2009 (4) TMI 489 - AT - Income Tax

Disallowance u/s 36(1)(va) - TDS u/s 194J - Disallowance u/s 40(a)(ia) - Interest u/s 234B - there is no dispute in the present case that the employees contribution to PF and ESI was paid before the due date of filing of return under s. 139(1) though after the statutory dates specified in the respective Acts - this Bench in assessee s own case dt. 30th Sept. 2008 the application under s. 254(2) is pending for disposal - This ground is allowed Regarding TDS u/s 194J - Fees for technical services - 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 where by using such technical systems services are rendered to the others - it is clear that all the parties involved with generation transmission and distribution of electricity are to comply with the direction of State Load Dispatch Centre 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 - 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 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 - Held that provisions of s. 40(a)(ia) are not applicable in the present facts of the case Regarding interest u/s 234B - levy of interest under s. 234B is mandatory but it is so only when the condition precedent for payment of advance tax exist - Since assessee made no default in paying advance tax in regular assessment interest under s. 234B could not be levied in reassessment proceedings - Appeal is allowed by way of remand to AO

Summary

Issues Involved:
1. Addition on account of delay in deposit of employees' contribution to CPF/GPF/ESI under s. 36(1)(va).
2. Disallowance under s. 40(a)(ia) for alleged non-deduction of tax at source on transmission/wheeling/SLDC charges under s. 194J.
3. Charging of interest under s. 234B.

Issue-wise Detailed Analysis:

Ground No. 1: Delay in Deposit of Employees' Contribution to CPF/GPF/ESI

2. The AO disallowed Rs. 17,01,90,088 under s. 36(1)(va) due to delayed payment of employees' contribution to PF and ESI. The CIT(A) upheld this disallowance, referencing the Jaipur Bench's decision in the assessee's own case for previous years. The assessee argued that payments made before the due date of filing the return under s. 139(1) should not be disallowed, citing decisions from Karnataka High Court and Delhi High Court. The Tribunal found that the contributions were paid before the due date of filing the return, supported by various judicial decisions, and directed the deletion of the disallowance. This ground was allowed.

Ground No. 2: Disallowance under s. 40(a)(ia) for Non-Deduction of TDS on Transmission/Wheeling/SLDC Charges

3. The assessee, a distribution company, paid transmission/wheeling/SLDC charges to RVPN, a transmission company, under a transmission service agreement. The AO held that these payments were for technical services, requiring TDS under s. 194J, and disallowed Rs. 2,04,83,00,000 under s. 40(a)(ia). The CIT(A) confirmed this, stating that the services involved technical support and human interface.

4. The assessee argued that the payments were for the use of transmission systems, not technical services, and cited several judicial decisions to support this. The Tribunal examined the transmission service agreement and relevant legal provisions, concluding that the payments were for the use of transmission systems and not technical services. It held that no technical knowledge or services were made available to the assessee, distinguishing the case from others where technical services were provided. The Tribunal also found that the payments were reimbursements of costs, not income, and thus not subject to TDS. Consequently, the disallowance under s. 40(a)(ia) was deleted.

Ground No. 3: Charging of Interest under s. 234B

10. The CIT(A) confirmed the levy of interest under s. 234B, citing Supreme Court and Tribunal decisions that the charging of interest is mandatory. However, the Tribunal noted that interest under s. 234B is applicable only when there is a liability to pay advance tax under s. 208 and s. 209. The Tribunal found that the assessee had no liability to pay advance tax due to carried forward unabsorbed depreciation and no order under s. 210(3) was issued by the AO. Citing judicial precedents, the Tribunal held that interest under s. 234B is mandatory only when the condition for advance tax payment exists. The issue was set aside to the AO for re-adjudication, considering the specific facts of the case.

12. The appeal in ITA No. 132/Jp/2009 was partly allowed.