2009 (4) TMI 944 - AT - Income Tax

Tribunal Rules Wheeling & SLDC Charges Exempt from Tax Deduction at Source; No Interest Due as RVPN Had No Tax Liability.

Principal Officer, Jaipur Vidyut Vitaran Nigam Ltd. Versus Income Tax Officer

Principal Officer, Jaipur Vidyut Vitaran Nigam Ltd. Versus Income Tax Officer - TMI Issues Involved:1. Liability of deduction of tax at source on payment of wheeling charges (transmission charges) and State Load Dispatch Centre Charges (SLDC charges) under Section 194J.2. Levy of interest under Section 201(1A) for non-deduction of tax at source.Issue-Wise Detailed Analysis:Issue 1: Liability of Deduction of Tax at Source under Section 194JFacts and Arguments:- The assessee questioned the first appellate order confirming the action of the ITO, TDS, in holding that payments of wheeling charges and SLDC charges are liable for deduction of tax at source as fees for technical services under Section 194J.- The assessee argued that RVPN deploying technically qualified staff does not equate to providing technical services to the assessee and that the payments are statutory levies or reimbursements of actual expenses.- The ITO (TDS) held that the payments are for technical services requiring deduction of tax at source under Section 194J, citing the involvement of technically qualified staff and sophisticated instruments.- The CIT(A) upheld the ITO's decision, stating that the functions performed by RVPN involve human involvement and application of mind, thus constituting technical services.Judgment:- The Tribunal examined the provisions of the Electricity Act, 2003, and the terms of the Transmission Service Agreement.- It was determined that the functions of RVPN, such as maintaining the transmission system and complying with SLDC directions, are statutory functions and do not constitute technical services rendered to the assessee.- The Tribunal referred to the Delhi High Court's interpretation in CIT vs. Bharti Cellular Ltd., which emphasized that technical services must involve a human element and direct assistance to the payer.- The Tribunal concluded that the payments for wheeling and SLDC charges do not involve the provision of technical services to the assessee and thus are not liable for deduction of tax at source under Section 194J.- Additionally, the Tribunal found that the payments are reimbursements of actual costs, not income, and therefore outside the scope of Chapter XVII-B of the IT Act.Issue 2: Levy of Interest under Section 201(1A)Facts and Arguments:- The ITO (TDS) levied interest under Section 201(1A) for non-deduction of tax at source on the payments made by the assessee.- The assessee argued that RVPN, the recipient of the payments, had no tax liability due to substantial carry forward of unabsorbed depreciation and had been assessed at nil income.Judgment:- The Tribunal noted that RVPN had no tax liability and had been allowed refunds for taxes deducted at source by other parties.- The Rajasthan High Court in CIT vs. Rajasthan Rajya Vidyut Prasaran Nigam Ltd. held that interest under Section 201(1A) is not justified when the recipient has no tax liability.- The Tribunal referred to CBDT Circular No. 275/201/95-IT(B), which states that interest under Section 201(1A) is only applicable until the date of payment of taxes by the deductee.- Since RVPN had no tax liability, the Tribunal concluded that no interest under Section 201(1A) is leviable on the assessee.Conclusion:The Tribunal allowed the appeals filed by the assessee, holding that:1. The payments for wheeling and SLDC charges are not liable for deduction of tax at source under Section 194J as they do not constitute fees for technical services.2. No interest under Section 201(1A) is leviable on the assessee since RVPN had no tax liability.