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Assistant Commissioner of Income Tax Circle – I, Gulbarga Versus M/s Gulbarga Electricity Supply Company Ltd.,

2016 (9) TMI 551 - KARNATAKA HIGH COURT

TDS u/s 194J - non deduction of tds - payments of transmission charge - mandating deduction of tax at source - Held that:- We answer the substantial question of law raised, in favour of the assessee and against the revenue by saying that the provisions of Section 194J of the Act was not attracted in present case and the assessee was not liable to deduct the tax at source from the payments of transmission charge made by it to the KPTCL and SLDC and therefore, the additions made by the assessing a .....

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late Tribunal, Bangalore Bench A , dismissing the appeal filed by the Revenue, confirming the order passed by the Commissioner of Income Tax (Appeals), Hubli, in CIT(A) 191/HBL/2011-12, insofar as it relates to transmission of charges to State Load Dispatching Centre charges. 2. The brief facts of the case are that- The respondent/assessee, a company registered under the Companies Act, 1956, is engaged in the business of buying and selling of electricity. The assessee purchases electricity from .....

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come on 30.09.2009 declaring loss of ₹ 179,46,45,174/-. The return of income was processed under the provisions of Section 143(3) of the Income Tax Act, 1961 ( Act for short) and the case was taken up for scrutiny. After considering the entire material on record, the ITO (TDS), Gulbarga, conducted a survey as contemplated under the provisions of Section 133A of the Act , found that there were instances where assessee had made payment of transmission charges to KPTCL and State Load Dispatch .....

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hing Centre, which is an arm of KPTCL, the Revenue was of the opinion that tax ought to have been deducted under Section 194J of the Act. 4. The functions of SLDC are prescribed under Section 32 of the Electricity Act, 2003. According to the said provision, it was responsible for optimum scheduling and dispatch of electricity within a State in accordance with the contracts entered into with the licencees or the generating companies operating in that State for monitoring grid operations, keeping .....

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n that such payments made were liable for tax to be deducted at source in accordance with the provisions of Section 194C of the Income Tax Act, but that is not the issue raised in the present appeal, and no substantial question of law has been framed in this regard. 6. The Assessing Officer held that the assessee was an assessee in default under Section 201(1) of the Act in respect of payments for transmission charges and SLDC charges under Section 194J of the Act and also in respect of payments .....

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n payments towards composite contracts without deducting tax at source as required under Section 194C of the Act ₹ 136,18,17,186/- 8. Aggrieved by the said assessment order, the assessee preferred an appeal before the CIT (Appeals), Hubli. The CIT (Appeals), who after considering the entire material on record, relied upon the decision of the co-ordinate Bench of the Tribunal in assessee s own case in ITA Nos.874 to 879/Bang/2011 dated 31.08.2012 for assessment year 2006-07 to 2011-12 and a .....

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DS) in ITA No.530 to 535/Bang/2011 and other cases, proceeded to dismiss the Revenue s appeal, upholding the order passed by the CIT (Appeals) insofar as it related to the transmission charges to SLDC charges. 10. Hence the present Income Tax Appeal is filed by the Revenue under Section 260 A of the Act. 11. This Court, while admitting the Appeal by an order dated 17.08.2015, framed the following substantial question of law: Whether the Tribunal below was justified in accepting the plea of the a .....

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e in the nature of payments for technical services, hence, the tax was required to be deducted at source and the failure on the part of the assessee to deduct the tax at source under Section 194J of the Act disentitles the assessee from seeking any allowance on deduction of the amount from taxing, therefore, the said amount is taxable. He also contended that the Income Tax Appellate Tribunal ( ITAT for short) has not made any mention regarding the ground raised by the appellant with regard to as .....

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or the respondent/assessee sought to justify the impugned order passed by the ITAT confirming the order of the CIT (Appeals) and sought to rely on the decision of the co- ordinate bench of this Court dated 22.03.2016 in the case of The Commissioner of Income Tax and another vs. Gulbarga Electricity Supply Company Limited made in ITA No.438/2012 and connected matters and prayed for dismissal of the appeal of the Revenue. 15. We have given our anxious consideration to the arguments advanced by the .....

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erson, not being an individual or a Hindu undivided family, 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] [(ba) any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company, 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 p .....

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edited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed- (i) thirty thousand rupees, in the case of fees for professional services referred to in clause (a), or (ii) thirty thousand rupees, in the case of fees for technical services referred to in 31[clause (b), or] (iii) thirty thousand rupees, in the case of royalty referred to in clause (c), or (iv) thirty thousand rupees, in the case of sum referred to in clause (d): [Provided fur .....

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indu undivided family referred to in the second proviso shall be liable to deduct income-tax on the sum by way of fees for professional services in case such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.] (2) [***] (3) [***] 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 p .....

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any account, whether called suspense account or by any other name, in the books of account of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply accordingly. 17. It is relevant to state at this stage that the coordinate bench of this Court while considering the said provisions in identical circumstances in the case of The Commissioner of Income Tax, TDS, HMT Bhavan, Bellary Road, B .....

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fulfill the obligations contained in Article 2 of the agreement and to perform other obligations. Assessee has agreed to pay transmission charges on a monthly basis in terms of Article 8 of the agreement. Both parties have agreed to comply with the provisions of the State Grid Code and Regulations and Rules issued by KERC from time to time. 9. SLDC is required to maintain records of quantity of energy flowing through the State Grid and issue State Energy Account under KERC (Terms and Conditions .....

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o any technical services by the KPTCL. Plain and simple intention of the parties to the agreement as discernable from the power transmission agreement is that the assessee was desirous of using the transmission network belonging to the KPTCL in accordance with the provisions of the Electricity Act subject to payment of charges applicable and determined by KERC. KPTCL was willing to provide its transmission network for the purpose of carrying electricity to its users subject to payment of transmi .....

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he Revenue before this Court to substantiate its contention that assessee had availed of any technical services. In our considered view, assessee has done nothing more than transmitting certain quantum of power from one place to the other for a price fixed by KERC. Assessee was oblivious to the technical expertise which the KPTCL may possess. There was neither transfer of any technology nor any service attributable to a technical service offered by the KPTCL and accepted by the assessee. Therefo .....

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the assessee at the outset pointed out that the identical substantial questions of law raised in the case of The Commissioner of Income Tax and another vs. Hubli Electric Supply Company Ltd., (ITA No.437/2012 and connected matters dated 15.12.2015), this Court has answered the same against the revenue. Placing reliance on this judgment, the assessee seeks to answer the substantial questions of law raised in these appeals against the revenue. 7. However, the learned counsel for the appellants-rev .....

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he provisions of Section 194-I of the Act as rent and contends that the appeals are required to be allowed. 8. We are afraid that this stand of the revenue is not appreciable. In the scheme of the Act, the proceedings before the assessing officer constitute the base, if the base is taken out/disturbed/replaced or substituted by any new material, the entire edifice of the proceedings will collapse. The points, which were not the basis of the proceedings or the subject matter of adjudication, cann .....

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revenue in identical cases referred to above i.e., nature of services or transaction entered into between the assessee and KPTCL are not in the nature of technical services to attract the provisions of Section 194-J of the Act. It is not a chance litigation to switch over to a different provision alien to proceedings initiated. It is also discerned that this point was at no point of time raised, considered and examined by the authorities. Sections 194-J and 194-I are two independent provisions .....

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applicable to the facts of the present case. We do not see any reasons to differ from the view taken by the co-ordinate Bench of this Court in Hubli Electric Supply Company Ltd. case (supra). We are in agreement with the view taken by this Court and answer the substantial questions of law raised against the revenue and in favour of the assessee. 19. The Division Bench of the Delhi High Court, while considering the provisions of Section 194J for the assessment year 2005-06 in the case of Commiss .....

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ion and the maintenance of a network of pipes. However, what was conveyed through the pipes and the equipment to the ultimate consumer was water. The equipment and pipes have no doubt to be maintained by technical staff but that did not mean that a person to whom the water was distributed through using the pipes and equipment was availing of any technical service as such. Although the wheeling charges may be fixed by the Commission, that by itself was not a determinative factor. Once it was acce .....

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