2012 (11) TMI 385 - AT - Income Tax

TDS u/s 194J - Fees for technical services Whether payment of transmission charges by company engaged in supplying electricity is liable to TDS u/s 194J - The assessee was granted license for distribution and retail supply of power by KERC AO argued that the payments of transmission charges and SLDC charges were payments for technical services rendered - Held that - Following the decision in case of Jaipur Vidyut Vitran Nigam Limited. (2009 (4) TMI 489 - ITAT JAIPUR-A) that the applicability of Sec. 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 customers to avail of the benefit by user of such equipment the same does not result in the provision of technical service to the customer for a fee. Therefore the assessee was not liable to deduct tax at source on payments of transmission charges to KPTCL as the provisions of Sec. 194J are not attracted thereon. In favour of assessee TDS u/s 194I Whether transmission charges liable TDS u/s 194I Held that - The transmission lines are used not only for the transmission of electricity to the assessee but also for transmission to various other entities and the assessee has no say in the manner in which such transmission lines can be controlled. Assessee has no control over the operations of the transmission lines and all that it gets from the arrangement is that it can draw electrical power from transmission lines in an agreed manner. In a situation in which the payment is made only for the purpose of a specific act it cannot be said to be for the use of an asset even if an asset is used in the said process. Therefore Sec. 194I has no application to the impugned payments for transmission of electricity. In favour of assessee TDS u/s 194J - Whether payment for service by State Load Despatch Centre to company engaged in supplying electricity is liable to TDS u/s 194J Held that - As the functions these personnel of SLDC perform may be of managerial and technical nature the assessee or its employees do not receive OR derive any benefit in their sphere of work i.e. distribution and retailing of electricity and neither do they perform any of assessee s work. What is paid by BESCOM as SLDC charges are only reimbursement of actual expenses. Hence not liable to deduct to TDS u/s 194J. In favour of assessee

Summary

Issues Involved:
1. Applicability of Section 194J for non-deduction of tax under Section 201(1) on transmission charges paid to KPTCL.
2. Applicability of Section 194J for non-deduction of tax under Section 201(1) on SLDC charges.
3. Charge of interest under Section 201(1A) on non-deduction of tax for both transmission and SLDC charges.
4. Alternate claim of applicability of Section 194I on transmission charges paid to KPTCL.

Issue-wise Detailed Analysis:

1. Applicability of Section 194J for non-deduction of tax under Section 201(1) on transmission charges paid to KPTCL:

The Revenue challenged the CIT(A)'s finding that no TDS was to be made on transmission charges paid by the assessee to KPTCL as the provisions of Section 194J are not attracted. The Revenue argued that the services rendered by KPTCL involved technical services requiring human involvement and thus should attract TDS under Section 194J. The assessee contended that the transmission of electricity was automatic and did not involve any technical services rendered to it by KPTCL.

The Tribunal, after considering the judicial decisions, including the case of Jaipur Vidyut Vitran Nigam Ltd. (JVVNL), held that the transmission of electricity by KPTCL to BESCOM was automatic and did not involve the provision of technical services to the assessee. Therefore, the provisions of Section 194J were not applicable, and the assessee was not liable to deduct tax at source on payments of transmission charges to KPTCL.

2. Applicability of Section 194J for non-deduction of tax under Section 201(1) on SLDC charges:

The CIT(A) held that the SLDC charges involved rendering services that required managerial and technical expertise, thus attracting TDS under Section 194J. The assessee argued that SLDC was a statutory body and the charges paid were only reimbursements of actual expenses, which did not constitute fees for technical services.

The Tribunal, referencing the Jaipur Tribunal decision in the case of JVVNL, concluded that the SLDC charges paid by the assessee were reimbursements of actual expenses and did not involve the provision of technical services to the assessee. Therefore, the provisions of Section 194J were not applicable, and no tax was to be deducted at source on SLDC charges.

3. Charge of interest under Section 201(1A) on non-deduction of tax for both transmission and SLDC charges:

The Tribunal, having held that the provisions of Section 194J were not applicable to both transmission and SLDC charges, consequently ruled that the levy of interest under Section 201(1A) for non-deduction of tax was not enforceable.

4. Alternate claim of applicability of Section 194I on transmission charges paid to KPTCL:

The Revenue's alternate claim was that the CIT(A) should have held that the provisions of Section 194I were attracted on the transmission charges paid by the assessee to KPTCL. The Tribunal referred to the decision of the ITAT Mumbai Bench in the case of Chhattisgarh State Electricity Board, which held that transmission charges do not come within the purview of Section 194I as the assessee has no control over the transmission lines. Thus, the Tribunal concluded that the provisions of Section 194I were not applicable to the transmission charges paid by the assessee to KPTCL.

Conclusion:

The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeals, holding that neither the provisions of Section 194J nor Section 194I were applicable to the transmission and SLDC charges paid by the assessee. Consequently, the demands raised under Section 201(1) and the interest charged under Section 201(1A) were canceled.