INCOME TAX ACT, 1961

Section 100 Section 99 Section 98

Security Transaction Tax (STT) - Responsibility of stock exchange for alleged short deduction of STT - -

Assessee was National Stock Exchange of India Ltd. (NSE). AO apprehended that there was some under-collection of Securities Transaction Tax (STT) by assessee in respect of certain institutional investors like foreign institutional investors. Accordingly AO made enquiry on sample basis amongst brokers registered with assessee. According to AO there was discrepancy in total amount of STT collected by brokers from their foreign institutional investors, atleast by nine brokers, and the amount of STT collected by assessee. According to nine brokers had reported a total of Rs. 2,80,78,444.00 as short collection of STT by assessee from the brokers pertaining entered into by foreign institutional investors (FIIs) through brokers. According to them, total amount of STT collected from their foreign institutional investor clients was Rs. 2,79,27,48,914 whereas total amount of STT recovered by assessee was Rs. 2,76,46,70,470, thus leading to a shortfall of Rs. 2,80,78,444. It was observed that figure of discrepancy pertaining to FIIs transaction was likely to be higher as discrepancies noticed by AO were from amongst nine brokers which were only illustrative and not exhaustive. AO therefore held that assessee failed to take inbuilt measures to collect STT properly and accurately from members (brokers) as per requirement of section 100 of Chapter VII of Finance (No. 2) Act, 2004 which mandated recognized stock exchange for collection and recovery of STT at the rates specified in section 98 of STT Act. Accordingly, AO added Rs. 6 crores as additional STT payable by assessee and together with interest. In appellate proceedings, Tribunal hold that NSE had not committed any fault in collection of correct STT and there was no further liability of STT to be paid by assessee. Revenue challenged this by way of appeal before High Court. Held: STT is charged at a specified rate in accordance with section 98. However, there is no mechanism provided enabling assessee to collect STT beyond the client code. Also, SEBI had issued circular to assessee for using two client codes, one for sale and other for purchase in respect of those investors like FIIs whose transactions were to be settled through delivery mode only pursuant to which assessee had issued circular dated 30-9-2004 to its member brokers to use two client codes. If a broker had not taken any separate client code then stock exchange could not be held responsible. Such failure could not be ascribed to assessee because client codes were not provided by assessee but by member brokers. If in some cases there had been default by member brokers in not taking two separate client codes, then so far assessee was concerned it had not committed any default because what assessee was required to see was whether transactions of purchase and sale were undertaken through particular client codes or not. Assessee had admittedly complied with statutory requirement. Tribunal also returned a finding of fact that STT collected by assessee were through and under client codes of member brokers and collected STT had been credited into the account of Central Government. In such circumstances and on thorough consideration, there was no error or infirmity in view taken by Tribunal that under statute, assessee not liable for any alleged short deduction of STT.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2005-06

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