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The Income Tax Officer Versus Gulbarga Electricity Supply Company Ltd. And Vice-Versa

2012 (8) TMI 1038 - ITAT BANGLORE

TDS u/s 194J - non deduction of tax at source in respect of transmission charges, State Load Dispatching Centre (“SLDC”) charges - Held that:- Respectfully following the decision of the Tribunal in the case of Bangalore Electric Supply Company Ltd. [2012 (11) TMI 385 - ITAT BANGALORE], we uphold the order of the CIT(A) so far as it relates to transmission charges and reverse the order of the CIT(A) with reference to SLDC charges. - The issues regarding levy of interest, the question whether .....

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eflected in the original grounds of appeal but on different facets of the 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 No .....

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ct, 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 electricity like Karnataka Power Corporation Ltd. ( KPTCL ), Central Generating Stations like NTPC, NLC Maps and non-conventional electricity generators like Jindal Energy Ltd., Bhagyanagar, Bhourukha etc. and sells the same to different categories of consumers in its juri .....

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to the load centres both with the State and intra-state. The revenue was of the view that the payment for using the transmission lines for transmission of power owned by KPTCL was a payment for technical services rendered and the assessee was obliged to deduct tax at source while making such payment u/s. 194J of the Act. Similarly, in respect of the SLDC charges paid to State Load Dispatching Centre (SLDC) which is an arm of KPTCL, the revenue was of the opinion that tax at source ought to have .....

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r the intra-state transmissions systems; and for carrying out real time operations for grid control and dispatch of electricity within the State. To secure and economics of operations of the state grid in accordance with the Grid Standards and the State Grid Code. The Assessing Officer accordingly held that the assessee was an assessee in default u/s. 201(1) of the Act and also levied interest on taxes u/s. 201(1A) of the Act in respect of Transmission charges and SLDC Charges paid as aforesaid. .....

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hnical 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 service .....

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by the recipients of the payments from the assessee. In this regard, the ld. CIT(A) relied on the decision of the Hon ble Supreme Court in the case of Hindustan Coca Cola Beverages Pvt. Ltd. v. CIT 293 ITR 226 (SC). 7. Aggrieved by the relief allowed by the CIT(Appeals), the revenue has preferred the aforesaid appeals for the AYs 2007-08 to 2009-10; aggrieved by the action of the CIT(A) in confirming the action of the AO with regard to payment of SLDC charges, the assessee has preferred the afor .....

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ully heard both parties, perused the material on record and the judicial decisions cited and relied upon. The two decisions relied on by the learned Departmental Representative are clearly distinguishable on facts as lucidly brought out by the learned Authorised Representative in para 4.3 of this order. The decision of Jaipur Vidyut Vitran Nigam Ltd. (supra) has been perused and we find that the facts of the case and issues are identical to that of the assessee s case and is squarely covered by .....

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ical 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 o .....

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ln. (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: (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 consi .....

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stively examined by the Hon ble Delhi High Court in the case of Bharti Cellular Ltd. ( supra) and the observations are reproduced as under: 13. We have already pointed out that the expression fees for technical services as appearing in section 194J of the said Act has the same meaning as given to the expression in Expln. 2 to section 9(( viz) of the said Act. In the said Explanation the expression fees for technical services means any consideration for rendering of any managerial, technical or c .....

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ognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general. This would mean that the word technical would take colour from the words managerial and consultancy 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, e .....

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sion 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 e .....

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ultant. 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 section 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 automa .....

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onably called, human interface. In the facts of the present appeals, the services rendered qua interconnection/port access do not involve any human interface and, therefore, the same cannot be regarded as technical services as contemplated under section 194J of the said Act. 20. Before concluding we would also like to point out that the interconnection/port access facility is only a facility to use the gateway and the network of MTNL/other companies. MTNL or other companies do not provide any as .....

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cal 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 .....

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s 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 . This definition shows that consideration paid for the rendering of any managerial, technical .....

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ncy 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 sciences: an important technic .....

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nvolving or concerning applied and industrial science . 5. In the modern day world, almost every facet of one s life is linked to science and technology inasmuch as numerous things used or relied upon in everyday life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a pe .....

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ervice 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 ele .....

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s 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 .....

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e connectivity to its subscriber, does not on that score, make it provision of a technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telepho .....

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shed, 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 .....

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ts 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 .....

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der: 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 section 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 knowled .....

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e is not vested with the assessee by which itself it can do research work, the amount paid cannot be considered as fees for technical services within the meaning of section 194J of the Act. Para 9.6. An analysis of above cases lays down the proposition that section 194J would have application only when the technology or technical knowledge of a person is made available to others and not where by using technical systems, services are rendered to others. Rendering of services by allowing use of te .....

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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 pro .....

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ompany as under : 9.10. We also find force in alternate argument of the learned Authorised Representative that the payment of transmission/wheeling/SLDC 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; t .....

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see 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 reimbursement, provision of deduction of tax at source would not apply as held in case of Dr. Willrnar Schwabe India .....

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hnical services and since the amount of bills so raised was towards the actual expenses 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 hi .....

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d 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 .....

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sed 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) thereof and the functions to be performed are as per sections 32 and 32 viz. for optimum scheduling and dispatch of electricity within the state. While it is true that in the relevant period many of its personnel may be, on .....

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ka Gazette Notification on 18.11.2004 and the same are in accordance with the procedure adopted for accounting of charges by the KPTCL Circulars dt.3.12.2005 and 28.11.2005 SLDC charges are not accounted as KPTCL s income. The very same question/issue of whether on payment of SLDC charges the assessee was liable to make TDS in accordance with the provisions of section 194J was before the Jaipur Tribunal in the case of JVVNL (supra) and the Tribunal after considering the issue in detail has come .....

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