TMI Blog2019 (10) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... 4I 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 assessee is only discharging the liability, but not making any payment to Klenn Marshall - It is true that the tax deduction is required to be made on the payment which results into income of the beneficiary. The same attracts deduction at source. Every payment may not attract the TDS at source. In the instant case, the Ld.AR argued that the company M/s AP Transco is following the mercantile system of accounting and the liability was related to the F.Y.2003-04 and 2004-05 pertained to AP Transco, but not related to APSPDCL. Therefore, contended that the provisions of TDS are not applicable. For a query from the Bench, the Ld.AR did not place the financial statements, evidencing that the AP Transco has claimed the expenditure during the F.Y. 2002-03, 2003-04, 2004-05 and credited the amounts to the account of M/s Klenn Marshall and kept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the assessee for non deduction of tax at source over and above 1.75%. - I.T.A.No.452-454/Viz/2010, I.T.A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 attracts the provisions of TDS and failure to deduct the tax at source attracts the provisions of section 201(1) of the Act. Since the assessee has made payments subsequent to 01.06.2007 and no credit entry was made prior to 01.06.2007 in the books of the deductor, the AO held that the assessee is liable to deduct the TDS on the payments made to M/s Klenn Marshall u/s 194I of the Income tax act on the rent payments made to M/s Klenn Marshall during the F.Y.2007-08 and 2008-09 to the extent of ₹ 38,34,243/- as per the details given below : Expenditure Financial Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontradistinction, in 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 electrici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee did not deduct the tax at source at the time of payment of transmission and SLDC charges from month to month but 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming the action of the AO with regard to payment made to M/s Klenn and Marshall and the department has filed the appeals against the order of the Ld.CIT(A) for holding that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case for deduction of tax at source. For a query from the Bench, to establish the liability pertains to 2003-04 and 2004-05 which was being raised by AP Transco, the Ld.AR submitted that he would submit the relevant account copy and balance sheet showing the transfer of liability to the assessee. Thus, argued that there is no case for deduction of tax at source, accordingly requested to set aside the orders of the lower authorities and allow the appeal of the assessee. The Ld.AR further submitted that since the assessee is not paying the income and it was only discharging the liability, there is no case for deduction of tax at source. 16. On the other hand, the Ld.DR vehemently opposed the argument of the assessee and heavily placed reliance on the orders of the lower authorities. The Ld.DR argued that the assessee has made the payment of lease rentals to M/s Klenn Marshall during the impugned 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. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the mercantile system of accounting and the liability was related to the F.Y.2003-04 and 2004-05 pertained to AP Transco, but not related to APSPDCL. Therefore, contended that the provisions of TDS are not applicable. However, for a query from the Bench, the Ld.AR did not place the financial statements, evidencing that the AP Transco has claimed the expenditure during the F.Y. 2002-03, 2003-04, 2004-05 and credited the amounts to the account of M/s Klenn Marshall and kept the payment pending and resultant the liability was transferred to the assessee company. The Ld.AR failed to furnish the balance sheet of AP Transco and the account copy of the Klenn Marshall in the books of AP Transco before transfer and after transfer of the liability. As observed from the order of the AO, it is found that no credit entry was made prior to 01.06.2007, therefore, in the interest of justice, we are of the considered view that this issue requires 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 transferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld.AR argued that the payments made to AP Transco are not in the nature of fee for technical services or royalty, hence, there is no case for applying the provisions of 194J of the Act. Similarly, the Ld.AR argued that SLDC charges are reimbursement of expenses and the question of deduction of tax at source does not apply. The Ld.AR argued that the payment made to AP Transco is for user charges and hence there is no application of TDS and submitted that the case of the assessee is squarely covered by the decision of the coordinate bench of ITAT, Bangalore in the case of Bangalore Electricity Supply Co. Ltd.[2012] 20 ITR (Trib) 365 [ITAT (Bang)] and argued that they are neither in the nature of fee for technical services nor in the nature of royalty, hence, argued that there is no case for application of 194J and requested to uphold the order of the Ld.CIT(A). 21. We have heard both the parties and perused the material placed on record. The coordinate bench of ITAT Bangalore considered the issue in detail and held on similar facts that the payments made to KPTCL are not in the nature covered for deduction of tax at source u/s 194J of the Act. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion TDS requires further consideration on facts and circumstances. 22. The Ld.CIT(A) held that the payments made to AP Transco are in the nature of lease rentals and attracts the deduction of tax at source u/s 194I of the Act. The Ld.AR argued that SLDC charges are reimbursement of expenses and as per the order of the coordinate Bench of ITAT, transmission charges are not covered for the deduction of tax at source u/s 194I of the Act. We differ with the argument taken by the Ld.AR on this issue. Since in the instant case, the payee has accepted before the concerned AO that the payments made to AP Transco are in the nature of rental payments and requested for lower deduction of TDS. Similarly the assessee has taken the argument before the AO that the payment is in the nature of contract and accordingly deducted the tax at source. Both the assessee as well as the payee agreed that the payment made to payee is income and tax required to be taxed on such income and the said conclusion was drawn by the payer and payee as per the recitals of agreement reached between them. In the case of Bangalore Electricity Supply Co. Ltd., during the survey, in the statement recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h in appeal memo in form No.36 column No.5 mentioned the sections of 201(1)/201(1A) of the act, the department did not raise any ground with regard to interest u/s 201(1A) in the grounds of appeal. As a result the AO did not consider the assessee as assessee in default for the A.Y. 2008-09 and 2009-10 for the purpose of section 201(1) and no demand was raised u/s 201(1A), hence, the appeals filed by the revenue for the A.Y. 2008-09 and 2009-10 becomes in fructuous and hence dismissed. 24. The next issue is with regard to demand raised by the AO for the F.Y. 2009-10, relevant to the A.Y. 2010-11 treating the assessee as assessee in default for application of provisions of section 194J of the Act. In the instant case, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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