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TMI Blog2013 (6) TMI 352X X X X Extracts X X X X X X X X Extracts X X X X ..... the only issue in this case relates to the disallowance of an amount of Rs. 1,39,78,121 made u/s 40(a)(ia) of the Act in the assessment. The assessee is a company, which derives income as a Registrar and share transfer agent to various companies. For the assessment year 2008-09, it has filed the return of on 30.09.2008 showing income of Rs. 40,89,42,680. During the assessment proceedings, the Assessing Officer noticed that the assessee has claimed an amount of Rs. 1,39,78,121 towards 'Settlement and Custody Fees', shown under 'Operative Expenses'. On query raised by him regarding TDS on such payment, while explaining about their activities and the nature of interaction with NSDL/CDSL, the assessee has submitted that the companies whose shares are listed in stock exchange are interested to know the movement of share holding periodically. For this purpose, they request NSDL/CDSL to provide data base. On receiving such request, the NSDL/CDSL extend access to retrieve such data from their website. For providing access, the NSDL charges the client on each occasion. It was stated that the charges paid to NSDL/CDSL are debited to the account, called 'Settlement and Cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NSDL and CDSL, it has been submitted that such amounts charged by those depositories are referred as "BenPos", i.e., Beneficiary Position. From the said FAQ (12) extracted from the website of NSDL, submitted by the assessee, referred above, the CIT(A) observed that while clarifying on download of beneficiary position, it is stated that for such type of downloads NSDL charges a flat fee of Rs. 5,000, where number of records are less than 10,000 and a fee of R. 10,000 for records exceeding 10,000. 6. After considering the above detailed explanation by the assessee clarifying that such payment has been made by them to NSDL and CDSL for providing access to their database for downloading the data electronically and from the manner of charging for the same by the depository, known as "BENPOS", at flat rates of Rs. 5,000 or Rs. 10,000 depending upon the number of records, the CIT(A) was of the view that such payment made by the assessee to NSDL and CDSL, shown under 'Settlement and Custody Fees', cannot be considered as falling under professional services, as defined under section 194J of the Act. Therefore, no tax was deductible at source on such payments made by the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of CIT v. Kotak Securities Ltd., reported in 124 TTJ 241 (Mum) where their Lordships disagreed with the findings of the Tribunal. 9. On the other hand, the learned AR submitted that 'benpos' charges levied and collected by NSDL and CDSL is only to provide access to beneficiary position of shareholding of a particular company on a particular date and there is no application of mind or provision of service of any nature. Hence it cannot be classified as managerial/technical services of any nature or kind whatsoever. The AR submitted that beneficiary position of shareholders holding shares in Demat form in each company is available with Depositories (NSDL and CDSL) as all DP upload the data regarding transfer of shares between various shareholders. Hence there is no monitoring and management of the same by NSDL and CDSL while the assessee is merely downloading such information. Benpos charges levied and collected by NSDL and CDSL is only to provide access to beneficiary position of shareholding of a particular company on a particular date and no managerial services of any nature are provided. It is merely accessing a system which is in existence and has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the price of the securities offered to be sold or purchased the in-built system alerts and remedial measures are taken immediately so that no panic situation arises in the stock market. 4. With a view to regulate the trading in securities, the stock exchange provides risk management and surveillance to the stock brokers to ensure the safety of the market. The surveillance function involves price monitoring, exposure of the members, rumour verification on a daily basis and take remedial actions like reduction of filters, imposition of special margin, transferring scrips on a trade to trade settlement basis, suspension of scrips / members, etc. These are some of the identified managerial services rendered by the stock exchange for which transaction charges are levied. the stock exchanges have to manage the entire trading activity carried on by its members and accordingly managerial services are rendered by the stock exchanges. 5. In the case of beneficiary position i.e. shareholding in a particular company on a particular date there is no monitoring or management unlike trading in shares. The benpos is the result of transactions which have been undertaken by the brokers through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt judgement is not applicable to the facts of the case. Further the Bombay High Court in paras 25 to 28 held as follows: "25) The argument that in the present case there was no contract for rendering technical / managerial service is without any merit, because, the very object of providing the BOLT system is to provide a complete platform for carrying on the trading in securities / derivatives. If a member of the stock exchange does not enter into any transaction under the BOLT system he is not required to pay the transaction charges. It is only if the member trades through the BOLT system the member is required to pay transaction charges depending upon the volume of trading because, once the trading through the BOLT system takes place the member is assured that the other contracting party is a genuine buyer or seller as the case may be and that the price offered by the opposite party would be in consonance with the norm laid down by the stock exchange and that the transaction would be settled efficiently and expeditiously. The fact that the stock exchange levies or collects lesser transaction charges where the value of the transaction is higher, cannot be a ground to hold that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the banks is also without any merit, because through the ATM system, no trading activity is carried on, whereas, through the BOLT system trading activity is carried on which is monitored/regulated/managed by the stock exchange. Therefore, in our opinion, the Tribunal was in error in holding that no technical or managerial services are rendered by the stock exchange by providing the BOLT." 13. The facts considered by the Bombay High Court on this issue are similar to the facts of the assessee's case before us. Being so, the Bombay High Court judgement in the case of Kotak Securities Ltd. (supra) squarely applies to the facts of the assessee's case and the assessee is availing managerial services from NSDL/CDSL for which the assessee paid the fees. Being so, in conformity with the judgement of the Bombay High Court, we are of the opinion that the assessee is liable to deduct TDS on the payment made to the NSDL/CDSL as the assessee not deducted TDS on the impugned payment. The disallowance made by the Assessing Officer at Rs. 1,39,78,121 is justified. 14. The AR submitted before us that in para 32 of the Bombay High Court judgement cited supra, it was held that since b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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