The appeal was against the order of the Bombay High Court on deciding the appeal filed by the assessee, M/s Kotak Securities Ltd., in which it was 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, such payment was deductible at source u/s 194J of the Income Tax Act. The said deductions not having been made by the 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 s. 40(a)(ia) of the Income Tax Act.
Aggrieved by the finding that transaction charges paid to the Stock Exchange are fees for “technical services”, the assessee filed an appeal before the Supreme Court challenging the same.
The Court has made a clear distinction between the terms “Technical services”and a service provided from a facility offered. It was observed that the term “technical 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. Only such services should come within the ambit of the expression “technical services”
The decision of the Supreme Court was in favour of the department. While upholding the decision of the High Court, it was opined by the Court 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 Income Tax Act.
Read the full text of the Judgment below.
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