TMI Blog2012 (11) TMI 385X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest under section 201(1A) of the Act. 2.2 During the course of hearings, the learned Authorised Representative submitted that in view of the filing of separate appeals for levy of penalty for non-deduction of tax under section 201(1) and charge of interest under section 201(1A) on 9.5.2011, the original appeals filed by the assessee viz. ITA Nos.546 to 548/BANG/2010 are now not maintainable and may be treated as withdrawn. In this view of the matter, the appeals in ITA Nos.546 to 548/BANG/2010 filed by the assessee for Assessment Years 2005-06 to 2007-08 are accordingly dismissed. 2.3 In view of the facts mentioned above at paras 2.1 and 2.2, the following appeals now remain to be decided : Assessment Year Department Appeals u/s. 201(1) r.ws. 194J Department appeals u/s. 201(1A) Assessee s appeals u/s.201(1) r.w.s. 194J Assessee s appeals u/s.201(1A) 2004-05 541/BANG/2010 256/BANG/2011 -- - 2005-06 542/BANG/2010 257/BANG/2011 530/BANG/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ESCOM purchased electricity directly from KPTCL and was charged both for cost of electricity and cost of transmission. From 10.6.2005, BESCOM was directed by the State Government that in accordance with the Electricity Act, 2003 should purchase electricity directly from generators of electricity and to avail the transmission network of KPTCL upto the interface points. The tariff for both power purchase and transmission charges was periodically reviewed by KERC keeping in view all aspects of costs involved in transmission in order to have equitable and justifiable prices in fixation of power costs to the public. Similarly, BESCOM has also availed the transmission network of Power Grid Corporation of India Ltd. (PGCIL) for drawing electricity from central generating power stations owned by National Thermal Power Corporation (NTPC) and Nuclear Power Corporation (NPC) at the transmission tariff fixed by the Central Electricity Regulatory Commission (CERC). 3.3 The bifurcation of the function of Karnataka Electricity Board (KEB) between the above 7 entities necessitated the formation of a co-ordinating body to resolve probable conflicts of interest that may arise among them. In antic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CTR 258) (Del) and ii) Skycell Communication Ltd. Vs. DCIT (251 ITR 53) (Mad) The statement of C. Sreenivasan, Chief General Manager (F C) of the assessee company was also recorded on 28.1.2009 in which he was examined as to why the assessee company had not made TDS in accordance with provisions of section 194J when making these payments. He has also stated that the provisions of section 194 J for TDS to be made from payments of transmission charges to KPTCL and SLDC charges were not applicable in the assessee s case. The Assessing Officer, however, held that both these payments made by the assessee (a) to KPTCL for transmission charges and (b) SLDC charges, were payments for technical services rendered and were liable for deduction of tax at source under section 194J for the following reasons which emanate from the order of assessment; i) The list of works performed by KPTCL for the assessee is a service. ii) Transmission of electricity is a technical service as it is not just a case of using the system set up by KPTCL. But, KPTCL has to perform certain activities to provide the service and to maintain the quality thereof for which technical support of sophisticated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest under section 201(1A) was sustained by him. 3.7.2 Transmission charges paid to KPTCL. In the course of hearings before the learned CIT(A), the assessee placed reliance for its claim for not being liable to deduct tax on payments of transmission charges to KPTCL and SLDC charges on the facts and decision of the Hon'ble ITAT, Jaipur Bench in the case of Jaipur Vidyut Vitram Nigam Ltd. Vs. DCIT (2009) (123 TTJ 888) (JP). The learned CIT(A) was of the view that the facts of the cited case (supra) were exactly similar to that of the assessee (BESCOM) and the finding therein applicable to it. He was of the opinion that, the services involved in transmission of electricity was automatic from the generating point of KPTCL to the receiving point of the assessee and was rendered by machines not by humans. The services rendered by humans in this process was to operate and maintain the transmission system of KPTCL and no services were rendered to the assessee. He, therefore, in paras 15.6.0 and 15.7.0 of his order proceeded to hold that the payment of transmission charges by the assessee to KPTCL were not in the nature of fees for technical services and therefore the payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emunerated exists in the deductor s case. e) The CIT(A) has erred therefore in holding that the provisions of section 194J do not apply. f) The CIT(A) has erred in not holding that such payments are liable for a deduction under section 194I for use of equipments as per his own findings. g) The CIT(A) has erred in not directing the Assessing Officer to recomputed the interest under section 201(1A) by applying the provisions of section 194I of the Act. h) For these and other grounds that may be urged during the course of appeal. ii) In ITA Nos.256 to 260/BANG/2011 (for A.Ys 2004-05 to 2008-09), Revenue has challenged the action of the learned CIT(A) in not directing the Assessing Officer to recompute the interest chargeable under section 201(1A) of the Act. 4.2 The learned Departmental Representative submitted that in these appeals the question was whether TDS was liable to made on transmission charges paid by the assessee to KPTCL in accordance with the provision of section 194J. He further submitted that the operating and maintenance of the transmission system of electricity is as technical as generation and requires to be manned by skilled technicians w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supposed to do namely, processing of bills of patients for their entitlements. TPA s also render professional services to Insurance companies for settlement of claims for payment as per insurance policies. He stressed that there is a clear and direct human element involved in the services given by TPA s and therefore the provision of section 194J were attracted in taht case. Similarly in the case of Kotak Securities Ltd. (supra), the learned Authorised Representative pointed out that their Lordships had held that the stock exchange had provided managerial and technical services to the Brokers/Members for regulating the carrying on of trading for which transaction charges paid constitute fees for technical services covered under section 194J. In the assessee s case, however, he submitted it is only the transmission of electricity by KPTCL to BESCOM which is automatic and the assessee receives no technical service from the personnel employed to maintain KPTCL transmission so as to derive any additional benefit in carrying on of its work of distribution and retail supply of power. In view of this, the learned Authorised Representative urged that the facts of these cases are cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 194J r.w. Explanation 2 to section 9(1)(vii) of the Act. We find it necessary to extract relevant portions of the judgement thereof. Para 9.2: In above connection it is relevant to extract the relevant provisions of section 194J which are as follows : 194J. Fees for professional or technical services --- (1) Any person, not being an individual or an HUF, who is responsible for paying to a resident any sum by way of --- a) Fees for professional services, or b) Fees for technical services, or c) Royalty, or d) Any sum referred to in clause (va) of section 28. shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein: Provided that no deduction shall be made under this section- (A) . (B) . (2)( ..) (3)( ..) Explanation : For the purposes of this section,- (b) fees for technical services shall have the same meaning as in Expln. 2 to clause (vii) of sub-section (1) of section 9; (c) . The expression fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between which it is sandwiched. The word managerial has been defined in the Shorter Oxford English Dictionary, Fifth Edition as: Of pertaining to, or characteristic of a manager of or within an organization, business, establishment, etc. The word manager has been defined, inter alia, as: A person whose office it is to manage an organization, business establishment, or public institution, or part of one; a person with the primarily executive or supervisory function within an organization etc.; a person controlling the activities of a person or team in sports, entertainment, etc. It is therefore, clear that a managerial service would be one which pertains to or has the characteristic of a manager. It is obvious that the expression manager and consequently managerial service has a definite human element attached to it. To put it bluntly, a machine cannot be a manager. 14. Similarly, the word consultancy has been defined in the said dictionary as the work or position of a consultant; a Department of consultants . Consultant itself has been defined, inter alia, as a person who gives professional advice or services in a specialized field . It is obvious that the word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service in the broader sense such as a communication service . But when we are required to interpret the expression technical service , the individual meaning of the words technical and service have to be shed. And, only one meaning of the whole expression technical services has to be seen. Moreover, the expression technical service is not to be construed in the abstract and general sense but in the narrower sense as circumscribed by the expressions managerial service and consultancy service as appearing in Expln. 2 to section 9(1)(vii) of the said Act. Considered in this light, the expression technical service could have reference to only technical service rendered by a human. It would not include any service provided by machines or robots. Para 9.4. The Hon ble Madras High Court in the case of Skycell Communications Ltd (supra), has held as under: 4. Fees for technical services is not defined in section l94J. Explanation (b) in that section provides that expression shall have the same meaning as in Expln. 2 to clause (vii) of sub-s.( of section 9. That Expln. 2 in section 9(l)(vii) reads thus: For the purposes of this clause, fees for technical se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service. When a person hires a taxi to move from one place to another, he uses a product of science and technology, viz., an automobile. It cannot on that ground be said that the taxi driver who controls the vehicle, arid monitors its movement is rendering a technical service to the person who uses the automobile. Similarly, when a person travels by train or, in an aeroplane, it cannot be said that the railways or airlines is rendering a technical service to the passenger and, therefore, the passenger is under an obligation to deduct tax at source on the payments made to the railway or the airline for having used it for travelling from one destination to another. When a person travels by bus, it cannot be said that the undertaking which owns the bus service is rendering technical service to the passenger and, therefore, the passenger must deduct tax at source on the payment made to the bus service provider, for having used the bus. The electricity supplied to a consumer cannot, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elephone fixed or mobile through which the connection is established, the service cannot be provided. However, on that score, every subscriber of the internet service provider cannot be regarded as having entered into a contract for availing of technical services from the provider of the internet service, and such subscriber regarded as being obliged to deduct tax at source on the payment made to the internet service provider. 8. At the time the IT Act was enacted in the year 1961, as also at the time when Expln. 2 to section 9(l)(vii) was introduced by the Finance (No. 2) Act, w.e.f. 1st April, 1977, the products of technology had not been in such wide use as they are today. Any construction of the provisions of the Act must be in the background of the realities of day-to-day life in which the products of technology play an important role in making life smoother and more convenient. Sec. 194J, as also Expln. 2 in section 9(l)(vix) of the Act were not intended to cover the charges paid by the average householder or consumer for utilizing the products of modern technology, such as, use of the telephone fixed or mobile, the cable TV, the internet, the automobile, the railway, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical system is different than charging fees for rendering technical services. The applicability of section 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. Similar is the proposition laid down in other cases relied by the learned Authorised Representative supra. Para 9.7. The arguments of the learned Departmental Representative that human element is involved in providing such service making the payment of wheeling/SLDC charges liable for deduction of tax at source as technical service has no merit as the technical service is not provided to the personnel of the assessee. We are also unable to pursue (sic) ourself with the contention of the learned Departmental Representative that other persons are making deduction at source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses incurred by them, there was no element of any profit involved in the said bills. It was thus a clear case of reimbursement of actual expenses incurred by the assessee and the same, therefore, was not of the nature of payment covered by s, 194J, requiring the assessee to deduct tax at source therefrom. The CBDT Circular No. 715, dt. 8th Aug., 1995 [(1995) 127 CTR (St) 131 relied upon by the A0 in support of his case on this issue was applicable only in the cases where bills are raised for the gross amount inclusive of professional fees as well as reimbursement of actual expenses and the same, therefore, was not applicable to the facts of the present case where bills were raised separately by the consultants for reimbursement of actual expenses incurred by them. As such, considering all the facts of the case, the provisions of section 194J were not applicable to the reimbursement of actual expenses and the assessee company was not liable to deduct tax at source from such reimbursement. Under these circumstances, we hold that the lower authorities were not justified in holding that the assessee is liable for deduction of tax at source on the payment of transmission /SLDC ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e squarely applicable to the case on hand. We are, therefore, of the view that the facts and issues of both cases are identical and in consonance herewith hold that the assessee (BESCOM) is not liable to deduct tax at source on payments of transmission charges to KPTCL as the provisions of section 194I are not attracted. Therefore, Revenue s alternate ground of appeal is rejected. 6.3 In the result, Revenue s appeals in ITA Nos.541 to 545/BANG/2010 and 256 to 260/BANG/2011 both for Assessment Years 2004-05 to 2008-09 are dismissed. 7.0 SLDC Charges 7.1 In respect of SLDC charges, the appeals are directed by the assessee, BESCOM, against the orders of the learned CIT(A)-V, Bangalore dt.29.1.2010 for A.Ys 2005-06 to 2007-08 in ITA Nos.530, 532 and 534/BANG/2011 for non-deduction of tax under section 201(1) and in ITA Nos.531, 533 535/BANG/2011 for levy of interest u/s.201(1A) as he was of the view that the provisions of section 194J were attracted in the assessee s case on this issue. The reasons for the CIT(A) s finding has been brought out in para 3.7.1 of this order. 7.2 The grounds of appeal preferred by the assessee against the levy u/s.201(1) for non-deduction of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciate the conclusion of the Assessing Officer that SLDC is not an arm or wing of KPTCL but an independent body constituted under Electricity Act, 2003. 2. The CIT(A) erred in holding even though that persons managing SLDC are deputed from KPTCL to work and it does not constitute part of KPTCL. 3. The functions discharged by the personnel in SLDC even if it is managerial and technical does not in any way make it rendering of technical service to the appellant as the appellant does not use / receive / benefit from the said services in discharging their functions. 4. The CIT(A) failed to appreciate that the amount paid to SLDC is only the reimbursement of the actual expenses as per Karnataka Gazette Notification dated 18.11.2004 which specifies the amount to be paid to SLDC. 5. The CIT(A) failed to appreciate that KPTCL is accounting the receipts and payments in respect of SLDC charges as a Trustee as per the accounting procedure adopted vide Karnataka Power Transmission Corporation Ltd Circular dt.3.12.2005 and the same is not accounted as income by KPTCL as per annual accounts. 6. The CIT(A) failed to appreciate unless SLDC is a statutory authority it can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sement of expenses and, are paid as per the direction of KERC as a statutory levy, the provisions of sections 201 201(1A) are not attracted. The learned A.R. placed reliance on the decision of JVVNL (supra) in which it was held that the learned CIT(A) was not justified in holding that the assessee was liable u/s. 194J for deduction of tax at source on payment of SLDC charges. He, therefore, pleaded for reversing the decision of A.O./CIT(A) as the facts of the case are identical and the decision of the Tribunal in that case should cover the assessee s favourably. 8.2 The learned D.R. supported the finding of the A.O. and CIT(A) that the provisions of section 194J were applicable to SLDC charges and consequently the levy for non-deduction of tax u/s. 201(1) and charging of interest u/s.201(1A) were in order and submitted that the orders of learned CIT(A) be upheld. 8.3 We have heard both parties, perused the material on record and the judicial decisions cited. Admittedly the SLDC is a statutory body constituted by the State Government in pursuance to the mandate to the Electricity Act, 2003 and is an independent body. This constitution is in accordance with section 31(2) ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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