TMI Blog2011 (11) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... on the part of the tax deductor, but loss of revenue to the exchequer. As long as taxes payable by the recipient of income are paid, the provisions of Section 201(1) cannot be pressed into service. Decided against the Revenue. - ITA Nos. 20 TO 23/BLPR/2010 - - - Dated:- 30-11-2011 - Shri Pramod Kumar and Shri Vijay Pal Rao JJ. Appearances: Soli E. Dastur, for the appellant Goli Srinivas Rao, for the respondent ORDER Per: Pramod Kumar: 1. In this bunch of four appeals, which are directed against common order dated 7th October 2009 passed by the CIT(A), the assessee appellant has challenged correctness of CIT(A)'s upholding the following demands raised on the assessee under section 201(1) and 201(1A) r.w.s. 194I of the Income Tax Act, 1961, for alleged non-compliance with tax withholding requirements in respect of payments for electricity transmission charges: Sl Assessment Year Demand u/s 201(1)-TDS Demand u/s 201(1A)- Interest* Total 1 2006-07 2,08,63,979 81,63,158 2,90,27,137 2 2007-08 4,85,23,892 1,37,75,324 6,22,99,216 3 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and maintains interstate transmission system and operation of Regional Power Grids, and it has also been notified as the Central Transmission Utility (CTU) of the country. In addition to the facilities set up by PGCIL, it has been controlling the existing load despatch centres in the country with a view to achieve better grid management and operation. CSEB buys from the power from NTPC and the power so purchased by the CSEB is transmitted to by PGCIL. 6. It is in this backdrop, and during the course of verification of tax deduction at source returns, that the Assessing Officer noted that CSEB has entered into an agreement with NTPC and PGCIL for use of transmission system owned by the PGCIL and expressed the view that the assessee was required to deduct tax at source from such payments, in terms of the provisions of Section 194I of the Act. The Assessing Officer was of the view that, as evident from the agreement that the assessee entered into with PGCIL, the PGCIL had developed the national power grid to ensure transmission of power within, and across, the different regions of the country. The Assessing Officer noted that the assessee had made the payment for transmission charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be covered by the definition of rent for the purpose of this section. As regards the assessee's contention that the assessee does not have any liability under section 201(1), in view of the fact that the PGCIL has paid the taxes directly and in the light of Explanation (i) to Section 191, the Assessing Officer rejected this contention as well and observed that 'the payment of advance tax by deductee cannot be treated as discharge of tax liability under section 194I of the Act, as it is liability of the assessee tax deductor'. He was of the view that both these liabilities, i.e. of the tax withholding liability of the person making the payment and of tax liability of recipient of income, are independent liabilities and cannot be equated with each other. He held that "one of the basic intentions to introduce the TDS provisions of the Act is to provide Government regular cash flow for development works to prevent the revenue loss caused in cases where the department fails to tap the revenue from deductee later on", that this "claim of exemption for non-deduction hits adversely the basic intention of the legislature, which is against the law", and, therefore, this "argument put f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith effect from 13.07.2006 and, therefore, is not applicable prior to that since it is not clarificatory in nature. By amendment, scope of rent has been enlarged. Finally, it was submitted that the deductee, i.e. PGCIL, has already paid tax on transmission charges received by it, and, therefore, no demand under section 201(1) should be enforced. Perusal of Explanation to Section 194I, i.e. definition of rent, reveals that any arrangement for use of land or building or plant or machinery or equipment or furniture or fitting shall be treated as rent for the purpose of Section 194I. Perusal of Clause 5 of BPTA and 3.4 of PPA reveals that transmission charges is payable for utilization of transmission system owned by PGCIL and, therefore, is in the nature of rent. In fact, the charges paid are for facility provided for transmission of power and not for any services rendered, and, therefore, the transmission charges are payments in consideration for arrangement for facility provided for transmission of power. Accordingly, the appellant was obligated to deduct TDS on such payment, as per the provisions of Section 194I of the Income Tax Act, which he has failed. As regards the applicabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beneficiaries are to pay to PGCIL a monthly charges computed in the manner set out in clause 9 of the said agreement. This clause, in turn, refers to formula set out in A.4 of Annexure 1 which refers to the same ratio of agreed annual charges divided by 12 as is between power transmitted to each beneficiary to total sales from that particular point of delivery. In other words, while the annual charges are fixed, these are divided between the beneficiaries in the same ratio as is ratio of power evacuated by a beneficiary to the total sale of power from that delivery point. It is, however, not in dispute that the transmission lines are in the physical control of PGCIL, these are maintained and operated by the PGCIL and, so far as the assessee is concerned, its interest in the transmission lines is restricted to the fact that electrical power purchased by the assessee, simultaneously alongwith electrical power purchased by other bulk power beneficiaries, is transmitted through these transmission lines. The way it works is like this. The power available at the delivery points, collectively for all the bulk power beneficiaries, is loaded for transmission on these transmission lines or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any, -, (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings, whether or not any or all of the above are owned by the payee;] (ii) where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. 13. The case of the Assessing Officer, which has been sustained in the first appeal, is that since expression "rent", for the purpose of Section 194I, includes "any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement" for the use of machinery, plant or equipment, and since the assessee has made the payments towards transmission charges for use of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the PGCIL. Undoubtedly, for the purpose of an arrangement being termed as in the nature of rent for the purpose of Section 194I, the 'control' and 'possession', in legal terms, of an asset may not not needed to be with the person benefiting from the asset in question, it is a condition precedent for invoking Section 194I that the asset, for the use of which the payment in question is made, should have some element of its control by the assessee. Here is a case in which the assessee has no control over the operations of the transmission lines, and all that he gets from the arrangements is that he can draw the electrical power purchased from PGCIL's transmission lines in an agreed manner. 16. While on the issue of distinction between use of an asset and benefit from an asset, we may usefully refer to the following distinction brought out by the Karnataka High Court between leasing out of equipment and the use of equipment by its customer. This was done in the case of Lakshmi Audio Visual Inc. vs. Asstt. Commr. of Commercial Taxes (124 STC 426), which has been followed by Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Ltd (332 ITR 340), in the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omer (say a factory) entering into a contract with the transport operator, under which the transport operator has to provide a lorry to the customer, between the hours 8 a.m. to 8 p.m. at the customer's factory for its use, at a fixed hire per day or hire per km. subject to an assured minimum, for a period of one month or one week or even one day; and under the contract, the transport operator is responsible for making repairs apart from providing a driver to drive the lorry and filling the vehicle with diesel for running the lorry. The transaction involves an identified vehicle belonging to the transport operator being delivered to the customer and the customer is given the exclusive and effective control of the vehicle to be used in any manner as it deems fit; and during the period when the lorry is with the customer, the transport operator has no control over it. The transport operator renders no other service to the customer. ......." 17. It is thus clear that in a situation in which the payment in made for the use of an asset simpliciter, whether with control and possession in its legal sense or not, the payment could be said to be for the use of an asset. However, in a situ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of' an asset - the precise point of controversy in the present decision. Clearly, a hotel customer pays for the use of, or the right to the use of, the hotel room. It is for the same distinguishing feature that decisions in the cases of JC Bansal Vs TRO (123 ITD 245) and CIT Vs. Rebook India Co. are not relevant in the present context. 19. It is also important to bear in mind the fact that by the virtue of insertion of Explanation to Section 191 with effect from 1st June 2003, a person can be treated as an assessee in default under section 201(1) only when there is lapse in deduction of tax at source on his part and, in addition to this lapse, the recipient of income has also failed to pay such tax directly. The reasons are not difficult to fathom. Proceedings under section 201(1) are not penal proceedings. These are vicarious proceedings to make good the shortfall in tax collection, and when the tax liability is duly discharged by the recipient of income embedded in the payment, such a vicarious liability cannot be invoked. The lapse of non-deduction or short deduction of tax at source is to be visited with several consequences. The first and foremost consequence is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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