23 May 2020
The ITAT, Hyderabad bench, recently allowed deduction in respect of the amount of fee paid to NSDL/CDSL charges by holding that such charges are not subject to TDS under section 194J of the Income Tax Act, 1961. The Tribunal opined that since TDS provisions are not applicable to these charges, the Assessing Officer cannot disallow the same by invoking section 40(a)(ia) of the Act.
23 May 2020
The Tribunal further noted the decision of the Supreme Court in Kotak Securities Ltd., in which the Apex Court has categorically held that the transaction charges paid to the Bombay Stock Exchange by its members are not in the nature of ‘technical services’. In the opinion of the Court, such charges, are in the nature of payments made for facilities provided by the Stock Exchange. No TDS on such payments would, therefore, be deductible under Section 194J of the Act.
Before concluding, the division bench added that “Similarly, in assessee’s case also there is no human element and services are fully automated. Moreover, there is no exclusivity and the NSDL/CDSL renders service to many other clients. Since the facts are similar to the facts in the case of Kotak Securities Ltd decided by the Hon’ble Supreme Court, we are of the opinion that ‘settlement and custody’ fees paid to NSDL/CDSL are not covered by the provisions of Section 194J, as they cannot be considered as ‘technical services’. Consequently, there cannot be any disallowance on the reason that TDS was not made, u/s 40(a)(ia). Moreover, these companies have also treated these amounts as ‘incomes’ and offered to tax. The amendment brought to provisions of Section 40(a)(ia) do apply to the facts as well. In view of these reasons the disallowance made u/s. 40(a)(ia) is hereby deleted.”
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