Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (4) TMI 910 - ITAT MUMBAI

2016 (4) TMI 910 - ITAT MUMBAI - TMI - NSE liability for alleged short-deduction of Security Transaction Tax [STT] - transaction of FIIs for which higher rates are applicable being delivery based transaction in respect of both purchases as well as sales - Held that:- The SEBI issued the Circular to the National Stock Exchange for using two client codes, One for sale and Second for purchase transaction for those investors whose transactions are to be settled through delivery only, specifically in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aken for purchase and sale of shares for the same day and there in only one client code, then transactions are settled in the netted settlement mode, that is, squaring of the transaction and STT is calculated as per the netted settlement mode as prescribed under Rule 3. This netting off mode is not applicable in the case of FIIs in terms of SEBI regulations and Circular. If in some cases, there has been default by the Members brokers for not taking two separate client codes, then so far as asses .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er the Statute NSE is not liable for any alleged short-deduction of STT. Accordingly, the addition which has been sustained by the CIT(A) to the extent stands deleted. - Decided in favour of assessee - Security Tax No. : 01/Mum/2010, Security Tax No. : 02/Mum/2010, Security Tax No. : 03/Mum/2012, Security Tax No. : 01/Mum/2013, Security Tax No. : 02/Mum/2013, Security Tax No. : 01/Mum/2012 - Dated:- 4-4-2016 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER For The App .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ls are common arising out of identical set of facts except for variation in figures, therefore, same were heard together and are being disposed off by way of this consolidated order. 2. As a lead case, we are taking-up the appeal for the assessment year 2005-06 being STA No. 02/Mum/2011 to understand the facts and implication thereof on the issues raised by the assessee. The grounds of appeal raised by the assessee reads as under:- 1(a) On the facts and in the circumstances of the case and in la .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d in confirming the levy of interest under section 104. 3. On the facts and in the circumstances of the case and in law the Commissioner of Income Tax (Appeals) erred in directing the learned assessing officer to collect further information for determining any further shortfall of collectible STT and thereby in holding that the same shall payable by the appellant without appreciating that the CIT(A) has no such power of giving direction in disposing of an appeal. 4. On the facts and in the circu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

taxable securities transactions on 29.06.2006, declaring total taxable securities transactions at ₹ 6,99,10,47,72,669/- for the financial year 2005-06. The said return was selected for scrutiny and accordingly, notice under section 102(1) of STT Act was issued. During the course of the assessment proceedings, the AO made sample enquiry from 250 members / brokers. From the said enquiry, 9 broker members reported a total short collection of STT by the NSE at ₹ 2,80,78,444/-, as per th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ies and Capital Markets (India) P. Ltd. 145379257 144870541 508716 5 Deutsche Equities India P. Ltd. 399738566 398349083 1389483 6 CLSA India Ltd. 48280988 479124950 3684738 7 ASK Securities India Pvt. Ltd. 1605106 1586606 18500 Citi Group Global Markets India Pvt. Ltd. 433044435 422346658 10697777 8 Kotak Securities Ltd. 414139100 406534932 7604168 9 Total 2792748914 2764670470 28078444 Thereafter, he noted the rates applicable for the financial year 2005-06 for the delivery-based and non-deliv .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

observed that, the reasons for noncollection of amounts of STT was due to non application of appropriate rates of STT to certain types of transactions made by the Foreign Institutional Investors [FIIs]. This observation was made on the basis of information that, some broking members were showing STT liability in their Balance sheet at the year end, reflecting STT collected from their FIIs clients but not recovered by NSE. This short collection of STT, AO alleged that was because of defect in the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he stock exchange should ensure adequate measures so as to collect STT from the FII transactions on delivery based transaction as mentioned in section 98 of STT Act. The reasons for discrepancy as sought from the brokers was on the basis of enquiry conducted by the AO which has been incorporated at Para 9 from pages 5 to 6 of the assessment order. Thus, from these enquiries he concluded that delivery based transactions entered into by the FIIs particularly those transactions on which purchase an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

re, proposed to estimate ₹ 5 crores. 4. In response to show cause notice, the assessee submitted that section 98 of the STT Act is a charging section for levy of STT in respect of taxable securities transactions which provides that, such tax shall be payable by the purchasers or the seller at the prescribed rates. Thus, the entity chargeable to the STT is a purchaser or seller and not NSE. Section 100 of the Act, contains provision for collection and recovery of STT which provides that eve .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t the prescribed rates for all the transactions under each client code provided by the members of the NSE. The Method of calculation have been provided in Rule 3 r.w. Explanation thereto. Thus, it is Rule 3 which lays down the manner of computing the value of taxable securities transaction for the purpose of section 99 r.w.s. 98, which prescribes the rates on the value of taxable securities transaction. In other words, STT is charged under section 98 and collected under section 100 as per value .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

determine his liability correctly. The Exchange system is designed in such a way. (b) The members while placing the orders are required to put their member code and the client code to identify on who s behalf the member is trading. (c) Even the computation of STT methodology as provided by Chapter VII of the Finance (No.2) Act, 2004 and the Rules made there under, recognizes the member code - client code combination to determine the STT liability and the same is also presented in the Return of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

trades done by them are not considered as squared off. (f) In case where the member recognizes at a later stage, the mistake of putting one client code at the time of putting the order, he is also permitted to modify such client code within 45 minutes of time available after the close of the market hours. (g) Once the same is done, the exchange system computes STT liability with delivery rates for different client codes and square off rate for same client code, and recovers the same from the mem .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

for infinite time to allow the member to identify his mistake (for non-compliance of SEBI directives) and then communicate to the Exchange for correct computation of STT. In such an event the entire settlement mechanism system (which includes STT also) of the Exchange will fail, which will lead to chaos in the market. Thus, NSE has been crediting STT, as required u/s 100, to the account of the Central Government. Therefore, in the event the members do not give separate codes to clients, NSE can .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uch trades are not netted. However, on occasions where client code for institutional trades are not modified by them such trades are treated as square-off trades. Thus, there is no failure in the Exchange system for the purpose of computing STT liability and no failure to collect the STT as required under section 100. Hence, your good self is requested to kindly drop your proposed action of raising further liability of STT of ₹ 5 crores . Regarding initiation of penalty proceedings under s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Stock Exchange which has made effort to prevent any kind of mischief or mistake on the part of the members while entering their client codes. He rejected the assessee s contention that the Stock exchange cannot collect what is not due to it as per information provided by members during the time of computation of the STT. Even if the accounting system of assessee has under computed and under collected the STT in respect of FII transactions because of non-observance of the directives issued to me .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

its statutory obligation under section 100 of the STT Act properly and to the satisfaction of the legislative intent as required under the provisions of the said section and, therefore, assessee is only accountable for not levying and collection of STT in respect of FII transaction correctly in accordance with the Act. Since the short collection of STT from 9 members was found at ₹ 2,80,78,444/-, therefore, he made a reasonable estimate of ₹ 5 crores of shortcollection of STT from ot .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

me of computation of STT. It cannot wait for infinite time to allow the member to identify to his mistake and then communicate to the exchange for correct computation of STT. In such an event, the entire settlement mechanism of the exchange will fail and will lead to huge chaos in the market. The NSE has been crediting the STT strictly as required under section 100 and it is crediting the amount collected to the account of the Central Government. If the members do not give separate codes to the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

SE is in violation of section 100 r.w.s. 98 and it was the statutory duty of the NSE to collect the STT at the appropriate rates and despite coming to the knowledge of the assessee that STT has been shortcollected, it is taking false-façade of the exchange system / procedure which again has been build by the NSE only. If the exchange system fails to have sufficient checks and balances, then it cannot be held that, the short collection of STT is not the fault of the assessee, because, as p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

re us, the Ld. Senior Counsel, Shri Arvind Sondhe submitted that under the Scheme of the STT Act, the recognized stock exchange is required to collect the STT from the purchases and or the sellers. In other words, the charge is on the purchasers or the sellers and the responsibility of NSE is to ensure that STT is computed and collected from the chargeable entities based on the provisions of the STT Act and Rules. However, where the members recalculate the STT chargeable in respect of those clie .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the prescribed rates. Value of taxable security transaction is determined in accordance with section 99 and he specifically drew our attention to clause (c), which provides that taxable security transaction shall be the price at which such security are purchased or sold and the proviso below clause (c) provides that, the Board may having regard to the manner in which taxable security transactions are settled in a recognized stock-exchange for the purpose of determining the price of such securiti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d through members of stock exchange shall be made with reference to the trades executed in the equity shares or unit client code through that member. He further pointed out that, Rule 3 also lays down that, where the equity shares unit purchased or sold by person on a trading day the same is determined in the netted settlement mode. Hence, where the two separate client codes are not there, then STT is computed on a netted settlement mode. After referring to these relevant provisions, he submitte .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

spect through which collection of STT is made and it is not in the hands of the NSE. Section 100 provides the mechanism for STT and crediting the amount to the Central Government. Thus, section 100(1) requires NSE to collect STT at rates specified in section 98 and accordingly, the STT chargeable is determined on the value of such taxable security transaction in the manner laid down in Proviso to section 99(c) r.w. Rule 3(a) r.w. Explanation thereto, whereby the value of taxable transaction is c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nformed to the trading members to give two client codes. So far as assessee is concerned, the trading system of NSE calculates STT at the prescribe rates for all transaction under each client code of the members of the NSE in accordance with Rules 3 and the provisions of the Act. Thus NSE system only recognizes the member code and client code combination to determine the STT liability which it has done correctly in accordance with the law. Hence there is no failure on the part of the assessee wh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

om time-to-time, which have to be abided by all its trading members. If certain members of the Exchange do not adhere to such instructions of the Exchange, then Exchange cannot be held responsible for not properly determining the amount of STT liability of their members. Further, he pointed out that it will be observed from the reasons given by the said members that the Exchange provides facility of different client codes for purchase and sale trades for the same client to ensure that such trade .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

time of computation of STT. It cannot wait for infinite time to allow the member to identify his mistake ( for non-compliance of SEBI directives) and then communicate to the Exchange for correct computation of STT. As submitted, those clients who deal on behalf of FII s are required to put two client codes, one for purchase and another for sale, to ensure that the trades done by the them are not considered as squared off. In case where the member recognizes at a later stage, the mistake of putti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ule 3. 9. On the other hand, the Ld. DR strongly relied upon the order of the CIT(A) and submitted that, it was duty of the assessee to ensure that proper STT is collected and whether the Circular of the SEBI to allot separate client codes in respect of purchase and sale for delivery based transactions have been complied with or not. As per section 100, liability is on the NSE to collect exact STT. He also referred to the various observations made by the CIT(A) in the order in this regard. Thus, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

orders and submissions made by the parties before us. The main issue here in this case is, whether the NSE can be held liable for alleged short-deduction of STT on certain transaction of FIIs for which higher rates are applicable being delivery based transaction in respect of both purchases as well as sales. The AO has noted certain discrepancies in wake of sample enquiry conducted by him by certain members and from that he gathered that there has been short fall of STT collections to the exten .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

security transaction tax means tax leviable on taxable securities transaction under the provisions of this chapter. Clause (13) defines Taxable security transaction means, a transaction of (a) purchase or sale of an equity share in a company or a derivative or a unit of an equity oriented fund, entered into a recognized stock exchange; or (b) sale of a unit of an equity oriented fund to the Mutual Fund. The charge of security transaction tax has been provided in section 98, which along with the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

able securities transaction Rate Payable by 1 2 3 4 1 Purchase of an equity share in a company or a unit of an equity oriented fund, where- (a) the transaction of such purchase is entered into in a recognized stock exchange; and (b) the contract for the purchase of such share or unit is settled by the actual delivery or transfer of such share or unit. 0.075 per cent Purchaser 2 Sale of an equity share in a company or a unit of an equity oriented fund, where - (a) the transaction of such sale is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

15 per cent Seller 4 Sale of a derivative, where the transaction of such sale is entered into in a recognized stock exchange 0.01 per cent Seller 5 Sale of a unit of an equity oriented fund to the Mutual Fund 0.15 per cent Seller Section 99 deals with the Value of taxable securities transactions, which for the sake of ready reference is reproduced herein below: 99. The value of taxable securities transaction,- (a) in the case of a taxable securities transaction relating to a derivative, being op .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ttled in a recognized stock exchange or such other factors which may be relevant for the purposes of determining the price of such securities, specify by rules made by it, the method of determining the price of such securities for the purposes of this clause . In pursuance of the aforesaid Proviso rules of Security Transaction Tax Rules 2004 have been notified, wherein Rule 3 thereof reads as under: 3. For the purposes of clause (c) of section 99 of the Act, the value of a taxable securities tra .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

trade is executed, to determine the trade value of each such trade; (ii) the aggregate trade value of all trades in the equity share or unit by the person on that day shall be arrived at by totalling the trade values determined under sub-clause (i); (iii) the aggregate trade value arrived at under sub-clause (ii), shall be divided by the total quantity of the equity share or unit traded by the person on that day, to determine the volume weighted average price of that equity share or unit for th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hare or unit under a particular client Code through that member; (b) where the equity share or unit is purchased or sold by a person in the trade-for-trade settlement mode, the value of the taxable securities transaction shall be the price at which the equity share or unit is purchased or sold; (c) where the equity share or unit is purchased in the auction settlement mode, the value of the taxable securities transaction shall be the volume weighted average price of the equity share or unit, dete .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n on a trading day is set off against the quantity of that equity share or unit sold by him on that day and actual delivery is required to be taken or given by him as the case may be, only in respect of the net quantity purchased or sold as has not been so set off; (ii) "trade de-for-trade settlement mode" means a mode of settlement of transactions in a recognized stock exchange where each trade is compulsorily required to be settled by actual delivery; (iii) "auction settlement m .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e 3. Section 100 provides for collection and recovery of security transaction tax and reads as under: 100. (1) Every recognized stock exchange shall collect the securities transaction tax from every person, being a purchaser or a seller, as the case may be, who enters into a taxable securities transaction in that stock exchange, at the rates specified in section 88; (2) The prescribed person in the case of every Mutual Fund shall collect the securities transaction tax form every person who sells .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

prescribed person in the case of any Mutual Fund, who fails to collect the tax in accordance with the provisions of sub-section (1) or sub-section (2), shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of sub-section (3) . 11. Now, from the conjoint reading of aforesaid provisions, following proposition can be culled out: (i) The security transaction tax is charged at a specified rate in accordance with section .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d for determining the price of such securities; (iv) In pursuance and in accordance with section 99(c), Rule (3) has been notified which prescribes, how the security transaction tax is to be determined; (v) Clause (a) of Rule 3 provides for determination of STT in case where the equity shares or unit is purchased or sold by a person on a trading day in the netted settlement mode; (vi) Explanation to clause (a) provides that, determination of STT which is purchase or sold through Member of Stock .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hanism provided. This client code is provided by the members / brokers and not by the NSE. The responsibility of the NSE is to ensure that the security transaction tax is firstly, collected as per rules provided under section 98, secondly, it has been determined in accordance with section 99 r.w. Rule 3 and Explanation thereto and lastly, such a STT collected from purchaser or seller is credited to the Central Government as provided in section 100. 12. Here in this case, there cannot be any disp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e separate client codes in case of FIIs, then so far as assessee is concerned, no liability can be fastened on the NSE. The duty of the NSE so far as the provisions of Security Transaction Tax Act r.w. STT Rules are concerned, is to collect the tax at a correct rate of purchase and sale of shares executed through particular client code. If there is default by a member either at the time of collecting the STT in accordance with the client code; or certain additional amount of STT is to be collect .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mandatorily collect STT beyond the client codes. The SEBI issued the Circular to the National Stock Exchange for using two client codes, One for sale and Second for purchase transaction for those investors whose transactions are to be settled through delivery only, specifically in the case of FIIs. If the broker or the member have not taken any separate client code, then the assessee cannot held responsible, because the assessee has already intimated / circulated that each and every broker or m .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ettlement mode as prescribed under Rule 3. This netting off mode is not applicable in the case of FIIs in terms of SEBI regulations and Circular. If in some cases, there has been default by the Members brokers for not taking two separate client codes, then so far as assessee is concerned, it has not comitted any default under the provisions of the STT Act r.w. relevant rules, because what assessee is required to see is whether the transactions of purchase and sale has undertaken through particul .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version