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2012 (8) TMI 1038

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..... e issue raised in the original grounds of appeal. The additional grounds are admitted for adjudication. - ITA Nos.839 to 844/Bang/2011 & ITA Nos.874 to 879/Bang/2011 - - - Dated:- 31-8-2012 - SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER For the Petitioner :: Shri Ramesh Kamalapukar, FCA For the Respondent : Shri S.K. Ambastha, CIT-I(DR) ORDER Per N.V. Vasudevan, Judicial Member The appeals ITA Nos. 839 to 844/Bang/2011 are by the assessee while appeals ITA No.874 to 879/Bang/2011 are by the Revenue. All these appeals are directed against common order dated 29.07.2011 of the CIT(Appeals), Navanagar, Hubli relating to assessment years 2006-07 to 2011-12. 2. The dispute raised in the appeals by the assessee and the revenue are with regard to deduction of tax at source in respect of transmission charges, State Load Dispatching Centre ( SLDC ) charges (under Section 194 J of the Income Tax Act, 1961 ( the Act ). 3. The assessee is a limited company registered under the Companies Act, 1956. It is engaged in the business of buying and selling of electricity. The assessee purchases electricity from the generators of e .....

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..... distinct and different from each other. In respect of SLDC charges, the ld. CIT(A) held that SLDC was not an arm or wing of KPTCL and was an independent statutory body under the Electricity Act, 2003. He further held that SLDC performed the functions which were managerial and technical in nature and rendered only by humans. He therefore held that SLDC charges are fees for technical services. The further argument of the assessee was that u/s. 196 of the Act, there is no obligation to deduct tax at source on payments made to Government and payment to SLDC was payment to Government. On this plea, the ld. CIT(A) held that SLDC cannot be considered as Government and therefore immunity u/s. 196 of the Act was not available. 6. With regard to the transmission charges paid to KPTCL, the ld. CIT(Appeals) held that the same were not in the nature of fees for technical services and accordingly there was no obligation on the part of the assessee to deduct tax at source at the time of making payment of transmission charges to KPTCL. The ld. CIT(A) further held that in cases where the recipient of payment from the assessee have made payment of taxes, then to that extent, the assessee cannot b .....

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..... es 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 fees for technical services has not been defined under section 194J of the Act but Expln. (b) to section 194J of the Act, provides that the said expression shall have the same meaning as in Expln. 2 to clause (vii) of sub-section (1) of section 9. The said section is reproduced herein below for ready reference: 9. Income deemed to accrue or arise in India. (1) The following incomes shall be deemed to accrue or arise in India: .....

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..... ly 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 consultant is a derivative of the word consult which entails deliberations, consideration, conferring with someone, conferring about or upon a matter. Consult has also been defined in the said dictionary as ask advice for, seek counsel or a professional opinion from; refer to (a source of information); seek permission or approval from for a proposed action . It is obvious that the service also necessarily entails human interven .....

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..... se 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 services means any consideration (including any lump sum consideration) for 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 .....

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..... tors 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 the ground that generators are used to generate electricity, transmission lines to carry the power, transformers to regulate the flow of current, meters to measure that consumption, be regarded as amounting to provision of technical services to the consumer resulting in the consumer having to deduct tax at source on the payment made for the, power consumed and remit the same to the Revenue. Satellite television has become ubiq .....

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..... rovider. 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)(vii) 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, the aeroplane, consumption of electrical energy, etc., such facilities which when used by individuals are not capable of being regarded as technical service cannot become so when used by firms and companies. The facility remains the same whoever the subscriber may be individual, firm or company. 9. Technical service referred in section 9(1)(vii) contemplates rendering of a service to the payer of the fee. Mere .....

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..... led 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 on such payment under section 194C/ l94J/194H. The Tribunal then in para 9.10 thereof went on to hold that the assessee M/s. Jaipur Vidyut Vitran Nigam Ltd. was not liable for deduction of tax at source on payment of transmission / SLDC charges to Rajasthan Vidyut Prasaran Nigam Ltd., the transmission company as under : 9.10. We also find force in alternate argument of the learned Author .....

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..... e 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 charges to RVPN. From the relevant portions of the Tribunal decision in the case of J.V.V.N.L. reproduced (supra), we are of the opinion that it is clear that the facts and issues are identical to the assessee s case and that the decision therein is squarely applicable to the assessee s case. We, therefore, respectfully following the decision of the Jaipur Bench of ITAT in the case of JV .....

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..... ised u/s.201(1) r.w.s. 194J and 201(1A) are cancelled. The assessee gets relief accordingly. 10. The parties agreed before us that the facts and circumstances and the basis of the conclusions arrived by the revenue authorities are identical in the cases decided by the Tribunal and the present appeals. In the circumstances, respectfully following the decision of the Tribunal in the case of Bangalore Electric Supply Company Ltd. supra, we uphold the order of the ld. CIT(A) so far as it relates to transmission charges and reverse the order of the ld. CIT(A) with reference to SLDC charges. In view of the above conclusion, the issues regarding levy of interest, the question whether (SLDC) was Government within the meaning of section 196 of the Act and the question whether the liability of the person making payment will stand extinguished on payment of taxes by the recipient of the payment and the question of period of levy of interest u/s. 201(1A) of the Act do not require any consideration. The Revenue has apart from the original grounds of appeal raised has sought to file additional grounds of appeal. These additional grounds of appeal are a reiteration of the stand of the reven .....

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