TMI Blog2010 (3) TMI 1090X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 7,00,000/-. The above sum represents a sum of ₹ 6,00,000/- paid as an admission fee and ₹ 50,000/- paid as technology fee and ₹ 50,000/- paid an annual fees for admission of the Assessee as member of OTC Exchange of India Ltd.. The Assessing Officer accepted the expenditure on account of technology fee and annual fee paid as revenue in nature and allowed claim of the assessee for deduction. As far as admission fee of ₹ 6,00,000/- is concerned, the Assessing Officer held that the aforesaid expenditure for acquiring membership of OTC Exchange was of a capital nature; and he therefore refused the claim of the assessee for deduction. Above facts transpire from the reading of the order of the Assessing Officer. 4. Against said disallowance, the assessee preferred the appeal before the learned CIT(A). The assessee explained the nature of the sum of ₹ 6,00,000/- which was claimed as deduction as follows :- The assessee has withdrawn his dealership from OTC where he deposited a sum of ₹ 6,00,000/- towards non-refundable admission fees. On admission of the person as a member of a Stock Exchange, payments of different nature are required to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submissions made before learned CIT(A) or before us details on when this sum of ₹ 6 lacs being OTC membership fee was paid is found. It is also not clear as to whether this non-refundable fee of ₹ 6,00,000/- was claimed as a deduction in any earlier assessment year by the assessee. The Assessee will be entitled to claim to deduction only if this sum had not been claimed and allowed as a deduction in the past. If the non-refundable admission fee had not been claimed as deduction in the past, then, the question of writing it off and claiming it as revenue expenditure in the present assessment year can be allowed only be subject to assessee establishing that it has ceased to be a OTC Member i.e. OTC exchange must recognize the surrender of membership by the assessee. The issue before us is not as to whether a nonrefundable security deposit is capital or revenue expenditure. In fact, we have no doubt in our mind that said expenditure is in the nature of revenue expenditure in the case of the assessee, who is engaged in the business of shares broking and the decision of Hon'ble Delhi High Court in the case of Nest Holdings (supra) clearly supports the stand of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue. 14. Ground No. 4-11 raised by the revenue is with regard to action of learned CIT(A) in deleting the disallowance of VSAT, leasline charges and transaction charges on the ground that the assessee failed to deduct tax at source on these payments; and therefore, was not entitled to claim deduction of such amounts in view of the provisions of section 40(a)(ia) of the Act. 15. The assessee is a company. It is engaged in the business of stock broking and is a member of BSE and NSE. As a member of BSE and NSE, the assessee had paid a sum of ₹ 1,12,845/- as lease line charges, ₹ 96,000/- as VSAT operating charges and ₹ 4,75,560/- as transaction charges. Nature of VSAT, leasline charges and transaction charges are as follows :- VSAT Charges:- Members of the stock exchanges trade (purchase and sell) on behalf of their clients. As a part of infrastructure provided to the members a trading system, known as on screen trading is provided by stock exchanges. Such trading facilities are established by Stock exchanges to enable trading anywhere in the territory of India. Such trading systems are centralized to enable trading in various stock exchanges. E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since, the assessee had not deducted tax at source on such payment, the aforesaid sum claimed as deduction was disallowed by the Assessing Officer. According to the Assessing Officer, trading in stock exchange is carried on through computer terminals, which are connected to NSE and BSE and various stock brokers, who are members of various stock exchanges. VSAT activity enables the brokers over the length and breadth of the country to get connected with each other and do trading. VSAT and leasline are provided by the stock exchanges and they charge fees for doing so. Thus, it was not a case of providing a simple service for a fee. It was a payment of a fees of a technical services rendered. The assessee had relied on the decision of Hon'ble Madras High court in the case of Skycell Communications Ltd. Vs. DCIT, 251 ITR 53 (Mad); wherein it was held that payment of fee for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been paid for technical services. The Assessing Officer distinguished the aforesaid decision by holding that the data provided through VSAT is not something which is not available to general public but is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llows: Explanation 2 : For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries . As can be seen from Explanation-2, the fees for technical services means any consideration for rendering any technical service. The Explanation does not by itself throw any light on what is a technical service. Two things are however clear from the setting of Section 9(1)(vii) read with explanation-2, viz, (i) That there should be an agreement to engage/utilise technical service and a person undertaking to render them; (ii) If there is a contract of employment and the employee renders technical service under a contract of employment then the payment of remuneration for such services are outside the purview of fees for technical services . 20. The Hon ble Madras High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es is rendering a technical service to the passenger and, therefore, the passenger is under an obligation to deduct tax at source on the payments made to the railway or the airline for having used it for travelling from one destination to another. When a person travels by bus, it cannot be said that the undertaking which owns the bus service is rendering technical service to the passenger and, therefore, the passenger must deduct tax at source on the payment made to the bus service provider, for having used the bus. The electricity supplied to a consumer cannot, on the ground that generators are used to generate electricity, transmission lines to carry the power, transformers to regulate the flow of current, meters to measure the consumption, be regarded as amounting to provision of technical services to the consumer resulting in the consumer having to deduct tax at source on the payment made for the power consumed and remit the same to the Revenue. The Court finally concluded as follows: Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fee having been received for technical services. 21. We have already given nature of VSAT charges and lease line charges and transaction charges paid by the assessee. Stock exchanges as measure of providing infrastructure to its members installs VSAT and lease line facilities to its members. Fees collected in this regard is nothing but fee paid for use of facilities provided by the stock exchange. Such facilities are available for use by any member. Satellite based trading enables trading member to trade on exchange from their place of work across the country. Stock exchange has to get permission of Department of Telecommunication for installing and setting up VSAT or lease line system. Charges levied by the stock exchange on its members are for the purpose of recovery of its cost in providing these facilities to the members. Stock Exchanges do not provide any technical services by installing VSAT network. It is the facility provided to its members, such payment cannot be said to be nature of fees for any technical services rendered. Stock Exchanges merely provide facilities for its members to purchase and sell shares within frame work of its bylaws. It also provides for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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