C.I.T-4 MUMBAI Vs. M/S KOTAK SECURITIES LTD.
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 3141 of 2016, Judgment Date: Mar 29, 2016
REPORTABLE
IN THE 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]
J U D G M E N T
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
(c) royalty, 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 assessee-
(i) …...... ….. …...
(ia) any interest, commission or brokerage, rent, royalty, fees for
professional services or fees for technical services payable to a resident,
or amounts payable to a 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 the
previous year, or in the subsequent year before the expiry of the 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 the previous year but paid in
any subsequent year after the expiry of the time prescribed under sub-
section (1) of section 200 such sum shall be allowed as a deduction in
computing the income of the previous year in which such tax has been paid.
Explanation.-.........
9. Income deemed to accrue or arise in India (1) The following incomes
shall be deemed to accrue or arise in India:-
(i).....................
…......................
…......................
(vii) income by way of fees for technical services payable by—
(a) ...............
(b) ...............
(c) ...............
….......................
Explanation 2.—For the purposes of this clause, "fees for technical
services" means any consideration (including any lump sum consideration)
for the rendering of any managerial, technical or consultancy services
(including the provision of services of technical or other personnel) but
does not include consideration for any construction, assembly, mining or
like project undertaken by the recipient or consideration which would be
income of the recipient chargeable under the head "Salaries".
6. What meaning should be ascribed to the word “technical
services” appearing in Explanation 2 to clause (vii) to Section 9(1) of the
Act is the moot question. 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”.
7. “Managerial and consultancy services” and, therefore,
necessarily “technical services”, would obviously involve services rendered
by human efforts. This has been the consistent view taken by the 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 the specific human element in an otherwise fully automated
process by which such services may be provided. The search for a more
effective basis, therefore, must be made.
8. 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. All
such services, fully automated, are available to all members of the stock
exchange in respect of every transaction that is entered into. There is
nothing special, exclusive or customised service that is rendered 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 necessary and the making of the same
available by the service provider. It is the above feature that would
distinguish/identify a service provided from a facility offered. While the
former is special and exclusive to the seeker of the service, the latter,
even if termed as a service, is available to all and would therefore stand
out in distinction to the former. 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. It is only service of the above kind that, according to
us, should come within the ambit of the expression “technical services”
appearing in Explanation 2 of Section 9(1)(vii) of the Act. In the absence
of the above distinguishing feature, service, though rendered, would be
mere in the nature of a facility offered or available which would not be
covered by the aforesaid provision of the Act.
9. There is yet another aspect of the matter which, in our
considered view, would require a specific notice. The service made
available by the Bombay Stock Exchange [BSE Online Trading (BOLT) System]
for which the charges in 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 view taken by the High Court that a member of the Stock
Exchange has an option of trading through an alternative mode is not
correct. A member who wants to conduct his daily business in the Stock
Exchange has no option but to avail of such services. Each and every
transaction by a member involves the use of the services provided by the
Stock Exchange for which a member is compulsorily required to pay an
additional charge (based on the transaction value) over and above the
charges for the membership 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. In other words, there is no exclusivity to the services rendered
by the Stock Exchange and each and every member has to necessarily avail of
such services in the normal course of trading in securities in the Stock
Exchange. Such services, therefore, 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. It is the
aforesaid latter feature of a service rendered which is the essential
hallmark of the expression “technical services” as appearing in Explanation
2 to Section 9(1)(vii) of the Act.
10. For the aforesaid reasons, we hold that the view taken by the
Bombay High court that the transaction charges paid to the Bombay Stock
Exchange by its members are for 'technical services' rendered is not an
appropriate view. Such charges, really, 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.
11. In view of above conclusions, it will not be necessary for us
to examine the correctness of the view taken by the Bombay High Court with
regard to the issue of the disallowance under Section 40(a)(ia) of the Act.
All the appeals, therefore, shall stand disposed in the light of our views
and observations as indicated above.
….……......................,J.
[RANJAN GOGOI]
….……......................,J.
[PRAFULLA C. PANT]
NEW DELHI
MARCH 29, 2016
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[1]
(2011) 330 ITR 239 (SC)
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