25 March 2011
DEPUTY COMMISSIONER OF INCOME TAX vs. ANGEL BROKING LTD. ITAT, MUMBAI ‘A’ BENCH N. V. Vasudevan, J. M. & R.K. Panda, A.M. ITA No. 7031/Mum/2008; Asst. yr. 2005 – 06 9th December, 2009 (2010) 41 DTR (Mumbai) (Trib) 296 : (2010) 35 SOT 457 : (2010) 3 ITR 294 Legislation referred to Section 9(1)(vii), 40(a), 44AA, 194J Case pertains to Asst. Year 2005-06 Decision in favour of Assessee Business expenditure—Disallowance under s. 40(a)(ia) consequent to non deduction of tax at source from payments by way of fees for technical services—Assessee , a stock broker having screen based trading facilities—Assessee paying various charges to stock exchange towards VSAT, BOLT, Leased line, Demat facilities provided by the stock exchange—AO treating these payments to be in the nature of fees for technical services and disallowing the same under s. 40(a)(ia) for failure to deduct tax at source therefrom—On appeal CIT(A) holding that the payments made by the assessee were not in the nature of fee for technical services—Technical service’ referred in s. 9(1)(vii) contemplates rendering of a ‘service’ to the payer of the fee—Mere collection of a ‘fee’ for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received for technical services—Members of the stock exchange and the public at large are beneficiaries of the technical improvements like screen based trading—Stock exchanges are not the owners of this technology to provide them for a fee to prospective use but are themselves consumers of the technology—Therefore stock exchanges cannot be considered to have rendered technical services to the stock brokers and therefore the payments in question cannot be considered as fees for technical services—Order of CIT deleting the disallowances accordingly upheld Held : ‘Fees for technical services means any consideration for rendering any technical service. The Explanation does not by itself throw any light on what is a technical service. Two things are, however, clear from the setting of s. 9(1)(vii) r/w Expln. 2, viz., (i) That there should be an agreement to engage/utilise technical service and a person undertaking to render them; (ii) If there is a contract of employment and the employee renders technical service under a contract of employment then the payment of remuneration for such services are outside the purview of "fees for technical services". (Para 8) Technical service’ referred in s. 9(1)(vii) contemplates rendering of a ‘service’ to the payer of the fee. Mere collection of a ‘fee’ for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received for technical services. (Para 9) Stock exchanges as a measure of providing infrastructure to its members install VSAT, lease line facilities, BOLT charges and Demat charges to its members. Fees collected in this regard is nothing but fee paid for use of facilities provided by the stock exchange. Such facilities are available for use by any member. Satellite based trading enables trading member to trade on exchange from their place of work across the country. Stock exchange has to get permission of DoT for installing and setting up VSAT or lease line system. Charges levied by the stock exchange on its members are for the purpose of recovery of its cost in providing these facilities to the members. Stock exchanges do not provide any technical services by installing VSAT network. It is the facility provided to its members, such payment cannot be said to be nature of fees for any technical services rendered. Stock exchanges merely provide facilities for its members to purchase and sell shares within framework of its bylaws. It also provides for a mechanism for settlement of dispute between the brokers and its customers. Stock exchanges do not involve them in providing any technical services to any of its members. The AO in coming to the conclusion that the payment was for fee for technical services has relied on the fact that the screen based trading is sophisticated method of trading. This by itself will not be sufficient to holding technical services being rendered. The AO has also held that services are not available to the public at large but only to registered members, again this by itself will not make the services in question as technical services. Another reason given by the AO is that speed at which transactions were completed and the case with which transactions are done in screen based trading. This again is not relevant criteria for holding that the services rendered were technical services. Fact that the data provided on screen will provide better data for carrying out transaction will not again be sufficient to hold that technical services are being rendered. All the above features present in screen based trading saves time. This is the result of improved technology. That does not mean that stock exchange is providing technical services. Members of the stock exchange and the public at large are beneficiaries of these technical improvements. Stock exchanges are not the owner of this technology to provide them for a fee to prospective use. They are themselves consumers of the technology. The CIT(A) was right in holding that the payment in question is not fee for technical services rendered.—Skycell Communications Ltd. vs. Dy. CIT (2001) 170 CTR (Mad) 238 : (2001) 251 ITR 53 (Mad) followed. (Para 10) Conclusion : VSAT, BOLT, Leased line, Demat charges paid by stock brokers to stock exchanges are not in the nature of fees for technical services and cannot therefore be disallowed under s. 40(a)(ia) for not deducting tax at source therefrom. In favour of : Assessee Counsel appeared : Aditya Maheshwari, for the Appellant : Amardeep, for the Respondent
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