C.I.T.-4, Mumbai v. M/s. Kotak Securities Ltd
[Citation -2016-LL-0329-4]

Citation 2016-LL-0329-4
Appellant Name C.I.T.-4, Mumbai
Respondent Name M/s. Kotak Securities Ltd.
Court SUPREME COURT
Relevant Act Income-tax
Date of Order 29/03/2016
Judgment View Judgment
Keyword Tags fee for technical services • stock exchange • sub-contractor
Bot Summary: In Commisioner of Income-Tax Vs. Bharti Cellular Ltd.1 this Court has observed as follows: Right from 1979, various judgments of the High Courts and Tribunals have taken the view that the words technical services have got to be read in the narrower sense by applying the rule of noscitur a sociis, particularly, because the words technical services in section 9(1)(vii) read with Explanation 2 comes in between the words managerial and consultancy services. A reading of the very elaborate order of the Assessing Officer containing a lengthy discourse on the services made available by the Stock Exchange would go to show that apart from facilities of a faceless screen based transaction, a constant upgradation of the services made available and surveillance of the essential parameters connected with the trade including those of a particular/ single transaction that would lead credence to its authenticity is provided for by the Stock Exchange. Technical services like Managerial and Consultancy service would denote seeking of services to cater to the special needs of the consumer/user as may be felt Page 7 8 necessary and the making of the same available by the service provider. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialized, exclusive and individual requirement of the user or consumer who may approach the service provider for such assistance/service. The service made available by the Bombay Stock Exchange BSE Online Trading System for which the charges in Page 8 9 question had been paid by the appellant assessee are common services that every member of the Stock Exchange is necessarily required to avail of to carry out trading in securities in the Stock Exchange. The above features of the services provided by the Stock Exchange would make the same a kind of a facility provided by the Stock Exchange for transacting business rather than a technical service provided to one or a section of the members of the Stock Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. Such services would undoubtedly be appropriate to be termed as facilities provided by the Stock Exchange on payment and does not amount to technical services provided by the Stock Exchange, not being services specifically sought for by the user or the consumer.


REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.3141 OF 2016 [Arising out of S.L.P.(C) No.19907 of 2012] C.I.T.-4, MUMBAI...APPELLANT(S) VERSUS M/S KOTAK SECURITIES LTD. ...RESPONDENT(S) WITH CIVIL APPEAL NO. 3143 OF 2016 [Arising out of Special Leave Petition (Civil) No.19908 of 2012], CIVIL APPEAL NO.3145 OF 2016 [Arising out of Special Leave Petition (Civil) No.19909 of 2012], CIVIL APPEAL NO.3146 OF 2016 [Arising out of Special Leave Petition (Civil) No.33059 of 2012], CIVIL APPEAL NO.3150 OF 2016 [Arising out of Special Leave Petition (Civil) No.37694 of 2012], CIVIL APPEAL NO.3151 OF 2016 [Arising out of Special Leave Petition (Civil) No.17553 of 2015], CIVIL APPEAL NO._3152 OF 2016 [Arising out of Special Leave Petition (Civil) No.5893 of 2015], CIVIL APPEAL NO.3154 OF 2016 [Arising out of Special Leave Petition (Civil) No.17549 of 2015], CIVIL APPEAL NO.3155 OF 2016 [Arising out of Special Leave Petition (Civil) No.18394 of 2015] AND CIVIL APPEAL NO.3156 2016 [Arising out of Special Leave Petition (Civil) No.8294 of 2016 @ CC NO.3427 of 2016] JUDGMENT RANJAN GOGOI, J. 1. Leave granted in all Special Leave Petitions. 2. Civil Appeal arising out of Special Leave Petition Page 1 2 (Civil) No.37694 of 2012 (M/s Kotak Securities Ltd. Vs. C.I.T.4(3), Mumbai) is taken as lead case as decision on issue(s) arising therein would determine questions arising in all other appeals under consideration. 3. By impugned order dated 21st October, 2011 passed in aforesaid appeal, High Court of Bombay has held that transaction charges paid by member of Bombay Stock Exchange to transact business of sale and purchase of shares amounts to payment of fee for 'technical services' rendered by Bombay Stock Exchange. Therefore, under provisions of Section 194J of Income Tax Act, 1961 (for short Act ), on such payments TDS was deductible at source. said deductions not having been made by appellant assessee, entire amount paid to Bombay Stock Exchange on account of transaction charges was not deducted in computing income chargeable under head profits and gains of business or profession of appellant assessee for Assessment Year in question i.e. 2005-2006. This is on account of provisions of Section 40(a)(ia) of Act. Notwithstanding above, Bombay High Court held that in view of apparent understanding of Page 2 3 both assessee and Revenue with regard to liability to deduct TDS on transaction charges paid to Bombay Stock Exchange right from year 1995 i.e. coming into effect of Section 194J till Assessment Year in question, benefit, in facts of case, should be granted to appellant assessee and disallowance made by Assessing Officer under Section 40(a)(ia) of Act must be held to be not correct. 4. Aggrieved by finding that transaction charges paid to Stock Exchange are fees for technical services , assessee Kotak Securities Ltd. is in appeal before us whereas Revenue seeks to challenge later part of order of High Court set out above. assessee is also in appeal against similar orders passed in respect of subsequent assessment orders in case of assessee itself. As order of High Court, with regard to transaction charges being in nature of fee for technical services, has been made applicable to assessments in case of other assessees, such of assessees who are aggrieved thereby have filed other appeals before us. Page 3 4 5. relevant provisions of Act which have material bearing to issues arising for determination in present appeals may now be noticed. Section 194J; Section 40(a)(ia) of 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 purpose of present case reads as under: 194J. Fees for professional or technical services. (1) Any person, not being individual or Hindu undivided family, who is responsible for paying to resident any sum by way of (a) fees for professional services, or (b) fees for technical services or (c) royalty, or (d) any sum referred to in clause (va) of section 28 shall at time of credit of such sum to account of payee or at time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct amount equal to five per cent of such sum as income-tax on income comprised therein: .............................. .............................. Explanation. For purposes of this section, (a)............................ (b) "fees for technical services" shall have same Page 4 5 meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; .............................. 40. Amounts not deductible. Notwithstanding anything to contrary in sections 30 to 38, following amounts shall not be deducted in computing income chargeable under head Profits and gains of business or profession (a) in case of any assessee- (i) ...... .. ... (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to resident, or amounts payable to contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during previous year, or in subsequent year before expiry of time prescribed under sub-section (1) of section 200: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted in previous year but paid in any subsequent year after expiry of time prescribed under sub-section (1) of section 200 such sum shall be allowed as deduction in computing income of previous year in which such tax has been paid. Explanation.-......... 9. Income deemed to accrue or arise in India (1) following incomes shall be deemed to accrue or arise in India:- (i)..................... ...................... ...................... (vii) income by way of fees for technical services payable by (a) ............... Page 5 6 (b) ............... (c) ............... ....................... Explanation 2. For purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for rendering of any managerial, technical or consultancy services (including provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by recipient or consideration which would be income of recipient chargeable under head "Salaries". 6. What meaning should be ascribed to word technical services appearing in Explanation 2 to clause (vii) to Section 9(1) of Act is moot question. In Commisioner of Income-Tax Vs. Bharti Cellular Ltd.1 this Court has observed as follows: Right from 1979, various judgments of High Courts and Tribunals have taken view that words technical services have got to be read in narrower sense by applying rule of noscitur sociis, particularly, because words technical services in section 9(1)(vii) read with Explanation 2 comes in between words managerial and consultancy services . 7. Managerial and consultancy services and, therefore, necessarily technical services , would obviously involve services rendered by human efforts. This has been 1 (2011) 330 ITR 239 (SC) Page 6 7 consistent view taken by courts including this Court in Bharti Cellular Ltd. (supra). However, it cannot be lost sight of that modern day scientific and technological developments may tend to blur specific human element in otherwise fully automated process by which such services may be provided. search for more effective basis, therefore, must be made. 8. reading of very elaborate order of Assessing Officer containing lengthy discourse on services made available by Stock Exchange would go to show that apart from facilities of faceless screen based transaction, constant upgradation of services made available and surveillance of essential parameters connected with trade including those of particular/ single transaction that would lead credence to its authenticity is provided for by Stock Exchange. All such services, fully automated, are available to all members of stock exchange in respect of every transaction that is entered into. There is nothing special, exclusive or customised service that is rendered by Stock Exchange. Technical services like Managerial and Consultancy service would denote seeking of services to cater to special needs of consumer/user as may be felt Page 7 8 necessary and making of same available by service provider. It is above feature that would distinguish/identify service provided from facility offered. While former is special and exclusive to seeker of service, latter, even if termed as service, is available to all and would therefore stand out in distinction to former. service provided by Stock Exchange for which transaction charges are paid fails to satisfy aforesaid test of specialized, exclusive and individual requirement of user or consumer who may approach service provider for such assistance/service. It is only service of above kind that, according to us, should come within ambit of expression technical services appearing in Explanation 2 of Section 9(1)(vii) of Act. In absence of above distinguishing feature, service, though rendered, would be mere in nature of facility offered or available which would not be covered by aforesaid provision of Act. 9. There is yet another aspect of matter which, in our considered view, would require specific notice. service made available by Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which charges in Page 8 9 question had been paid by appellant assessee are common services that every member of Stock Exchange is necessarily required to avail of to carry out trading in securities in Stock Exchange. view taken by High Court that member of Stock Exchange has option of trading through alternative mode is not correct. member who wants to conduct his daily business in Stock Exchange has no option but to avail of such services. Each and every transaction by member involves use of services provided by Stock Exchange for which member is compulsorily required to pay additional charge (based on transaction value) over and above charges for membership in Stock Exchange. above features of services provided by Stock Exchange would make same kind of facility provided by Stock Exchange for transacting business rather than technical service provided to one or section of members of Stock Exchange to deal with special situations faced by such member(s) or special needs of such member(s) in conduct of business in Stock Exchange. In other words, there is no exclusivity to services rendered by Stock Exchange and each and Page 9 10 every member has to necessarily avail of such services in normal course of trading in securities in Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provided by Stock Exchange on payment and does not amount to technical services provided by Stock Exchange, not being services specifically sought for by user or consumer. It is aforesaid latter feature of service rendered which is essential hallmark of expression technical services as appearing in Explanation 2 to Section 9(1)(vii) of Act. 10. For aforesaid reasons, we hold that view taken by Bombay High court that transaction charges paid to Bombay Stock Exchange by its members are for 'technical services' rendered is not appropriate view. Such charges, really, are in nature of payments made for facilities provided by Stock Exchange. No TDS on such payments would, therefore, be deductible under Section 194J of Act. 11. In view of above conclusions, it will not be necessary for us to examine correctness of view taken by Page 10 11 Bombay High Court with regard to issue of disallowance under Section 40(a)(ia) of Act. All appeals, therefore, shall stand disposed in light of our views and observations as indicated above. . ......................,J. [RANJAN GOGOI] . ......................,J. [PRAFULLA C. PANT] NEW DELHI MARCH 29, 2016 Page 11 C.I.T.-4, Mumbai v. M/s. Kotak Securities Ltd
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