TaxTMI 
TaxTMI 
2011 (11) TMI 125
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 21,48,84,962 * As computed for the period up to the date of demands having been raised by the Assessing Officer. 2. Let us take a look at the relevant material facts and the developments leading to this litigation before us. The appellant before us is Chattaisgarh State Electricity Board, through its successor C G State Power Holding Co Ltd (referred to as 'CSEB', in short). Chattisgarh State Electricity Board, a public sector undertaking owned by the Government of Chattisgarh, was formed under Section 5 of the Electricity Supply Act, 1948, and, with effect from 1st January 2009, it was divided into five separate companies, including CG State Power Holding Co Ltd - which was its successor in the present appeal. CSEB is engaged, inter alia, in the business of distribution of electricity to consumers within Chattisgarh. 3. The activity of distributing electricity to end consumers is preceded by two important intermediate steps - namely production of electricity, and its transmission from point of production to the point of distribution, and it is here that two significant players, namely National Thermal Power Corporation Ltd (NTPC, in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ansmission charges are collected on account of use of transmission system" and that "the western grid is made exclusively for CSEB to transmit the power". The Assessing Officer further observed that "the utilization of transmission system implies existence of some equipment or physical body and does not indicate the involvement of the manpower in the form of professional, technician or any labour to run the electric current". He also noted that "the access line consisting of circuits is within the reach of the CSEB and it is through that private line/ access line and related equipment placed at PGCIL station that the transmission of electricity takes place .....". The Assessing Officer also noted that there is dedicated machinery and equipment identified and allowed to be used in the hands of the CSEB. It was noted that PGCIL is mainly responsible for transmitting power from production centre to the consumers, and, in the process, in coverts DC into AC power. It requires transformers and other electrical apparatus for this process and transmission. The stand of the Assessing Officer was that the payments made by the assessee to PGCIL, for the purpose of transmitting power from N....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch the assessee ought to have deducted at source under section 194I of the Act. Consequent demands, under section 201(1) and 201(1A), aggregating to Rs.21,48,84,970 (after rounding off) were raised on the assessee. 8. Aggrieved, assessee carried the matter in appeal but without any success. While learned CIT(A) meticulously recorded written submissions of the assessee, he preferred not to deal with these very erudite and detailed submissions in detail, and rejected the same rather summarily by observing as follows: I have gone through the order of the AO and submission of the appellant. I have also perused the Bulk Power Transmission Agreement (BPTA) between PGCIL and MPSEB and also the Power Purchase Agreement (PPA) between NTPC and CSEB. The appellant has not furnished annexure 'C' to BPTA which provides for transmission tariff. It is an undisputed fact that the PGCIL has established power transmission system/ lines which have been used by the appellant for transmission of power, in consideration of monthly charges paid. The issue arises whether the transmission charges paid by the appellant is rent within definition provided under section 194I and liable to TDS. As per ITO....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment is clarificatory in nature and, therefore, the same is applicable in all the years under consideration. Thus the appellant has failed to deduct TDS as required under Income Tax Act, and, therefore, is deemed to be in default in respect of tax to be deducted and consequently also liable to pay interest under section 201(1A). 9. The assessee is not satisfied by the stand so taken by the CIT(A) as well, and is in further appeal before us. 10. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 11. We find that the Power Purchase Agreement entered into by the assessee with NTPC, (copy placed before us at pages 15-27 of the paper-book), specifically provides that "power shall be made available by the NTPC at the busbars of the Station and it shall be obligation and responsibility of the CSEB to make the required arrangement for evacuation of power from such delivery points of NTPC". It is pursuant to these obligations that the assessee, along with other bulk power beneficiaries - namely M.P. State Electricity Board, Gujarat Electricity Board, Maharashtra State Electricity ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e that purchases by each of the bulk beneficiary can be physically identified and that particular beneficiary is only allowed to use that physically identified portion of power. Strictly speaking, therefore, it is not the transmission of power from one point to another but availability of power on the entire power grid or transmission lines enabling the beneficiary to utilize the power to the extent of his allocation. On these facts, the question that requires our adjudication is whether or not the payment for transmission charges can be termed as 'rent' for the purposes of Section 194I of the Act. 12. Let us now take a look at the statutory provision with regard to tax withholding from rent payments, which is set out in Section 194I of the Act, and analyze the same. Section 194I provides as follows: Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of - (a) two ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 194I come into play on the facts of this case. 14. The core issue that we must deal with is whether the present arrangement under the Bulk Power Transmission Agreement can be termed can be covered by the scope of expression any other agreement or arrangement 'for the use of' appearing in Explanation (i) to Section 194I. 15. Explanation (i) to Section 194I, as we have noted above, defines rent as any payment, by whatever name called, under any lease, sublease, or tenancy or any other agreement or arrangement "for the use of" land, building, plant, machinery or equipment etc. As evident from a plain reading of the agreements under which impugned payments have been made, the payments have been made for the services of transmission of electricity and not the use of transmission wires per se. It is a significant fact that these transmission lines are not only being used for transmission of electricity to the assessee but also for transmission to electricity to various other entities. The transmission lines continue to be not only under control and possession of the PGCIL in legal terms, but, what is more important, these transmission lines are effectively in the control of PGCI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ession of the goods, i.e., effective and general control of the goods is to be given to the customer and the customer has the freedom and choice of selecting the manner, time and nature of use and enjoyment, though within the framework of the agreement, then it would be a transfer of the right to use the goods and fall under the extended definition of "sale". On the other hand, if the customer entrusts to the assessee the work of achieving a certain desired result and that involves the use of goods belonging to the assessee and rendering of several other services and the goods used by the assessee to achieve the desired result continue to be in the effective and general control of the assessee, then, the transaction will not be a transfer of the right to use goods falling within the extended definition of "sale". Let me now clarify the position further, with an illustration which is a variation of the illustration used by the Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. vs. CTO. (i) A customer engages a carrier (transport operator) to transport one consignment (a full lorry load) from place A to B, for an agreed consideration which is called freight charge....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase, and even if an asset is used in the said process, the payment cannot be said to be for the use of an asset. When control of the asset (transmission lines in the present case) always remains with the PGCIL, any payment made to the PGCIL for transmission of power on the transmission lines and infrastructure owned controlled and in physical possession of PGCIL can be said to have been made for 'the use of' these transmission lines or other related infrastructure. Viewed in this perspective, Section 194I has no application so far as the impugned payments for transmission of electricity is concerned. For this short reason alone the impugned demands must be held to unsustainable in law. 18. We have taken note of learned Departmental Representative's reliance on Hon'ble Delhi High Court's judgment in the case of DCIT Vs Japan Airlines (325 ITR 298), which in turn follows its earlier decision in the case of United Airlines Vs. CIT (287 ITR 281), in support of the proposition that even in a situation in which landing and parking charges are paid by airlines to the Airport Authority, and when such charges are not in respect of the specific area of land, the provisions of Section 194I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e the Revenue by way of interest for the period of late realization of this tax to the Revenue authorities. These provisions, contained in section 201(1) and 201(1A), are set out in Chapter XVII-B titled as 'Collection and Recovery of Tax'. The next set of consequences are contained in section 271C and section 276B, covered by Chapter XXI-'Penalties Imposable' and Chapter XXII -'Offences and Prosecutions' respectively. Sec. 276B, as it stands now, is not applicable on the facts of this case which comes to the play only when the assessee has deducted the tax at source but he does not pay, or does not pay in time, the taxes so deducted at source. Sec. 271C deals with levy of penalty for total or partial failure to deduct tax at source i.e., for non-deduction and short-deduction of tax at source. This provision is clearly a penalty provision which is applicable for the cases of tax deductor's not discharging, wholly or partially, statutory obligations of deducting taxes at source, but then considerations which are relevant for examining a case having been made out for imposition of penalty are, as is the settled legal position, altogether different and the different yardsticks for suc....