Tag Archives: section 40(a)(ia)

‘Transaction charges’ paid to Stock Exchange cannot be treated as FTS : SC

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.

 

TDS not applicable on Inter-connect charges for Roaming: Chennai ITAT

The Chennai ITAT has ruled in the case of Dishnet Wireless that inter-connect charges incurred for providing roaming services to subscribers do not attract Tax Deduction obligation.

Inter-connect charges do no constitute “technical services”

Under the Indian Tax laws, a payment made towards “technical services” is liable to  Tax deduction at the time of payment or credit. The issue that has been plaguing the Telecommunication industry is that the Revenue authorities view payments towards telecom services as a payment for “technical service” and expect the same to be subjected to Tax deduction. The Taxpayers have been contending that only personalized services fall within the ambit of ‘technical services’ definition, and not standardized services like telecommunication.

In the aforesaid ruling, the Tribunal accepted the argument raised on behalf of the Tax payer that there was no human intervention involved in provision of roaming services / configuration of inter-connect arrangements, and the payments therefore did not constitute ‘Fees for Technical services’. The Tribunal also relied on an expert’s opinion in support of its conclusion.

Provision for Site Restoration not liable to Tax Deduction

Provision made for restoration of telecom tower sites to its original condition were also held not liable to Tax deduction obligation. The Tribunal accepted the argument that since the expenditure had to be incurred at the end of long-gestation lease periods, the contractors / payees who would be engaged to carry out restoration work were not known, and even the mode of restoration (own account or sub-contracted) was not determinable at the provision stage.

Year-end provision – Tax deduction obligation hinges on whether payees’ identifiable

As regards the issue of year end provisions for various services like content development, verification charges, etc. the issue was remanded back to the lower authorities to ascertain if the payees’ were identifiable as of the year end, and decide on the Tax deduction obligation accordingly.

Our comment

The ruling on the aspect of inter-connect charges is a positive for the Telecom industry.  The stand of the Department on the issue relating to alleged TDS default on provision for site restoration was regrettable and an apt example of how even non-issues at times become contentious Tax issues.