of definition of pure agent, the inclusion or otherwise will have to be decided. However, there is no clarity on this issue.

 Person Liable

Any person being share transfer agent providing taxable service in relation to securities shall be person liable and treated as an assessee for service tax purposes.

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