TMI Blog2020 (3) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... statute respondent was not liable for any alleged short deduction of STT, Tribunal deleted the addition made on this count as modified by the first appellate authority. Consequently, levy of interest and penalty were deleted. As advert to the explanation provided by one of nine brokers before the Assessing Officer. Morgan Stanley India Company Private Limited which was one of the broking companies dealing with FIIs stated before the Assessing Officer that for institutional clients the stock exchange provided facility of different client codes for purchase and sale trade for the same client to ensure that such trades were not netted. On occasions where client codes for institutional trades were not modified by the broker, the trades were treated as squared off trades and a lower STT was levied. This resulted in the exchange charging a lower STT from the member broker while the member broker collected a higher delivery based STT from the client. We find no error or infirmity in the view taken by the Tribunal that under the statute respondent was not liable for any alleged short deduction of STT and therefore, no fault can be prescribed to the respondent and to hold the responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were issued to the respondent. 6. Be it stated that, respondent is the National Stock Exchange of India Limited (NSE). In the course of the assessment proceeding Assessing Officer expressed apprehension that there was some under-collection of Securities Transaction Tax (STT) by the respondent in respect of certain institutional investors like foreign institutional investors. Assessing Officer made an enquiry on sample basis amongst the brokers registered with the respondent. According to the Assessing Officer, there was discrepancy in the total amount of STT collected by the brokers from their foreign institutional investors, atleast by nine brokers, and the amount of STT collected by the respondent. According to the Assessing Officer, the nine brokers had reported a total of ₹ 2,80,78,444.00 as short collection of STT by the respondent from the brokers pertaining to transactions entered into by the foreign institutional investors (FIIs) through the brokers. According to them, the total amount of STT collected from their foreign institutional investor clients was ₹ 2,79,27,48,914.00 whereas the total amount of STT recovered by the respondent was ₹ 2,76,46,70,47 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was ₹ 2,80,78,444.00, Assessing Officer was directed to restrict the addition on account of shortfall of STT to ₹ 2,80,78,444.00. However, Assessing Officer was directed to collect information from other brokers to determine whether any further shortfall of collectable STT was there and to raise the same accordingly. Regarding initiation of penalty proceedings, it was observed that the same would be decided at the time of penalty proceedings. Thus, appeal of the respondent was partially allowed. 8. Respondent carried the matter in further appeal before the Tribunal. The said appeal was heard with several other appeals of the respondent on the same issue for different financial years as well as on the incidental issue of imposition of penalty. In its appellate order dated 4th April, 2016, Tribunal posed a question to itself as to whether respondent could be held liable for the alleged short deduction of STT on certain transactions of FIIs for which higher rates are applicable being delivery based transactions in respect of both purchases as well as sales. After considering relevant provisions of the Finance (No.2) Act, 2004, more particularly Sections 98, 99 and 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... torily required to collect the STT from every person being a purchaser or a seller who enters into a taxable securities transaction in that stock exchange at the rate specified under Section 98 and failure to collect and deposit STT at the prescribed rate would invite the consequences as provided in sub- section (4) to Section 100. He also placed reliance on a circular dated 30.09.2004 issued by the respondent to its members asking them to use two trading client codes for those investors whose transactions are to be settled only by delivery basis and submits that respondent ought to have ensured that the members used the proper code for correct collection of STT. He therefore submits that order passed by the Assessing Officer as modified by the Commissioner of Income Tax (Appeals) is fully justified. Tribunal erred in interfering with the said decision. 11. On the other hand, Mr.Mistri, learned senior counsel appearing for the respondent submits that respondent only provides the platform for carrying on of trading in shares by the registered brokers. Value of taxable securities transaction is settled as per client code and in so far allocation of client code is concerned, respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public included in an initial public offer and where such shares are subsequently listed on a recognized stock exchange; or sale of unlisted units of a business trust by any holder of such units which were acquired in consideration of a transfer referred to in clause (xvii) of Section 47 of the Income Tax Act, 1961 under an offer for sale to the public included in an initial offer and where such units are subsequently listed on a recognized stock exchange; or sale of an unit or an equity oriented fund to the mutual fund. 14. Section 98 is the charging section providing for charge of STT. It says that on and from the commencement of the chapter dealing with STT, there shall be a charge of STT in respect of taxable securities transactions specified in column (2) of the table forming part of Section 98 at the rate specified in the corresponding column (3) on the value of such transaction and such STT shall be paid either by the purchaser or by the seller as specified in the corresponding entry in column (4). A glance at the table would show that at Sr.No.1 is mentioned purchase of an equity share in a company or a unit of a business trust where the transaction of such purchase is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be an assessee for this purpose. 21. Section 104 provides for interest on delayed payment of STT. 22. While as per Section 105 an assessee is liable to pay penalty for failure to collect or pay STT, Section 108 clarifies that no order imposing a penalty shall be made unless the assessee has been given a reasonable opportunity of being heard. 23. Section 114 empowers the Central Government to make Rules for carrying out the provisions of the chapter. 24. In exercise of the powers conferred by sub-section (1) read with sub-section (2) of Section 114 of the Finance (No.2) Act, 2004, the Central government has made a set of rules for carrying out the provisions of Chapter VII of the said Act relating to STT called the Securities Transaction Tax Rules, 2004 (briefly the Rules hereinafter). Rule 3 deals with value of taxable securities transaction. As per the explanation to clause (a)(iv) of Rule 3, the determination of the value of taxable securities transaction in a case where the equity share or unit is purchased or sold through a member of the stock exchange shall be made with reference to the trades executed in the equity share or unit under a particular client code ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be any dispute that the assessee had collected the STT in accordance with the provisions specified in section 98, which has been determined as per the mechanism laid down in section 99(c) r.w. Rule 3 and Explanation thereto. This is evident from the fact that, all the STT have been collected through and under the client codes of the members. It is not the case that assessee has not collected the STT under the given client code. If a member / broker does not collect STT through client code or has not taken the 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 collected on account of any compliance of SEBI Regulations, which has not been done without adherence of client code; then, the assessee cannot be held responsible or liability can be fast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either by the purchaser or by the seller and not by the stock exchange. Value of taxable securities transaction has to be determined in accordance with Section 99 and as per proviso thereto. Rule 3 of the Rules including the Explanation thereto have been notified prescribing how value of STT is to be determined. For determination of STT which is purchased or sold through a broker registered with the stock exchange, reference has to be made to the trade executed under the particular client code of the member broker. Thus, the STT is collected through a member broker under a particular client code. The client code is provided by the brokers and not by the stock exchange. Responsibility of the stock exchange is to ensure firstly that STT is collected as per Section 98; secondly, it has been determined in accordance with Section 99 read with Rule 3 and Explanation thereto; and lastly, such STT collected from the purchaser or seller is credited to the Central Government as provided under Section 100. 30. Tribunal further held that the stock exchange i.e. the respondent can only ensure determination of the value of taxable securities transaction purchased and sold through a client co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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