Tribunal grants relief to assessee, overturns disallowances, directs AO to verify TDS and DDT credits

CLSA India Ltd. Versus Addl. Commissioner of Income Tax Transfer Pricing–I (2), Mumbai

CLSA India Ltd. Versus Addl. Commissioner of Income Tax Transfer Pricing–I (2), Mumbai - TMI Issues Involved:
1. Disallowance of deduction for lease line/V-SAT and transaction charges.
2. Disallowance of Security Transaction Tax (STT) under section 43B(a) of the Act.
3. Transfer pricing adjustment on brokerage commission.
4. Transfer pricing adjustment on brand fee.
5. Non-grant of credit of TDS.
6. Levy of dividend distribution tax (DDT).

Detailed Analysis:

1. Disallowance of Deduction for Lease Line/V-SAT and Transaction Charges:
The assessee challenged the disallowance of Rs. 4,20,98,353 claimed towards lease line/V-SAT and transaction charges paid to NSE and BSE. The Assessing Officer (AO) treated these payments as fees for technical services, requiring tax deduction at source under section 194J. The AO disallowed the deduction under section 40(a)(ia) for non-deduction of tax at source. The Dispute Resolution Panel (DRP) upheld this view. However, the Tribunal referred to the Supreme Court’s decision in CIT v/s Kotak Securities Ltd., which clarified that such payments are for facilities provided by stock exchanges and not for technical services. Consequently, the Tribunal deleted the disallowance, allowing the assessee's claim.

2. Disallowance of Security Transaction Tax (STT) Under Section 43B(a) of the Act:
The AO disallowed Rs. 40,84,513 shown as liability for STT collected but not paid during the relevant financial year, invoking section 43B(a). The DRP sustained this disallowance. The assessee argued that it acts merely as an agent collecting STT on behalf of stock exchanges, which are responsible for paying STT. The Tribunal agreed, stating that the liability to pay STT is on the stock exchanges, not the assessee, and since the STT was not debited to the Profit & Loss Account but shown as a liability, section 43B(a) does not apply. The Tribunal directed the deletion of the disallowance.

3. Transfer Pricing Adjustment on Brokerage Commission:
The AO made an adjustment of Rs. 27,89,68,070, treating the commission charged to non-AEs as a comparable uncontrolled price (CUP) and finding the commission charged to AEs lower. The DRP upheld this adjustment. The assessee argued that the issue was covered by the Tribunal's decision in its favor for the assessment year 2011-12, where the Tribunal had accepted the Transactional Net Margin Method (TNMM) as the most appropriate method. The Tribunal found the facts similar to the previous year and deleted the adjustment, allowing the assessee's claim.

4. Transfer Pricing Adjustment on Brand Fee:
The AO proposed an adjustment of Rs. 1,13,36,547 for royalty paid for the use of a brand name, treating the arm's length price as nil. The DRP sustained this adjustment. The assessee cited a previous Tribunal decision in its favor for the assessment year 2002-03, where the Tribunal had rejected the CUP method due to lack of comparable transactions and accepted the TNMM method. The Tribunal followed the earlier decision and deleted the adjustment, allowing the assessee's claim.

5. Non-Grant of Credit of TDS:
The assessee raised the issue of non-grant of credit for TDS. The Tribunal directed the AO to verify the material on record and allow credit for TDS as per law.

6. Levy of Dividend Distribution Tax (DDT):
The assessee challenged the levy of DDT, arguing that the AO lacks jurisdiction to determine DDT while completing the assessment under section 143(3) r/w section 144C(1). The assessee claimed to have already paid the DDT. The Tribunal directed the AO to verify the payment of DDT and decide the issue accordingly.

Conclusion:
The appeal was partly allowed, with the Tribunal providing relief to the assessee on several grounds including the disallowance of lease line/V-SAT and transaction charges, STT, transfer pricing adjustments on brokerage commission and brand fee, and directing the AO to verify and grant credit for TDS and DDT payments.