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2015 (5) TMI 396 - BOMBAY HIGH COURT

2015 (5) TMI 396 - BOMBAY HIGH COURT - [2015] 375 ITR 23 (Bom) - TDS on wheeling and transmission charges - payment made by the assessee to entities like Maharashtra State Electricity Transmission Company Limited (MSETCL) and Power Grid Corporation of India Limited (PGCIL) for the use of transmission lines or other infrastructure i.e. plant, machinery and equipment - whether payment could not be termed as rent under the provisions of section 194I and consequently the provisions of sections 201 a .....

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fact that the revenue itself is confused and unsure as to the nature of the charge. The focus of the revenue is only the requirement of deduction of tax whether under Section 194-I or Section 194-J. This approach is erroneous. The revenue contends that the WT charges could be rent or fees for technical services but in our view it is neither. Wheeling charges represent the charge for permitting use of the STU by persons other than the Distribution licence. The Transmission charges simply constitu .....

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ity, it will not be appropriate to equate the transmission charges or wheeling charges to rent or fees for technical service.

Electricity Act of 2003 was enacted partly on account of deteriorating performance of the State Electricity Boards on account of various factors, including difficulties in power tariff fixation by the erstwhile electricity boards which were unable to take decisions on the tariff in a professional and independent manner. As a result, there were subsidies of unsu .....

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ch was not intended by the Legislature. In this behalf, we find it appropriate to make a reference to the following observations of the Hon'ble Supreme Court in the case of Commissioner of Income-Tax, Bangalore V/s. J.S. Gotla Yadagiri reported in (1985 (8) TMI 5 - SUPREME Court ).

Thus Transmission charges and / or Wheeling charges are not amounts paid under any arrangement for use of land, building, plant machinery, equipment, furniture, fitting, etc. and, therefore, not rent. Equa .....

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se and in law, the Income Tax Appellate Tribunal was justified in holding that the payments of wheeling and transmission charges made by the assessee to entities like Maharashtra State Electricity Transmission Company Limited (MSETCL) and Power Grid Corporation of India Limited (PGCIL) for the use of transmission lines or other infrastructure i.e. plant, machinery and equipment could not be termed as rent under the provisions of section 194I of the Act and consequently the provisions of sections .....

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e of transmission lines could not be considered as rent under section 194I without properly appreciating the factual and legal matrix brought out by the Assessing Officer in the assessment order wherein, in respect of payment of WT charges made without deduction of tax at source made without deduction of tax at source, the Assessing Officer had treated the assessee in default under section 194J as well as 194I which was modified by the CIT(A) as payment covered under section 194I only and the sa .....

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nce Ruling dated 27th August, 2012 in the case of Ajmer Vidyut Vitran Nigam Limited as reported in (2012) 24 Taxmann.com 300 where it has been held that WT charges are fees for technical services ? In our view, the questions are of some importance. We have, therefore, proceeded to admit this appeal. With the consent of both sides we have taken it up and heard it finally. 2. The relevant facts are as under:- The assessee is a company established by the Government of Maharashtra incorporated on 31 .....

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Limited (MSEDCL). 3. The assessee purchases power from various sources and distributes and sells to its consumers. The assessee has entered into an agreement for the purpose of transmission of power titled Bulk Power Transmission Agreement (BPTA). Separate BPTAs have been entered into by the assessee with MSETCL and Power Grid Corporation of India Limited (PGCIL) for transmission of electricity and by using their transmission system from generation point to distribution point across the differen .....

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technical services. 4. The assessee had contended that in the present case, there is no question of payment of Wheeling charges and/or Transmission charges (hereinafter referred to 'WT charges' being treated as a technical service since there was no human service element involved. The only activities are of transmission of the electricity produced to different locations. The AO rejected the assessee's contention that the WT charges includes technical manpower services and it actually .....

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ssessee was liable to deduct tax under section 194J of the Act, the AO was of the view that TDS on payment of WT charges was required to be deducted under Section 194-J of the Act. Admittedly, he did not elaborate the rate of deduction of tax under Sections 194I or 194J of the Act. 5. According to the revenue, the total amount of WT charges paid during the year upto the date of Survey on 18th December, 2008 was 1554.10 crores and the tax ought to have been deducted amounting to 176.08. The asses .....

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tion of Section 194-I of the Act. According to the Commissioner, WT charges were payable for utilisation of the machinery and equipment and although it is described as rent, the WT charges are equivalent to payment of rent for use of the facilities of MSETCL and PGCIL. He ruled that no regular rental or hiring agreement was necessary and the expression any agreement or arrangement referred to in the Explanation to Section 194-J would bring the WT charges within the definition of rent. According .....

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case of Chhattisgarh State Electricity Board (CSEB) being ITA No.20 to 23/BLPR/2010 and an order dated 17th November, 2011 in the case of GRIDCO Ltd. in ITA No.404/CTK/2011 passed by the Cuttack Bench. The Tribunal observed that both the parties, namely, the revenue and the assessee had agreed that the decision in the case of CSEB as also the decision of the Cuttack Bench in the GRIDCO case covers the issue since the facts were similar. The Tribunal extracted portions of its order in the case of .....

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h the Power Grid Transmission System (PGTS) on mutually agreed terms and conditions. In this respect, the Boards are to pay to PGCIL monthly charges computed in the manner set out in the formula. It provided for a fixed charge which was divided between the beneficiaries in the ratio of the power evacuated by a beneficiary to the total sale of power from that delivery point. It is stated that the transmissions lines are in the physical control of PGCIL and these are maintained and operated by the .....

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d each Board is allowed to utilize the power to the extent allocated to it. The Tribunal found that each of the purchasers' entitlements could not be physically identified and that a particular beneficiary is only allowed to use that unidentified portion of power. It is not the transmission of power from one point to another but availability of power on the entire power grid or transmission lines that enables the beneficiary to utilize the power to the extent of allocation. The Tribunal came .....

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charges should have been treated as fees for technical services and tax should have been deducted under section 194-J of the Act. Sections 194-I and 194-J read as under :- 194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to [a resident] any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever .....

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ited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed [one hundred and eighty thousand rupees]: [Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way o .....

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iture; or (h) fittings, whether or not any or all of the above are owned by the payee;] (ii) where any income is credited to any account, whether called Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.] 194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible f .....

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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) from any sums as aforesaid credited or paid before the 1st day of July, 1995; or (B) where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the accoun .....

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, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum by way of fees for professional services or technical services is credited or paid, shall be liable to deduct income-tax under this section :] [Provided also that no individual or a Hindu undivided family referred to in the second proviso shall be liab .....

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such other profession as is notified by the Board for the purposes of section 44AA or of this section; (b) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; [(ba) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;] (c) where any sum referred to in sub-section (1) is credited to any account, whether called suspense account or by any other name, in the books of account o .....

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he deductions to. He defended the interpretation of the AO and the Commissioner. While canvassing the revenue's case, Mr. Chhotaray submitted that the tariff is paid by the assessee under the BPTAs as determined by the Maharashtra Electricity Regulatory Commission (MERC). He submitted that the tariff was fixed and it should be treated as rent . Making reference to Section 194-I, Mr. Chhotaray submitted that the explanation to Section 194I clarifies that rent means any payment, by whatever na .....

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arges and in terms of the BPTAs between the parties, the assessee had paid WT charges to MSETCL and PGCIL for transmission of electricity by using the transmission lines from the generation point to distribution point. He submitted that the assessee has paid advance tax in anticipation of income. Although the total sum of ₹ 1,554.10 crores was paid towards the transmission charges upto December, 2008 and the relevant assessment years it had paid ₹ 1,961.20 crores, TDS in respect of t .....

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the said amount along with interest. 10. In the alternative, Mr. Chhotaray submitted that facility for transmission of electricity through the transmission lines amounted to payment of fees for technical services. With reference to the definition to Section 9(vii) of the Act, he contended that any income by way of fees for technical service was liable to be taxed and and tax was to be deducted at source after 1st April, 1996. Explanation 2 of Section 9(vii) provides that fees for technical serv .....

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objects and reasons sets out the history of the electricity supply industry in India. He took us through the basic structure of the electricity industry and highlighted the fact that Electricity Act, 2003 was intended to consolidate laws relating to generation, transmission, distributing and trading and use of electricity, apart from generally taking measures for development of the industry including rationalisation of tariffs, thereby permitting competition and promoting the interests of the co .....

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yment of rent or fees for technical service. 12. He then relied upon definitions of Open access and Wheeling being transactions under section 2(47) and 2(76) of the said Act and a few other provisions of the Act as discussed hereafter. He also submitted that under Part II of the Electricity Act, the national electricity policy was laid down and further submitted that the State Transmission Utility (STU) was obliged to provide non discriminatory open access through these transmission systems for .....

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Delhi High Court in the case of United Airlines V/s. Commissioner Income Tax & Ors. reported in (2006) 287 ITR 281 (Delhi), wherein the Division Bench of the Delhi High Court had occasion to consider whether landing fees and parking fees for aircraft amounts to rent. In the case of United Airlines, the Delhi High Court was called upon to consider whether use of the air field for landing of Aircraft and thereafter parking of Aircraft which would give rise to landing and parking fees could be .....

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ITR 626 (S.C.) which deals with the interpretation of taxing statutes. He submitted that in construing a taxing statute, the construction beneficial to the assessee could be taken only in case of ambiguity. He submitted that only if two interpretations are possible one favorable to the assessee may be preferred but in the present case, according to Mr. Chhotaray, only one interpretation was possible viz. the WT charges was 'rent'. He then referred to the decision of Supreme Court in the .....

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ic vehicle of ideas and concepts and as ideas and concepts change the Court is called upon to perform a creative function and inject flesh and blood into the dry skeleton provided by the legislature by process of dynamic interpretation and invest it with meaning which would be harmonious law. Relying upon this observation Mr. Chhotaray submitted that the WT charges must be equated to rent. 15. He then relied upon the decision of the Supreme Court in CIT Vs. Bharti Cellular and Hutchison Essar Te .....

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case of Ajmer Vidyut Vitran Nigam Ltd. and sought to submit that by the advance ruling the Chairman had determined that the transmission and surcharge were technical charges and therefore, amenable to provisions of section 194-J. Be that as it may, we are not convinced that an advance ruling should be cited as a precedent. Mr. Chhotaray continued in his attempt to persuade us to hold that tax was deductible at source, whether the WT charges were found to be rent or fees for technical services. .....

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of Sections 194K or 194J being applicable. 18. He submitted that in the case of Chhattisgarh State Electricity Board no appeal had been filed by the revenue and the revenue accepted the decision of the tribunal which was followed by the tribunal in the case of the present assessee as well. He further submitted that even an expanded definition of the expression rent cannot destroy the original meaning of the word. Even assuming the WT charges are to be considered as rent, the charge or levy must .....

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ase had used the runway to land its Aircraft and utilise Airport services and to park the aircraft in course of commercial flying operations. He submitted that specified services had been utilised in that case whereas in the present case, there is no specific determinable usage of any equipment. Merely drawing power and carrying power through transmission lines and transmission system would not amount to renting up equipment or its charge or rent. He submitted that the Maharashtra State Electric .....

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operations on 6th June, 2005. It was further notified that with effect from 17th February, 2005 MSETCL would operate as State Transmission Utility for Maharashtra. Mr.Mistri has relied upon the order dated 27th August, 2006 passed by MERC pursuant to which the Electricity Act recognized transmission as two distinct activities that which deals with (a) facilitation of transmission by the transmission utility and (b) the access to the electricity by the transmission licensee. The order specifies .....

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ttisgarh State Electricity Board. In support of his submission he relied upon decision of the Division Bench of this Court in Income Tax Appeal No.269 of 2013 wherein the Division Bench observed that if the revenue omits to challenge another decision rendered on the same issue by filing an appeal, it must be construed that the revenue had accepted the order by not filing an appeal and, therefore, the revenue should not challenge a subsequent order on the same issue. That in case an appeal is pre .....

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effect although it would largely be relevant for the purpose of the present assessee. We have therefore proceeded to hear Mr.Mistri on merits as well. 20. Mr.Mistri relied upon the decision of the Supreme Court in Commissioner of Income Tax Vs. Narendra Joshi (2002) 254 ITR 606 in which the Supreme Court observed that the revenue not having challenged the correctness of two decisions of the Gujarat High Court must be bound by the principle laid down therein. 21. He then relied upon the decision .....

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t another case relied upon by Mr.Mistri that of Commissioner of Income Tax vs. N.S. Getti Chettiar (1971) 82 ITR 599 the Supreme Court considered the meaning of word gift and whether gift amounted to transfer of property. In that case the facts pertain to portion of immovable property which was subject matter of a registered deed. The question was therefore whether by allotting greater share to the other members of the co-parcener and what they were entitled to the assessee could be held to have .....

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ough the State Transmission Utility (STU) should take the colour of rent . We are inclined to agree with the submission of Mr.Mistri for more than one reason as hereafter set out. 22. Mr.Mistri then referred to the decision of the Supreme Court in case of K.Govindan and Sons and Vs. Commissioner of Income Tax reported in (2001) 247 ITR 192 where the Supreme Court was concerned with the meaning of word Regular Assessment . The Court was of the view that the expression Regular Assessment would be .....

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to transfer. It found that if the Legislature intended to extend the definition to any extinguishment of any rights it would not have included the obvious instances of transfer, sale, exchange etc. It was held that the expression extinguishment of rights therein will have to be confined to the rights on account of transfer and cannot be extended to mean extinguishment of rights without such transfer. He further submitted that in CIT Vs. Gwalior Rayon Manufacturing Co. Ltd. (1992) 196 ITR 149 th .....

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he Hon'ble Supreme Court in the case of Reserve Bank of India Vs. Peerless General Finance and Investment Co. Ltd. & Others reported in (1987) 1 SCC 424 in which the Court was considering the contextual construction and considering what amounted to prize chits . In that case the Court observed that if the Legislature intended to enlarge the meaning of the words and phrases so as to take in ordinary, popular and natural sense of words and included meaning by using words it would do so by .....

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ied upon the decision of CIT vs. Shree Mahalaxmi Transport Company reported in (2011) 339 ITR 484 wherein the Gujarat High Court held that transactions in question being in nature of contracts for shifting of goods from one place to another would be covered as works contracts, thereby attracting the provisions of Section 194C of the Act. Similarly, in CIT vs. Swayam Shipping Services Pvt. Ltd. (2011) 339 ITR 647 wherein the Gujarat High Court held that contract of transportation of goods belongi .....

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d parking fees. The Court had not taken into consideration the facts projected in the Singapore Airlines case in which there is not only use of land but also services rendered by the airport authority in providing facility for landing including the navigational facilities and the payment is measured with reference to various parameters which were given by the International Airport Authority in various circulars. It was further observed that Hon'ble Delhi High Court's decision in United A .....

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the department neither produced any material before the Court on the nature of service rendered for any arrangement or agreement in the nature of a lease deed or licence deed for the use of land so as to characteristic of payments to be called as rent. According to the Madras High Court the explanation to Section 194I contemplated systematic use of land specified, for a consideration under an agreement which carries the characteristic of lease or tenancy. It was held that mere use of land for la .....

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oning the decision of the Tribunal. 27. Even otherwise he submitted that the alternate case under Section 194J was never pleaded. It was never case of the revenue that payment of transmission charges amounted to fees for technical services. Mr.Mistri submitted that perusal of the order of the Tribunal would reveal that no such case of payment of fees for technical services was ever made out. This is purely an afterthought. 28. Mr.Mistri also relied upon circular No.1 of 2008 dated 10th January, .....

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ken a view that payment of WT charges by the assessee amounted to rent . Likewise, he assailed the revenue's alternate contention that payment of transmission charges amounted to fees for technical services. 29. We have heard both learned counsel extensively. Mr. Chhotaray took us through genesis of the Electricity Act in an attempt to establish the revenue's case that the transmission charges that were paid were in fact the charge for using the transmission lines which constitute the ST .....

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s well. This is an admitted document. Both sides are agreed on its existence and contents. 30. The recitals deal with the distribution and supply of electricity to its consumers are quite revealing. The relevant ones are reproduced below as under : (a) MSEDCL is a Distribution Licensee engaged in Distribution and Supply of Electricity to its consumers in its area of supply within the State of Maharashtra through MSEDCL's distribution business (hereafter referred to as MSEDCL ) (b) MSETCL is .....

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censee engaged in distribution of electricity to the consumers and MSETCL is a transmission licensee of the said STU during the licence period MSEDCL is authorised to operate the transmission lines which forms the Intra-State Transmission system. (ISTU). MSEDCL has allotted to MSETCL certain transmission capacity. MSEDCL exploits this transmission capacity allotted to it and distributes power in its area of supply, no doubt for consideration. As far as relationship inter se MSEDCL and MSETCL is .....

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ted to it by MERC. It is thus seen that MSETCL is merely a licensee of the STU / transmission system. However, by virtue of clause (iv) of the BPTA it is MSETCL's obligation to maintain the transmission system in accordance with section 40 of the Electricity Act, 2003. The assessee MSEDCL a distribution license receives operating procedures from MSETCL with respect to dealing with operation interfaces. This includes round the clock communication between the two for handling defaults, dispute .....

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mined on monthly basis and STU shall raise monthly bills comprising monthly transmission charges, late payment of surcharge, outstanding amount, if any. It is therefore, seen that the WT charges payable is not fixed amount describable to rent for use of any system. The transmission charge will fluctuate depending on MERC transmission licence conditions and the transmission license issued to MSEDCL and supply and demand parameters. The payment by assessee MSEDCL cannot be termed as rent for simpl .....

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it is to access upto 8,672 mega watts during financial year 2008-09 in case of this agreement (See clause 4 (iv) of BPTA dated 12th January 2009), subject to availability of the elements of the transmission system. The charge payable by MSEDCL is determined by MERC and not MSETCL. Ownership is a non issue considering the Explanation to Section 194I MSEDCL merely collects the amount in its capacity as a licensee of the system based on the license granted to it by MERC. Furthermore, we find that c .....

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h Centre (SLDC). Thus, the payments are not made to any one entity. 35. The payment being made to any one or both of the entities will not be payment of rent. It is not possible to construe the same as rent even adopting to changing times and technology as suggested by Mr. Chhotaray. Moreover, as stated above MSETCL is merely a transmission licensee. The expression of transmission licensee is defined in schedule I of the definition of BPTA and which reads as under:- 'Transmission Licensee .....

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contemplated such as ceiling rent, crop rent, ground rent, etc. Even taking the widest possible definition of rent, in our view the WT charges cannot be considered as rent. It is well settled that the Court may in its discretion construe the legislative provisions so as giving effect to the intended use and applying the test of contextual interpretation. We are of the view that the expression 'rent' used in Section 194-I does not apply to WT charges or any other part thereof. 37. In our .....

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s vested with an element of possessory control over the subject matter. In the present case, WT charges are bereft of such possessory control and hence in our view, completely outside the purview of the Explanation to Section 194-I. 38. While holding as above we are conscious of the decision of the Delhi High Court judgment in the case of United Airlines (supra) which has been relied upon by the revenue. However, we have also to bear in mind the decision of the Madras High Court in the case of C .....

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ticular airport, a process is set into motion, to guide the aircraft to the runaway, for successful landing and after the aircraft had come to a halt it is led to a parking space allotted to it once again with the navigational help. It is only thereafter that the aircraft is said to be parked till it resumes it flight. As an example Mr.Mistri narrated the use of a toll road (instead of highway). If use of a toll road could be characterised as use of land, it would be an extreme view if we held t .....

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on merits which is why we have proceeded to devote a good deal of attention to these aspects of the matter. 39. The Hon'ble Supreme Court has also shown us some direction in this behalf. While interpreting the expression 'rent', the applicability of Section 194-I must be gathered from whether the WT charge draws its colour from the basic meaning of the expression 'rent'. It is seen from the decision of the Supreme Court in Singapore Airlines (supra) that the meaning of ' .....

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MERC has considered pooling of transmission charges during bulk power transmission from one licensee to another licensee. It is after considering all these aspects that a composite charge method for any such transmission was adopted. Thus, it is seen that the methodology for determining of the transmission tariff could not be determined in a mechanical manner as if the charge was only for use of the STU. The MERC while passing this order on transmission charges had received various objections s .....

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specially when the assessee is discharging a public function. The expression of 'Transmission charges and / or Wheeling charges' entails distribution of electricity in the area of the Corporation and they cannot be subjected to provisions of Section 194-I of the Act. We, however, clarify that this is restricted to the case of the assessee in view of the public function to be undertaken by it, as a result of the restructuring of the Maharashtra State Electricity Board. 42. Now having deal .....

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on discriminatory use of the transmission lines. It uses the STU as and when required to draw electricity from the said transmission utility. MSEDCL will also access electricity by means of transmission lines as contemplated by the expression 'transmit' idefined in 2(74) of the Electricity Act. MSEDCL as a transmission licence may also engage any Wheeling operations as defined in Section 2(76), meaning thereby that the distribution system and facilities of the MSEDCL in its capacity as t .....

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#39;rent' nor fees for technical services. 44. It is pertinent to mention here that section 62 of the Act provides that the Commission may, in the case of supply of electricity fix a maximum ceiling of the tariff, in an attempt to promote competition amongst the distribution licensees. Thus, the very concept of the charge for transmission of electricity and wheeling of electricity, as the case may be, is subject to the tariff that will be determined by the MERC in public interest. Hence it i .....

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red to provide superintendence, maintenance and repairs to the system. However, no such service is rendered by the MSETCL to MSEDCL. MSETCL is obliged to maintain the system by value of operation of law under the Electricity Act. MSEDCL accesses the STU and distributes electricity passing through the STU. Our views stand fortified by the very fact that the revenue itself is confused and unsure as to the nature of the charge. The focus of the revenue is only the requirement of deduction of tax wh .....

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of the above discussion, we are of the view that the WT charges are neither rent nor fees for technical services. Keeping the said interpretation into effect into effect, we find that while interpreting the expression 'rent' in the present scenario, we must bear in mind that taking into account the functioning of MSEDCL which is a public utility, it will not be appropriate to equate the transmission charges or wheeling charges to rent or fees for technical service. 45. We are constraine .....

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p contentions in Income Tax Appeals purporting to raise substantial questions of law when such issues were not before the Tribunal. We also find that the revenue itself has considered and recognized the impracticality of imposing Section 194 to cooling charges levied by a Cold Storage facility. 46. Before parting with this judgment, we must note that the Electricity Act of 2003 was enacted partly on account of deteriorating performance of the State Electricity Boards on account of various factor .....

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