Anurag Singhal
Key Summary: Supreme Court held that ‘technical services’ under Section 194J read with Explanation 2 to Section 9(1)(vii) of Income Tax Act, 1961 denote services to cater to the special needs of the consumer/user, rather not a facility / service offered to all.
1. Brief facts of case
The Hon’ble Supreme Court (SC) recently pronounced its ruling in case of Kotak Securities Ltd (taxpayer) (Civil Appeal No. 3141 of 2016). In this case, taxpayer paid transaction charges to Bombay Stock Exchange (BSE) for transacting business of sale and purchase of shares.
Taxpayer’s arguments/ contentions
- It is claimed by taxpayer that services provided by BSE did not qualify as ‘technical services’ under Explanation 2 to Section 9(1)(vii) of the Income Tax Act (the Act) and therefore, such payments were not liable to TDS (tax deducted at source or withholding tax) under Section 194J of the Act.
Tax authorities’ arguments/ contentions
- The tax officer contended that the transaction charges amounts to payment of a fee for ‘technical services’ rendered by BSE. Therefore, in terms of Section 194J of the Act, tax should be deducted at source by taxpayer on such payments. Since, TDS is not deducted at source, therefore, such payments were disallowed [in accordance with Section 40(a)(ia) of the Act] in computing income of taxpayer/ chargeable taxable under the head ‘Profits and Gains of business or profession’.
Observations of Hon’ble Bombay High Court (Bombay HC)
- On above matter, the Hon’ble Bombay HC held that subject payment falls within the ambit of fees for technical services.
2. Issue for consideration of Hon’ble Supreme Court
Whether the transaction charges paid by taxpayer to BSE would qualify as fees for ‘technical services’ in terms of Explanation 2 to Section 9(1)(vii) and accordingly liable for deduction of tax at source as per Section 194J. Further, if answer to aforesaid is affirmative, whether dis allowance can be made under Section 40(a)(ia).
3. Key Observations
