2011 (11) TMI 125 - AT - Income Tax

Tax deduction at source - electricity transmission charges - use of an asset vs benefit from an asset - Held that - 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 the payments have been made for the services of transmission of electricity and not the use of transmission wires per se. It is a significant fact that these transmission lines are not only being used for transmission of electricity to the assessee but also for transmission to electricity to various other entities. Such payment for the services of transmission of electricity can t be qualified as rent. Decided against the Revenue. The core consideration for invoking Section 201(1) is not the lapse 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.

Summary

Issues Involved:

1. Whether the payments made by the assessee for electricity transmission charges to PGCIL are subject to tax deduction at source (TDS) under Section 194I of the Income Tax Act, 1961.
2. Whether the payments for transmission charges can be classified as 'rent' under the definition provided in Section 194I.
3. Whether the assessee can be treated as in default under Section 201(1) and liable to interest under Section 201(1A) despite PGCIL having paid the taxes directly.

Issue-wise Detailed Analysis:

1. Applicability of Section 194I for TDS on Transmission Charges:

The core issue was whether payments made by the assessee to PGCIL for electricity transmission charges should be subject to TDS under Section 194I. The Assessing Officer held that the payments were for the use of transmission systems and thus constituted 'rent' under Section 194I, necessitating TDS. The CIT(A) upheld this view, stating that the payments were for the use of transmission assets owned by PGCIL, and therefore, fell within the ambit of 'rent' as per Section 194I.

2. Classification of Transmission Charges as 'Rent':

The Tribunal examined whether the payments for transmission charges could be classified as 'rent'. It noted that the payments were for the services of transmitting electricity and not for the use of transmission wires per se. The transmission lines were under the control and possession of PGCIL, and the assessee had no control over their operations. The Tribunal concluded that the payments were for the transmission of electricity, not for the use of the transmission lines themselves. Therefore, such payments could not be classified as 'rent' under Section 194I. The Tribunal emphasized the need for some element of control by the assessee over the asset for the payment to be considered 'rent'.

3. Assessee's Default Status under Section 201(1) and Liability under Section 201(1A):

The Tribunal also addressed whether the assessee could be treated as in default under Section 201(1) despite PGCIL having paid the taxes directly. It highlighted that proceedings under Section 201(1) are not penal but vicarious, aimed at making good the shortfall in tax collection. Since PGCIL had already discharged its tax obligations, the Tribunal held that the assessee could not be treated as in default under Section 201(1). Consequently, the demands under Sections 201(1) and 201(1A) were unsustainable.

Conclusion:

The Tribunal concluded that the provisions of Section 194I did not apply to payments made for the transmission of power by PGCIL. Consequently, the demands raised under Sections 201(1) and 201(1A) were canceled, and the appeals were allowed. The judgment emphasized the distinction between payments for the use of an asset and payments for services involving the use of an asset, clarifying that the latter does not attract TDS under Section 194I.