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2015 (8) TMI 378 - DELHI HIGH COURT

2015 (8) TMI 378 - DELHI HIGH COURT - [2016] 380 ITR 398 - TDS liability on "wheeling charges" - whether it did not amount to "fees for technical services" within the meaning of Section 194J? - whether there is any 'rendering of any managerial, technical or consultancy services (including the provision of services or technical or other personnel)' by PGCIL to DTL by virtue of the BPTA within the meaning of Section 194 J (1) read with Explanation 2 of Clause (vii) of sub-section (1) of Section 9 .....

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ly concurred with the AO only because of "absence of sufficient legal precedent on the subject". Once it is accepted that all what PGCIL does is to transmit the electricity to DTL through the network without any human intervention, it cannot be characterized as a provision of technical services and sought to be brought within the fold of Section 194 J of the Act.

By virtue of the BPTA agreement between DTL and PGCIL there is transportation of the electricity from PGCIL to DTL, through .....

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e as it did not amount to "fees for technical services" within the meaning of Section 194J of the Act is therefore not erroneous. - Decided in favour of the Assessee. - ITA 384/2012, ITA 566/2013, ITA 570/2013, ITA 323/2015, ITA 324/2015, ITA 325/2015, ITA 341/2015 - Dated:- 6-8-2015 - S. Muralidhar And Vibhu Bakhru, JJ. For the Petitioner : Mr Kamal Sawhney, Sr Standing counsel with Mr Raghvendra Singh, Jr Standing counsel For the Respondents : Mr A B Dial, Sr Adv. with Ms Ginny J Rautray and M .....

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d not amount to "fees for technical services" within the meaning of Section 194J of the Act.' The BPTA 2. The Respondent Delhi Transco Ltd. ('DTL') entered into Bulk Power Transmission Agreement ('BPTA') on 21st July 2004 with the Power Grid Corporation India Ltd. ('PGCIL'). In one of the preamble clauses of the BPTA, it was recorded that DTL "is desirous of receiving energy through power grid transmission system on mutually agreed terms and conditions& .....

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charges would be paid to PGCIL by DTL for transmitting private sector power through PGCIL lines 'as per the guidelines. of the Central Electricity Regulatory Commission ('CERC'). Clause 10 stated that the 'transmission tariff. and terms and conditions for the power to be transferred by PGCIL would be in terms of the notification to be issued by CERC from time to time. On the commissioning of the new transmission system DTL was to pay "the provisional transmission tariff in l .....

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January 2009. It was noticed that DTL had deducted tax at source ('TDS') at 2% under Section 194C of the Act on the wheeling charges paid to PGCIL. The statement of one Mr. Surendra Babbar, Deputy General Manager (Finance) of DTL was recorded. Following the survey, DTL wrote a letter dated 29th January 2009 protesting that the survey was without jurisdiction as it could only have been carried out by ACIT Circle 10 (1), New Delhi. A show cause notice was issued to DTL on 20th February 200 .....

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transmission of regular and uninterrupted supply etc., which are technical services". According to the AO, "the value of these services cannot be bifurcated from the total value paid by the assessee to PGCIL for transmission services in the name of wheeling charges. The transmission lines could not be of any use in isolation and without other associated services the transmission of electricity could not have been possible". Accordingly, the AO held that wheeling charges paid by DT .....

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r initiating penalty proceedings under Section 271-C of the Act. The AO held that in terms of the CBDT circular the demand under Section 201(1) would not be enforced but that would not affect the liability of DTL regarding interest under Section 201(1A) of the Act and this worked out to ₹ 78,40,426. The total demand was worked out as ₹ 3,19,87,617. The order of the CIT (A) 7. Aggrieved by the AO's order, DTL filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] .....

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by Ld. Assessing Officer". The CIT (A), therefore, confirmed the said order of the AO. Some relief was granted as far as the calculation of interest payable. The order of the ITAT 8. DTL then carried the matter further in appeal to the Income Tax Appellate Tribunal ('ITAT') by filing ITA No. 755(Del) 2011 (for AY 2004-05). The ITAT agreed with the DTL that what had been availed by it from PGCIL was not a technical service. It was held that DTL was not liable to be saddled with high .....

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the present case. While there might be supervision of transmission work by the technical personnel of the payee "there is no human intervention in so far as the assessee is concerned regarding the transmission". It was further held that even if technical knowledge could be upgraded without "presence of human beings by way of handing over drawings and designs or a technical service can be rendered by robot (machines) without intervention of human element, the classification of the .....

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enior Standing counsel for the Revenue then sought time to examine the said decision and make submissions. Submissions on behalf of the Revenue 11. The submissions of Mr. Sawhney were heard by this Court on the 30th July, 2015. The principal submission of Mr. Sawhney was with reference to Section 194J of the Act and the Central Electricity Authority (Grid Standards) Regulations, 2010. The submissions of Mr. Sawhney was basically twofold. In the first place, he submitted that whether the fees pai .....

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cond broad submission of Mr. Sawhney was that the test adopted by the ITAT was plainly erroneous. The question was not only about whether there was any human intervention in rendering of the services, but whether without technical support or technical inputs it would at all be possible to avail of the services. He submitted with reference to the aforementioned regulations that there was a statutory requirement of the power generation company and the power transmission company to maintain their e .....

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g out a detailed enquiry. 13. Mr. Sawhney spent considerable time distinguishing the judgment of the Bombay High Court in Maharashtra State Electricity Distribution Co. Ltd.(supra). It was submitted that in facts of the case before it, the Bombay High Court did not have an occasion to actually examine whether 'wheeling' was in fact a technical service. Reliance was also placed by Mr. Sawhney on certain observations made by this Court in DIT (International Taxation) v. Panalfa Autoelecktr .....

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equipment and lines maintained by PGCIL. Whatever services the technical personnel of PGCIL were performing was for the benefit of PGCIL itself. PGCIL was acting like a transporter of electricity through its equipments and the charges for that were being paid by the Assessee in terms of the tariff determined by the CERC. In the circumstances, it was essentially a payment for transportation of the electricity and nothing more. He referred to the answers provided by Mr. Rajagopalan, Chief Manager .....

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rts. Mr. Dial also referred to the dictionary meaning of the word 'services'. Ms. Rashmi Chopra, learned counsel supplemented the above submissions and referred to the decision in Union of India v. Martin Lottery Agencies (2009) 12 SCC 209. The relevant statutory provisions 16.The relevant portion of Section 194 J of the Act reads as under: "194J (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of - (a) f .....

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amount equal to ten per cent of such sum as income-tax on income comprised therein....................... Explanation- For the purposes of this section, (a) "professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of Section 44AA or of .....

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a or for the purposes of making or earning any income from any source outside India; or …………………………………………………… 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 se .....

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ission licensee or distribution licensee, as the case may be, are used by another person for the conveyance of electricity on payment of charges to be determined under Section 62." 19. The question that requires to be addressed is whether there is any 'rendering of any managerial, technical or consultancy services (including the provision of services or technical or other personnel)' by PGCIL to DTL by virtue of the BPTA within the meaning of Section 194 J (1) read with Explanation .....

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9; 20. The ITAT has referred to the decision of the Supreme Court in Bharti Cellular (supra) where the question examined was whether "manual intervention is involved in the technical operations by which a cellular service provider, like M/s. Bharti Cellular Limited, is given the facility by BSNL/MTNL for interconnection." While setting aside the decision of this Court in CIT vs. Bharti Cellular Ltd [2009] 319 ITR 139 (Del), the Supreme Court observed that the problem which arose in suc .....

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n of the ITAT Jaipur in Bharti Hexacom Ltd. (supra), it is apparent that after the exercise of examination of experts was completed, and the AO gave his decision, the ITAT came to the conclusion that while for installation, setting-up, repairing, servicing, maintenance and capacity augmentation, human intervention might be required but "after completing this process mere interconnection between the operators is automatic and does not require any human intervention". Consequently, inter .....

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But it is not in every case that the provision of service might involve the element of human intervention. 23. In Panalfa Autoelecktrik (supra), this Court observed that technical services consist of services of technical nature "when special skills or knowledge relating to technical field are required for their provision, managerial services are rendered for performing management functions and consultancy services relate to provision of advice by someone having special qualification that a .....

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by the Assessee for carrying out maintenance, repairs to run the leased aircraft flying hours and for component overhaul and maintenance was "fee for technical services". Answering the question in affirmative, the Court opined that unlike normal machinery repair, the aircraft maintenance and repairs, and their component overhaul maintenance would require specific level of technical expertise. The exclusive nature of these services could not but lead to the inference that they are techn .....

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, professional services, repair service, a life devoted to public service. An activity carried on to provide people with the use of something, as electric power, water, transportation, mail delivery, telephones, etc. Anything useful, as maintenance, supplies, installation, repairs, etc., provided by a dealer or manufacturer for people who have bought things from him." 26. The Bombay High court in the Maharashtra State Electricity (supra) considered, inter alia, whether wheeling charges coul .....

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at 'wheeling charge' "would neither be rent nor fees for technical services". They represented "the charge for permitting use of the STU by persons other than the distribution licence. The transmission charges simply constitute fees for availing of the said transmission utility to be used by open access concept for distribution of electricity to licensees and consumers". 27. In light of the above decisions, it is clear that what constitutes technical services cannot b .....

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was that facilitating interconnection did not require any element of human intervention and was not in fact the provision of technical service. The latter case did require examination of technical experts. The decision of the Bombay High Court, discussed the very issue involved in the present case viz., whether wheeling charges could be characterised as payment for technical service and answered it in the negative. Analysis of the evidence of experts 28. Turning to the case on hand, to understa .....

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29. The other person to whom a questionnaire was sent and replies elicited was Mr. Rajagopalan, Chief Manager (Finance) of PGCIL. The AO appears to have extracted in his order only two of the questions regarding details of the transmission receipts and of the tax liability. What appears to have been omitted are the specific questions to Mr. Rajagopalan, asking him to explain the process of transmission. The relevant questions and the answers given by him are as under: "Q. Please explain th .....

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of sophisticated instruments and technical knowledge to operate and maintain the system and requires technical competent manpower such as qualified engineer etc.? A. The power grid substation consists of substation and transmission towers and conductors. The main equipments are Auto Transformers, shunt reactors, isolated circuit breakers etc. All equipments are auto functioning. Power Grid has both skilled and unskilled man power. The power is carried through equipments and transmission lines on .....

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ween it and PGCIL was essentially for transporting electricity from one point to another and that this is automatic through the network or equipments without any human intervention appears to be correct. The system operated by PGCIL and used for transmission of electricity is no doubt maintained by skilled technical personnel professional. This also ensures that PGCIL complies with the standards and norms put in place by the statutory regulations. However, the beneficiary of such services is PGC .....

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