TaxTMI 
TaxTMI 
2011 (11) TMI 77
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....y mechanism devised by Orissa Electricity Regulatory Commission (OERC). (b) That the Ld. A.O. and the CIT(A) wrongly assumed that the appellant paid rent for the use of the transmission line of OPTCL when no such services were taken nor any agreement was entered into with OPTCL for providing transmission line to the Appellant Company (c) That OPTCL having directly dealt with the four distribution companies i.e. WESCO, NESCO, SOUTHCO and CESU and having raised bill on them for the transmission of Electricity, the A.O. and the CIT(A) wrongly held that such a payment was made by the appellant company. (3) That in any case the appellant company having never debited the impugned payment made to OPTCL by the four distribution companies in its books of accounts as its expenditure, the A.O. and the CIT(A) wrongly applied provisions of section 40(a)(ia) to the impugned amount. (4) That the order of the Ld. A.O. and the CIT(A) adding and confirming a sum of Rs. 367.06 crores for non-deduction of TDS under section 194-I by invoking the provision of section 40(a)(ia) having been done on the misinterpretation of the impugned provision of law, the same may kindly be striked down. ....
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....ons, inter alia, are to issue licenses, determine the conditions therein, regulate the purchase, distribution and supply of electricity and the tariffs payable. The assessee company after purchasing power from the generators sells it to the Distribution Companies. The assessee company had entered into a Bulk Supply Agreement with the Distribution companies in the year 1999 and on the terms of these agreements, it used to sell electricity to the Distribution companies. In the year.2000, an escrow Agreement was entered into between GRIDCO and Distribution companies, thereby creating a first charge of GRIDCO, on the receipts of the Distribution Companies from the consumers. In the year 2005, Orissa Power Transmission Corporation Ltd (OPTCL) was hived out of GRIDCO. OPTCL was to create and maintain the transmission network in the state. For the previous year 2007-08, relevant to the assessment year 2008-09, the electricity sold by GRIOCO to the Distribution companies was based on the Bulk Supply Agreement and the payment made by the Distribution Companies to GR1DCO was as per the Escrow Agreement. The transmission charges were not paid by the distribution companies to OPTCL directly. T....
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....arges of OPTCL received from DISCOMs is neither an income when it is received nor expenditure when it is paid to OPTCL. Hence the transaction is not routed through the-profit and loss account of GRIDCO. As the company has not claimed transmission charges as a deductible expenditure, the provisions section 40(a)(ia) does not apply. However, with effect from 01.04.2010 the system of routing energy bill through GRIDCO has been dispensed with. Presently, the DISCOMs are directly remitting the transmission charges of OPTCL, through a separate ESCROW arrangement with OPTCL." The Assessing Officer further observed that in the AYs 2007-08,2008-09, the default in TDS deduction on wheeling charges were held to be in the hands of the DISCOMS and interest was charged u/s. 201(1A) by the Income-tax Officer(TDS).The DISCOMS carried the matter up to Tribunal and ITAT, Cuttack Bench in its consolidated order in ITA Nos. 191,192,193,194,283,282 and 284/CTK/2010 allowed the appeal of DISCOMS. Referring to paragraph 7 of the above order of the ITAT, the Assessing Officer observed that the DISCOMs have not used any equipments of OPTCL; GRIDCO has used the equipments to deliver the electricity pu....
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....tricity Boards deteriorated over a period on account of various reasons there raise a need in 1990 for Electricity Regulatory Reform. 7. Orissa is the first state to notify the State Electricity Reform by enacting the Orissa Electricity Reform Act, 1995 to combat the problem arising to the State Electricity Board where the power production, trading and transmissions and distribution were bifurcated into three different entities. The production of power was given to Orissa Hydro Power Corporation Ltd. Trading and transmission was given to the assessee Company. The act of distribution was assigned to four different entities (1) Central Electricity Supply Co. of Orissa, (2) Western Electricity Supply Co., (3) Eastern Electricity Supply Co., and (4) Southern Electricity Supply Co. All these entities are called "DISCOMs". 8. Consequent to these reforms, the assessee company was incorporated on 20.4.1995 with the object of carrying on the business of purchasing, selling, transmission and wheeling of power in the State of Orissa. The duty of the assessee was to purchase powers from power producers and to sell and transmit the same to the distributing Companies. Accordingly, the asse....
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....all be responsible for all contracts, rates, deeds, schemes, arrangements, agreements and other items of whatever nature relating to the transmission undertaking, transferred to the transferee i.e., OPTCL to which the transferor i.e., the assessee was a party subsisting or having effect of transfer in the same manner as the transferor was liable immediately before the transfer. Consequent to gazette notification dt.9.2.2005 and coming into existence of OPTCL, an independent company engaged in transmission and wheeling of power, the bulk supply agreement stood automatically modified and the assessee has no role to transmission of power to the distributing companies. This is borne out by the invoices being raised thereafter by the OPTCL directly on the DISCOMS and the copies of such invoices are also placed at pages 96 to 203 of the PB filed by the assessee. 10. A Notification dt.6.6.2006 issued by the Orissa Electricity Regulatory Commission clarified that OPTCL and GRIDCO i.e., the assessee are separate companies with different licenses and revenue requirements have been approved separately, so also the transmission charges and the bulk tariff. It was further clarified by this n....
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....r that the distributing companies have participated in tariff determination and on that basis OPTCL was to issue bills on DISCOMs . The bills for sale of power are being raised by the assessee on the DISCOMs whereas the bills for transmission and wheeling charges are being raised by the OPTCL on DISCOMs. The order of the Orissa Electricity Regulatory Commission clarified that distributing companies could argue that the power is being purchased is inclusive of transmission charges. 12. In view of the above stated undisputed facts, the reliance placed by the Assessing Officer on the bulk supply agreement 1999 is nothing but misplaced as he has failed to take cognizance of the developments thereafter particularly the amendments made in the year 2005 by way of gazette notification dt.9.6.2005 wherein a new company was created and the bulk supply agreement stands divided into two parts of purchase and sales is to the assessee and the transmission and wheeling charges is on the account of OPTCL. Consequently the four DISCOMs are supposed to make separate payment for purchase of power to the assessee and for the transmission and wheeling charges to the OPTCL. In this view of the matter....
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....(3) CIT v. Japan Airlines, 325 ITR 298 (Delhi). (4) Vodafone Essar Ltd. v. Dy. CIT 135 TTJ 385 (Mumbai) 14. The Legislation has initially used the words "any lease, sub-lease and tenancy" as these words have to be given a meaning in case the interpretation is to balance that the meaning or interpretation of "any other agreement or arrangement" are independent of these three words namely "any lease , sub-lease and tenancy", then there would not have any need to insert these words "any lease , sub-lease and tenancy" in the Section. It would have been sufficient then to say "rent" means any payment by whatever name called ..............................................................................". The words agreement and arrangement being so comprehensive would have automatically included lease agreement, a sub-lease agreement or a tenancy agreement. Similarly there would not have been any need to use the word "rent". It would have been suffice to say "any payment by whatever name called but any agreement or arrangement for use of any ..........". Despite the above referred judgments and without application of principles of esjudim jeneresis, the nature of payment has to ....
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.... of the transmission and wheeling of power is that of OPTCL. The transmission and wheeling of powers have to be carried out by the OPTCL and plant, machinery and equipments will be used by OPTCL and not by the assessee. As per the provisions of Section 43(3) of the Income-tax Act, 1961, "plant" includes books, scientific apparatus and surgical equipment used for the purposes of the business. There can be clients who visits the office of Chartered Accountant and Advocate and seeks advice of a legal issue, the concerned Advocate or CA for giving his advice refers to the books in his library and got paid for the advice by the client. In such circumstances, it cannot be said that the payment as made by the Client for the use of the books which falls within the definition of "rent" u/s.43(3) of the Act and if so such payment will be covered by Section 194-I the payment for use of the books. Similar would be the case where a Doctor carried diagnostics test or operation by using surgical apparatus stood covered within the definition of "plant" u/s.43(3) of the Act. In the present case on hand, the assessee company has not used the equipments transmission lines itself. All these transmissi....
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....4.1972.The word "work" was not been defined in the statute. But vide Circular No.86 dt.29.5.1972 it was clarified that the provisions of Section 194C would apply in relation to work contracts, labour contracts and section 194C would not apply to contract for sale of goods. It was also stated therein that the contract for rendering professional services by lawyers efficiency services, engineers, architect, consultants etc., shall not be regarded as contracts for carrying out any work u/s.194C of the I.T. Act. Thereafter another Circular No.93 dt.26.9.1972 clarified that service contracts which do not involve carrying out of any work would be outside the purview of Section 194C of the Act. Accordingly since inception there was no dispute that all service contracts are outside the purview of Section 194C of the I.T. Act. Later on Circular no.681 dt.8.3.1994 was issued by the CBDT specifying that all types of contracts including transport contracts, service contracts, advertising contracts, broadcasting contracts, recasting contracts, labour contract, material contracts and work contracts will be covered within the provisions of Section 194C. 19. The said Circular was the subject ma....
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....t the work to completion or something which produces such result. Applying the above ratio of the judgments to the present facts, the transmission and wheeling charges unless there is specific amendment making the same covered within the scope as has been done by insertion of Explanation III in Section 194C, the payment of transmission and wheeling charges would be outside the purview of Section 194C as well. This proposition is further fortified by the judgment of Hon'ble Mumbai High Court rendered in the case East India Hotel & another v. CBDT & another delivered on 6.3.2009 in W.P.No.2104 of 1994. 21. The Department is of the view that the assessee is a limited Company of Government of Orissa engaged in bulk supply of electricity to distributing companies. The primary function of the assessee involves purchase of electricity from generating concerns and selling the same to the distribution companies which in turn make the electricity available to the consumers. The assessee purchases power from generators at the point of their delivery on high voltage of 440KVA and supply such powers to DISCOMs at 11KVA by downgrading the transmission lines. As the assessee purchases powers f....
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....ment as what can fall within the ambit or the word "rent" One has to look within the definition to find the answer. Lease, sub-lease and tenancy are the common arrangements for renting land and premises and certainly there is transfer of significant rights to the lessee and the tenant. However, the definition has not stopped with these agreements but has made the field open for "any other agreement or arrangement". It is argued by the learned DR that the contention of the assessee that "any other agreement or arrangement" should have the similar nature or character as lease, sub-lease or tenancy following maxim ejusdem generis is not correct. The mute question is that it is necessary or required to interpret "any other agreement or arrangement" in the manner of lease, sub-lease, ignoring its plain and natural import. The necessity to depend upon the maxim ejusdem generis will arise in relevant situations. Hon'ble Calcutta High Court rendered in the case of CIT v. Anglo India Jute Mills Co., 202 ITR 104 (Cal.), where the applicable schedule was as under : "Electrical machinery - switch gear and instruments, transformers and other stationery plants and wiring and fittings of elect....
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....Das Agarwal v. Union of India (1967) 1 MLJ 197, the court opined that the words "any" means "all" except where such a wide construction is limited by the subject matter and context of the statute. Hon'ble Patna High Court in Ashiq Hasan Khan v. Sub-Divisional Officer, AIR 1965 Patna 446 and Chandi Prasad v. Rameshwar Prasad Agarwal, AIR 1967 Patna 41, has held that the word "any" excludes "limitation or qualification". In State of Kerala v. Shaju (1985) Ker ELT 33, Hon'ble Kerala High Court held that the word "any" is expressive. It indicates in the context "one or another" or "one or more", "all or every", "in the given category"; it has no reference to any particular or definite individual, but to a positive but undetermined number in that category without restriction or limitation of choice. Thus, having regard to the context in which the expressions "any payment" and "any other agreement or arrangement" occur in the definition of the term "rent", it only means each and every payment made to the petitioner hotel under each and every agreement or arrangement with the customers for the use and occupation of the hotel rooms. The above observation of the Constitution Bench of Hon'bl....
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....tion 43(3) includes books within the meaning of the word "plant" for the purpose of depreciation." "In our opinion, the definition of the word "rent" in Explanation (i) to section 194-I is very clear and the plain meaning of that provision shows that even the landing of aircraft or parking aircraft amounts to user of the land of the airport. Hence, the landing fee and parking fee will amount to "rent" within the meaning of the aforesaid provision, even if it could not have such a meaning in common parlance." 22. The learned DR contended that this decision makes it abundant clear that the definition of "rent" is a deemed one creating a legal fiction about the meaning of rent for the purpose of section 194-I. It vouches any payment for use of specified assets under any arrangement. The contention of the assessee against the applicability of the ratio of the above judgment in terms of non-consideration of the principle of ejusdem generis and physical contact with the ground is without merit. They have not gone to the principle of ejusdem generis as it was not required. Secondly, the use of assets in section 194-I, nowhere limits to the physical use of assets which is possible in....
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....ursement of expenses by the assessee company and other users of transmission network. 24. Countering the contention of the assessee that transmission charges paid to OPTCL has not been claimed as expenses nor as income earned by it when payments made by the assessee to OPTCL is only reimbursement of the expenses, the learned DR submitted that it is immaterial whether the receipts and payments were routed through the P & L account or not when the payments are in the nature of "rent". The learned DR has fairly admitted that the assessee has not shown amount received from DISCOMs as receipts and the amount paid to OPTCL as payments. However, in the case of TGCIL a payment of Rs. 145.30Crores and in the case of NTPC Vidyut Vyapar Nigam Ltd., a payment of Rs. 3.93 Crores has been shown as transmission and wheeling charges by the assessee. Therefore, to that extent the assessee cannot say that it has not claimed transmission charges as expenses. 25. Considering the applicability of provisions of Section 194-I in view of the fact that the plant and equipments have been used by OPTCL for transmission and not by the assessee and also in the examples given by the learned AR of the asse....
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.... case of payment of hotel in Circular No. 5 dt. 30.7.2002, for payments made by film distributor to a film exhibitor owning a cinema theatre in Circular No. 736 dt.17.2.1996 restricted meaning has been given to the word "rent". However, in view of the judgments referred to by the learned DR in the case of United Airlines v. CIT [2006] 287 ITR 281 (Delhi), CIT v. Japan Airlines Co. Ltd. (Delhi) and Vodafone Essar Ltd v. Dy. CIT [135 TTJ 385 (Mum.), we are of the considered view that the word "rent" will have wider meaning and accordingly, the contention of the learned AR of the assessee on this aspect is rejected. 28. However, after hearing the argument of the learned AR of the assessee on the issue of use of equipments of OPTCL and not by the assessee, we are of the considered view that this issue has not been understood in the right perspective by the Revenue. A question to be decided as to whether the payment made by the assessee, if any, as has been alleged towards transmission and wheeling charges to OPTCL is for the use of such equipments, the assessee purchases power in bulk and sells the same to the distributing companies. This supply is affected through the transmission ....
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.... the books and not the client. Similar is the case where a Doctor carrying out operation. In that case the Doctor has used the equipment but not the patient. The situation would have been different had a person walks into the room of an Advocate and seeks permission of the Advocate to allow him to use his books for consideration and the person reads the books and makes payment for the same, in that situation it can be said that the payment has been made for use of the books. In the present case on hand it is clear that OPTCL is providing power transmission services and accordingly OPTCL is using its equipments and machineries and it cannot be said that the assessee company has used the equipment and machineries of OPTCL. The person availing facility i.e., the assessee or the DISCOMs have made the payment for the services made by the OPTCL. The equipments have been used by the OPTCL for providing service of transmission. In view of these facts, we are of the considered view that Section 194-I of the I.T. Act is not applicable in respect of the transmission and wheeling charges. Similarly in the case of Power Grid Corporation of India Ltd and the NTPC Vidhyut Nigam Ltd, who are using....
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....in providing the roaming facility. Even if we assume for the sake of argument that the subscriber is the person who makes use of the equipment, the liability to deduct tax would be on him and not on the assessee." 30. This view also gets support from various CBDT Circulars on applicability of Section 194-I which have been referred to supra. We also rely on the judgment of AAR in the case of Dell International P. Ltd. (305 ITR 37 (AAR). It was held by the AAR that the word used "in relation to the equipment" is not to be understood in the broad sense of availing the benefit of equipment, but it indicated that there must be some positive act of utilisation, application, or employment of the equipment for the desired purposes. It has further held that an advantage taken from a sophisticated instrument installed and provided by another, it cannot be said that the customers use the equipment. It would be a case a customer making use of facilities without himself using the equipment. In that view of the matter, we are of the considered view that the provisions of Section 194-I are not applicable to payments of transmission and wheeling charges and the Assessing Officer was not justifi....