Transaction charges paid to Stock Exchange don't attract section 194J TDS

[2016] 70 taxmann.com 23 (Mumbai - Tribunal)

Facts: 

• The assessee debited certain amount on account of transaction charges paid to the Stock Exchange. The Assessing Officer disallowed such charges on the ground that the assessee had not deducted tax at source while making the payment of transaction charges.
• The Commissioner (Appeals) held that the transaction charges were paid to the Stock Exchange for rendering the managerial services which constituted fees for technical services under section 194J and, hence, the assessee was liable to deduct tax at source before crediting the transaction charges to the Stock Exchange. In that view of the matter, the disallowance was upheld.
• The aggrieved-assessee filed the instant appeal. 

The Tribunal held in favour of assessee as under: 

• The question as to whether TDS is deductible under section 194J on payments of transaction charges made by members to Stock Exchange has been considered by the Apex Court in the case of CIT v. Kotak Securities Ltd. [2016] 67 taxmann.com 356 wherein it was held that no TDS is required to be deducted on transaction charges paid by members to Stock Exchange as they are not for 'technical services' rendered but are in the nature of payments for facilities provided by the Stock Exchange.
• Following the decision of the Apex Court in the case of Kotak Securities Ltd. (supra), it was held that no TDS would be deductible on payment of transaction charges by members to Stock Exchange under section 194J. Accordingly, the Assessing Officer was directed to delete the disallowance made on account of transaction charges paid to Stock Exchange. 

Roaming facility doesn’t require human intervention; roaming charges paid by Telecos aren’t ‘FTS’

Vodafone East Ltd. v. Ad. CIT [2015] 61 taxmann.com 263 (Kolkata - Tribunal)

The provision of roaming services do not require any human intervention and accordingly, cannot be construed as technical services. Thus, payment of roaming charges by telephone operator does not fall under the ambit of TDS provisions under section 194J.

The disputed issue was:

Whether sum paid by telecom operator towards roaming facility provided by other telecom operators would be liable to TDS either under section 194J or section 194C or section 194-I?

The Tribunal held as under:

• Human intervention is required only for installation, setting up, repairing, servicing, maintenance, capacity augmentation of the network. When one of the subscribers in the assessee's circle travels to the jurisdiction of another circle, the call gets connected automatically without any human intervention and it is for this, the roaming charges is paid by the assessee to the Visiting Operator for providing this service. Hence payment of roaming charges cannot be construed as technical services, thus, it does not fall under the ambit of TDS provisions u/s 194J.
• The word 'work' in section 194C referred to and comprehends only the activities of workman. It is the physical force which has comprehended in the word 'work'. Since the payment of roaming charges does not require any human intervention. Hence, the provisions of section 194C are not applicable to the impugned issue.
• The assessee cannot be said to have used the equipment which is involved in providing the roaming facility. The assessee collects the roaming charges from its subscriber and passes it on to the other service provider. Therefore, the payment of roaming charges by the assessee to other service provider cannot be considered as rent within the meaning of section 194I of the Act.

Non-furnishing of PAN by Non-Resident doesn't attract higher TDS rate of 20% u/s 206AA if tax rate under DTAA is beneficial

DEPUTY DIRECTOR OF INCOME-TAX V. SERUM INSTITUTE OF INDIA LTD.[2015] 56 taxmann.com 1 (Pune - Tribunal)

Where payment has been made to non-residents who did not have PAN and tax has been deducted on the strength of the provisions of DTAAs, the provisions of section 206AA could not be invoked by the AO to insist on the tax deduction at 20% having regard to overriding nature of Section 90(2). 

Facts:

• Assessee made payment of royalty and fee for technical services to non-residents after deducting tax at source in accordance with the rates provided under DTAAs.
• It was noted by the AO that on account of payment of royalty and fee for technical services in case of some of the non-residents, the recipients did not have PANs. As a consequence, AO treated such payments, as cases of 'short deduction' of tax in terms of the provisions of section 206AA of the Income-tax Act (‘the Act’).
• The AO contended that assessee was under an obligation to deduct tax at higher rate of 20% following the provisions of section 206AA, hence he raised demand relatable to the difference between 20% and the actual tax rate provided under the DTAAs.
• On appeal, the CIT(A) deleted the demand as he was of the view that Section 206AA would not be applicable in case of non-residents as the DTAA overrides the Act. The aggrieved-revenue filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

• Section 206AAof the Act prescribes that where PAN is not furnished by recipient of income on which tax is deductible the payer would be required to deduct tax at the higher of the following rates:
• At the rate prescribed in the relevant provisions of the Act; or
• At the rate/rates in force; or
• At the rate of 20%
• Further, Section 90(2) of the Act provides that the provisions of the DTAAs would override the provisions of the Act in cases where the provisions of DTAAs are more beneficial to the assessee.
• Thus, there could not be any doubt to the proposition that in case of non-residents, tax liability in India is liable to be determined in accordance with the provisions of the Act or the DTAA between India and the relevant country, whichever is more beneficial to the assessee, having regard to the provisions of section 90(2) of the Act.For the said reason, assessee deducted the tax at source having regard to the provisions of the respective DTAAs which provided for a beneficial rate of taxation. 
• It would be incorrect to say that though the charging section 4 and section 5 of the Act are subordinate to the principle enshrined in section 90(2) of the Act but the provisions of Chapter XVII-B governing tax deduction at source are not subordinate to section 90(2) of the Act. Notably, section 206AA of the Act is not a charging section but is a part of a procedural provisions dealing with collection and deduction of tax at source. 
• Therefore, where the tax has been deducted on the strength of the beneficial provisions of section DTAAs, the provisions of section 206AA of the Act could not be invoked by the AO to insist on the tax deduction at 20%, having regard to the overriding nature of the provisions of section 90(2) of the Act.

Demand on account of tax /TDS credit mismatch cannot be enforced coercively

No. 275/29/2014-IT-(B)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
Dated New Delhi, the 1st June, 2015

To,
The CCsIT (CCA)

Subject: Non-deposit of Tax Deducted at Source – regarding. Sir/Madam,

1. Grievances have been received by the Board from many taxpayers that in their cases the deductor has deducted tax at source from payments made to them in accordance with the provisions of Chapter-XVII of the Income-tax Act, 1961 (hereafter ‘the Act’) but has failed to deposit the same into the Government account leading to denial of credit of such deduction of tax to these taxpayers and consequent raising of demand.
2. As per Section 199 of the Act credit of Tax Deducted at Source is given to the person only if it is paid to the Central Government Account. However, as per Section 205 of the Act the assessee shall not be called upon to pay the tax to the extent tax has been deducted from his income where the tax is deductible at source under the provisions of Chapter- XVII. Thus the Act puts a bar on direct demand against the assessee in such cases and the demand on account of tax credit mismatch cannot be enforced coercively.
3. This may be brought to the notice of all the assessing officers in your region so that if the facts of the case so justify, the assessees are not put at any inconvenience on account of default of deposit of tax into the Government account by the deductor.
4. This issues with the approval of Chairperson, CBDT.

Yours faithfully

(Sandeep Singh)

Under Secretary to the Govt. of India