TMI Blog2009 (4) TMI 489X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - ITA No. 132/Jp/2009 - - - Dated:- 30-4-2009 - Member(s):I. C. SUDHIR., B. P. JAIN. ORDER-I.C. SUDHIR, J.M.: The assessee has questioned first appellate (order) on the (ground) that the learned CIT(A) has erred in facts and law in: 1. confirming the addition of Rs. 17,01,90,088 on account of delay in deposit of emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn are prior to the decision given in the assessee's own case in this issue. 2.1 The learned Authorised Representative relied on the decision of Karnataka High Court in case of CIT vs. Sabari Enterprises (2007) 213 CTR (Kar) 269 : (2008) 2 DTR (Kar) 394 : (2008) 298 ITR 141 (Kar) and CIT vs. P.M. Electronics Ltd. (2008) 220 CTR (Del) 635 : (2009) 177 Taxman 1 (Del). He further submitted that against the order of Tribunal dt. 30th Sept., 2008 an application under s. 254(2) has been filed which is pending for disposal. He also relied on the subsequent decision of this Bench in ITA No. 185/Jp/2008, dt. 13th Feb., 2009 and ITA No. 914/Jp/2008, dt. 31st Dec., 2008 wherein it was held that employees' contribution to PF and ESI if paid before due date of filing of return under s. 139(1) could not be disallowed. The learned Departmental Representative on the other hand relied on the orders of the lower authorities. 2.2 After hearing the parties we find that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction and maintenance of EHV lines and grid sub-stations. The Government of Rajasthan notified the RVPN as the State transmission utility (STU) under s. 14 of the Electricity Act, 2003. 3.3 Sec. 39 of the Electricity Act, 2003 mandates the STU to undertake various functions wherein sub-s. (2) of s. 39, provides as under; "(2) The functions of the STU shall be- (a) to undertake transmission of electricity through intra-State transmission system; (b) to discharge all functions of planning and co-ordination relating to intra-State transmission system with- (i) Central transmission utility; (ii) State Governments; (iii) Generating companies; (iv) Regional power committees; (v) Authority; (vi) Licensees; (vii) any other person notified by the State Government in this behalf; (c) to ensure development of an efficient, co-ordinated and economical system of intra-State transmission lines for smooth flow of electricity from a generating station to the load centers; (d) to provide non-discriminatory open access to its transmission system for use by- (i) any licensee or generating company on payment of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out real time operations for grid control and despatch of electricity within the State through secure and economic operation of the State grid in accordance with the grid standards and the State grid code. (3) The SLDC may levy and collect such fee and charges from the generating companies and licensees engaged in intra-State transmission of electricity as may be specified by the State Commission. 33. Compliance of directions.-(1) The SLDC in a State may give such directions and exercise such supervision and control as may be required for ensuring the integrated grid operations and for achieving the maximum economy and efficiency in the operation of power system in that State. (2) Every licensee, generating company, generating station, substation and any other person connected with the operation of the power system shall comply with the direction issued by the SLDC under sub-s. (1). (3) The SLDC shall comply with the directions of the Regional Load Despatch Centre. (4) If any dispute arises with reference to the quality of electricity or safe, secure and integrated operation of the State grid or in relation to any direction given under sub-s. (1), it s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission system. 4. Allotted transmission capacity Allotted transmission capacity for a Discom shall be sum of the generating capacities allotted to them from State generating stations and inter-State capacities allocated to them from State generating stations and inter-State generating stations by Government of Rajasthan and any additional contracted power with generators/traders, including the inter-Discom trades. The Government of Rajasthan may review and revise the capacity allocations in one or more power stations from time to time and the allotted transmission capacity for Discoms would change to some extent. Additional generation capacity can be contracted by any Discom only with the prior agreement of RVPN and will be subject to availability of transmission capacity and other conditions as per the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulations, 2004. 5. Open access transmission capacity Discoms have the highest priority in allotment of open access capacity on intra-State transmission system under the provisions of the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id or in relation to the directions of the SLDC, it shall be referred to the Commission for decision and pending decision of the Commission, the directions of the SLDC shall be complied with by RVPN and the Discoms. 9. Tariff for transmission and wheeling RVPN shall charge the transmission and wheeling charges for the power transmitted for Discoms as per transmission and wheeling tariff approved by the Commission for the respective year. For the financial year 2004-05, the Commission has approved transmission tariff of Rs. 83.5 per KW of contracted transmission capacity per month. Besides transmission charges of Rs. 83.5 per month, the Discoms shall also pay on quarterly basis a balancing charge equal to difference between the approved AAR recovery of Rs. 12,637 lakhs per quarter and actual billing during that quarter in the ratio of their billing for that quarter. Till the Commission approves a new tariff, the existing tariff shall continue to apply and will be subject to adjustment of issue of a tariff order. Transmission and wheeling tariff during subsequent years shall be applicable on the basis approved by the Commission for respective years. 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Oberoi Hotels (India) (P) Ltd. (1998) 146 CTR (SC) 222 : (1998) 231 ITR 148 (SC); (iv) Continental Construction Ltd. vs. CIT (1992) 101 CTR (SC) 386 : (1992) 195 ITR 81 (SC) 5. The learned CIT(A) in course of appellate proceedings called for a remand report from ITO, TDS wherein he reiterated his contention made in the assessment order by stating that various functions undertaken by RVPN involve human element. He also tried to distinguish the further case laws relied by the assessee. The assessee against this remand report filed its rejoinder. After considering the above, the CIT(A) decided the issue as per his finding in paras 2.7 to 2.10. The summary of these findings are as under: - Even if RRVPN has no income liable to tax, still the provisions of s. 40(a)(ia) does not give any discretion to the AO not to make any disallowance of the expenditure claim on which TDS was deductible and not deducted unless a certificate is issued under s. 197(1). - RVPN has to facilitate and monitor the transmission process by maintaining delivery voltage, transmission performance standards and compliance of grid code as evident from cls. (vi), (vii) and (viii) of transmissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these decisions 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. Rendering of services by following use of technical system is different than charging fees for rendering technical services. The applicability of s. 194J would come into effect only when by making payment of fee for technical services, assessee acquired certain rights which can be further used for its own use/purpose/research. Where facility is provided automatically by 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. In case of Skycell Communications Ltd., it is specifically provided that use of transmission lines to carry the power, transformers to regulate the flow of current, meters to measure that consumption, would not be regarded as amounting to provision of technical services to the consumer so as to warrant deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch Centre. In fact State Load Dispatch Centre is a regulator and controller for optimum scheduling and despatch of electricity, supervision over the intra-State transmission system and responsible for carrying out real time operations for grid control and despatch of electricity within the State. The Rajasthan Electricity Regulatory Commission vide letter dt. 9th Jan., 2009, in Pursuance of the Report of the Committee on Manpower, Certification and Incentives for System Operation and the Ring Fencing Load Dispatch Centre issued by Ministry of Power, Government of India, has directed that SLDC, Hirapura, be recognised a separate entity under Electricity Act, 2003 and accordingly its financial accounts be maintained separately for financial year 2008-09 and onwards. Thus, SLDC is a monitoring authority discharging statutory function. The payment made as SLDC charges is a statutory payment. It is for this reason that it is empowered to levy penalty under s. 33(5) of the Electricity Act, 2003 for non-compliance of its direction. This establishes that SLDC charges are not for any service rendered but a statutory levy. Had it been a payment towards services the users of service could hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n companies and the availability of the transmission system are to be intimated so that there is optimum scheduling and dispatch of electricity within the State. In discharge of this function, the State Load Dispatch Centre, directs the transmission company to maintain the load and frequency at the required level. The operation and maintenance of the transmission system is the duty of the transmission company. For all these work, the State Load Dispatch Centre and the transmission company has its own manpower and technical staff. The Power Line Career Communication Department in RVPN is to facilitate the communication between its two or more sub-stations. The supervisory/technical Staff positioned there does the work relating to State Load Dispatch Centre and the transmission utility. These, manpower do not render any technical service to the assessee. The various points raised in paras 1 to 12 on pp. 6 to 9 of remand report are factually incorrect rather RVPN is to work under direction of State Load Dispatch Centre and the involvement of human element therein does not result in rendering of any technical service to the assessee. (vi) The lower authorities have tried to disti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing its own engineers/technicians in maintaining its transmission system, takes the service of its engineers for its own purpose and not that these engineers provide any technical service to the assessee. What is required to be ascertained is whether the engineers/technicians employed by the assessee provide any technical service to the engineers/technicians of the assessee company and if that is so it does not matter at which place the services are provided. Based on these arguments it was submitted that the conclusion drawn by the lower authorities that the payment of transmission charges to RVPN is a "Fees for technical service" under s. 194J liable for deduction of tax at source is not correct. 6.2 The learned Authorised Representative further argued that the entire mechanism of payment of transmission tariff is determined by an independent regulatory body i.e., Rajasthan Electricity Regulatory Commission to reimburse the actual cost incurred by RRVNL in developing/maintaining its transmission system. The transmission company is not allowed any return on its capital. The tariff is determined on the principle of no profit no loss. Thus no income is paid by the distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rement level for which, it gives direction to the grid sub-station, operation and maintenance of the grid station is manned by senior and skilled engineers which all require human involvement. The decision of Skycell Communications Ltd. is not applicable as assessee is not the ultimate consumer of the electricity and the other decisions relied by the Authorised Representative are on different facts and not on the transmission of electricity. He contended that M/s Hindustan Zinc Ltd. who also transmit the electricity by using the transmission line of RVPN makes deduction of tax at source under s. 194C. He also referred to the survey report under s. 133A in case of M/s BSES Rajdhani Power Ltd., Delhi, M/s BSES Yamuna Power Ltd., Delhi, M/s Delhi Transco Ltd., Delhi, Chatisgarh State Electricity Board and Gujarat Urja Vikas Ltd. wherein the liability of TDS on transmission payment is sought to be covered under s. 194C/194-I/194J. Supporting the order of lower authorities and the cases relied therein he further referred to the decision of Dr. Hutarew Partner (India) (P) Ltd. vs. ITO (2008) 25 SOT 347 (Del) wherein it was held that data processing payments for specialized service are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of transmission/wheeling/SLDC charges. 9. Considering the submission of the parties on the issue as to what is the nature of payment of wheeling/transmission/SLDC charges on the basis of documents on records and the facts explained and the nature of such payments as well as facts on records whether the same is liable for deduction of tax at source under the IT Act, 1961 specifically under s. 194J which provides for deduction of tax at source on payment of fees for professional or technical services and whether s. 40(a)(ia) is applicable on the present facts of the case. 9.1 On going through the various clauses of transmission service agreement we find that as per cl. 3 of the agreement assessee is allowed the user of the transmission system. Clause 5 provides for open access transmission capacity whereby any other customer is also allowed to use the transmission lines for long-term open access and short-term open access. Clause 8 provides for compliance of grid code as approved by the Commission both by RVPN and assessee and further provides that all the parties shall comply with the direction of SLDC for ensuring integrated grid operation for achieving the maximu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "9. Income deemed to accrue or arise in India.-(1) The following incomes shall be deemed to accrue or arise in India: (vii) income by way of fees for technical services payable by- Explanation 2: For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". 9.3 The expression "fees for technical service" as used in s. 194J of the Act has been exhaustively examined by the Hon'ble Delhi High Court in the case of CIT vs. Bharti Cellular Ltd. and the observations are reproduced as under: "13. We have already pointed out that the expression 'fees for technical services' as appearing in s. 194J of the said Act has the same meaning as given to the expression in Expln. 2 to s. 9(1)(vii) of the said Act. In the said Explanation the expression 'fees fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f information); seek permission or approval from for a proposed action'. It is obvious that the service also necessarily entails human intervention. The consultant, who provides the consultancy service, has to be a human being. A machine cannot be regarded as a consultant. 15. From the above discussion, it is apparent that both the words 'managerial' and 'consultancy' involve a human element. And, both, managerial service and consultancy service, are provided by humans. Consequently, applying the rule of noscitur a sociis, the word 'technical' as appearing in Expln. 2 to s. 9(1)(vii) would also have to be construed as involving a human element. But, the facility provided by MTNL/other companies for interconnection/port access is one which is provided automatically by machines. It is independently provided by the use of technology and that too, sophisticated technology, but that does not mean that MTNL/other companies which provide such facilities are rendering any technical services as contemplated in Expln. 2 to s. 9(1)(vii) of the said Act. This is so because the expression 'technical services' takes colour from the expressions 'managerial services' and 'consultancy service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recipient or consideration which would be income of the recipient chargeable under the head 'Salaries'.' This definition shows that consideration paid for the rendering of any managerial, technical or consultancy service, as also the consideration paid for the provision of services of technical or other personnel, would be regarded as fees paid for 'technical services'. The definition excludes from its ambit consideration paid for construction, assembly, or mining or like project undertaken by the recipient, as also consideration which would constitute income of the recipient chargeable under the head 'Salaries'.' Thus while stating that 'technical service' would include managerial and consultancy service, the legislature has not set out with precision as to what would constitute 'technical' service to render it 'technical service'. The meaning of the word 'technical' as given in the New Oxford Dictionary is adjective 1. of or relating to a particular subject, art or craft or its techniques; technical terms (especially of a book or article) requiring special knowledge to be understood; a technical report, 2. of involving, or concerned with applied and industrial scienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce on the payment made for the, power consumed and remit the same to the Revenue. Satellite television has become ubiquitous, and is spreading its area and coverage, and covers millions of homes. When a person receives such transmission of television signals through the cable provided by the cable operator, it cannot be said that the home owner who has such a cable connection is receiving a. technical service for which he is required to deduct tax at source on the payments made to the cable operator. Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision to technical service to the customers for a fee. 6. When a person decides to subscribe to a cellular telephone service in order to have the facility of being able to communicate with others, he does not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. That fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technical service' referred in s. 9(1)(vii) contemplates rendering of a 'service' to the payer of the fee. Mere collection of a 'fee' for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received from technical services." Thus Hon'ble Court while dealing with the case of "transmission of voice" has equated the same with the "transmission of the electricity" and held that the same does not amount to providing the technical service. 9.5 In case of Dy. CIT vs. Parasrampuria Synthetics Ltd. it was held as under: "There may be use of services of technically qualified person to render the services but that itself do not bring the amount paid as 'fees for technical services' within the meaning of Expln. 2 to s. 9(1)(vii). The amount paid are towards annual maintenance contract of certain machinery or for converting partially oriented yard (POY) into texturised/twisted yarn. The technology or technical knowledge of persons is not made available to the assessee but only by using such technical knowledge services are rendered to the assessee. In such a case, it cannot be said that the amount is paid as 'fees for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax at source under s. 194C in respect of payment of transmission charges to RVPN cannot lay down the law. The CIT(A) has given a finding on p. 54 of his order that these payments are not covered under s. 194C against which no appeal is filed by the Department though we are otherwise convinced with the argument of learned Authorised Representative that s. 194C is not applicable on this payment in view of the detailed submission made in this regard at paper book pp. A-23 to A-27. 9.8 The decision relied by the AO in the case of CBDT Ors. vs. Oberoi Hotels (India) (P) Ltd., Circular No. 187, dt. 23rd Dec., 1975 and in the case of Continental Construction Ltd. vs. CIT though relates to s. 80-O of the IT Act, supports the case of the assessee that a technical service is involved where 'information concerning industrial, commercial or scientific knowledge, experience or skill is made available'. In the present case no scientific knowledge, experience or skill is made available/rendered by the RVPN to the assessee. The assessee itself has its own engineers and technicians who consistently monitor and supervise the flow of the electricity to its system and ultimately supplies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges is reimbursement of the cost. Therefore the provisions of Chapter XVII-B are not applicable since there is no payment of income/revenue by the assessee. We find that the tariff is fixed by an independent regulatory body i.e., Rajasthan Electricity Regulatory Commission. The transmission company is not allowed any return on its capital; the tariff is determined on the principle of no profit no loss. From the tariff order we find that tariff is fixed, by estimating the actual cost of operation of RVPN. In case, on the basis of such tariff, any surplus is left with the RVPN, they give credit of the same to the assessee as evident from the extract of the minutes of the board and the copy of the journal voucher by which such credit is given to the assessee. Thus 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. On actual reimburs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... okerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has, not been deducted or, after deduction, has not been paid,- (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-s. (1) of s. 139; or (B) in any other case, on or before the last day of the previous year." 9.12 The bare provision of s. 10(a)(ia) provides for non-deduction of amount which remains payable to a resident in respect of fees for technical services etc. It is not applicable where expenditure is paid. It is applicable only in cases where the payments are due and outstanding. The word payable is not defined though the word paid is defined under s. 43(2) to mean actually paid or incurred. Hence, by implication the word payable does not include paid. The difference in the word paid and payable is also there in the rules for depositin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Buland Motor Land Finance (P) Ltd. vs. Asstt. CIT (2001) 166 CTR (All) 524 : (2001) 247 ITR 701 (All) has held that since the amount assessed for asst. yr. 1989-90 was a loss, there was no liability on the assessee to pay advance tax on the basis of his estimate for the current income for asst. yr. 1990-91. Moreover, there was no order of the AO under s. 210(3). Hence no interest was payable under s. 234B. In the case of Datamatics Ltd. vs. Asstt. CIT (2007) 111 TTJ (Mumbai) 55 : (2008) 110 ITD 24 (Mumbai) AO processed under s. 143(1)(a) return of income filed by the assessee and granted huge refund to the assessee. Subsequently AO reopened said assessment and in reassessment proceedings increased tax liability of the assessee. Consequently AO also levied interest under s. 234B. Tribunal after analyzing the scheme of the Act and various decisions from paras 43 to 55 of its order held that interest under s. 234B is not always mandatory. Since assessee made no default in paying advance tax in regular assessment, interest under s. 234B could not be levied in reassessment proceedings. Following these decisions we hold that levy of interest under s. 234B is mandatory but on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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