2017 (10) TMI 101 - HC - Income Tax

High Court Tax Appeal on Mark-to-Market Loss Disallowance Examined

The High Court admitted the Tax Appeal for consideration regarding the disallowance of mark to market loss in the future and option segment. The Court ... TDS u/s 194C or 194J - payment to National Stock Exchange in the nature of transfer charges - payments of demat charges and other charges levied by NSDL and CDSL - Held that:- The Tribunal while reversing the view of the Commissioner of Income Tax (Appeals) observed that there were no elaborate reasons recorded to hold that the TDS was required to be deducted under section 194J and not under section 194C of the Act. The Tribunal noted that the stock exchange provides services to the assessee company for purchase and sale of shares of their clients. Such charges are merely in the nature of recovery of expenses of the exchange and cannot be termed as charges for providing any professional or technical service. We are broadly in agreement with the view of the Tribunal. The Stock Exchange cannot be termed as providing professional or technical services. This question is therefore not required to be considered. Disallowance of lease line charge paid u/s.40(a)(ia) - Held that:- This issue has been decided by the Supreme Court in case of Commissioner of Income Tax vs. Kotak Securities Ltd. reported in [2016 (3) TMI 1026 - SUPREME COURT] in which held that the brokers make payment to the stock exchange for the facilities of faceless screen based transactions made available at the stock exchange which was compulsory for the brokers to use. In the opinion of the Supreme Court, this was not a payment of fee for technical service rendered by the stock exchange inviting deduction at source under section 194J of the Act. Deduction of tax for payments of demat charges and other charges levied by NSDL and CDSL - Held that:- Tribunal was of the opinion that such charges were in the nature of recovery of cost or expenses at large and not for providing any professional or technical service. To this extent, we are concur with the view of the Tribunal. While rejecting this question, we should not be seen to be confirming the Tribunal's further observation that even if there was a shortfall in tax collection at source, section 40(a)(ia) of the Act for disallowance cannot be invoked. We will examine such an issue in an appropriate case. Issues Involved:1. Disallowance of mark to market loss in future and option segment.2. Disallowance made under section 40(a)(ia) on payment to a broking company.3. Disallowance under section 40(a)(ia) for short deduction of tax on transaction charges.4. Disallowance of lease line charge paid under section 40(a)(ia).5. Disallowance of charges paid to NSDL/CDSL under section 40(a)(ia).Analysis:1. The first issue pertains to the disallowance of mark to market loss in future and option segment. The Appellate Tribunal's decision to delete this disallowance was challenged. The High Court noted the substantial question of law raised and admitted the Tax Appeal for consideration.2. The second issue involves the disallowance made under section 40(a)(ia) on a payment of Rs. 19,50,000 to a broking company. The Appellate Tribunal's decision to delete this disallowance was questioned. The High Court examined the matter and considered the substantial question of law raised for further deliberation.3. Issue three concerns the disallowance under section 40(a)(ia) for short deduction of tax on transaction charges paid to the National Stock Exchange. The Tribunal reversed the view of the Commissioner of Income Tax (Appeals) by stating that the charges were not for professional or technical services. The High Court agreed with the Tribunal's reasoning and held that the stock exchange did not provide such services, thereby dismissing this issue.4. The fourth issue is similar to a previous case examined by the Court. The Court referenced a Supreme Court judgment regarding payment to stock exchanges for faceless screen-based transactions. Following the Supreme Court's decision, the High Court rejected the issue, stating that the payment was not for technical services and, therefore, not subject to deduction at source under section 194J.5. The final issue involves the disallowance of charges paid to NSDL/CDSL under section 40(a)(ia). The Tribunal viewed these charges as cost recovery and not for professional services. While the High Court concurred with this view, it noted that the applicability of section 40(A)(ia) for tax disallowance in case of a shortfall would be examined in a suitable case, hinting at a potential future consideration of this aspect.