The Supreme Court has ruled that Transaction charges paid by stock brokers to the Stock Exchange for use of the trading platform provided by the Exchange cannot be characterized as ‘Fees for Technical services’. The Department’s argument was that the payments are for Technical services and cannot be allowed as a deduction as the Stock brokers had not deducted tax at source while making such payments.The ruling was rendered in a batch of cases where identical issue had arisen, with Kotak Securities as the lead case.

The Apex Court noted that such services are being rendered on a fully automated basis to all the members to facilitate trading transactions and there was no specialized /exclusive service which was rendered by the Stock Exchange. Pointing out the distinction between ‘Technical services’ and Technologically enabled service, the SC observed:

“Technical services, like managerial and consultancy services would denote seeking of services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same  available by the service provider. It is the above feature that would distinguish/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”

Our Comment

The principle laid down in the ruling would apply to many such similar instances (eg. Testing charges) where tech-enabled services are rendered as a standard facility, and not as a specialized service.