AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2012 (2) TMI 563
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....the Audited Report, a sum of Rs. 153.97 crores, being surcharge assessed but not realized, had been withdrawn from GH - 62.240 (Income from Sur-charge) and adjusted against GH - 23.934 (Sur-charge levied but not realized). On query, the assessee submitted that the assessee Nigam was accounting for income of surcharge on delayed payment on realization basis in pursuance of the decision of the Audit Committee of the Nigam, which was in conformity with the Accounting Standards 1&9 and the same had been recognized judicially, observing that income is required to be computed in terms of the Accounting Standards prescribed by the ICAI; that during assessment years 2006-07 and 2007-08, similar additions had been made, which were challenged before the ld. CIT(A) and the ld. CIT(A), vide order dated 6.11.2009, for assessment year 2006-07, had decided the issue in favour of the AO; that,so far as regards assessment year 2007-08, the order of the ld. CIT(A) was awaited; and that the amount of surcharge was billed for Rs. 1,74,45,62,158/- , against which, only Rs. 20,47,82,104/- had been realized, which had been taken as income during the year. The AO observed that the assessee was following t....
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....elayed payments from the defaulting consumers and its mere failure to realize the surcharge during the year did not at all affect the existence of such legal entitlement of the assessee to receive the surcharge. 4. In this manner, the AO made addition of Rs. 1,53,97,80,054/- crores on account of provision on surcharge levied but not realized. 5. By virtue of the impugned order, the ld. CIT(A) deleted the addition, accepting the assessee's contention that for assessment year 2006-07, on similar facts, the ld. CIT(A), vide order dated 6.11.09, had granted relief to the assessee. 6. Before us, the ld. DR has contended that the ld. CIT(A) has erred in deleting the addition correctly made by the AO on account of non-realization of the provision of surcharge, erroneously ignoring that the principle of res judicata is not applicable to Income Tax proceedings; that the ld. CIT(A) has failed to consider that the assessee had itself admitted that it had the right to collect the surcharge on account of delayed payment from the defaulting consumers; that the ld. CIT(A) also failed to consider that merely because the assessee had failed to realize the surcharge during the year, it did ....
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....e assessee Nigam had, in their Audit Report on the accounts for the year ending 31.3.2003, pointed out that the recognition of income by charging surcharge on delayed payments was in contravention of the basic accounting of assumption of purchase as contained in ASI-1 on Disclosure of Accounting Policies and without any certainty as to its recognition, as provided in AS-9 on Revenue Recognition, issued by the Institute of Chartered Accountants of India. It was on considering the said objection of the Auditors, that the Audit Committee of the Board of Directors of the assessee decided in its second meeting, held on 21.3.2003, to account for the delayed payment of surcharge on receipt basis thereafter. It was in accordance with this decision that the income from surcharge on delayed payment started being accounted for on the basis of collection. For assessment year 2006-07, the ITAT, vide its aforesaid order dated 30.11.2011, has upheld the action of the CIT(A) in deleting the disallowance. The ITAT has held as follows:- "5. We have heard rival contentions and perused the entire material available on record. Following facts emerge from the record: (i) Assessee maint....
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....n the basis of hypothetical income. In our view this judgment is applicable to the facts of assessee's case, keeping in mind following prepositions: (i) Assessee's method of accounting has been accepted by the department. (ii) Since the assessee could defer the payment of sur-charge under consumer protest, the taxing of such contingent receipt is a hypothetical income. 5.5. In case of UCO Bank (supra), in case of sticky advances, the interest income though provided in the books of accounts, were not assessable. 5.6. In case of Godhara Electricity Co. Ltd. (supra), though the tariff was revised and was enforceable by rules, its deferment by state of Gujarat was held to be resulting into non-accrual of deferred portion on the basis of real income concept. 5.7. In the case of Poona Electric Supply Co. (supra), also the Hon'ble Supreme Court held that portion exceeds over clear profits returned as rebate to the consumers was not part of taxable income of the assessee. Thus, though the amount from consumers accrued to the assessee, due to the return on account of stipulation provided, rebate was held to be non-taxable rebate. 5.8. In....
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....es the facts may vary, therefore, basic principles of accrual or mercantile system as laid down by various authorities are to be applied in a careful manner. The assessee being a state PSU; the sur-charge on delayed payment being disputable item; was not mandatorily payable at the time of payment of electricity consumption bill; was not an accrued receipt in view of the accounting policy accepted by the revenue. Therefore, such amount of surcharge cannot be held to be taxable as it is not the real income of the assessee and is hypothetical by nature in given facts and circumstances. 5.13. In view of the foregoings, we are of the view that the amount of sur-charge not realized by the assessee, does not amount to accrued of receipt taxable as income. CIT(A) has rightly deleted the addition, which we uphold." 10. The facts for the year under consideration are in pari materia and exactly similar to those in assessment year 2006-07. Therefore, following the principle of consistency, in keeping with the aforesaid Tribunal order in the assessee's own case for assessment year 2006-07, the order of the ld. CIT(A) in this regard is upheld and ground No.1 raised by the Department ....
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.... Act in respect of the payments by way of Wheeling charges and SLDC charges. 14. The ld. DR, in this regard, has contended that the ld. CIT(A) has erred in deleting the addition correctly made u/s 40(a)(ia) of the Act; that the payments were made for the work of providing technical services with TDS as provided u/s 194 J of the Act; and that the ld. CIT(A) has failed to consider that the assessee had itself accepted the factum of the making of the payment but not having deducted the tax thereon. 15. The learned counsel for the assessee, per contra, has contended that the ld. CIT(A) has correctly followed the Tribunal order dated 23.10.2009 in the assessee's own case for assessment years 2006-07 to 2008-09; that as held therein, the assessee was not liable to deduct tax at source on the payments made. 16. Qua this issue, it is seen, the Tribunal, in the assessee's own case for assessment years 2006-07 to 2008-09, vide order dated 23.10.2009 (copy placed on record) has observed, inter alia, as follows:- "At the time of hearing, both the counsels agreed that identical issue arose before ITAT Jaipur Bench in the case of Jaipur Vidyut Vitran Nigam Ltd. v. ITO in ITA No....
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....maintaining its grid station and transmission lines simply discharge their function. They do not render any technical service to the assessee. 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 way of- (a) fees for professional services, or (b) fees for technical services, or (c) royalty, or (d) any sum referred to in clause (va) of section 28. shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein : Provided that no deduction shall be made under this section- (A) ........... (B) ........... (2) (......) (3) (......) Explanation : For the purposes of this section,- (b) "fees for technical services" shall have the same meaning as in Expln.....
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.... 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 whose office it is to manage an organization, business establishment, or public institution, or part of one; a person with the primarily executive or supervisory function within an organization etc.; a person controlling the activities of a person or team in sports, entertainment, etc. It is therefore, clear that a managerial service would be one which pertains to or has the characteristic of a manager. It is obvious that the expression 'manager' and consequently 'managerial service' has a definite human element attached to it. To put it bluntly, a machine cannot be a manager. 14. Similarly, the word &#....
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....d 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 to be seen. Moreover, the expression 'technical service' is not to be construed in the abstract and general sense but in the narrower sense as circumscribed by the expressions 'managerial service' and 'consultancy service' as appearing in Expln. 2 to section 9(1)(vii) of the said Act. Considered in this light, the expression 'technical service' could have reference to only technical service rendered by a human.....
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....d 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 hires a taxi to move from one place to another, he uses a product of science and technology, viz., an automobile. It cannot on that ground be said that the taxi driver who controls the vehicle, arid monitors its movement is rendering a technical service to the person who uses the automobile. Similarly, when a person travels by train....
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....ty 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 having entered into a contract for availing of technical services from the provider of the internet service, and such subscriber regarded as being obliged to deduct tax at source on the payment made to the internet service provider. 8. At the time the IT Act was enacted in the year 1961, as also at the time when Expln....
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....rvices 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." 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 technical services, assessee acquired certain skill/knowledge/intellect which can be further used by him for its own purpose/research. Where facility is provided by use of machine/robot or where sophisticated equipments are installed and operated with a view to earn income by allowing the customer....
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....d 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 does 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 case of Singapore Airlines Ltd. ( supra) the navigation charges paid was for getting the technical service like weather report, instruction overflights to fly over technical territories and such other technical services which are needed to fly the aircraft on the Indian territory. By giving these, instructions and technical services to fly the aircraft the technical knowledge of a person was made available to the assessee and therefore it was held to be a payment for technical services which is not the facts of the present case. The case of Canara Bank ( supra) in respect of payment of MICR charges to SBI which involved human skill and computerised machine and not simply making available the technical equipment working on its own and therefore held to be a payment towards managerial services. The ....
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....ould not apply as held in case of Dr. Willmar Schwabe India (P) Ltd. (supra ) (paper book 124-125), 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 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 the assessee and the same, therefore, was not of the nature of payment covered by s, 194J, requiring the assessee to deduct tax at source therefrom. The CBDT Circular No. 715, dt. 8th Aug., 1995 [(1995) 127 CTR (St) 13], relied upon by the AO in support of his case on this issue was applicable only in the cases where bills are raised for the gross amount inclusive of professional fees ....