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2019 (10) TMI 354

..... payments were made as per the order of the DRT and the TDS provisions are not attracted for payments made to DRT is concerned, we have gone through the order of the Hon’ble DRT. The Hon’ble DRT after considering the facts and merits of the case, allowed the petition filed by Industrial Development Bank of India (in short ‘IDBI’) and directed the AP Transmission Corporation of India to deposit monies payable to the IDBI for the period from September 2002 to October 2003 and for subsequent period covered under the said contract. The DRT has not directed the AP Transco not to deduct the tax at source as required u/s 194I of the Act. The assessee also did not get clarification from the Hon’ble DRT. Therefore, the assessee is bound to deduct the tax at source on the payments made to Klenn & Marshall u/s 194I of the Act. Accordingly, we reject the contention of the Ld.AR on this argument. Contract was between the AP Transco and APSPDCL, but there was no contract or agreement between the assessee and Klenn & Marshall and the liability was related to the period 2002-03 and 2003-04 for which the AP Transco has already raised the liability and the assess .....

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..... t to the A.Y. 2010-11 treating the assessee as assessee in default for application of provisions of section 194J - AO of the payee had issued the lower deduction certificate u/s 197 on 05.11.2009 for payment of transmission charges and SLDC charges for the F.Y. 2009-10 authorizing the payer for deduction of tax at source @1.75% for the amounts receivable by the payee on account of transmission and SLDC charges for the F.Y. 2009-10. The certificate u/s 197 is issued for whole year, but not for part of the year. Once the AO of the payee/or the authority concerned issue’s the certificate for lower deduction the same is binding on the department and the payer is also obliged to deduct the TDS as per the certificate issued by the AO. The certificate is issued considering the estimated income of the assessee for the relevant assessment year and the tax payable thereon taking into consideration of the earlier records as well as the estimated receipts of the current year. This exercise is under taken to avoid unnecessary hardship and the financial burden to the tax payer and to avoid unnecessary refunds to the department which results in to the payment of interest. Therefore, on the .....

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..... ransco in the year 1998 for a period of 6 years for procurement, installation, commissioning and maintenance of certain equipment on monthly lease rental basis and the lease period was expired during the year 2004. It was also submitted that, at the time of lease agreement, there was no provision in the Act to deduct the tax at source on the said payments. Subsequent to expiry of lease period, the matter was locked up in legal disputes and the assessee was paying the unpaid bills pertaining to lease period as per the directions of Debt Recovery Tribunal (in short DRT ), Hyderabad. Hence, argued that there is no liability of TDS and accordingly requested to drop the proceedings u/s 201(1). 3. Not being convinced with the explanation of the assessee, the AO observed that it is true that though there was no provision for deduction of tax at source u/s 194I till 31.03.2007, the Act has been amended w.e.f. 01.06.2007 to provide for TDS on leasing of equipment. The AO further observed that the TDS is required to be made either at the time of credit to the account of the payee or at the time of payment whichever is earlier. Accordingly the AO viewed that the payments made after 01.06.2007 .....

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..... n the case of transportation, the medium which carries the thing also moves along with the thing. Hence, viewed that the process of transmission cannot be equated to transportation. Accordingly, the AO held that the provisions of section 194C are not applicable in the case of the assessee and the AO was of the view that both the assessee and the AP Transco are bound by Electricity Act, 2003 and therefore they carry out their activities in accordance with the provisions of the Electricity Act. As such the nature of transmission charges has to be judged from the view point of Electricity Act but not from the general logic. As per the Electricity Act, 2003, transmission charges are paid for the use of transmission net work owned by M/s AP Transco, but not for carrying out any works contract, hence, such payment for use of equipment being in the nature of payment by way of royalty as mentioned in section 194J and accordingly liable to deduction u/s 194J, but not u/s 194C. 5. The AO further observed that the AP Transco owns a vast network of transmission lines and other equipment required for transmission of electricity. Transmission of electricity can only be carried out under license .....

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..... t deducted the tax on 31.03.2009 after issue of show cause notice at the rate of 2.266% applicable to contracts. However, since, the recipient of transmission and SLDC charges had admitted the income and filed its return of income and paid taxes there on for the respective assessment years, the assessee was not treated as assessee in default u/s 201(1). However, the AO held that the assessee is liable for charging the interest u/s 201(1A) on the payments made to A.P.Transco. 9. For the F.Y.2009-10, the AO held that the assessee is liable for deduction of tax at source @11.33% u/s 194J of the Act on the payment of ₹ 72.90 crores and accordingly treated the assessee as assessee in default u/s 201(1) for a sum of ₹ 8,19,15,900/-. Accordingly the AO raised the demand of ₹ 8,60,38,464/- for the impugned assessment years. 10. Against the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the action of the AO with regard to treating the assessee as assessee in default for the lease rentals made to M/s Klenn & Marshall. The assessee before the Ld.CIT(A) argued that the amounts were deposited in the DRT as per the order dated 13. .....

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..... the TDS is applicable u/s 194I of the Act as rentals, instead of Royalty and upholding the deduction of TDS @1.75%. 13. Initially, the assessee has filed one appeal for all the assessment years with common Form No.36. On being raised the objection for filing one single appeal, subsequently, the assessee has filed the separate appeals for each assessment year. Thus, there was a delay of 3265 days for the A.Y.2009-10 and 2010-11. The assessee also filed the condonation petition requesting to condone the delay stating that since, the original appeal was filed within the limitation, removal of defects may be condoned in representation of appeal papers. We have considered the condonation petition filed by the assessee and observed that the assessee has filed the original appeal within the due date which was defective and subsequently rectified the defect by filing the separate appeal for each assessment year. Therefore, after hearing both the parties, we are of the view that there is sufficient and reasonable cause for the delay, hence the delay is condoned. Assessee s Appeals : 14. The assessee s appeal is with regard to treating the assessee as assessee in default for the payments mad .....

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..... pugned assessment years as detailed in the order passed by the AO. Though section 194I has been inserted in the Act w.e.f. 01.06.2007, since the assessee has paid the lease rentals subsequent to 01.06.2007, the assessee is liable for deduction of tax at source. Further the Ld.DR argued that though the assessee claimed that the payment was made as per the orders of the Hon ble DRT, the Hon ble DRT has not directed the assessee not to deduct the TDS u/s 194I of the Act and there was no clarification in the order of the Hon ble DRT with regard to deduction of tax at source. Since the assessee is making the payment of lease rentals to M/s Klenn & Marshall no sooner, the payments are made or credited, the assessee is liable for deduction of tax at source, accordingly argued that in the instant case, the AO rightly raised the demand u/s 201(1) of the Act and requested to uphold the order of the Ld.CIT(A). 17. We have heard both the parties and perused the material placed on record. With regard to first proposition of the assessee that the payments were made as per the order of the DRT and the TDS provisions are not attracted for payments made to DRT is concerned, we have gone through .....

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..... quires verification at the level of the AO to examine whether the AP Transco has debited the expenditure and transferred liability to the assessee. In case, the expenditure was debited during the A.Y. 2003-04 and 2004-05 and transferred the liability to the assessee, the provisions of TDS would not be applicable since the point of credit would be at the time of raising the expenditure and crediting the account of the beneficiary. As we understand from the argument of the Ld.AR, the assessee is only making payment of the liability already transferred to it, but not paying any lease rentals to the recipient, therefore, we set aside the orders of the lower authorities and remit the matter back to the file of the AO for denovo consideration to examine the actual liability and decide the issue afresh on merits. The appeal of the assessee on this ground is allowed for statistical purpose. 19. This issue is involved for the F.Y.2007-08 and 2008-09 as per page No.3 of the AO s order. The AO had raised the demand u/s 201(1) for the A.Y. 2007-08 and 2008-09 but no demand was raised for the A.Y.2010-11. However, the assessee has filed the appeal for the A.Y.2007-08, 2008-09 and 2010-11 also. .....

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..... the payments made to KPTCL are not in the nature covered for deduction of tax at source u/s 194J of the Act. The coordinate Bench has considered the following case laws while holding that the payments made to KPTCL by BESCOM are not in the nature of fee for technical services nor in the nature of royalty. Jaipur Vidyut Vitran Nigam Ltd. Vs. Dy.CIT (2009) 123 TTJ 888 (JP) and Chattisgarh State Electricity Board Vs. ITO (TDS) [2012] 14 ITR (Trib) 91 (Mumbai). Canara Bank V. ITO [2008] 305 ITR (AT) 189 (Ahd) (para 14) CIT v. Bharti Cellular Ltd. [2009] 319 ITR 139 (Delhi) (paras 13, 14, 23, 25) CIT v. Kotak Securities Ltd. [2012] 340 ITR 333 (Bom) (paras 21, 22) Commissioner of Customs v. Parasrampuria Synthetics Ltd. [2002J 253 ITR 274 (SC) (para 25) Continental Construction Ltd. v. CIT [1%2J 195 ITR 81 (SC) (para 14) Hindustan Coca Cola Beverage P. Ltd. v. CIT [2007J 293 ITR 226 (SC) (para 18) ITO v. Dr. Willmar Schwabe India P. Ltd. [2005] 3 SOT 71 (Delhi) (para) Medi Assist India TPA P. Ltd. v. Deputy CIT (TS) [2010] 324 ITR 356 (Karn) (paras 21, 22) Singapore Airlines Ltd. v. ITO [2006] 7 SOT 84 (Chennai) (para 14) Skycell Communications Ltd v. Deputy CIT [2001] 251 ITR 53 (Mad) .....

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..... technical services. Further submitted that the entire payments were made as per the understanding and the directions of Govt. of Karnataka and therefore, canvassed before the AO that the payment made to KPTCL was neither technical services nor the lease rentals. Further, the coordinate Bench of ITAT Karnataka came to conclusion that SLDC charges are reimbursement of expenses on the submissions made by the assessee, whereas in the instant case, the assessee has paid the transmission charges and the SLDC to the AP Transco as per the agreement reached between both the parties on 04.10.2007. As per the contents of the agreement reached between both the parties, payee as well as the assessee have accepted before the CIT(A)/AO that the payments made would fall in the category of rent. Hence, the decision of coordinate bench in the case of Bangalore Electricity Supply Co., is distinguishable from the facts of the assessee s case and thus the findings of the coordinate bench are not applicable in the assessee s case with regard to application of 194I of the act. Since the payee had accepted that the payments are covered u/s 194I of the Act and the receipt was in come in it s hands we, do n .....

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..... the AO. The certificate is issued considering the estimated income of the assessee for the relevant assessment year and the tax payable thereon taking into consideration of the earlier records as well as the estimated receipts of the current year. This exercise is under taken to avoid unnecessary hardship and the financial burden to the tax payer and to avoid unnecessary refunds to the department which results in to the payment of interest. Therefore, on the basis of the certificate, if the assessee deducts the tax at source @1.75%, the same would be adequate and meet the liability and the AO (TDS) cannot find fault with it. It is accepted principle that the department need not collect the tax more than the tax liability of the tax payer. The department required to collect the correct and due taxes from the tax payer and the collection of more tax would cause financial hardship and effect the cash flow of the taxpayer. That is the reason, the provisions of section 197 were incorporated in the Act, so as to enable the payee to get the relief by obtaining certificate from the AO authorizing lower deduction of tax at source in genuine cases. Thus, we do not see any default in the case .....

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