TaxTMI 
TaxTMI 
2012 (8) TMI 591
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....es 135162.00 "Ground No.2: Without prejudice to ground No.1 above, the learned AO erred in issuance of notice under section 271(1)(c) of the Act and the same be cancelled, since it is contrary to the facts of the case and is not as per the applicable provisions of the Act." ASSESSEE'S AMMENDED GROUNDS OF APPEAL - A.Y.2007-08: 1: 0 Re.: Disallowance of wheelinG and transmission charges applying the provisions of section 40 (a) (ia) of the Income-tax Act, 1961: 1:1 The Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of the wheeling and transmission charges paid by the Appellant by applying the provisions of section 40(a) (ia) of the Incometax Act, 1961 in respect of an alleged non-deduction of tax at source u/s. 194C of the Income- tax Act, 1961. 1:2 Without prejudice the foregoing, on the facts and in the circumstances of the case and in law the Commissioner of Income-tax (Appeals) erred in confirming the disallowance of the entire transmission and wheeling charges by applying the provisions of section 40(a)(ia) of the Act, for the alleged non deduction of tax at source, without appreciating that disallowance under section 40(a)(ia)....
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....s and circumstances of its case and the law prevailing on the subject the depreciation claimed by the Appellant cannot be reduced and the Commissioner of Income-tax (Appeals) ought to have held as such. 2.3 The Appellant submits that the Assessing Officer be directed to grant depreciation as claimed by the Appellant and to recompute its total income accordingly. 3:0 Re: General: 3.1 The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal." REVENUES GROUNDS IN A.Y. 2007-08: 1(i) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the assessee was justified in offering income on estimation basis pertaining to the remaining days of March for which the bills were issued in April." 1(ii) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the action of the Assessing Officer in taxing the revenue of Rs.36.95 crores pertaining to energy supplied in the month of march, 2007 but bills for which were issued in April, 2007." 2(i) "On the facts and in th....
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....ate Electricity Transmission Company Ltd. (MSETCL). Similarly for the purpose of transmitting power from places outside the State of Maharashtra it has to pay similar charges to Power Grid Corporation of India Ltd.(PGCIL). A survey was conducted by the Department on the premises of the assessee on 18/12/2008. In pursuance to the said survey, vide order dated 27/1/2009 passed under section 201(1A) the assessee was held liable for deduction of tax at source on wheeling and transmission charges under the provisions of section 194J of the Act for assessment year 2009-10. 4. Relying upon the aforementioned order dated 27/1/2009, the AO in the impugned assessment order has disallowed these charges on the ground that assessee has failed to deduct tax at source under section 194J of the Act and Ld. CIT(A) has held that such charges were liable for deduction of tax under section 194C of the Act and the assessee was not liable for deduction of tax either under section 194J and/or under section 194 I. 5. The assessee is assailing the order of Ld. CIT(A) on the ground that ld. CIT(A) has erred in holding that the tax was deductible tax at source even under section 194C of the Act. The re....
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.... and supply of electricity and provisions were made for taking measures conducive to electrical department and give more powers to State Electricity Boards. Thereafter, Electricity Regulatory Commission Act, 1998 was enacted to form two institutions namely (1) Central Electricity Regulatory Commission and (2) State Electricity Regulatory Commission. Thereafter, Electricity Act 2003 was passed on 4/6/2005. Pursuant to section 131, 133 & 134 of the Electricity Act 2003 the Government of Maharashtra had notified "Manarashtra Electricity Reforms Transfer Scheme, 2005" to restructure erstwhile "Maharashtra State Electricity Board" (MSEB). Consequently on 6/6/2005 MSEB was demerged into four different companies as follows: a. 'Maharashtra State Power Generation Co. Ltd.' - to be engaged in the generation of electricity; b. 'Maharashtra State Electricity Transmission Co. Ltd.' - to be engaged in the business of transmission of electricity; c. 'Maharashtra State Electricity Distribution Co. Ltd.' - to be engaged in the business of distribution of electricity; d. 'MSEB Holding Co. Ltd.' - the holding Company to hold shares of all the aforesaid 3 companies on behalf of the Govern....
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....83 ITR 158 (St.) - refer page No. 69 to 71 of this compilation - specific reference therein to the State Road Transport; e. Circular No. 6816 dated 08 March 1994 (reported in 206 ITR 299 (St.)- refer page - No. 72 to 76 of the compilation - specific reference therein to Paragraph 8 (ii) on the concept of loading /unloading and the contracts for plying of buses, ferries with staff, etc. f. Circular No. 714 dated 03 August 1995 (reported in 215 ITR 5 (St.) - refer page No. 77 to 88 of this compilation - specific reference to Question Numbers 6 to 10 thereof. 6.3 Ld. A.R submitted that though it is now a settled issue that electricity is "goods" but it is a matter of fact that it cannot be transported, therefore, transmission of electricity cannot fall within the purview of term "work" defined under section 194C of the Act. 6.4 To demonstrate that there is a sizable difference amongst words "transport", "transmit", "transmission" and "carriage" Ld. A.R referred to the following dictionaries: a. The Concise Oxford Dictionary of Current English: i. Transport- v.&n. .v.tr. / tran'sport,tra:n/ 1. take or carry ( a person, goods, troops, baggage, etc.) from one place t....
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....truck, vehicle, or other means of conveying goods or passengers by land, in whatever manner the same may be propelled(Explosives Act 1875, s.108) 'I think the word "carriage" is large enough to include a machine such as a bicycle, Taylor v. Goodwin (1879) 4 QBD 228 at 229, DC, per Mellor J (refer page No. 98 to 99 of the compilation) e. The New Choice - English Thesaurus: i. Transmit - vb. Forward, remit, send, communicate, conduct, radiate; bear, carry, convey. ( refer page No. 100 to 101 of the compilation ) ii. Transport - vb. bear, carry cart, conduct, convey, fetch, remove, ship, take, transfer, truck, banish, expel; beatify, delight, enrapture, enravish, entrance, ravish * n. carriage, conveyance, movement, transportation, transporting, beatification, beatitude, bliss, ecstasy, felicity, happiness, rapture, ravishment, frenzy, passion, vehemence, warmth. ( refer page No. 102 to 103 of the compilation) f. The Random House Dictionary of the English Language: i. Transmission - 1. the act of process of transmitting , 2. the fact of being transmitted 3. something that is transmitted 4. a. transference of force between machines or mechanisms, often with change of tor....
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....ss to its transmission system for use by (1) licencing or generating company on payment of the transmission charges or (2) any consumer as and when such open access is provided by the State Commission under sub-section (2) of Section 42, on payment of the transmission charges and surcharge thereon, as may be specified by the State Commission. He submitted that though there is a contract between the assessee and the transmission company viz. MSETCL but the important element of contract viz. tariff and billing and payment is not determined in terms of the said contract. The transmission tariff and its terms and conditions are described in the notification issued by Maharashtra Electricity Regulatory Commission and reference in this regard was made to pages 35 to 38 of the paper book submitted for assessment year 2007-08. Thus it was submitted by Ld. A.R that requirement of section 194C of the Act being in pursuance of a contract for work between the parties is not satisfied, therefore, there was no liability to make payment under section 194C of the Act. He submitted that in any case, no payment has been made to MSETCL in the capacity of transmission company but payment is made to MS....
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....f the Delhi Bench of the ITAT in the case of Dakshin Haryana Bijali Vitran Nigam Ltd. (ITA No. 4606/DeIJ 2011) e. Unreported decision of the Delhi Bench of the ITAT in the case of Bangalore Supply Co. Ltd. v/s. ITO & vice-versa ITA Nos. 530 to 535/Bang/2011;541 to 548/Bang/2011 and 256 to 260/Bang/2011), Further it was submitted that section 194 I is also not applicable in view of the following decisions of ITAT: a. Unreported decision of the Mumbai Bench of the ITAT in the case of Chattisgarh State Electricity Board v/s. ITO in ITA No. 20 to 23/BPLR/2010 b. Unreported decision of the Cuttack Bench of the ITAT in the case of GRIDCO Ltd. v/s. ACIT in ITA No. 404/CTK/2O11 6.9 Without prejudice to the above arguments Ld. AR referred to the decision of Hon'ble Bombay High Court in the case of CIT vs. Kotak Securities Ltd., 245 CTR 3 (Bom) and referred to the following observations from the said decision: The object of introducing Section 40(a) (ia) as explained in the CBDT circular No.5 dated 15/7/2005 is to augment compliance of TDS provisions in the case of residents and curb bogus payments. However, since both the revenue and the assessee were under the bona fide beli....
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....on ARR 1393.13 TPC- Transmission ARR 168,59 REL-Transmission ARR 36.39 TTSC ( In STS) 1598.11 Similarly for assessment year 2008-09 TTSC has been fixed at Rs. 1800.40 crores as described in para-6 of the order of the Commission dated 2/4/2007 in case No.86 of 2006. Copy is filed at pages 143 to 151 of the paper book for A.Y 2008-09. The table has described the case as under: Transmission Licensee (Commission) FY 2007-08 FY 2008-09 FY 2009-10 Total over MYT period MSETCL 1546.47 1647.47 1700.69 4894.51 TPC-Transmission 211.72 225.41 247.32 684.45 REL-Transmission 41.73 43.27 44.30 129.30 TTSC( InSTS) 1800.40 1916.15 1991.70 5708.26 To further support such contention Ld. AR referred to the copies of vouchers evidencing the one to one co-relation between the amounts collected by STU from four distribution licensees and the distribution of these amounts by the STU to the transmission utilities. Reference in this regard was made at page 173 to 213 of the paper book for assessment year 2007-08 and pages 152 to 157 of the paper book for assessment year 2008-09. 6.12 It was....
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....11 passed by DCIT (TDS) -2(1) Mumbai under section 201(1)/201(1A) of the Act, copy of which is placed at pages 399 to 412 of the paper book submitted alongwith written submissions. In the said order in para-13, DCIT (TDS) has recorded a finding that the demand payable by the assessee amounting to Rs. 324,47,42,049/- was not enforceable as the assessee has produced the auditors certificate dated 27/1/2011 from the deductee assessee (MSETCL) that as per the return of income filed by the deductee assessee, the taxes have been paid accordingly . In the said certificate it is also certified that the wheeling and transmission charges received or receivable have been considered for declaring total income. In view of above arguments Ld. A.R pleaded that the impugned disallowance was not called for under the provisions of section 40(a)(ia) of the Act as assessee did not have any obligation to deduct tax under any of the section viz. 194C, 194J or 194 I of the Act. 7. On the other hand, referring to the arguments submitted by Ld. AR with regard to non-applicability of the provisions of section 194C, it was submitted by Ld. DR that Explanation III to sub-section (2) of section 194C is an i....
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....System of MSETC through mutually agreed terms and conditions which inter-alia include payment of tariff which has to be paid as per the notification issued Maharashtra Electricity Regulatory Commission. The charges for excess use of Inter State Transmission System are described to be as per the transmission pricing frame work approved by the Commission from time to time. Reference in this regard was made to para -14 of the first agreement, whereas Power Grid Corporation of India Ltd was to present bill for energy transmitted and the transmission charges for the total regional transmission system was to be calculated on monthly basis which shall be leviable on the assessee as per the prescribed formula or as per Government of India notification issued from time to time. Reference in this regard was made to para A-4 of the second agreement. Thus Ld. DR pleaded that charges paid or payable by the assessee to MSETCL and Power Grid Corporation of India Ltd. are for "carriage of goods" as per the terms of contract with those two resident companies and the payments made or due to these resident companies is as per terms and conditions of the above two agreements. Therefore, Ld. DR submitt....
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....held that for an activity to be regarded as "work", it is to be an activity carried out by human intervention for completing such work. Therefore, Ld. DR submitted that this decision also give no support to the case of the assessee. 7.5 Coming to the arguments of the assessee that disallowance under section 40(a)(ia) could be made only in respect of amount payable as on 31st March and not on the amount actually paid during the year, Ld. DR submitted that Special Bench decision in the case of Merilyn Shipping & Transport (supra) cannot be considered to be a good law as the said decision though has been rendered on 9/4/2012 but did not consider the decision of Bombay High Court in the case of M/s. Kotak Securities Ltd., 340 ITR 333(Bom) as the same was not placed before the Bench. He submitted that Hon'ble Bombay High Court in the said case has upheld the applicability of section 40(a)(ia) of the Act on the amount paid during the year. Ld. D.R submitted that in the aforementioned decision the decision of Hon'ble Bombay High Court has been followed by the "D" Bench of ITAT, Mumbai in its order dated 03/02/2012 in the case of DICGC Ltd., wherein addition made under section 40(a)(ia)....
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....ers, who enter into transactions in securities/derivatives through the BOLT system provided by the BSE. The wheeling and transmission charges paid by the assessee are, therefore, of same nature as transaction charges paid by the BSE members to carry out share transactions through BOLT. The Bombay High Court vide Judgement dated 21.10.2011 in the case of Kotak Securities Ltd. reported in 340 ITR 333 has upheld the applicability of section 194J of the Act, on the above transaction charges (Para 32 of the Judgment) v) The wheeling and transmission charges are also similar to interconnect/access port charges paid to BSNLIMTNL. The Hon'ble Delhi High Court in the case of Bharati Cellular Ltd. had held that since there was no human intervention, Section 194J was not applicable to the interconnect charges/access/port charges paid to BSNL by Bharati Cellular Ltd. (Assessee). The Hon'ble Supreme Court has vide its order in March, 2011 reported in 330 ITR 239 (SC), in the appeal filed by the Department against the above order of the Delhi High Court has observed that there was no expert evidence from the side of the department to show how the human intervention takes place, particularl....
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....amined by the coordinate Bench of the Tribunal in the case of Jaipur Vidyut Vitaran Nigam Ltd (supra) and it has been the contention of the assessee that the agreement in that case also contain similar terms and the facts are also similar. This contention of the assessee has not been controverted by the revenue by specifically pointing out that there was any major difference between the terms of the agreement considered in that case and the terms of contract in the present case as well as in the facts of both the cases. It has been categorically held in the said case that there was no liability on the assessee to deduct tax on the payments of transmission/wheeling and SLDC charges u/s 194J. No contrary decision has been brought to our notice in which it has been held that tax on such charges is deductible under either of the sections viz 19C, 194J; 194 I of the Act.. 8.3 Moreover, it has been the case of the assessee that all these payments were required to be made as per the Electricity Act, 2003. All orders, pertaining to payment of impugned charges, are passed by State Authorities constituted under Electricity Act, 2003.It is observed that all these provisions of Electricity ....
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....e 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 and wheeling and SLDC charges is to be as approved by the Regulatory Commission. From all these clauses it is clear that all the parties involved with generation, transmission and distribution of electricity are to comply with the direction of SLDC and the Regulatory Commission for achieving the economy and efficiency in the operation of power system and therefore question of any person rendering service to another does not arise. The operation and maintenance of transmission lines by RVPNL and the use of these lines by assessee for transmitting energy does not result into any technical services being rendered to the ....
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....in the case of CIT vs. Bharti Cellular Ltd. (supra) and the observations are reproduced as under : "13. We have already pointed out that the expression 'fees for technical services' as appearing in s. 194J of the said Act has the same meaning as given to the expression in Expln. 2 to s. 9(1)(vii) of the said Act. In the said Explanation the expression 'fees for technical services' means any consideration for rendering of any 'managerial, technical or consultancy services'. The word 'technical' is preceded by the word 'managerial' and succeeded by the word 'consultancy'. Since the expression 'technical services' is in doubt and is unclear, the rule of noscitur a sociis is clearly applicable. The said rule is explained in Maxwell on The Interpretation of Statutes (Twelfth Edition) in the following words : Where two or more words which are susceptible of analogous meaning are coupled together, noscitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general. This would mean that the word 'technical' would take colour f....
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....d that too, sophisticated technology, but that does not mean that MTNL/other companies which provide such facilities are rendering any technical services as contemplated in Expln. 2 to s. 9(1)(vii) of the said Act. This is so because the expression "technical services" takes colour from the expressions "managerial services" and "consultancy services" which necessarily involve a human element or, what is now-a-days fashionably called, human interface. In the facts of the present appeals, the services rendered qua interconnection/port access do not involve any human interface and, therefore, the same cannot be regarded as "technical services" as contemplated under s. 194J of the said Act. 20. Before concluding we would also like to point out that the interconnection/port access facility is only a facility to use the gateway and the network of MTNL/other companies. MTNL or other companies do not provide any assistance or aid or help to the respondents/assessee in managing, operating, setting up their infrastructure and networks. No doubt, the facility of interconnection and port access provided by MTNL/other companies is 'technical' in the sense that it involves sophisticated techn....
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....rvice'. The meaning of the word 'technical' as given in the New Oxford Dictionary is adjective 1. of or relating to a particular subject, art or craft or its techniques; technical terms (especially of a book or article) requiring special knowledge to be understood; a technical report, 2. of involving, or concerned with applied and industrial sciences : an important technical achievement, 3. resulting from mechanical failure : a technical fault, 4. according to a strict application or interpretation of the law or the rules : the arrest was a technical violation of the treaty. Having regard to the fact that the term is required to be understood in the context in which it is used, 'fee for technical services' could only be meant to cover such things technical as are capable of being provided by way of service for a fee. The popular meaning associated with 'technical' is 'involving or concerning applied and industrial science'. 5. In the modern day world, almost every facet of one's life is linked to science and technology inasmuch as numerous things used or relied upon in everyday life is the result of scientific and technological development. Every instrument or gadget....
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....ility of being able to communicate with others, he does not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. That fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber, does not on that score, make it provision of a technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange, or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telephone service. Neither service can be regarded as 'technical service' for the purpose of s. 194J of the Act. 7. The use of the internet and the world wide web is increasing by leaps and bounds, and there are hundreds of thousands, if not millions, of subscribers to that facility. The internet is very much a product of technology, and without the sophisticated equipment installed by the i....
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....ertain machinery or for converting partially oriented yard (POY) into texturised/twisted yarn. The technology or technical knowledge of persons is not made available to the assessee but only by using such technical knowledge services are rendered to the assessee. In such a case, it cannot be said that the amount is paid as 'fees for technical services'. Rendering services by using technical knowledge or skill is different than charging fees for technical services. In the later case the technical services are made available due to which assessee acquired certain right which can be further used. Accordingly where the persons rendering certain services has only maintained machinery or converted yarn but that knowledge is not vested with the assessee by which itself it can do research work, the amount paid cannot be considered as fees for technical services within the meaning of s. 194J of the Act. 9.6 An analysis of above cases lays down the proposition that s. 194J would have application only when the technology or technical knowledge of a person is made available to others and not where by using technical systems, services are rendered to others. Rendering of services by allowing....
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....e IT Act, supports the case of the assessee that a technical service is involved where 'information concerning industrial, commercial or scientific knowledge, experience or skill is made available'. In the present case no scientific knowledge, experience or skill is made available/rendered by the RVPN to the assessee. The assessee itself has its own engineers and technicians who consistently monitor and supervise the flow of the electricity to its system and ultimately supplies to its customer. The function of SLDC as regulator and controller for optimum scheduling and dispatch of electricity, and supervision over the intra-State transmission system is statutory function which is also entrusted to RVPN and therefore, RVPN by discharging such statutory function do not provide any technical service. 9.9 We have also considered the other decisions relied by the learned Departmental Representative which are clearly distinguishable on facts. In the case of Singapore Airlines Ltd. vs. ITO (supra) the navigation charges paid was for getting the technical service like weather report, instruction over flights to fly over technical territories and such other technical services which are n....
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....of the board and the copy of the journal voucher by which such credit is given to the assessee (paper books 121-137). Thus when no income is paid by assessee to transmission company the question of deduction of tax at source do not otherwise arise even when under certain sections of Chapter XVII-B liability of TDS is on payment of any sum and under certain sections it is on payment of income as ultimately the tax is on the income and deduction of tax at source is only one of the mode of collection and recovery of the tax. On actual reimbursement, provision of deduction of tax at source would not apply as held in case of ITO vs. Dr. Willmar Schwabe India (P) Ltd. (supra) (paper book 109-110), headnote of which reads as under : "As agreed by and between the assessee company and ITCL, a vehicle was to be provided by the assessee company to the said consultant for attending to its work and thus, the assessee company was to bear the vehicle expenses actually incurred by the said party. Bills for such expenses incurred by the said consultant were separately raised by them on the assessee company in addition to bills for fees payable on account of technical services and since the amoun....
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....the ld AR that according to the submissions of the assessee the issue regarding deduction of tax on wheeling and transmission charges is directly covered in favour of assessee by the aforementioned decision of the Tribunal in the case of Jaipur Vidyut Vitaran Nigam Ltd. and if the Bench is satisfied that the matter is covered by the said decision, then Bench may not adjudicate all the grounds on which the assessee is assailing such action of the Department. 8.8 It may be mentioned here that ground no.1 for assessment year 2007-08 relating to disallowance on account of overstatement of revenue expenditure due to metering equipment amounting to Rs. 115.07 lacs was not pressed by the ld AR and hence, the same is dismissed being not pressed. 9. Ground no.2 of assessee's appeal for the AY 2008-09 relates to the amount of Rs. 247,12,96,468/- being part of depreciation claimed by the assessee. 9.1 It was observed that the assessee had received contribution/grant subsidies towards cost of capital asset aggregating to Rs. 2,16,986.07 lacs as on 31.3.2008 which consists the following items: i) Consumers contribution Rs.111899.47 lacs ii) Subsidies towards cost of capital as....
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....ch type of prior income and expenses cannot be termed to be as errors or omissions. It was submitted that in Schedule 18, titled as 'Net Prior Period Credits/Charges, the assessee has accounted for income relating to the previous year amounting to Rs. 285.52 crores which includes Rs. 115.88 crores being receipts from consumers relating to prior periods. The assessee has accounted for prior period income of Rs. 130.26 crores during the next financial year ended 31.3.2008 which includes Rs. 26.78 crores towards receipts from consumers relating to the prior periods. It was submitted that the basis accounting policies and principles, under the ESAAR 1985 were required to be mandatorily followed by the assessee. Accordingly, all prior period revenue or costs arising on account of a difference between the accounting estimate made for accrual and the actual values involved or on account of any other reasons, shall be accounted for prospectively and no retrospective relating of past year's figures shall be permitted. It was submitted that recognize revenue is a cumbersome job and vastness of area including the area effected by terrorism and also include activities of reading of meters of c....
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....taining to electricity supplied for the month of March in its books of account. There was no case that the revenue pertaining to the electricity supplied in March 2007, was not accounted for by the appellant in the year under consideration or in subsequent year. In absence of the issue of bills, the appellant offered the revenue on estimate basis in accounts for the electricity supplied in March 2007. It is worth to note that this practice was being followed by the appellant regularly. It is also worth to mention here that such estimation was based on scientific basis i.e. based on actual bill/ consumption of power by the consumer in the past. Thus, the estimation of revenue was not arbitrary. In the case of Bharat Earth Movers (supra) the Supreme Court has recognized the accounting of income/expenditure based on scientific method. It is also worth to mention here that the bills issued in the month of April were for the electricity supplied to the consumers in the month of March & April. On the basis of bills so raised, there could not have been any mechanism to ascertain the amount pertaining to electricity supplied in the remaining particular days of March 2007 of the billi....