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TMI Blog2020 (3) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... s correct in holding that under the statute National Stock Exchange (NSE) is not liable for any alleged short deduction of Security Transaction Tax (STT)? (ii) Whether in the facts and in the circumstances of the case and in law the Tribunal was correct in holding that NSE had not committed any fault in collection of correct STT, when infact section 100(1) of Securities Transaction Tax mandates the recognized stock exchange for collection and recovery of STT at the rates specified in section 98 of STT Act? (iii) Whether in the facts and in the circumstances of the case and in law the Tribunal was correct in holding that it was the responsibility of member brokers of NSE to collect the correct STT on the transactions, when infact these member brokers are of NSE itself and operate on NSE's platform? (iv) Whether in the facts and in the circumstances of the case and in law the Tribunal was correct in deleting the penalty for failure to collect the said Security Transaction Tax?" 4. The appeal has arisen on the following facts :- 5. For the financial year 2005-06 respondent filed return of taxable securities transaction on 29th June, 2006 declaring the total taxable securities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear under consideration. It was observed that Assessing Officer had kept the option open to continue with the inquiry and to amend the assessment order if necessary since there was likelihood that the actual figure of under collection of STT pertaining to the FIIs transactions would be much more. Accordingly, an amount of Rs. 5 crores was added as the additional STT payable by the respondent and together with the interest, the amount payable was estimated at Rs. 6,14,21,680.00. Assessing Officer further directed initiation of penalty proceedings under Section 105(a) of Chapter VII of the Finance (No.2) Act, 2004. 7. Respondent preferred appeal before the Commissioner of Income Tax (Appeals)-13, Mumbai. By the appellate order dated 1st December, 2009, Commissioner of Income Tax (Appeals) took the view that liability to collect STT and to credit the same to the account of Central Government was a strict liability which the respondent had failed to discharge. Respondent had failed to collect due STT as per Section 100 read with Section 98 of the Finance (No.2) Act, 2004. However, Commissioner of Income Tax (Appeals) noted that since the actual discrepancy noted by the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the transaction of purchase and sale was undertaken through a particular client code or not. Respondent had admittedly complied with the statutory requirement. Therefore, no default could be ascribed to the respondent. Accordingly, the addition as modified by the Commissioner of Income Tax (Appeals) was deleted. In view of the finding given in the quantum proceedings that there was no shortfall of STT and that there was no further liability of STT to be paid by the respondent, penalty levied was deleted. 9. Aggrieved, Revenue has preferred the present appeal proposing the above questions for consideration. 10. Mr. Suresh Kumar, learned standing counsel, Revenue referred to the provisions of Sections 98, 99 and 100 of the Finance (No.2) Act, 2004 and submits that on a conjoint reading of the aforesaid provisions it is evident that the liability for payment of STT is squarely on the respondent. He has also referred to the table provided in Section 98 as well as the columns thereto and submits that STT is charged as per the rate provided in column (3) to the table having regard to the nature of transaction of equity shares and securities. Referring to Section 100 he submits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gitally on the platform of the respondent. If there is underpayment of STT, the liability would be on the broker and not on the respondent. All that it ensures is that brokers pay the prescribed rate of STT as per the table to Section 98. He therefore submits that Tribunal had correctly decided the issue in favour of the respondent. That apart, finding returned by the Tribunal is a finding of fact and no substantial question of law arises therefrom. Therefore, the appeal at the instance of the Revenue should be dismissed. 12. Submissions made by learned counsel for the parties have been duly considered. 13. Chapter VII of Finance (No.2) Act, 2004 deals with Securities Transaction Tax (already referred to as the STT). Section 97(11) defines securities transaction tax to mean tax leviable on the taxable securities transactions under the provisions of the said chapter. As per Section 97(13), taxable securities transaction has been defined to mean transaction of purchase or sale of equity shares in a company or a derivative or a unit of an equity oriented fund or a unit of a business trust entered into in a recognized stock exchange; sale of unlisted equity shares by any holder of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.2) Act, 2004. 17. Section 99 provides the value of taxable securities transaction. 18. Section 100 deals with collection and recovery of STT. Sub-section (1) says that every recognized stock exchange shall collect STT from every person being a purchaser or a seller, as the case may be, who enters into a taxable securities transactions in that stock exchange at the rates specified in Section 98. As per subsection (3), STT collected during any calendar month shall be paid by every recognised stock exchange to the credit of the Central Government by the seventh day of the month immediately following the said calendar month. In case of failure to collect STT, it shall be liable to pay the same to the credit of the Central Government under subsection (4). 19. Section 101 requires every recognized stock exchange to file return within the prescribed period and in the prescribed manner setting forth such particulars as may be prescribed in respect of all taxable securities transactions entered into during such financial year in that stock exchange. 20. Section 102 provides for making of assessment order by the Assessing Officer. The recognized stock exchange who submits return under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ller and not by the Stock Exchange; (ii) The value of taxable security transaction has to be determined in accordance with section 99 which provides that, the value of taxable security transaction shall be the price at which such securities are purchased or sold and same has to be determined, which is as per proviso; (iii) The Proviso below clause (c) of section 99 in turn empowers the Board to notify the rules and the method 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 purchased or sold through Member of stock exchange shall be made with reference to the trade executed in the equity share or unit under particular "client code" through that member." 28. Having culled out the propositions as above, Tribunal held as under: "12. Here in this case, there cannot be any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 assessee is concerned, it has not committed 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 particular client codes or not. Here in this case, the assessee has admittedly complied with this statutory requirement hence, we do not find any reason to ascribe any fault to the assessee or hold that be assessee committed and default to collect the correct STT. Thus, it is under 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 of Rs. 2,80,78,444/- stands deleted." 29. Thus Tribunal held that STT is charged at a specified rate in accordance with Section 98. STT is payable either by the purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the STT collected by the respondent were through and under the client codes of the member brokers and the collected STT had been credited into the account of the Central Government. 33. Holding that respondent had not committed any default and that under the 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. 34. To buttress what has been discussed above, we may 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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