TaxTMI 
TaxTMI 
2009 (4) TMI 489
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....e liable to tax and has been assessed by the same AO at nil income; 2.3 not appreciating the fact that payment of wheeling/SLDC charges is nothing but only sharing of cost, i.e., reimbursement of actual expenses to Rajasthan Rajya Vidhyut Prasaran Nigam Ltd., no income is paid and therefore, outside the provisions of Chapter XVII-B of the IT Act, 1961. He has further erred in observing that it is not the case of clear reimbursement of the expenditure; 2.4 not directing the Dy. CIT, Circle-6, to determine the actual payment of wheeling/SLDC charges made to RVPNL which is Rs. 182.05 crores in respect of wheeling/transmission charges and Rs. 6.29 crores in respect of SLDC charges; 2.5 not considering the fact that disallowance under s. 40 (a)(ia) can be made only when the amount on which tax is deductible at source is payable and not when the amount is actually paid. In the present case the amount is actually paid and therefore no disallowance under s. 40(a)(ia) can be otherwise made; and 3. confirming the charging of interest under s. 234B at Rs. 20,85,26,798. We have gone through the order of the lower a....
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....h Court supra and the subsequent decision of this Bench on the issue we direct to delete the said disallowance made by the lower authorities. This ground is allowed. Ground No. 2 3. The facts of the case, the relevant provision of Electricity Act, 2003 and the important terms and conditions of the transmission service agreement as discussed in the order of the lower authorities and emanating from the Electricity Act are as follows. 3.1 The Jaipur Vidhyut Vitran Nigam Ltd., the assessee (hereinafter referred as JVVNL) is a company incorporated under the Companies Act, 1956 on 19th June, 2000 as a 100 per cent Government company in consonance with a mandate prescribed under the Rajasthan Power Sector Reforms Act, 1999 wherein role of Rajasthan State Electricity Board was unbundled to reform the functioning of the Board to introduce efficiency in power generation, transmission and distribution. Accordingly, the erstwhile Rajasthan State Electricity Board was unbundled into following five Government companies under the Rajasthan Power Sector Reforms Act, 1999 as per the scheme notified by the Government of Rajasthan on 19th Ju....
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.... charges and a surcharge thereon, as may be specified by the State Commission": Sec. 40 prescribes the various duties which a transmission licensee is required to perform. 3.4 Besides the functions of generation, transmissions and distribution of electricity, the Electricity Act conceives an additional co-ordinative function to be performed. It is towards this exercise of co-ordination of generation, transmission and distribution facilities and also to facilitate voluntary inter-connections therein that the Act calls forth for the Central and State Governments to establish National and Regional Load Dispatch Centers respectively. While s. 26 of the Act provides for the establishment of the National Load Dispatch Centre towards the optimal scheduling and dispatch of electricity, s. 31 mandates the State Governments to establish a SLDC for discharging the specified functions. Towards the constitution of these SLDC, cl. (2) of s. 31 states as under; "(2) The SLDC shall be operated by a Government company or any authority or corporation established or constituted by or under any State Act, as may be notified by the State Gover....
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....tion of the State grid or in relation to any direction given under sub-s. (1), it shall be referred to the State Commission for decision: Provided that pending the decision of the State Commission, the direction of the SLDC shall be complied with by the licensee or generating company. (5) If any licensee, generating company or any other person fails to comply with the directions issued under sub-s. (1), he shall be liable to penalty not exceeding rupees five lacs." 3.6 Sec. 34 provides that every transmission licensee shall comply with such technical standards of operation and maintenance of transmission lines, in accordance with grid standards as may be specified by authority. These grid standards are described in Indian electricity code prescribed by Central Electricity Regulatory Commission. 3.7 Accordingly in terms of the mandate under the Electricity Act, 2003, RVPN is discharging the statutory functions of transmission of electricity and carrying out SLDC function for which they charge fees as decided by Rajasthan Electricity Regulatory Commission from time to time. Accordingly, RVPN has entered i....
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....nbsp; 5. Open access transmission capacity Discoms have the highest priority in allotment of open access capacity on intra-State transmission system under the provisions of the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulations, 2004. Subject to above, the RVPN is free to allow its spare available transmission capacity to other long-term open access and short-term open access customer in terms of Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulation, 2004. The transmission and wheeling charges, surcharge and additional surcharge etc. for open access customers shall be as determined by the Commission. 6. Inter-connection point and delivery voltage The inter-connection points between RVPN transmission system and distribution system of the Discoms shall be as specified in the grid code approved by the Commission. The delivery voltage shall be as per connection conditions mentioned in the grid code. RVPN and Discoms agree to abide by the connection conditions mentioned in the grid code. 7. 1Tansmiss....
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....e approved AAR recovery of Rs. 12,637 lakhs per quarter and actual billing during that quarter in the ratio of their billing for that quarter. Till the Commission approves a new tariff, the existing tariff shall continue to apply and will be subject to adjustment of issue of a tariff order. Transmission and wheeling tariff during subsequent years shall be applicable on the basis approved by the Commission for respective years. 10. SLDC charges In addition to transmission and wheeling charges as mentioned at cl. 10 of this TSA, the Discoms shall also pay the SLDC charges as specified by the Commission for the respective year. For the financial year 2004-05, the Commission specified SLDC charges of Rs. 139.25 lakhs per month recoverable from Discoms in the ratio of allotted transmission capacity. In terms of this agreement the assessee has paid transmission/wheeling/SLDC charges to Rajasthan Vidhyut Prasaran Nigam Ltd. (RVPN) for transmission of electricity by using its transmission line from the generation point to its distribution point." 4. The AO held that the payment made by the assessee to RVPN is a....
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....der. After considering the above, the CIT(A) decided the issue as per his finding in paras 2.7 to 2.10. The summary of these findings are as under: - Even if RRVPN has no income liable to tax, still the provisions of s. 40(a)(ia) does not give any discretion to the AO not to make any disallowance of the expenditure claim on which TDS was deductible and not deducted unless a certificate is issued under s. 197(1). - RVPN has to facilitate and monitor the transmission process by maintaining delivery voltage, transmission performance standards and compliance of grid code as evident from cls. (vi), (vii) and (viii) of transmission service agreement and s. 34 of Electricity Act, 2003 which is done with the help of sophisticated technology and technical as well as experienced engineers and technicians. It is not necessary to include a definite human element in the word 'technical' since it is not specified as such. - The services provided by RVPN in connection with the transmission is not possible without the human interface. The case of cellular company cannot be equated as they are providing service, to the end user which is no....
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....arging fees for rendering technical services. The applicability of s. 194J would come into effect only when by making payment of fee for technical services, assessee acquired certain rights which can be further used for its own use/purpose/research. Where facility is provided automatically by machine/robot, or where sophisticated equipments are installed and operated with a view to earn income by allowing the customers to avail of the benefit by user of such equipment, the same does not result in the provision of technical service to the customer for a fee. In case of Skycell Communications Ltd., it is specifically provided that use of transmission lines to carry the power, transformers to regulate the flow of current, meters to measure that consumption, would not be regarded as amounting to provision of technical services to the consumer so as to warrant deduction of tax at source. He submitted that if the principles laid down in the above cases are applied to the present agreement of transmission services, the various objections raised by the AO/findings given CIT(A) are incorrect. His submission in this regard is reproduced as under: (i) Simply because the ag....
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....ty within the State. The Rajasthan Electricity Regulatory Commission vide letter dt. 9th Jan., 2009, in Pursuance of the Report of the Committee on Manpower, Certification and Incentives for System Operation and the Ring Fencing Load Dispatch Centre issued by Ministry of Power, Government of India, has directed that SLDC, Hirapura, be recognised a separate entity under Electricity Act, 2003 and accordingly its financial accounts be maintained separately for financial year 2008-09 and onwards. Thus, SLDC is a monitoring authority discharging statutory function. The payment made as SLDC charges is a statutory payment. It is for this reason that it is empowered to levy penalty under s. 33(5) of the Electricity Act, 2003 for non-compliance of its direction. This establishes that SLDC charges are not for any service rendered but a statutory levy. Had it been a payment towards services the users of service could have claimed compensation for deficiency in services and not that State Load Dispatch Centre could impose penalty for non-compliance of its direction. (iv) The various clauses in the transmission service agreement only provides for compliance of the grid code ....
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.... company to maintain the load and frequency at the required level. The operation and maintenance of the transmission system is the duty of the transmission company. For all these work, the State Load Dispatch Centre and the transmission company has its own manpower and technical staff. The Power Line Career Communication Department in RVPN is to facilitate the communication between its two or more sub-stations. The supervisory/technical Staff positioned there does the work relating to State Load Dispatch Centre and the transmission utility. These, manpower do not render any technical service to the assessee. The various points raised in paras 1 to 12 on pp. 6 to 9 of remand report are factually incorrect rather RVPN is to work under direction of State Load Dispatch Centre and the involvement of human element therein does not result in rendering of any technical service to the assessee. (vi) The lower authorities have tried to distinguish the case of Skycell Communications Ltd. by referring to the decision of Chennai Bench in the case of Singapore Airlines Ltd. and Ahmedabad Bench in case of Canara Bank vs. ITO. In the former case the payment towards navigational....
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.... to be ascertained is whether the engineers/technicians employed by the assessee provide any technical service to the engineers/technicians of the assessee company and if that is so it does not matter at which place the services are provided. Based on these arguments it was submitted that the conclusion drawn by the lower authorities that the payment of transmission charges to RVPN is a "Fees for technical service" under s. 194J liable for deduction of tax at source is not correct. 6.2 The learned Authorised Representative further argued that the entire mechanism of payment of transmission tariff is determined by an independent regulatory body i.e., Rajasthan Electricity Regulatory Commission to reimburse the actual cost incurred by RRVNL in developing/maintaining its transmission system. The transmission company is not allowed any return on its capital. The tariff is determined on the principle of no profit no loss. Thus no income is paid by the distribution companies to the transmission company but only cost incurred by transmission company is reimbursed by distribution companies through the mechanism of tariff fixed by Regulatory Commissio....
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.... require human involvement. The decision of Skycell Communications Ltd. is not applicable as assessee is not the ultimate consumer of the electricity and the other decisions relied by the Authorised Representative are on different facts and not on the transmission of electricity. He contended that M/s Hindustan Zinc Ltd. who also transmit the electricity by using the transmission line of RVPN makes deduction of tax at source under s. 194C. He also referred to the survey report under s. 133A in case of M/s BSES Rajdhani Power Ltd., Delhi, M/s BSES Yamuna Power Ltd., Delhi, M/s Delhi Transco Ltd., Delhi, Chatisgarh State Electricity Board and Gujarat Urja Vikas Ltd. wherein the liability of TDS on transmission payment is sought to be covered under s. 194C/194-I/194J. Supporting the order of lower authorities and the cases relied therein he further referred to the decision of Dr. Hutarew & Partner (India) (P) Ltd. vs. ITO (2008) 25 SOT 347 (Del) wherein it was held that data processing payments for specialized service are in the nature of technical services liable to deduct tax at source. On the applicability of s. 40(a)(ia) he argued that this section applies when taxes are not deduc....
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....payment of wheeling/transmission/SLDC charges on the basis of documents on records and the facts explained and the nature of such payments as well as facts on records whether the same is liable for deduction of tax at source under the IT Act, 1961 specifically under s. 194J which provides for deduction of tax at source on payment of fees for professional or technical services and whether s. 40(a)(ia) is applicable on the present facts of the case. 9.1 On going through the various clauses of transmission service agreement we find that as per cl. 3 of the agreement assessee is allowed the user of the transmission system. Clause 5 provides for open access transmission capacity whereby any other customer is also allowed to use the transmission lines for long-term open access and short-term open access. Clause 8 provides for compliance of grid code as approved by the Commission both by RVPN and assessee and further provides that all the parties shall comply with the direction of SLDC for ensuring integrated grid operation for achieving the maximum economy and efficiency in the operation of power system in the State. As per cls. 10 and 12 the tariff for transmission a....
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.... as in Expln. 2 to cl. (vii) of sub-s. (1) of s. 9. The said section is reproduced hereinbelow for ready reference- "9. Income deemed to accrue or arise in India.-(1) The following incomes shall be deemed to accrue or arise in India: (vii) income by way of fees for technical services payable by- Explanation 2: For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". 9.3 The expression "fees for technical service" as used in s. 194J of the Act has been exhaustively examined by the Hon'ble Delhi High Court in the case of CIT vs. Bharti Cellular Ltd. and the observations are reproduced as under: "13. We have already pointed out that the expression 'fees for technical servi....
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....nt' is a derivative of the word 'consult' which entails deliberations, consideration, conferring with someone, conferring about or upon a matter. Consult has also been defined in the said dictionary as 'ask advice for, seek counselor a professional opinion from; refer to (a source of information); seek permission or approval from for a proposed action'. It is obvious that the service also necessarily entails human intervention. The consultant, who provides the consultancy service, has to be a human being. A machine cannot be regarded as a consultant. 15. From the above discussion, it is apparent that both the words 'managerial' and 'consultancy' involve a human element. And, both, managerial service and consultancy service, are provided by humans. Consequently, applying the rule of noscitur a sociis, the word 'technical' as appearing in Expln. 2 to s. 9(1)(vii) would also have to be construed as involving a human element. But, the facility provided by MTNL/other companies for interconnection/port access is one which is provided automatically by machines. It is independently provided by the use of technology and that too, sophisticated technology, but that does n....
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....of this clause, 'fees for technical services' means any consideration (including any lump sum consideration) for rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salaries'.' This definition shows that consideration paid for the rendering of any managerial, technical or consultancy service, as also the consideration paid for the provision of services of technical or other personnel, would be regarded as fees paid for 'technical services'. The definition excludes from its ambit consideration paid for construction, assembly, or mining or like project undertaken by the recipient, as also consideration which would constitute income of the recipient chargeable under the head 'Salaries'.' Thus while stating that 'technical service' would include managerial and consultancy service, the legislature has not set out with precision as to what would constitute 'technical' ser....
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....nt made to the bus service provider, for having used the bus. The electricity supplied to a consumer cannot, on the ground that generators are used to generate electricity, transmission lines to carry the power, transformers to regulate the flow of current, meters to measure that consumption, be regarded as amounting to provision of technical services to the consumer resulting in the consumer having to deduct tax at source on the payment made for the, power consumed and remit the same to the Revenue. Satellite television has become ubiquitous, and is spreading its area and coverage, and covers millions of homes. When a person receives such transmission of television signals through the cable provided by the cable operator, it cannot be said that the home owner who has such a cable connection is receiving a. technical service for which he is required to deduct tax at source on the payments made to the cable operator. Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision to technical service to the customers f....
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.... average householder or consumer for utilizing the products of modern technology, such as, use of the telephone fixed or mobile, the cable TV, the internet, the automobile, the railway, the aeroplane, consumption of electrical energy, etc., such facilities which when used by individuals are not capable of being regarded as technical service cannot become so when used by firms and companies. The facility remains the same whoever the subscriber may be individual, firm or company. 9. 'Technical service' referred in s. 9(1)(vii) contemplates rendering of a 'service' to the payer of the fee. Mere collection of a 'fee' for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received from technical services." Thus Hon'ble Court while dealing with the case of "transmission of voice" has equated the same with the "transmission of the electricity" and held that the same does not amount to providing the technical service. 9.5 In case of Dy. CIT vs. Parasrampuria Synthetics Ltd. it was held as under: "There may be use of services of technically qualified per....
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....e has no merit as the technical service is not provided to the personnel of the assessee. We are also unable to pursue (sic) ourself with the contention of the learned Departmental Representative that other persons are making deduction at source on such payment under s. 194C/194J/194H. On going through the papers filed at pp. 34 to 41 of the paper book filed by the Department we note that as per those papers only some report/letters has been issued by the TDS officer requiring the deduction of tax at source on such payment. Similarly M/s Hindustan Zinc Ltd. is deducting the tax at source under s. 194C in respect of payment of transmission charges to RVPN cannot lay down the law. The CIT(A) has given a finding on p. 54 of his order that these payments are not covered under s. 194C against which no appeal is filed by the Department though we are otherwise convinced with the argument of learned Authorised Representative that s. 194C is not applicable on this payment in view of the detailed submission made in this regard at paper book pp. A-23 to A-27. 9.8 The decision relied by the AO in the case of CBDT & Ors. vs. Oberoi Hotels (India) (P) Ltd., Circular No. 187, ....
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....been used in further generating the product of the assessee. Therefore, such specific client based information was held not equatable with the standard services provided by telecommunication company. Thus these decisions are quite distinguishable and not applicable on the facts of the present case. We therefore hold that there is no liability to deduct tax at source on payment of transmission/wheeling/SLDC charges under s. 194J or for that matter under s. 194C. 9.10 We also find force in alternate argument of the learned Authorised Representative that the payment of transmission/wheeling/SLDC charges is reimbursement of the cost. Therefore the provisions of Chapter XVII-B are not applicable since there is no payment of income/revenue by the assessee. We find that the tariff is fixed by an independent regulatory body i.e., Rajasthan Electricity Regulatory Commission. The transmission company is not allowed any return on its capital; the tariff is determined on the principle of no profit no loss. From the tariff order we find that tariff is fixed, by estimating the actual cost of operation of RVPN. In case, on the basis of such tariff, any surplus is left with the....
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....justified in holding that the assessee is liable for deduction of tax at source on the payment of transmission/SLDC charges to RVPN. 9.11 We also find force in the argument of learned Authorised Representative that s. 40(a)(ia) applies only when the amount is payable. Sec. 40(a)(ia) reads as under: "40. Amounts not deductible: Notwithstanding anything to the contrary in ss. 30 to 38, the following amounts shall not be deducted in computing the income chargeable under, the head 'Profits 'and gains of business or profession',- (a) in the case or any assessee- (i) ............. (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has, not been deducted or, after deduction, has not been paid,- (A) in a case where the tax was deductible and was so deducted duri....