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A.C.I.T. Circle-3 (TDS) , Kolkata, Commissioner of Income Tax TDS, Kolkata Versus Haldia Development Authority

2018 (1) TMI 549 - ITAT KOLKATA

TDS u/s 194J - awarding right to supply water to consumers in Haldia - scheme of sharing of amount deposited in the revenue collection account, the assessee is taking and accounting only license fee as income in its books of account - Held that:- The assessee did not engage HWML to render any service. Under the said agreement, dt. 18th July, 2008, the assessee transferred to HWML, for an agreed consideration and for a specified period, its right to supply water to consumers in Haldia and conferr .....

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riff, equally with HWML. During the currency of the agreement, the assessee was to receive only license fee and an agreed share in additional revenue from HWML. The revenue from Water Bills raised belonged to HWML. Thus there is no payment of any amount of any kind for any service by the assessee to HWML. - Under these circumstances, the conclusion of the Assessing Officer that Section 194J of the Act, applies, is bad in law. - Decided in favour of assessee. - C.O. No. 33/Kol/2016 A/o. I.T.A .....

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er of Income Tax (Appeals)-24, Kolkata, for the Assessment Years 2010- 11, 2011-12 & 2012-13, passed u/s 250 of the Income-tax Act, 1961 (hereinafter the Act ), dt. 19/01/2016. Cross-Objections have been filed by the assessee. 2. As the issues arising in all these appeals are common, for the sake of convenience they are heard together and disposed off by way of this common order. 3. The Assessing Officer passed an order u/s 201(1) and Section 201(1A) of the Act, raising a demand on the asses .....

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er supply in the Haldia Township, is not subject to TDS. 2. Under the facts and circumstances of the case, the CIT(A) has erred in not giving any finding on the issue, when the Assessee Deductor took second alternative lea before him that in case the payment is liable for deduction of tax at source, applying the ratio of Hindustan Coca Cola Ltd. case, there would have been no default as the payee HWML has paid the due tax on the receipt, thereby denying the Department of charging interest u/s 20 .....

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iability on the Respondent-assessee to deduct tax. 2. For that there being no payment of any amount made by the Respondent-assessee to Haldia Water Management Ltd., that would entail any liability to deduct tax, provisions of Sec. 194J had been wrongly applied by the Assessing Officer. 3. For that further ground of appeal may kindly be allowed to be taken at the time of hearing of the appeal. As the grounds of cross-objection of the assessee, for all the Assessment Years are identical, they are .....

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ty, dealing mainly with the plans and executing works relating to basic infrastructure development. The nature or work includes construction of roads, providing water supply, drainage facilities, street lighting. installation of tubewells and other development works within the planning area of Haldia Development Authority (H.D.A). 1.1. In course of survey proceedings, it was observed that the H.D.A. while making certain payments did not deduct TOS as per provisions of the LT. Act, 1961. The issu .....

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ollection account maintained at PNB, Durgachowk branch, Haldia and the revenue was shared between H,D.A. and HWML as per the said agreement. 2.2 Regarding salient features of the said concession agreement, the A.R. of the assessee filed a submission on 25.02.2013 and as per the said communication, the H.W.M.L. is responsible for the following: 1 . To extract raw water from the Hooghly/Roopnarayan River and the 15 tube wells constructed from Mahishadal to Chityanapur and such other sources of raw .....

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stomer Service Rules; 7. To bear and Pay all expenses, costs and charges incurred in the fulfillment of the agreement. The said communication also speaks about the methodology of sharing the revenue so collected from the consumers. After the realization of bills from the customers, the proceeds is deposited in an account maintained (Named as Revenue Collection Account) with PNB, Durgachak, Haldia. After every month or so, H.D.A. used to instruct the Banker to transfer Licence Fees to the account .....

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pair or otherwise make improvements to the project to comply 'with other requirements set forth in the agreement, Good Industry Practice, Applicable Laws and Applicable Permits and manufacturers guidelines and instructions ... ". Hence, it is apparent that HWML is- rendering technical services for the entire water treatment plant and for other auxiliary functions in terms of generation and distribution of water in the city of Haldia. 24. From the details of the agreement and the functio .....

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es are transferred to ESCROW A/c and that in the accounting procedure followed by the assessee and the scheme of sharing of amount deposited in the revenue collection account, the assessee is taking and accounting only license fee as income in its books of account. The Assessing Officer concluded that the gross receipt of bills collected by HWML constitutes income of the assessee and the amount transferred to ESCROW A/c is a payment made by the assessee and just because there were no debit entri .....

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ars the facility is completely under the control of HWML, which is required to incur all expenses for maintaining and operating the water facility. The revenue is being collected by HWML which is being deposited in the revenue collection account, from which HDA the appellant deductor is transferred licence fee. There is provision for additional payments from the said revenue collection account to the appellant but that situation did not arise as the volume of water supplied did not exceed the st .....

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handed over to the appellant HDA wi1hout payment of any cost to HWML. Thus the A.O.'s observation that HDA received technical services and paid fees for it is not based on any material. 3.2 On the question whether HDA is liable to deduction u/ s.194J alternatives submission as given in para 6 of, the appellant's submission dated 08.12.2015 is also relevant. There is material to suggest that the appellant did not pay any amount to HWML as fees for technical services or other sums. 8. We .....

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"(aag) 'Project' means, subject to the provisions of this Agreement, the development, financing, design, construction of the New Facilities Rehabilitation/ Replacement, Work of the Existing Facilities (iii) Operation a Maintenance (O&M) of the Project Facilities and all activities incidental thereto including but without limitation engineering, testing commissioning and insurance (iv) billing and collection of Water Charges; v) transfer of the Project Facilities to the H.D.A. on .....

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he project subject to the terms and conditions set forth in the agreement. The concession granted, obliged or entitled (as the case may be) the said company to, inter alia, the following : - (i) right of way, access and licence to the site and the existing facilities; (ii) right to extract raw water free of charge; (iii) monitor, manage, occupy, repair, operate and maintain the existing facilities; (iv) develop, design, engineer, finance, procure, construct, operate and maintain the new faciliti .....

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all expenses, costs and charges incurred in the fulfillment of its obligations under the agreement; 4.3 The words/ expressions "Revenue", "Water Charges" and "water Tariff' were defined vide clauses (aar}, (aaag) and (aaai) of Article 1.1 as follows - "(aar) 'Revenue' means the pre-tax gross revenues of the Concessionaire for any period including all amounts received (or which would have been received) from Customers for the Services and all other net a .....

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means the amount determined, levied, demanded, collected, retained and appropriated by the Concessionaire as per Water Tariff from Customers for Services, including any duties, levies, Taxes, cess or other charges that] lay be imposed in relation to the Services and which are passed on/through to the Customers; "(aaai) 'Water Tariff' means the amount to be charged by the Concessionaire in accordance with the Water Tariff Notification issued by the H.D.A from time to time in this re .....

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ction. 4.6 Article 7.1 contained the obligations of the said company. The said company at its own cost and expense was to, inter alia, provide and manage the supply of water to customers, monitor, manage, operate and repair the project facilities, pay in timely manner to the assessee the licence fee as per the agreement, collect in the name and on behalf of the assessee water charges from the assessee undertake the rehabilitation/ replacement work of the existing facilities, achieve commercial o .....

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Article 8.3.8, the cost of carrying out the rehabilitation/ replacement work of the existing facilities was to be borne by the assessee and the said company equally subject to the condition that the total cost of the rehabilitation/replacement over the period of five years did not exceed ₹ 10 crores. Any excess over ₹ 10 crores was to be borne by the said company. As per Article 8.4.1, the assessee was to reimburse its share of such cost on the basis of completion of such work as ma .....

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of the assessee. In consideration for the grant of the concession, the said company was to pay an annual licence fee as per Appendix VII on monthly basis and also share any additional revenue realised from customers on account of either the sale of water beyond the trigger volume (to be shared in the ratio 50:50) and/ or increase in the water tariff/above the minimum tariff increase (to be shared in the ratio of 70:30). Any increase in the power cost due to increase in the power tariff beyond t .....

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the said account towards taxes, operation and maintenance expenses of the said company, licence fee to which the assessee was entitled, sharing of additional revenue, admitted claims of either party and transfer of the balance amount to the said company. For payment of operation and maintenance expenses, the Revenue Collection Bank was to act on the claim of the said company duly supported by proof of approval of operation and maintenance budget for the purpose of payment of licence fee to the .....

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s will be transferred. 4.14. The revenue collection agreement between the said company, the Revenue Collection Bank, namely, Punjab National Bank and the assessee was made on January 12, 2009. It would appear from the said agreement that the revenue collection account was a trust account and the Revenue Collection Bank was the trustee and held the money for and on account of the said company and the assessee in accordance with their respective entitlements. The said company and the assessee were .....

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expenses from the Revenue Collection Bank by making a claim duly supported by appropriate documentary proof of approval of the operation and I maintenance budget. The provisions regarding priority of payment from the revenue; collection account were the same as in Article 11.5 of the concession agreement dated July 18, 2008. Article 6.3 provided that upon closure of the revenue collection accd.mt, .the balance was to be paid to the said company. Because the revenue collection account was a trust .....

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t e said company. The said bank account was reflected by the said company in its books of account. The said company accounted for all the expenses incurred by it for supply of water to the consumers including in respect of operation and maintenance of the water supply project and for the water charges billed to the consumers. The licence fee paid/payable to the assessee was shown by the said company as an item of expense. During the material period, no additional revenue arose in terms of the a .....

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