TMI Blog2003 (5) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 201(1) of the IT Act, being the amount of tax, which is allegedly short-deducted on payments made to Gujarat Electricity Board. (3) The learned CIT(A)-II, Baroda ought to have held that the appellant's liability under s. 201(1) for payment of an amount of Rs. 50,90,757 is unjustified and, therefore, should have cancelled the order. The appellant pleads that the order under s. 201(1) determining the payment of an amount of Rs. 50,90,757 deserves to be cancelled. 2. Shri S.N. Soparkar, the learned senior advocate appeared on behalf of the assessee. He submitted that the order passed by the learned AO under s. 201(1) creating a demand of Rs. 50,90,757 on account of alleged short-deduction of tax at source is patently wrong and unjustified. 3. The appellant-company, namely, Gujarat State Electricity Corporation Ltd. (GSECL) is engaged in the business of power generation. The appellant entered into an agreement with Gujarat Electricity Board (GEB) on 14th Oct., 1998, titled as "Operation and maintenance agreement". The entire work relating to operation and maintenance of the power project set up by the appellant-company was entrusted to GEB by virtue of the said agreement a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individual or a HUF, who is responsible for paying to a resident any sum by way of: (a) fees for professional services, or (b) fees for technical services, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income-tax on income comprised therein: 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 profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of s. 44AA or of this section; (b) "fees for technical services" shall have the same meaning as in Expln. 2 to cl. (vii) of sub-s. (1) of s. 9." 6. The AO has not held that the payment made by the appellant to GEB was a payment by way of fees for professional services. The AO has observed that the payment made to GEB pursuant to agreement dt. 14th Oct., 1998, to operate and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 194C and not 194J and, therefore, they deducted the tax at source at the rate of 2 per cent. Such bona fide belief entertained by the assessee also justifies the cancellation of demand created by the impugned order under s. 201 passed by the AO in view of the judgment of Hon'ble Gujarat High Court in the case of ITO vs. Gujarat Narmada Valley Fertilizers Co. Ltd. (2000) 163 CTR (Guj) 554 : (2001) 247 ITR 305 (Guj). The appellant-company is an undertaking of the State Government of Gujarat and there is no material on record to show that such a belief was not honest and bona fide belief on the part of the assessee. 8. The learned counsel further contended that GEB to whom the payments have been made pursuant to contract dt. 14th Oct., 1998, was undergoing heavy losses. A copy of the return of income submitted by GEB for asst. yr. 2001-2002 shows that they have declared a loss of Rs. 21,61,70,25,880, No tax is payable by GEB. On the other hand, they are entitled to refund of total amount of tax deducted at source at the rate of 2 per cent. In fact, the appellant-company could approach the AO under s. 194C(4) or under s. 194J(2) for issuing a certificate for non-deduction of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also provide personnel etc., which are required to operate and maintain power plants. The learned Departmental Representative pointed out these clauses in the agreement with a view to highlight that GEB had mainly provided services which come within the ambit of technical services rendered by GEB to the appellant-company for carrying out their business of generation of power and selling electricity produced in their power plants. The provisions of s. 194J(2) are clearly attracted. The learned Departmental Representative also drew our attention to the judgment of the Hon'ble Bombay High Court in the case of Pentagon Engineering (P) Ltd. vs. CIT (1995) 212 ITR 92 (Bom) relied upon by the CIT(A) in the order passed by him. The Hon'ble Bombay High Court in the said judgment has held that s. 201(1A) relating to levy of interest for delayed payment of TDS was mandatory and there was no precondition of consideration of "reasonable cause" for non-payment in time of tax deducted at source under s. 192 of the Act. The learned Departmental Representative thus strongly supported the order of the CIT(A). 10. We have carefully considered the submissions made by the learned representatives of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Parties hereto, intending to be legally bound, hereby agree as follows: .............." The activities required to be carried out by GEB in relation to period II, which is applicable for the year under consideration have been enumerated in para 4.3.2 of the said agreement, which is reproduced below: "4.3.2 During Period 2: The operator shall operate and maintain the facility including such offsite facilities in accordance with prudent engineering and operating practices, and procedures and in accordance with the terms of the PPA. The operator's service in Period 2 shall include, but not limited to, the following required for safe and healthy running of the facility: (i) Operate and maintain the plant/facility in accordance with the terms of the PPA overriding and standard of prudent utility practices. (ii) carry out all performance tests from time to time as required under the provisions of the PPA. (iii) provide technical advice and support to the owner, regarding operation and maintenance issues. (iv) maintain record of quantity and quality of fuel received from the fuel supplier. (v).maintain record of quantity and quality of water received from Guja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of s. 194J by treating the payment made to GEB as payment made by way of "fees for technical services". It will, therefore, be relevant here to reproduce the definition of "fees for technical services" given in Expln. 2 to s. 9(1)(vii) of the Act: "Explanation 2: For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries"." 12. The scope and effect of s. 9(1)(vii), as originally enacted had been elaborated in Departmental Circular No. 202, dt. 5th July, 1976. Para 16.3 of the said Circular is published at pp. 624 and 625 of Income-tax Law By Chaturvedi Pithisaria, Vol-I, is reproduced below: "16.3 The expression "fees for technical services" has been defined to mean any consideration (including any lump sum consideration) for the rendering of managerial, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . to carry on the business activities of operation and maintenance of plants. A separate agreement has also been executed between the appellant-company and GEB on 22nd Jan., 1997, in relation to sale/distribution of electricity produced by the appellant-company as per the terms of power project agreement. On a careful reading of the entire agreement dt. 14th Oct., 1998, we are of the view that the payment made by the appellant-company to GEB was a payment made for carrying out the mega project of entire operation and maintenance of power plants undertaken by the GEB. Such payment would came within the limb of exclusionary part, viz. "consideration for like project" excluded in the definition of "fees for technical services" given in Expln. 2 to s. 9(1)(vii) of the Act. Such payment cannot also be treated as payment of fees for professional services as contemplated in s. 194J. 14. It may now be relevant to reproduce main part of s. 194C of the Act; "194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out of a contract between the contractor and: (a) the Central Government or any State Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, the appellant could obviate all this wasteful litigation by making an application to the learned AO requesting him to grant a certificate for non-deduction of tax at source out of payments required to be made to GEB under the aforesaid agreement, as GEB had substantial loss of several crores and no tax was payable by them. The Hon'ble Gujarat High Court in the case of CIT vs. Rishikesh Apartments Co-op. Housing Society Ltd. has held as under: "Held, that for the asst. yrs. 1974-75 and 1975-76, it was not in dispute that RB, on whose behalf the tax was to be deducted and paid under s. 194C of the Act, had paid more amount of tax by way of advance tax than what was payable and had also paid tax on self-assessment. There was no question of levying any interest on the assessee as the amount which was payable to the Revenue had been duly paid. For the other two years, tax was paid by RB a little late. So far as the late payment was concerned, the AAC held that the assessee had to pay interest under s. 201(1A) for the said years and the assessee had accepted the said finding." 16. The fact that GEB has no tax liability, has not been disputed by the learned Departmental autho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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