No TDS on VSAT, lease line, BOLT and Demat charges, not fees for technical services under section 194J

ITAT Mumbai held that payments made by the assessee to the stock exchange towards VSAT charges, lease line charges, BOLT charges and Demat charges are not "fees for technical services" under the Income-tax Act. The Tribunal observed that the stock exchange merely provides standard infrastructure facilities commonly available to all its members and does not render any specialized technical services to them. As the charges are only for use and cost recovery of such facilities, no obligation to deduct tax at source arises. The order of the CIT(A) was upheld and the Revenue's appeal was dismissed.

---

---

Issues: Whether amounts paid by the assessee to stock exchanges (VSAT charges, lease line charges, BOLT charges, Demat charges and other allied charges) constitute "fees for technical services" within the meaning of Explanation 2 to section 9(1)(vii) and hence attract deduction of tax at source under section 194J and disallowance under section 40(a)(ia) of the Income-tax Act, 1961.

Analysis: The statutory definition in Explanation 2 to section 9(1)(vii) covers consideration for rendering managerial, technical or consultancy services. Key indicators include existence of an agreement to render technical services and the nature of the service as a rendering of specialised technical/consultancy inputs rather than mere provision of facilities. Payments that are reimbursement of infrastructure costs or fees for use of a standard facility available to members do not, by their nature, amount to fees for technical services. Authorities applying the definition have held that supplying access to equipment or connectivity (e.g., telephony, common technological infrastructure) constitutes provision of a facility rather than rendering of technical services for a fee. The payments in question were recovery of costs for infrastructure and standard facilities provided by the stock exchanges (VSAT/network access, leased data lines, transaction interfaces, demat services and related charges) made available to members generally; such payments do not reflect a contract for specialised managerial or consultancy technical services and are not remuneration to technical personnel rendering services to the payor.

Conclusion: The amounts paid to the stock exchanges do not constitute "fees for technical services" within Explanation 2 to section 9(1)(vii) and therefore do not attract withholding under section 194J or disallowance under section 40(a)(ia); outcome in this issue is in favour of the assessee.

---