2012 (4) TMI 646 - HC - Income Tax

Stock Exchange transaction charges not subject to tax deduction; disallowance under Section 40(a)(ia) deemed unjustified.

The High Court held that transaction charges to a Stock Exchange fall under technical services, but as both parties believed tax wasn't deductible at ... - Issues involved: Interpretation of Section 40(a)(ia) u/s 194J for failure to deduct tax at source on payments to Stock Exchange; Allowability of VSAT and lease line charges as deduction from taxable income.Interpretation of Section 40(a)(ia) u/s 194J:The High Court, in reference to the case of Commissioner of Income Tax v. Kotak Securities Limited, held that transaction charges paid to a Stock Exchange constitute fees for technical services under Section 194J. Despite this, the Court noted that both the Revenue and the assessee operated under the belief that tax was not deductible at source on these payments. Therefore, the Court concluded that no fault could be found with the assessee for not deducting tax at source, and disallowance under Section 40(a)(ia) was not justified for Assessment Year 2005-06. The Court emphasized that this conclusion was reached based on the specific circumstances of the case.Allowability of VSAT and lease line charges:Referring to the judgment in The Income Tax Commissioner v. Angel Capital & Debit Market Ltd., the Court determined that VSAT and lease line charges paid to the Stock Exchange were reimbursement of charges paid to the Department of Telecommunications and did not constitute income. As a result, withholding tax on these payments was deemed unnecessary. Following the precedent set in Angel Capital, the Court found no substantial question of law to be raised in this regard and dismissed the Appeal accordingly.