TaxTMI 
TaxTMI 
2012 (11) TMI 385
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....A) of the Act. The assessee too filed appeals on the issues of SLDC charges in ITA Nos.546 to 548/BANG/2010 for Assessment Years 2005-06 to 2007-08 on 20.4.2010. During the course of hearings, this Tribunal instructed both the assessee and Revenue to file separate appeals for each year in respect of the orders under section 201(1) and 201(1A) respectively. In pursuance of defect Memos' issued, Revenue filed appeals in ITA Nos.256 to 260/BANG/2011 for Assessment Years 2004-05 to 2008-09 on 10.3.2011 on the issue of charge of interest under section 201(1A) of the Act. The learned Departmental Representative also filed revised grounds of appeal in respect of non-deduction of tax under section 201(1) and requested that the appeals Nos.541 to 545/BANG/2010 filed on 16.4.2010 be treated as in respect of the dispute relating to section 201(1). The assessee too filed fresh appeals on 9.5.2011in ITA Nos.530, 532 and 534/BANG/2011 in respect of the dispute under section 201(1) and appeals in ITA Nos.531, 533 and 535/BANG/2010 in respect of charge of interest under section 201(1A) of the Act. 2.2 During the course of hearings, the learned Authorised Representative submitted that in view of....
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.... Supply Co. Ltd. (GESCOM) (Distribution company) vii) Chamundeswari Electricity Supply Co. Ltd. (CESCOM) (Distribution company) 3.2 According to the scheme, BESCOM was vested with certain assets and liabilities as opening balances as on 1.6.2002 in order to carry on the distribution of electricity in the local area assigned (presentty covering the 8 districts of Bangalore Urban, Bangalore Rural, Chikkaballapur, Tumkur, Chitradurga, Kolar and Davangere). The assessee was granted licnence for distribution and retail supply of power by Karnataka Electricity Regulatory Commission (KERC) under section 19 of the KERC Act, 1999. From its inception till 10.6.2005, BESCOM purchased electricity directly from KPTCL and was charged both for cost of electricity and cost of transmission. From 10.6.2005, BESCOM was directed by the State Government that in accordance with the Electricity Act, 2003 should purchase electricity directly from generators of electricity and to avail the transmission network of KPTCL upto the interface points. The tariff for both power purchase and transmission charges was periodically reviewed by KERC keeping in view all aspects of costs involved in transmis....
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....and it is not as arm or wing of KPTCL though some of its employees may be drawn from there. 3.6 In this case, the Income Tax Department carried out a survey under section 133A of the Act on 15.12.2008 at the business premises of the assessee. In the course of verification, it was seen that the assessee had made payments of transmission charges to KPTCL and PGCIL in the F.Ys 2004-05 to 2008-09 and SLDC charges on which no TDS was made. In response to a show cause notice issued, Shri Ramesh, Asst. General Manager stated that as per the following decided cases provisions of section 194J were not applicable to the assessee's case : i) CIT Vs. Bharati Cellular Ltd. (2008) (220 CTR 258) (Del) and ii) Skycell Communication Ltd. Vs. DCIT (251 ITR 53) (Mad) The statement of C. Sreenivasan, Chief General Manager (F & C) of the assessee company was also recorded on 28.1.2009 in which he was examined as to why the assessee company had not made TDS in accordance with provisions of section 194J when making these payments. He has also stated that the provisions of section 194 J for TDS to be made from payments of transmission charges to KPTCL and SLDC charges were not appl....
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.... that require managerial and technical expertise which skills can be rendered by humans only. He was also of the opinion that SLDC in its form, during the relevant period, appeared to be interim in nature and is not fully functional. It had no office of its own; took its staff on deputation from KPTCL and depended for its funding on reimbursement of its expenses by other enterprises over whom it has control. In para 7.10.0 of his order the learned CIT(A) proceeded to hold that the payments of SLDC charges are to be considered as 'fees for technical services' and are liable to TDS as per section 194J(1)(b) of the Act and in view of the assessee's failure for non-deduction of tax under section 201(1) and charge of interest under section 201(1A) was sustained by him. 3.7.2 Transmission charges paid to KPTCL. In the course of hearings before the learned CIT(A), the assessee placed reliance for its claim for not being liable to deduct tax on payments of transmission charges to KPTCL and SLDC charges on the facts and decision of the Hon'ble ITAT, Jaipur Bench in the case of Jaipur Vidyut Vitram Nigam Ltd. Vs. DCIT (2009) (123 TTJ 888) (JP). The learned CIT(A) was of the view th....
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....llation and operation of sophisticated equipments with a view to earn income by allowing customers to avail the benefit of the use of such equipment does not result in the provisions of technical services to the customer for a fee. b) The CIT(A) has erred in holding that the services rendered by the technical personnel for installations and maintenance of the transmission system is rendered to KPTCL itself and not to the BESCOM. c) The CIT(A) has erred in not appreciating the fact that the use of such equipment would not be feasible but for the technical service being available. d) The CIT(A) has erred in not appreciating the fact that the essential factors of human interface and technical skill being remunerated exists in the deductor's case. e) The CIT(A) has erred therefore in holding that the provisions of section 194J do not apply. f) The CIT(A) has erred in not holding that such payments are liable for a deduction under section 194I for use of equipments as per his own findings. g) The CIT(A) has erred in not directing the Assessing Officer to recomputed the interest under section 201(1A) by applying the provisions of sect....
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....ative at the outset supported the findings of the learned CIT(A) that transmission charges paid to KPTCL by the assessee are not liable for making TDS thereon as the provisions of section 196J of the Act are not attracted and consequently deduction of tax under section 201(1) and interest charged under section 201(1A) are not enforceable. He further submitted that the cases cited by the learned Departmental Representative are distinguishable and not applicable to the assessee's case. In the case of Medi Assist India TPA P. Ltd. Vs. DCIT (TDS) & Other 324 ITR 356 (Kar), the learned Authorised Representative pointed out that TPA's were private parties engaged by the Insurance companies, Hospitals to perform functions the Hospital is otherwise supposed to do namely, processing of bills of patients for their entitlements. TPA's also render professional services to Insurance companies for settlement of claims for payment as per insurance policies. He stressed that there is a clear and direct human element involved in the services given by TPA's and therefore the provision of section 194J were attracted in taht case. Similarly in the case of Kotak Securities Ltd. (supra), the learn....
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....se is covered by the findings therein. 5. We have carefully heard both parties, perused the material on record and the judicial decisions cited and relied upon. The two decisions relied on by the learned Departmental Representative are clearly distinguishable on facts as lucidly brought out by the learned Authorised Representative in para 4.3 of this order. The decision of Jaipur Vidyut Vitraqn Nigam Ltd. (supra) has been perused and we find that the facts of the case and issues are identical to that of the assessee's case and is squarely covered by it. The Hon'ble Tribunal in the case of JVVNL has very succinctly dealt with the issues and the relevant case laws which bring out the meaning of the expression "fee for technical services' as used in section 194J r.w. Explanation 2 to section 9(1)(vii) of the Act. We find it necessary to extract relevant portions of the judgement thereof. Para 9.2: In above connection it is relevant to extract the relevant provisions of section 194J which are as follows : "194J. Fees for professional or technical services --- (1) Any person, not being an individual or an HUF, who is responsible for paying to a resident any sum by ....
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....s 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 from the words 'managerial' and 'consultancy' between which it is sandwiched. The word 'managerial' has been defined in the Shorter Oxford English Dictionary, Fifth Edition as: Of pertaining to, or characteristic of a manager of or within an organization, business, establishment, etc. The word 'manager' has been defined, inter alia, as: A person whos....
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....ces' 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 section 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 technology. The facility may even be construed as a 'service' in the broader sense such as a 'communication service'. But when we are required to interpret the expression 'technical service', the individual meaning of the words 'technical' and 'service' have to be shed. And, only one meaning of the whole expression 'technical services' has ....
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....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 that is used to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service. When a person....
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....nical 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 section 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 internet service providers and the use of the telephone fixed or mobile through which the connection is established, the service cannot be provided. However, on that score, every subscriber of the internet service provider cannot be regarded as havin....
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....l 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 section 194J of the Act." Para 9.6. An analysis of above cases lays down the proposition that section 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 use of technical system is different than charging fees for rendering technical services. The applicability of section 194J would come into effect only when by making payment of fee for ....
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....on of tax at source do not otherwise arise even when under certain section 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 modes 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 Dr. Willrnar Schwabe India (F) Ltd. (supra) (paper book 124-125), head-note 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 amount of bills so raised was towards the actual expenses incurred by them, there was no element of any profit involved in the said bills. It was thus a clear case of reimbursement of actual expenses incurred by....
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....ansmission charges paid does not come within the purview of section 194I. He pointed out that in the said decision, it was held that the transmission lines are used not only for the transmission of electricity to the assessee but also for transmission to various other entities, and the assessee has no say in the manner in which such transmission lines can be controlled or used by PGCIL - Assessee has no control over the operations of the transmission lines and all that it gets from the arrangement is that it can draw electrical power from PGCIL's transmission lines in an agreed manner - In a situation in which the payment is made only for the purpose of a specific act, it cannot be said to be for the use of an asset even if an asset is used in the said process. Therefore, s. 194I has no application to the impugned payments for transmission of electricity. 6.2 On careful appraisal of the facts and issues of the instant case of BESCOM with that of the cited case of Chattisgarh State Electricity Board (supra), we find that they are squarely applicable to the case on hand. We are, therefore, of the view that the facts and issues of both cases are identical and in consonance herewith....
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.... 7. The CIT(A) failed to appreciate that the charges paid to SLDC a statutory body which are paid as per the Direction of KERC is only a statutory levy to which the provisions of section 201/201(1A) does not apply. 8. The CIT(A) erred in coming to the conclusion that provisions of section 201 & 201(1A) applies even after holding that the charges paid to SLDC are only reimbursement of expenses, as the Government has not allotted any fund for functions of SLDC. 9. The CIT(A) erred in holding that provisions of section 201 & 201(1A) applies to amount reimbursed in proportion of actual expenses of SLDC a state Government constituted body as per the Electricity Act 2003 as reimbursement of charges does not attract the provisions of section 201 & 201(1A). 10. For these and other grounds that may be adduced at the time of hearing the appeal may kindly be allowed and justice rendered." 8. In respect of the appeals preferred by the assessee against charge of interest u/s.201(1A), the grounds of appeal are as under: " 1. The CIT(A) failed to appreciate the conclusion of the Assessing Officer that SLDC is not an arm or wing of KPTCL but an independent ....
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.... 8.1 The main argument of the learned A.R. were that the learned CIT(A) was wrong in forming the view that SLDC was an arm/wing of KPTCL; that even though personnel of SLDC are deputed from KPTCL, SLDC is an independent body constituted by the State Government as mandated by the Electricity Act, 2003. It is pleaded that though the functions discharged by personnel of SLDC may be managerial or technical, in nature, the assessee i.e. BESCOM does not in any way use, receive or derive benefit from the said service in discharging their own functions which is of distribution and retail supply of power. It is argued that the CIT(A) failed to realize that the amounts paid to SLDC is only reimbursement of actual expenses as per the specification of the Karnataka Gazette Notification on 18.11.2004 and in accordance with the procedure adopted for accounting of charges by KPTCL's income. Circular No. FA(A&R)/(A/cs)/AAO-11/CYS.56 dt.3.12.2005 and Circular No.FA(A&R)/(A/cs)/AAO-11/CYS.55 dt.28.11.2005 issued by KPTCL regarding accounting transaction of SLDC. It is submitted that, as the charges paid to SLDC are only reimbursement of expenses and, are paid as per the direction of KERC as a sta....