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TMI Blog2016 (4) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... oker and the payment it makes cannot be considered to be brokerage. Reserve Bank of India undertakes the management of the issue as an agency function for the Central Government in exercise of a statutory responsibility. Clearly, there is no brokering of securities in the disputed transaction. The fee paid to 'receiving offices' and 'brokers' for their role in the bond issue is not 'brokerage' but commission. The foundation for confirmation of the demand in the impugned order is seen to totter. As per decision of Hon'ble Supreme Court in the case of Morgan Stanley Mutual Fund v Kartick Das [1994 (5) TMI 168 - SUPREME COURT OF INDIA], prior to allotment, "shares do not exist". Accordingly, handling of application forms for an intending subscriber cannot constitute brokering in securities because the securities do not exist at that stage. The foundation for the demand in the impugned order no longer totters but collapses. So the taxing of a transaction merely because the remuneration is designated as 'brokerage' and because the recipient of that 'brokerage' is a 'body corporate' is not sustainable in the light of intent to tax the activity of 'banking and other financial servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the meaning of the expression 'securities' as found in section 65(12) of the Finance Act, 1994 that defined 'banking and other financial services' by body corporate other than banks in section 65(105)(zp) for the period prior to 10 th September 2004 and in section 65(105)(zm) thereafter. 4. The mechanics of the scheme of bond issue are that the applicants for the bonds could subscribe by applying to 'receiving offices' of the Reserve Bank of India, designated branches of State Bank of India, their associated banks and other nationalized banks or any other banks or branches as specified by the Reserve Bank of India. The bonds issued would be evidenced by a stock certificate or could be held in the subscriber's name in the Bond Ledger Accounts maintained with the Public Debt office of the Reserve Bank of India or the branches concerned. The holder of the bonds in the Bond Ledger Accounts would be issued with a certificate of holding, in the prescribed form, that are not tradeable. As a broker registered with the appropriate authority, M/s JM Financial Services Pvt Ltd was entitled to a brokerage in terms of the scheme. It is this brokerage that Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cited in support of their claim that the bonds issued by the Reserve Bank of India do not fall within the ambit of 'banking and other financial services'. 7. Learned Authorised Representative cited the decision of this Tribunal in Commissioner of Service Tax, Chandigarh II v State Bank of Patiala [2015 (37) STR 1062 (Tri-Del)] which, though delivered in a stay matter, did not find the contention of the bank about the applicability of exemption in notification no. 82/2006-ST for certain activities of the Reserve Bank of India, extended to banks by the Tribunal in Canara Bank v. Commissioner [2012 (28) STR 369 (Tribunal)], to be appealing. 8. From the impugned order, it appears that the original authority has paid heed to the denomination of the payment received by M/s JM Financial Services Pvt Ltd as 'brokerage' in the bond issue documents and has been influenced by its status a 'body corporate' to confirm liability to tax as provider of 'banking and other financial services.' 9. According to section 65 (14) of Finance Act, 1994 body corporate has the meaning assigned to it in clause (7) of section 2 of the Companies Act, 1956 (1 of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, namely:- xxxx (iv) securities and foreign exchange (forex) broking, and purchase or sale of foreign currency, including money changing; 13. We take note that section 65 (105)(zp) of Finance Act, 1994 for taxing of 'banking and other financial services' provided by 'body corporates' has been deleted with effect from 10 th September 2004 and incorporated within section 65 (105)(zm). The tax would be leviable, in the context of the present dispute, if M/s JM Financial Services Pvt Ltd was a broker dealing in the savings bonds and received brokerage as the fee thereon. 14. Brokerage is earned by a broker in the course of sale and purchase. That M/s JM Financial Services Pvt Ltd is registered as a broker with the Securities and Exchange Board of India does not render all its activities to be that of brokering. Brokering of securities requires the existence of 'securities' as well as a 'buyer' and 'seller' of 'securities'. Purchase sale of securities i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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