2016 (1) TMI 810 - HC - Income Tax

Court Rules Transmission Charges Not Subject to Tax Deduction

THE COMMISSIONER OF INCOME TAX, TDS, BANGALORE AND THE INCOME TAX OFFICER, TDS WARD, HUBLI Versus HUBLI IELECTRIC SUPPLY COMPANY LTD.

The court held that Section 194J of the Income Tax Act was not applicable to the case, and the assessee was not required to deduct tax at source on ... TDS u/s 194J - Tribunal held that Section 194J not applicable on payment of transmission charges to KPTCL - Held that:- The contents of the power transmission agreement there is no mention of any offer with regard to any 'technical services' by the KPTCL. Plain and simple intention of the parties to the agreement as discernable from the power transmission agreement is that the assessee was desirous of using the transmission network belonging to the KPTCL in accordance with the provisions of the Electricity Act subject to payment of charges applicable and determined by KERC. KPTCL was willing to provide its transmission network for the purpose of carrying electricity to its users subject to payment of transmission and other charges as determined by KERC. There is neither an offer nor an acceptance of any 'technical service' inter se between the parties. Admittedly, KPTCL is a State owned Company and the only power transmitting agency. It has installed and developed its own infrastructure. Assessee is also a State owned electricity distribution company. The only service which the assessee has availed from the KPTCL is 'transmission of power' on payment of charges fixed by KERC. No material is placed by the Revenue before this Court to substantiate its contention that assessee had availed of any technical services. In our considered view, assessee has done nothing more than transmitting certain quantum of power from one place to the other for a price fixed by KERC. Assessee was oblivious to the technical expertise which the KPTCL may possess. There was neither transfer of any technology nor any service attributable to a technical service offered by the KPTCL and accepted by the assessee. Therefore, application of Section 194J of the Act to the facts of this case by the Revenue is misconceived. It is not in dispute that the payee KPTCL has offered the income to tax and paid the same. In the circumstances, there is no loss of Revenue. Although the question of loss of Revenue is not subject matter of these appeals, we have adverted to the same as payment of tax by the payee has the effect of rendering these appeals purely academic. - Decided against revenue. Issues Involved:1. Applicability of Section 194J of the Income Tax Act, 1961.2. Whether payments made towards transmission charges and SLDC charges are subject to tax deduction at source under Section 194J.3. Whether the assessee is liable for interest under Section 201(1A) of the Income Tax Act.4. Impact of tax payment by the payee (KPTCL) on the assessee's liability.Issue-wise Detailed Analysis:1. Applicability of Section 194J of the Income Tax Act, 1961:The core issue revolves around whether Section 194J, which mandates the deduction of tax at source for fees for professional or technical services, applies to the payments made by the assessee to KPTCL for transmission and SLDC charges. The court examined the power transmission agreement between the assessee and KPTCL and concluded that there was no provision of 'technical services' as defined under Section 194J. The agreement merely facilitated the use of KPTCL's transmission network for carrying electricity, without any transfer of technology or technical expertise. Therefore, the court held that Section 194J was not applicable to the payments made by the assessee.2. Whether payments made towards transmission charges and SLDC charges are subject to tax deduction at source under Section 194J:The Revenue argued that KPTCL provided technical services to the assessee, thus necessitating tax deduction under Section 194J. However, the court found that the services provided by KPTCL were limited to the transmission of electricity, which did not constitute 'technical services' as per the statutory definition. The court emphasized that the assessee was merely utilizing KPTCL's transmission network and did not seek any technical service. Consequently, the court ruled that the payments towards transmission charges and SLDC charges were not subject to tax deduction at source under Section 194J.3. Whether the assessee is liable for interest under Section 201(1A) of the Income Tax Act:The Commissioner (Appeals) had directed the Income Tax Officer to calculate interest under Section 201(1A) from the date of remittance of TDS till the date of filing of the return by the payee, provided the assessee could demonstrate that the taxes were paid by the payee. The court upheld this decision, noting that since the payee (KPTCL) had already paid the taxes, there was no default by the assessee under Section 201(1). Therefore, the assessee was not liable for the interest under Section 201(1A) for the period in question.4. Impact of tax payment by the payee (KPTCL) on the assessee's liability:The court referred to the Supreme Court's judgment in Hindustan Coca Cola Beverages (P.) Ltd. vs. CIT, which held that no demand could be raised under Section 201(1) if the assessee could prove that the payee had paid the taxes. In this case, since KPTCL had already offered the income to tax and paid the same, the court ruled that there was no loss of revenue. This rendered the appeals purely academic, as the payment of tax by the payee effectively nullified the Revenue's claim against the assessee.Conclusion:The court dismissed the appeals, holding that Section 194J was not applicable to the facts of the case, and the assessee was not liable to deduct tax at source on the payments made towards transmission charges and SLDC charges. Additionally, the court noted that since the payee had already paid the taxes, there was no loss of revenue, and the appeals were devoid of merit. The question of law was answered against the Revenue, and the appeals were dismissed without costs.