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.
In the instant case, the assessee, a company engaged in the business of Registrar and Share Transfer Agent has debited the charges paid to NSDL/CDSL are debited to an account called āSettlement and Custody Feesā. The assessee maintained that the said transaction was neither in the nature of a contract and nor a professional/technical service. Therefore, TDS was not deductible and subsequently there was no applicability of Section 40(a)(ia) in the case of assessee. The Assessing Officer disallowed the claim by invoking section 40(a)(ia)and held that section 194J of IT Act is applicable in the instant case. The CIT(A) sustained the order of assessment, against which the assessee referred a second appeal before the Appellate Tribunal.
While allowing the above expenditure, the Tribunal observed that both the assessing officer and the Commissioner of Income Tax (Appeals) had committed an error in disallowing the charges.
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 āSimilarly, in assesseeās 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 āsettlement and custodyā fees paid to NSDL/CDSL are not covered by the provisions of Section 194J, as they cannot be considered as ātechnical servicesā. 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 āincomesā 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.ā
Read the full text of the order below.