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TMI Blog2019 (10) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has not deducted the TDS. The Assessing officer(AO) also found that the assessee made the payment of transmission and SLDC charges every month to M/s AP Transco Ltd, but no TDS was deducted. In view of the above defaults, the AO issued the show cause notice to the assessee calling for it's objections as to why the assessee should not be treated as assessee in default u/s 201(1)/201(1A) of the Act. In response thereto, the assessee filed its explanation as to why the TDS was not made on transmission charges and lease rentals. The assessee explained that the lease agreement was entered into with M/s Klenn & Marshall by the then A.P.Transco 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that tax is deductible @2.266% as per section 194C of the Act but not under 194J. Thus, the assessee contended that the transmission charges are nothing but the payment made towards transportation of electricity and deduction has to be made u/s 194C of the Act, but not 194J of the Act. The AO considered the explanation offered by the assessee and viewed that transmission and transportation are two different and distinct terms. Transmission comes into picture where a medium is provided to enable something to pass through it. In the process of transmission, the medium of transmission does not move with the thing, but it only enables the thing to pass through it. Whereas in contradistinction, 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 194I of the Act also for the payments made to M/s AP Transco and held that the provisions of section 194I are applicable for the amounts paid by way of rent under lease agreement or arrangement which involves taking possession of the machinery / plant / equipment and in this case, there is no such provision given to the assessee, therefore, held that section 194I is not applicable and section 194J is applicable in this case. 8. The AO found that the assessee has not deducted the tax at source on the payments made during the F.Y.2007-08. During the F.Y.2008-09 also the assessee 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P Transco for transmission of power fall in the category of rentals, but not under work contract or the royalty. The Ld.CIT(A) also considered the certificate issued by the AO of AP Transco for deduction of tax at source @1.75% u/s 197(1) of the Act and accordingly held that the deduction of tax at 1.75% would be adequate to meet the liability. Accordingly, appeal of the assessee is allowed. 12. Against the order of the Ld.CIT(A), the assessee filed appeal challenging the order of the Ld.CIT(A) for confirming 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 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted 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. 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 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. 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. IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 u/s 133A, the assessee canvassed before the AO of the BESCOM that the payments made to KPTCL was not in the nature of royalty or 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reating 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 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, o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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