TaxTMI 
TaxTMI 
2020 (12) TMI 1358
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....r noticed that the assessee had claimed deduction of Rs. 4,20,98,353, towards lease line/V-SAT and transaction charges. Being of the view that the aforesaid payment made to NSE and BSE is in the nature of fee for technical and managerial services requiring deduction of tax at source under section 194J of the Act, the Assessing Officer called upon the assessee to explain why the deduction claimed should not be disallowed under section 40(a)(ia) of the Act for non-deduction of tax at source. Though, the assessee objected to the proposed disallowance by stating that the payment made is not for availing technical or managerial services, however, the Assessing Officer was not convinced with the submissions of the assessee. He observed, the stock exchanges are providing screen based trading service which is carried out on computer terminal connected to a common server of NSE and BSE. The access to the server is provided through V-SAT link or through a dedicated lease line to the brokers. He observed, the stock exchanges make available all the data relating to the scrips traded at the Stock Exchanges. Thus, he concluded that the payment made for lease line/V-SAT and transaction charges is....
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....tinguish/identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would therefore stand out in distinction to the former. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialized, exclusive and individual requirement of the user or consumer who may approach the service provider for such assistance/service. It is only service of the above kind that, according to us, should come within the ambit of the expression "technical services" appearing in Explanation 2 of Section 9(1)(vii) of the Act. In the absence of the above distinguishing feature, service, though rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act. 9. There is yet another aspect of the matter which, in our considered view, would require a specific notice. The service made available by the Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which the charges in question had been paid by the appellant-assessee are common s....
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....the nature of fee for technical services will not be amenable to section 194J of the Act. Accordingly, we delete the disallowance made under section 40(a)(ia) of the Act. Ground no.1, raised by the assessee is allowed. 8. In grounds no.2 and 3, the assessee has challenged disallowance of Security Transaction Tax (STT) under section 43B(a) of the Act. 9. Brief facts are, in the course of assessment proceedings, the Assessing Officer noticed that the assessee had shown an amount of Rs. 40,84,513, as liability in the Balance Sheet. On further verification, he found that the said amount represented STT collected from the clients but not paid during the financial year relevant to the assessment year under dispute or even till the date of filing of return of income in terms of section 139(1) of the Act. Observing that the assessee has not actually paid STT during the year under consideration, the Assessing Officer invoked the provisions of section 43B(a) of the Act and disallowed the deduction claimed. 10. The learned DRP sustained the disallowance made by the Assessing Officer. 11. The leaned Sr. Counsel for the assessee submitted, as per the statutory provisions, the Stock Exchange....
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....t of section 43B(a) of the Act. The decisions relied upon by the leaned Sr. Counsel for the assessee also supports this view. Accordingly, we direct the deletion of disallowance made under section 43B(a) of the Act. These grounds are allowed. 14. In grounds no.4 to 8, the assessee has challenged the addition made on account of transfer pricing adjustment on brokerage commission. 15. Brief facts are, as stated by the Transfer Pricing Officer, the assessee provides share broking services being registered with BSE/NSE. While undertaking such activity, the assessee has provided such broking services to its overseas associated enterprises (AE) as well as independent third parties. The Transfer Pricing Officer found that the assessee provides such services in two segments viz. cash and future & Option (F&O). From the details furnished, he found that the assessee has charged commission for broking service provided to the AE @ 0.13% in cash segment and 0.06% in F&O segment. While benchmarking such transaction by applying transactional net margin method (TNMM), the assessee had claimed them to be at arm's length. The Transfer Pricing Officer observed, while rendering similar services ....
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....s to AE FIt clients did not include marketing and international sales support. We find that the assessee is dependent on the overall CLSA group resources without which the brokerage from Eli clients could not have materialized. The assessee also filed submission dated 27.10.2014 before the TPO providing detailed explanation with regard to the differences in services provided to the AE and Non-AEs and explanation in support that TNMM was the most appropriate method to determine the ALP of brokerage earned from AEs. We find merit in the submission that TNMM is the correct method and internal CUP would entail adhoc adjustment to price in so far as braking commission from AE and Non AEs are concerned. We also find merit in the contention of the AR that if the decision in the case of J P Morgan India Pvt. Ltd. (supra), is to be followed, then adjustments to the cost structure should be allowed to iron out the differences between the AE and Non-AE transactions, Under these circumstances, we are of the view that operating model of J P Morgan India Pvt. Ltd. is not comparable to that of the assessee as majority of the income in the case of J.P Morgan India Pvt. Ltd was from related parties....
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.... Pricing Officer noticed that the assessee has paid royalty of Rs. 1,13,36,547, for use of a brand name to Credit Lyonnais Securities Asia B.V., Netherlands. The brand fee is calculated @ 1% of the brokerage income earned during the period. He further noticed that the assessee had determined the arm's length price by comparing the rate of royalty with an external CUP in the form of royalty rights published by Secretariat of Industrial Assistance. Further, the arm's length price computed under CUP was also corroborated by benchmarking done under TNMM. The Transfer Pricing Officer, however, did not find the benchmarking done by the assessee acceptable and proposed an adjustment of Rs. 1,13,36,547. While doing so, he computed arm's length price of the brand fee at nil. 23. Learned DRP also sustained the adjustment proposed by the Transfer Pricing Officer. 24. The learned Sr. Counsel for the assessee submitted, the issue is covered by the decision of the Tribunal in assessee's own case in assessment year 2002-03. In this context, he referred to DCIT-LTU v/s CLSA India Ltd., [2013] 33 taxmann.com 260 (Mum.). 25. Learned Departmental Representative relied upon the observat....
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....a comparable transaction can not be considered as transaction and cannot be the basis of selection of comparable transaction. Further, CUP method can not be applied if the relevant information is not available. This view is also supported by the decision of Mumbai Bench of the Tribunal in Cabot India Ltd. v. Dy. CIT [2011] 46 SOT 402/17 taxmann.com 70 on which the ld. Sr. Counsel has placed reliance. We, therefore agree with the finding of CIT(A) that CUP method on the facts of the case could not be applied. We are unable to accede to the request of the ld. CIT-DR, the matter may be restored to AO/TPO to find out a comparable transaction for application of CUP method. No such comparable transaction has been brought on record even by AO or by DRP, though the assessee had clearly stated that no such information was available. No such comparable case has been placed by the ld. CIT-DR even before us. The issue, therefore, cannot be restored for making roving inquiries. 8.2 The ld. CIT-DR has placed reliance on the decision of the Tribunal in the case of Knorr Bremse India (P.) Ltd. (supra), has argued that in case the assessee does not show that transaction by transaction approach wa....
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....ther jurisdictions, a single contract model was followed as per which client in particular country willing to buy securities in other countries has to place order in CLSA entity in the home country which shares commission with CLSA unit of the other country. In Korea, there was commission sharing arrangement whereas CLSA Taiwan operated as a branch which books the commission and it is charged an allocation of certain head office expenses. In India there was no commission sharing arrangement and payment of royalty was therefore permitted. CIT(A) on examination of the arrangement/system followed by CLSA BV has also given a finding that in other jurisdictions, CLSA entities were making market contributions. Therefore only on the ground that other CLSA units did not pay any royalty, it could not be held that payment of royalty by the assessee was not justified. 8.4 CIT(A) has also examined the business development system followed by other comparable companies in India and has given a finding that these companies on average were incurring business development expenditure which was 6.4% of brokerage turnover whereas similar expenditure incurred by the assessee was only 1.28% including ....