IMPORTANT POINT
BSE Online Trading (BOLT) System provides facility not service. Providing such facility by BSE is not technical service in terms of Section 9(1)(vii), Explanation 2 of Income Tax Act, 1961. Fees paid by a member to BSE for using such facility does not require deduction of TDS u/s 194J of the Act.

Headnote:(a) Income Tax Act, 1961 – Section 9(1)(vii), Explanation 2 – Technical services – Expression ‘managerial, technical or consultancy services’ – Like managerial and consultancy services, technical services involve services rendered by human efforts – Noscitur a sociis – However, in view of technical developments human elements in technical services getting blurred. (Para 7)
       (2011) 330 ITR 239 (SC) – Relied upon
       (b) Income Tax Act, 1961 – Section 9(1)(vii), Explanation 2 – Technical services – Managerial and consultancy services – Catering to specific needs of customer – Technical services providing facilities of a faceless screen based transaction – Being fully automated and available to all without any restriction, not on same footing – Mere facility, not service. (Para 8)
       (c) Income Tax Act, 1961 – Section 9(1)(vii), Explanation 2 and section 194J – Technical services – Every member of BSE necessarily has to avail the BSE Online Trading (BOLT) System and pay charges to BSE – Member has no option to do transaction by any other means – No exclusivity – Such payment not for technical services – No TDS deductible on such payment. (Para 9, 10)
       Facts of the case:
       The High Court of Bombay has held that the transaction charges paid by a member of the Bombay Stock Exchange to transact business of sale and purchase of shares amounts to payment of a fee for 'technical services' rendered by the Bombay Stock Exchange. Therefore, under the provisions of Section 194J of the Income Tax Act, 1961, on such payments TDS was deductible at source. The said deductions not having been made by the appellant – assessee, the entire amount paid to the Bombay Stock Exchange on account of transaction charges was not deducted in computing the income chargeable under the head “profits and gains of business or profession” of the appellant – assessee for the Assessment Year in question i.e. 2005-2006. This is on account of the provisions of Section 40(a)(ia) of the Act. Notwithstanding the above, the Bombay High Court held that in view of the apparent understanding of both the assessee and the Revenue with regard to the liability to deduct TDS on transaction charges paid to the Bombay Stock Exchange right from the year 1995 i.e. coming into effect of Section 194J till the Assessment Year in question, benefit, in the facts of the case, should be granted to the appellant – assessee and the disallowance made by the Assessing Officer under Section 40(a)(ia) of the Act must be held to be not correct.
       Aggrieved by the finding that transaction charges paid to the Stock Exchange are fees for “technical services”, the assessee – Kotak Securities Ltd. is in appeal whereas the Revenue seeks to challenge the later part of the order of the High Court.
       Finding of the Court:
       View taken by High Court is not correct.
       Result: Appeals disposed of.

JUDGMENT :

Ranjan Gogoi, J.

1. Leave granted in all the Special Leave Petitions.

2. Civil Appeal arising out of Special Leave Petition (Civil) No.37694 of 2012 (M/s Kotak Securities Ltd. Vs. C.I.T.4(3), Mumbai) is taken as the lead case as a decision on the issue(s) arising therein would determine the questions arising in all the other appeals under consideration.

3. By the impugned order dated 21st October, 2011 passed in the aforesaid appeal, the High Court of Bombay has held that the transaction charges paid by a member of the Bombay Stock Exchange to transact business of sale and purchase of shares amounts to payment of a fee for 'technical services' rendered by the Bombay Stock Exchange. Therefore, under the provisions of Section 194J of the Income Tax Act, 1961 (for short “the Act”), on such payments TDS was deductible at source. The said deductions not having been made by the appellant – assessee, the entire amount paid to the Bombay Stock Exchange on account of transaction charges was not deducted in computing the income chargeable under the head “profits and gains of business or profession” of the appellant – assessee for the Assessment Year in question i.e. 2005-2006. This is on account of the provisions of Section 40(a)(ia) of the Act. Notwithstanding the above, the Bombay High Court held that in view of the apparent understanding of both the assessee and the Revenue with regard to the liability to deduct TDS on transaction charges paid to the Bombay Stock Exchange right from the year 1995 i.e. coming into effect of Section 194J till the Assessment Year in question, benefit, in the facts of the case, should be granted to the appellant – assessee and the disallowance made by the Assessing Officer under Section 40(a)(ia) of the Act must be held to be not correct.

4. Aggrieved by the finding that transaction charges paid to the Stock Exchange are fees for “technical services”, the assessee – Kotak Securities Ltd. is in appeal before us whereas the Revenue seeks to challenge the later part of the order of the High Court set out above. The assessee is also in appeal against similar orders passed in respect of subsequent assessment orders in the case of the assessee itself. As the order of the High Court, with regard to transaction charges being in the nature of fee for technical services, has been made applicable to the assessments in case of other assessees, such of the assessees who are aggrieved thereby have filed the other appeals before us.

5. The relevant provisions of the Act which have a material bearing to the issues arising for determination in the present appeals may now be noticed. Section 194J; Section 40(a)(ia) of the Act introduced by Finance (No.2) Act, 2004 with effect from 1st April, 2005; and Explanation 2 of Section 9(1)(vii) which are relevant for the purpose of the present case reads as under:

“194J. Fees for professional or technical services.

(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of -

(a) fees for professional services, or

(b) fees for technical services or

(d) any sum referred to in clause (va) of section 28 shall at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income-tax on income comprised therein: …..............................

Explanation.—For the purposes of this section, -

(a)............................

(b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;

…..............................

40. Amounts not deductible. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”

(a) in the case of any asses

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2016 Supreme(SC) 264

Cases Referred (1)