TaxTMI 
TaxTMI 
2009 (4) TMI 944
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....08 16,71,19,445; (1.1) not appreciating the intent and purport of the various decisions relied by the assessee in observing that Rajasthan Vidhyut Prasaran Nigam Ltd. deploying technically qualified staff/engineers for discharging its function and maintaining its transmission lines involves human involvement and application of mind and therefore the payment made by the assessee to it is covered under s. 194J ignoring that these qualified staff/engineers do not provide any technical service to the assessee and thus no human interface is involved so far as assessee is concerned; (1.2) not appreciating the fact that the payment of SLDC charges to RVPN is a statutory levy which is not liable for deduction of tax at source; (1.3) 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; (1.4) not directing the ITO, TDS to determine the actual payment of wheeling/SLDC charges even though the ITO, TDS in its letter dt. 12....
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....bution company). 3.2 A survey under s. 133A of the Act was conducted on 29th July, 2008 wherein it was noticed that the appellant company had made payments of wheeling charges and SLDC charges to M/s Rajasthan Rajya Vidhyut Prasaran Ltd. (RVPN) during the financial years 2004-05 to 2007-08 and 2008-09 (upto June, 2008) but tax at source was not deducted with reference to the said payment as per the provision of the IT Act. 3.3 The AO noted that assessee is purchasing power from the generatioing company and selling it to consumers. The power from the generation point to the consumers is transmitted through the transmission network of RVPN. It governs all the infrastructure of electric transmission line and all grid upto the power capacity of 33KVA and carries out the activities of the construction and maintenance of EHV lines and grid sub-stations. The Government of Rajasthan notified the RVPN as the State transmission utility (STU) under s. 14 of the Electricity Act, 2003. 3.4 Sec. 39 of the Electricity Act, 2003 mandates the STU to undertake various functions wherein sub-s. (2) of s. 39 provides as under (paper book 106-107) : "(2) The functions of the STU shall ....
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....that no SLDC shall engage in the business of trading in electricity." 3.6 The functions mandated to be performed by the SLDCs and their positioning inter se the other functionaries under the Act, is specified in ss. 32 and 33 which state as under (paper book 103-104) : "32. Functions of SLDCs.'(1) The SLDC shall be the apex body to ensure integrated operation of the power system in a State. (2) The SLDC shall- (a) be responsible for optimum scheduling and despatch of electricity within a State, in accordance with the contracts entered into with the licensees or the generating companies operating in that State; (b) monitor grid operations; (c) keep accounts of the quantity of electricity transmitted through the State grid; (d) exercise supervision and control over the intra-State transmission system; and (e) be responsible for carrying out real time operations for grid control and despatch of electricity within the State through secure and economic operation of the State grid in accordance with the grid standards and the State grid code. (3) The SLDC may levy and collect such fee and charges from the gene....
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....ystem within and outside State, owned or operated by RVPN for use of transmitting electricity for the Rajasthan power system. The transmission system means the lines, sub-stations, associated facilities and covers entire transmission system without any specific reference to any lines or sub-stations and will automatically cover all new additions, modifications, upgradation, augmentations and expansion of transmission system for the State of Rajasthan. 3. USE of transmission system by Discoms Subject to Rajasthan Electricity Regulatory Commission (terms and conditions for open access) Regulations, 2004 the RVPN transmission system shall be utilised by Discoms for transmission of their entire power requirement without any reference to specific lines or sub-stations. The RVPN shall undertake new additions, modifications, upgradation, augmentations and expansion of transmission system for the State of Rajasthan taking into consideration requirement of Discoms for growth in demand and electrification etc. and all such changes shall form part of the transmission system. 4. Allotted transmission capacity Allotted transmission capacity for a Dis....
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....providing the efficient, reliable, co-ordinated and economical system of electricity supply and transmission. 8. Compliance of grid code and SLDC directions RVPN and Discoms shall comply with the provisions of the grid code approved by the Commission. All the parties shall comply with the directions of the SLDC for ensuring integrated grid operations and for achieving the maximum economy and efficiency in the operation of the power system in the State. For efficient grid management, the Discoms shall give daily schedule of drawal to SLDC and all directions of the SLDC in this regard shall be binding upon Discoms. In case of failure of any Discom to furnish daily schedule to SLDC, the SLDC shall be entitled to charge a fee as specified by the Commission from time to time for preparing schedule on behalf of Discom. In addition the SLDC shall also be free to impose a penalty on Discoms for non-compliance with the directions under s. 33 of the Electricity Act, 2003. If any dispute arises with reference to the quality of electricity or safe and integrated operations of the State grid or in relations to the directions of the SLDC, it shall be referred ....
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....y competent manpower such as qualified engineers etc. (iii) The activities carried out by RVPN required technical support and services of technically qualified staff and, therefore, technical service under s. 194J. RVPN has not only built the system but has to maintain and operate the system in an efficient, co-ordinated and economical manner and therefore they are providing technical services falling under s. 194J. The contentions raised by the assessee are not found tenable as mentioned on pp. 10 to 14 of the order. The case law relied by the assessee reported in Skycell Communications Ltd. vs. Dy. CIT (2001) 170 CTR (Mad) 238: (2001) 251 ITR 53(Mad) are distinguishable on facts. (iv) It also falls in the ambit of s. 194C in view of the decision of Supreme Court in case of Associated Cement Company Ltd. and CBDT Circular No. 681, dt. 8th March, 1994 [(1994) 117 CTR (St) 229]. (v) He relied on the following decisions : (i) Singapore Airlines Ltd. vs. ITO (2006) 7 SOT 84 (Chennai); (ii) Canara Bank vs. ITO (2008) 116 TTJ (Ahd) 689 : (2008) 9 DTR (Ahd)(Trib) 251 : (2008) 305 ITR 189 (Ahd)(AT); (iii) CBDT & Ors. vs. Oberoi Hotels ....
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....e help of qualified engineers and technicians constantly. This indicates that the power transmission was not automatic through the machines/system, but required constant monitoring, supervision and control by technically qualified staff/engineers and, therefore, there was human interface involved in the power transmission service given by RVPN to JVVNL. (c) RVPN was also functioning as SLDC, which involved the responsibility of ensuring integrated operation of the power system in the State, by optimum scheduling and dispatch of electricity, monitoring of grid operations, keeping accounts of the quantity of electricity transmitted and carrying out real time operations for grid control and dispatch of electricity through secure and economic operations of the State grid in accordance with the grid standards and the State grid code. In addition, as per s. 32(2)(d) of the Electricity Act, 2003, the SLDC (RVPN) was also responsible for supervision and control over the intra-State transmission system. The above-mentioned functions of RVPN (as SLDC) clearly indicate the requirement of human interface in those activities, because the same could not be performed without the....
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....n of s. 194J and relied on the following decisions to explain the meaning of the term "fees for technical services". (i) CIT vs. Bharti Cellular Ltd. (supra); (ii) Skycell Communications Ltd. vs. Dy. CIT (supra); (iii) Dy. CIT vs. Parasrampuria Synthetics Ltd. (2008) 20 SOT 248 (Del); (iv) ITO vs. Moving Picture Co. (India) Ltd. (2008) 20 SOT 120 (Del); (v) HFCL Infotel Ltd. vs. ITO (supra); (vi) Kotak Securities Ltd. vs. Addl. CIT (2008) 25 SOT 440 (Mumbai); (vii) Pacific Internet (India) (P) Ltd. vs. ITO (ITA Nos. 1607 to 1609/Mum/2006, dt. 23rd Dec., 2008); (viii) CIT vs. Estel Communications (P) Ltd. (2008) 217 CTR (Del) 102: (2008) 7 DTR (Del)157. SLP dismissed (2009) 310 ITR (St) 2. 6.1 The learned Authorised Representative submitted that from the law, concept and principle laid down in these decisions it is clear that s. 194J would have application only when the technology or technical knowledge of a person is made available to the others and not whereby using such technical systems services are rendered to the others. Rendering of services by allowing use of technical system is different than chargin....
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....to the distribution point of the assessee company, the electricity is transmitted automatically and none of the engineers/technicians of RVPN provide any service to the assessee company or guide them as to how to capture the electricity so transmitted. The assessee itself has a fleet of engineers and technicians who constantly monitor and supervise the flow of electricity to its system and ultimate supply to its customers. The lower authorities have not correctly appreciated the various terms and conditions mentioned in the agreement inasmuch as none of those clauses in the agreement refers to any technical service being provided by RVPN to the assessee, rather the agreement specifically refers to use of transmission system of RVPN by the assessee. (iii) The SLDC is not an arm/wing of RVPNL, rather as a statutory requirement, RVPNL discharges the functions of SLDC. In fact SLDC is a regulator and controller for optimum scheduling and despatch of electricity, supervision over the intra-State transmission system and responsible for carrying out real time operations for grid control and despatch of electricity within the State. The Rajasthan Electricity Regulatory Commission ....
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....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 so as to consider the payment of transmission charges as falling under the provisions of s. 194J. This has been totally overlooked by the lower authorities. (v) In the remand report, it has been wrongly stated that RVPN is to keep balance in demand and supply of power or take requirement of electricity from the distribution companies on daily and hourly basis or make arrangement for supply of power from generating companies. These are the functions of SLDC to whom the availability of power by the generating companies, the requirement of power by the distribution companies and the availability of the transmission system are to be intimated so that there is optimum scheduling and dispatch of electricity within the State. In discharge of this function, the SLDC, directs the transmission company to maintain the load and frequency at the required level. The operation and maintenance of the transmission sys....
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....6) 99 TTJ (Chd)440 (supra) by quoting certain lines which is not available in this decision nor those quoted lines lead to any conclusion in absence of the facts. This decision rather supports the case of the assessee as stated above. So far the case of Bharti Cellular Ltd. (supra) is concerned; the same is not correctly understood by the CIT(A). This decision supports the case of the assessee as explained in detail as above. Further the lower authorities have not stated anything as to how the principle laid down in various other cases relied by the assessee are not applicable in the present case. The principle laid down in case of Parasrampuria Synthetics Ltd. (supra) clearly describes as to what is meant by fees for technical services as referred in s. 194J. RVPN by deploying its own engineers/technicians in maintaining its transmission system, takes the service of its engineers for its own purpose and not that these engineers provide any technical service to the assessee. What is required to be ascertained is whether the engineers/technicians employed by the assessee provides any technical service to the engineers/technicians of the assessee company and if that is so it does not....
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....ded by RVPN are not automatic but a human interface is involved. RVPN is to keep balance in demand and supply of power on minute to minute basis, it is to maintain load and frequency at the requirement level for which, it gives direction to the grid sub-station, operation and maintenance of the grid station is manned by senior and skilled engineers which all require human involvement. The decision of Skycell Communications Ltd. (supra) 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 ....
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.... thus pleaded that there is no liability of deduction of tax at source on payment of transmission/ wheeling/SLDC charges. 9. Considered the submissions of the parties on the issue, which arise for consideration is what is the nature of payment of wheeling/transmission/ SLDC charges on the basis of documents on records and the facts explained and after considering 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. 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 use 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 integ....
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....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 services" 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. (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 ....
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....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 counsel or 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 not mean that MTNL/other companies....
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....ads thus : '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'.' 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....
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....ce to the passenger and, therefore, the passenger must deduct tax at source on the payment 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....
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....ntended to cover the charges paid by the 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. (supra) it was held as under : There may be use of services of techni....
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....ice 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. deducting the tax at source under s. 194C in respect of payment of transmission charges to RVPN cannot lay down the law. Here it would be pertinent to mention that even the CIT(A) in assessee's own case for asst. yr. 2006-07 against the order of AO under s. 143(3) 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-18 to A-2....
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....rmation supplied is specific which helps the assessee in finalizing its design. The information supplied to the assessee was a technical information which has been used in further generating the product of the assessee. Therefore, such specific client based information was held not equitable 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 (paper....
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....t of actual expenses and the assessee company was not liable to deduct tax at source from such reimbursement." Under these circumstances, we hold that the lower authorities were not justified in holding that the assessee is liable for deduction of tax at source on the payment of transmission/SLDC charges to RVPN. We thus set aside the order of the lower authorities and allow the ground of the assessee. The ground No. 1 is thus allowed. Ground No. 2 10. The ITO (TDS) held that the assessee was liable to deduct the tax at source on the payment of transmission/wheeling and SLDC charges. Accordingly, he raised the demand of interest under s. 201(1A) relying on Circular No. 275, dt. 29th Jan., 1997. The CIT(A) upheld the action of ITO (TDS). 11. After considering arguments advanced by the parties, we are of the view that the provision of the Act is a measure to compensate the Revenue for delay in payment of taxes. In the present case, RVPN to whom transmission charges are paid are assessed with the same AO with whom the assessee is assessed with. RVPN has regularly filed its return of income for asst. yrs. 2005-06 to 2008-09 declaring nil income and having substantial carry ....
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.... in-charge of TDS, the taxes due have been paid by the deductee assessee. However, this will not alter the liability to charge interest under s. 201(1A) of the Act till the date of payment of taxes by the deductee assessee or the liability for penalty under s. 271C of the IT Act." Thus this circular clarifies that where the deductee assessee has paid the tax, demand under s. 201 is not visualised but this will not alter the liability of interest under s. 201(1A) till the date of payment of taxes by the deductee assessee. This circular supports the case of the assessee, inasmuch as this circular visualises the liabilities of interest till the payment of taxes by deductee assessee. If deductee assessee has no liability of payment of taxes no interest liability under s. 201(1A) is visualised. In the present case the deductee assessee i.e. RVPN has no liability of tax and therefore the liability of interest under s. 201(1A) would not arise since no tax is payable by the RVPN. 11.2 The Chennai Bench of Tribunal in case of Singapore Airlines Ltd. vs. ITO (supra) on the issue of levy of interest under s. 201(1A) has held as under (para 11) : "The Gujarat High Court held tha....