2016 (5) TMI 1104 - AT - Income Tax

Tribunal rules against revenue in TDS disallowance case, citing specific payment types & license fee nature.

Deputy Commissioner of Income-tax Versus West Bengal State Electricity Distribution Co. Ltd.

The Tribunal dismissed all revenue's appeals regarding the disallowance of TDS on various payments and license fee. It was held that certain payments were ... TDS u/s. 194J / 194C - non-deduction of TDS on transmission charges and/or wheeling charges - invoking the provisions of section 40(a)(ia) - Held that:- The wheeling charges represent the charges for permitting use of state transmission utility for permitting use of state transmission utility by the person other than the distribution licensee. The transmission charges simply constitute a fee for availing of the transmission utility to be used by open asset concept for distribution of electricity, licensees and consumers. In our view, the wheeling charges and transmission charges are neither contractual payments nor fee for technical services u/s. 194C or 194J of the Act as contended by revenue because there is no human intervention or human interface and, therefore, this cannot be contractual payments or fee for technical services. Therefore, we are of the view that there is nothing on record to support the contentions of the revenue that the wheeling charges and transmission charges assumed the character of contractual payments and fee for technical services as noted by AO.- Decided against revenue Power factor rebate and power interruption charges - Held that:- As per terms and conditions of Tariff order of 2005-06, Power Factor Surcharge was payable by the High Voltage/Extra High Voltage Industrial consumers, whose monthly average power factor falls below 85%. On the other hand, if the monthly power factor was above 92%, he would get a power factor rebate. If the power factor is between 85% and 92%, there was neither any surcharge nor any rebate. So power factor rebate allowed to any consumer is a part of tariff, and given effect in the energy bill. Power factor rebate is computed as a percentage of energy charge specified in the tariff Order and the monthly power factor of the consumer. The AO was of the view that the payment for power factor rebate and power interruption charges was made by West Bengal State Electricity Board to Power Grid Corporation but this fact is incorrect. The power factor rebate is not paid to anybody. This rebate is granted to the high voltage industrial consumers for their energy consumption bills. Once this is the position, there is no payment made by assessee but this was a rebate adjusted against electricity consumption bills. This cannot be subject matter of TDS under any of the provisions of the Act whether Sec. 194C or 194J of the Act. Accordingly, CIT(A) has rightly deleted the disallowance made by AO by invoking the provisions of section 40(a)(ia) of the Act. - Decided against revenue Unscheduled Interchange (UI) - Held that:- UI charges do not fall within the purview of fee for technical services as defined in section 194J of the Act are not liable to TDS. Hence, we confirm the order of CIT(A) deleting the disallowance made by AO by invoking the provisions of section 40(a)(ia) of the Act.- Decided against revenue Fee payable to Regional Load Despatch Centre for Short Term Open Access and operating charges - TDS liability - Held that:- These are only fee paid and nothing else for operational work. Accordingly, this cannot be contractual payments or payments for fee for technical services and cannot come under the purview of sections 194C or 194J of the Act. Accordingly, this cannot be subject matter for TDS. In view of the above facts and circumstances, once these items are not liable for TDS disallowance u/s. 40(a)(ia) of the Act cannot be made and CIT(A) has rightly deleted the same - Decided against revenue Disallowance of payment towards license fee made by AO for non-deduction of TDS u/s. 194C - Held that:- The Government of West Bengal, Department of Power and Non Conventional Energy Sources, Kolkata notified the West Bengal Electricity (Fees for Application for Grant of Licence) Rules 2005 by Gazette notification dated 24th November, 2005. Rule 3(1) of the said rules provides that every application made to the commission for grant of licence under Section 14 of the said Act shall be accompanied by a fee of ₹ 2,00,000. Sub-rule (2) of Rule 3 further provides that every licensee shall pay to the commission an annual fee at the rate of 5 paise per hundred KWH of the energy that has been transmitted or distributed or traded as the case may be, by such licensee in the preceding financial year subject to a minimum annual fee of ₹ 5,00,000. In accordance with the aforesaid rules read with Section 14 of the said Act, WBSEB paid a licence fee of ₹ 67.74 lakhs to the West Bengal State Electricity Regulatory Commission. Payment of such licence fee does not fall within the purview of Section 194C of the said Act as held by the AO. In view of the above facts and circumstances of the case, we are of the view that the CIT(A) has rightly deleted the disallowance, because the assessee has not made any payment on which TDS is to be deducted rather license fee is paid by the parties is for granting of license and not for any expense, which was claimed by the assessee. Accordingly, we confirm the order of CIT(A) deleting the disallowance - Decided against revenue Issues:1. Disallowance of TDS under section 40(a)(ia) for various payments.2. Disallowance of payment towards license fee under section 40(a)(ia) for non-deduction of TDS.Issue 1: Disallowance of TDS under section 40(a)(ia) for various payments:The appeals by revenue concern the deletion of disallowances made by the Assessing Officer (AO) for non-deduction of Tax Deducted at Source (TDS) under section 194J of the Income Tax Act. The Tribunal analyzed the payments in question, including wheeling charges, transmission charges, power factor rebate, power interruption charges, Unscheduled Interchange (UI) charges, and other operational fees. The Tribunal concluded that certain payments like wheeling charges and transmission charges did not fall under sections 194C or 194J as they were not contractual payments or fees for technical services. The decision was supported by a precedent from the Bombay High Court. Regarding power factor rebate and power interruption charges, the Tribunal found that these were adjustments against electricity bills and not subject to TDS. Similarly, UI charges were not considered liable for TDS under section 194J. Additionally, operational fees for short-term open access were deemed not to be contractual payments or fees for technical services, thus not requiring TDS. Consequently, the Tribunal dismissed the revenue's appeals on these grounds.Issue 2: Disallowance of payment towards license fee under section 40(a)(ia) for non-deduction of TDS:The second issue involved the disallowance of payment towards license fee for non-deduction of TDS under section 194C. The AO disallowed the entire license fee amount as the assessee failed to deduct TDS. However, the Tribunal examined the relevant provisions of the Electricity Act, 2003, which mandated a license fee for authorization to transmit or distribute electricity. The license fee paid by the West Bengal State Electricity Board (WBSEB) to the State Electricity Regulatory Commission was not considered subject to TDS under section 194C. The Tribunal concluded that the license fee was paid for the grant of a license and not as an expense, thus not requiring TDS deduction. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the disallowance of the license fee. As a result, the revenue's appeals on this issue were also dismissed.In conclusion, the Tribunal dismissed all the revenue's appeals related to the disallowance of TDS on various payments and license fee, based on detailed analysis and interpretation of the relevant provisions of the Income Tax Act and the Electricity Act, 2003.