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2016 (4) TMI 599 - AT - Service TaxDemand of Service tax - Banking and other financial services - Revenue stated respondent to be a broker who had filed some applications on behalf of intending purchasers of bonds, designated as 6.5% Savings Bond, issued by the Reserve Bank of India and have received a brokerage for the bonds that were issued against these applications. Held that:- the subscriber to the bond issue is, quite possibly, a regular customer of M/s JM Financial Services Pvt Ltd as a broker of securities. Such a relationship or equation does not, for that reason alone, attract tax burden on other transactional activities of the two. It is noticed that there is no allegation of receipt of any consideration from the subscriber of the bond issue. It is from the Reserve Bank of India that designated intermediaries receive payment. However, as Reserve Bank of India is not the seller of the said bonds, it cannot be a customer of a broker and the payment it makes cannot be considered to be brokerage. Reserve Bank of India undertakes the management of the issue as an agency function for the Central Government in exercise of a statutory responsibility. Clearly, there is no brokering of securities in the disputed transaction. The fee paid to 'receiving offices' and 'brokers' for their role in the bond issue is not 'brokerage' but commission. The foundation for confirmation of the demand in the impugned order is seen to totter. As per decision of Hon'ble Supreme Court in the case of Morgan Stanley Mutual Fund v Kartick Das [1994 (5) TMI 168 - SUPREME COURT OF INDIA], prior to allotment, "shares do not exist". Accordingly, handling of application forms for an intending subscriber cannot constitute brokering in securities because the securities do not exist at that stage. The foundation for the demand in the impugned order no longer totters but collapses. So the taxing of a transaction merely because the remuneration is designated as 'brokerage' and because the recipient of that 'brokerage' is a 'body corporate' is not sustainable in the light of intent to tax the activity of 'banking and other financial services' without a clear finding that the bond is a tradeable security and that the recompense flows to M/s JM Financial Services Pvt. Ltd from a buyer or seller under a 'brokering' contract. The impugned order fails that test of coverage under section 65(105) of Finance Act as a 'taxable service.' - Decided against the revenue
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