M/S. Madhyanhal Vidyut Vitran Nigam ... vs Department Of Income Tax

Asst. CIT v. M/s Madhyanchal Vidyut Vitran Nigam Ltd. Range IV, Lucknow 4A, Gokhley Marg Lucknow TAN/PAN:AAECM0108J (Appellant) (Respondent)

ITA No.505/LKW/2012 Assessment Year:2008-09

M/s Madhyanchal Vidyut Vitran v. Asst. CIT Nigam Ltd. Range IV, Lucknow 4A, Gokhley Marg Lucknow TAN/PAN:AAECM0108J (Appellant) (Respondent)

Department by: Dr. Anant Kumar Agrawal, CIT (DR) Assessee by: Shri. R. C. Jain, C.A. Date of hearing: 09 01 2015 Date of pronouncement: 27 02 2015

ORDER

PER SUNIL KUMAR YADAV:

This appeal is preferred by the Revenue against the order of the ld. CIT(A), inter alia, on various grounds which are as under:-

1. The CIT(A) has erred in law and on facts in deleting the addition made by the A.O. of Rs.1,65,32,88,040/- U/s 40a(ia) as the assessee failed to deduct tax at source u/s 194J of the I.T. Act. He failed to appreciate that transmission charges paid :-2-:

by the assessee were in the nature of fees for technical services in the hands of the recipients such payments were therefore liable for TDS u/s 194J of the I.T. Act.

2. The CIT(A) has erred in law and on facts of the case in failing to take into account the Advance Ruling made by Hon'ble Justice Mr. P.K. Balasubramanyan in his ruling AAR no. 1012 of 2010 in which he has held that similar charges received by Rajasthan Rajya Vidyut Prasaran Nigam Ltd., were in the nature of fees for technical services and liable to TDS u/s 194J of the I.T. Act.

2. The grounds raised by the assessee relate to the disallowance of transmission charges paid to U.P. Power Corporation Limited (hereinafter referred to as UPPCL) on non-deduction of TDS under section 194J of the Income-tax Act, 1961 (hereinafter called in short "the Act"), under section 40(a)(ia) of the Act.

3. The facts in brief borne out from the record are that the assessee is a distributor licensee of electricity and made purchase of power and made payment of transmission charges to UPPCL. The payment on account of power purchased was Rs.20,53,55,77,760/- whereas the payment of power transmission charges stood at Rs.1,65,32,88,040/-. The tariff and charges are fixed by the U.P. State Electricity Regulatory Commission (hereinafter referred to as the UPERC). The Assessing Officer examined the issue and came to the conclusion that the assessee was a distributor licensee and UPPCL was a transmission licensee. The transmission charges paid by the assessee to UPPCL were found to be in the nature of fees for technical services. The Assessing Officer accordingly observed that such transmission charges were made without deduction of TDS under section 194J of the Act. The Assessing Officer, therefore, disallowed the :-3-:

transmission charges of Rs.1,65,32,88,040/- under section 40(a)(ia) of the Act.

4. Assessee filed an appeal before the ld. CIT(A) with the submission that transmission/wheeling charges paid by the assessee to the holding company i.e. UPPCL are in the nature of reimbursement. The amount of Rs.1,65,32,88,040/- was revised to Rs.1,14,35,81,259/- as on 2.11.2011 pursuant to the order passed by the UPERC. Adjustment to the extent of Rs.75,56,04,028/- have been done in the next financial year. It was further contended before the ld. CIT(A) that there was no liability for the assessee to recover TDS on the payment of transmission charges, as it is not fixed till date as the order passed by TDS authorities has been set aside by the appellate authority. The ld. CIT(A) re-examined the issue in the light of the orders of the Tribunal in the case of Bangalore Electricity Supply vs. I.T.O. and Maharashtra State Electricity vs. I.T.O. and being convinced with the explanations of the assessee, the ld. CIT(A) was of the view that there is no liability of TDS on the payment of transmission charges under section 194J of the Act. He accordingly set aside the addition of Rs.1,65,32,88,040/- made by the Assessing Officer under section 40 (a)(ia) of the Act.

5. Aggrieved, the Revenue has preferred an appeal before the Tribunal with the submission that the power transmission tariff or the transmission charges paid are purely in the nature of charges paid on technical services and fall within the ambit of provisions of section of Chapter XVII-B of the Act requiring deduction of tax at source under section 194J of the Act and since the assessee has failed to deduct TDS at source on the said amount of Rs.1,65,32,88,040/-, the same was liable to be disallowed as per provisions of section 40(a)(ia) of the Act. It was further contended that the amount paid by the assessee as transmission charges not to UPPCL but directly to UPPTCL i.e. transmission licensee, purely as cost for availing the technical services/expertise for transmission of power. The assessee, :-4-:

UPPCL and UPPTCL are all three different entities and doing three different jobs and roles under different terms and conditions. UPPCL (transmission licensee) supplies power, the assessee company (distribution licensee) distributes power and UPPTCL (service provider) renders technical service to the assessee for transmission of power. As per Electricity Regulator Act, 2003, the transmission licensee i.e. UPPTCL is a service provider and separate agreement is formulated between the transmission service provider and the distribution licensee for receiving the transmission charges for the technical services rendered and the same has nothing to do with the amount paid for purchase of power from UPPCL. Since the technical services provided by UPPTCL to the assessee involves use of sophisticated technology, involvement of human interference in use of the technology, technical expertise along with use of equipments etc, hence the same is pure rendering of technical services. Thus, the amounts paid to the UPPTCL by the assessee are nothing but the access charges paid for availing technical expertise in order to distribute electricity to end consumers and the said access charges are paid in accordance of the provisions of Open Access Regulations. Therefore, the amounts paid to UPPTCL are purely for rendering of technical services and are clearly in the nature of technical fee/tariff/charges or by whatsoever name it may be called and the provisions of Section 194J of the Act are strictly applicable. He has also placed reliance upon the orders of the Tribunal in the cases of Hutchinson Telecom East Ltd. vs. CIT [2007] 16 SOT 404 (Kol); Singapore Airlines Ltd. vs. I.T.O. [2006] 7 SOT 84 (Chennai) and the order of Authority for Advance Rulings in the case of Ajmer Vidyut Vitran Nigam Limited, Ajmer in A.A.R. No.1012 of 2010, dated 27.8.2012 in support of his contention.

6. The ld. counsel for the assessee, on the other hand, has submitted that since the payment to UPPTCL is being made by the assessee through UPPCL, therefore, there is no separate mention of UPPTCL in the order by :-5-:

the ld. CIT(A). It was further contended that identical issue was examined by the different Benches of the Tribunal, in which the Tribunal has taken a view in favour of the assessees. The ld. counsel for the assessee has placed reliance upon the following judgments:-

1. Jaipur Vidyut Vitran Nigam Ltd. vs. DCIT, 123 TTJ 888.

2. Maharashtra State Electricity Distribution Co. Ltd. Vs. ACIT, 133 ITD 519.

3. Chattisgarh State Electricity Board vs. Income Tax Officer, 143 TTJ 151.

4. Bangalore Electricity Supply Co. Ltd. vs. Income Tax Officer, 149 TTJ 103.

5. Gridco Ltd. vs. ACIT [2012] 49 SOT 363.

7. It was further contended that in all these judgments, it has been held that section 194J of the Act is applicable only when technology or technical knowledge of a person is made available to others and not where-by using technical systems, services are rendered to others. It was further contended that the operation and maintenance of transmission lines by the service provider does not come under any technical services being rendered to the assessee. Moreover, transmission/wheeling charges are reimbursement of cost and therefore the payment could not be disallowed under section 40(a)(ia) of the Act. The ld. counsel for the assessee has also commented on the A.A.R. Ruling in the case of Ajmer Vidyut Vitran Nigam Limited (supra) with the submission that the important aspect has not been appreciated in the A.A.R. Ruling. The A.A.R. has not appreciated the distinction between the technical services and technology driven services. The technical services referred to in Explanation 2 to section 9

(vii) contemplates rendering technical services to the payer of the fees and :-6-:

not technology driven services. Installation and operation of sophisticated equipments with a view to earn income by allowing the user to avail the benefit of such equipments does not tantamount to rendering of technical services within the meaning of Explanation 2 to section 9(1)(vii) of the Act. It was further contended that mere collection of fee for making available a standard facility provided to all those willing to pay for it does not amount to the fees having been received for technical services. It was further contended that where a person has developed a technical system consisting of sophisticated instruments and the technical ability and knowledge to operate and maintain the system, it does not result in providing any technical service to others by allowing use of this sophisticated equipments/technical systems by others against certain payment of charging fees.

8. The ld. counsel for the assessee has further contended that the assessee company is making payment of transmission & Wheeling Charges to the transmission company in consideration of availing the benefits of the standard technical facility/the Transmission System Network of transmission company for the purpose of Transmission of Electricity from the Generation Point to the Distribution Point and as such by merely making available the benefits of its sophisticated Transmission System Network to the applicant company, the transmission company is not rendering any "Technical Services" within the meaning of Explanation 2 to section 9(1)(vii) of the Act to the applicant. The benefits of the said standard facility i.e. the transmission system network of Transmission Company may be availed by any distribution company within the framework and guidelines of prescribed open access transmission norms. The technical staff of Transmission Company by operating and maintaining its grid station and transmission lines, are simply discharging their own statutory functions. They do not render any technical service to the applicant. The ld. counsel for the :-7-:

assessee has further argued in the alternative that if Transmission of Electricity is to be considered as "Technical Services" so as to warrant deduction of TDS under section 194J of the Act, then on the same footing Distribution of Electricity may also have to be considered as "Technical Services" so as to require deduction of TDS from our electricity bills. But this cannot be so. Similarly, Telephone bills paid by consumers should also come within the purview of TDS under section 194J of the Act, since on making a telephone call by a consumer, it is availing the services of sophisticated equipments installed by the Telecom companies to talk on phone. The AAR has not considered the aspect that the said transmission & wheeling charges are merely reimbursement of actual cost and as such are not liable for any TDS deduction.

9. The ld. counsel for the assessee has further contended that as per notification dated 18.07.2007 of the Government of Uttar Pradesh, UPPTCL is a State Transmission Utility of Uttar Pradesh and Section 39 of the Electricity Act, 2003 prescribes the Functions of State Transmission Utility i.e. UPPTCL and Section 40 of the Electricity Act, 2003 prescribes the Duties of State Transmission Utility i.e. UPPTCL. The UPPTCL has allowed assessee to use its transmission system. The said use is mandated in section 39(2)(d)(i) of the Electricity Act, 2003. The UPPTCL can allow open access to its transmission system to any consumer on payment of transmission charges subject provision of open access by the State Commission i.e. UPSRC as per section 39(2)(d)(ii) of the Electricity Act, 2003.

10. It was further explained that a State Load Despatch Centre (SLDC) has to be constituted as mandated by section 31 of the Electricity Act, 2003. The function of SLDC has been prescribed in section 32 of the Electricity Act, 2003. Every transmission licensee, distribution licensee and generating company has to comply with the directions of SLDC as :-8-:

mandated in section 33 of the Electricity Act, 2003. Section 62 of the Electricity Act, 2003 mandates determination of tariff for transmission of electricity by the Appropriate Commission i.e. UPSRC. Consequently, the tariff is fixed by this independent authority. The ld. counsel for the assessee has further contended that from the above, it is clear that all the parties involved with generation, transmission and distribution of electricity are to comply with the directions of SLDC and the Regulatory Commission for achieving the economy and efficiency in the operation of power system and therefore the question of any person rendering service to another does not arise. The operation and maintenance of transmission lines by UPPTCL and the user of these lines by the assessee for transmitting energy does not result into any technical service being rendered to the assessee. The technical staff of UPPTCL by operating and maintaining its grid station and transmission lines, simply discharge their functions. They do not render any technical service to the assessee. The ld. counsel for the assessee has, however, placed reliance upon the order of the ld. CIT(A).

11. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the orders of the authorities below and the judgments referred to by the parties and material available on record, we find that undisputedly assessee is wholly owned company of Government of Uttar Pradesh. It is a public utility company engaged in the distribution of electricity. The assessee purchased power for distribution to consumers from its holding company, UPPCL, which is also a wholly owned company of Government of Uttar Pradesh. The power is purchased at the rate fixed by UPERC. During the year under consideration, the assessee made payment to UPPCL under two heads, namely power purchase tariff and power transmission tariff. The payment of power transmission charges or wheeling charges is in the nature of reimbursement of cost, as the transmission charges can be construed to be the cost incurred in :-9-:

transmission of power from the end of UPPCL to the end of the assessee and thereafter the power is used by the consumers. The transmission charges are also paid at the rate fixed by the UPERC. The ld. CIT(A) has given a categorical finding that in fixing such charges, nothing is brought on record to show that there is an element of profit to the UPPCL to whom payment is made. These findings of the ld. CIT(A) have not been dislodged by the Department by placing any evidence on record. It is also evident from the record that though the payment of transmission charges are not directly made to the UPTCL, a transmission licensee, but it was always made through UPPCL, to whom the entire payment was made by the assessee with respect to the power purchase tariff and power transmission tariff. Through various adjustment sheets, the transmission charges were transferred by UPPCL in favour of UPPTCL. In all these memorandum of adjustment appearing at pages 1 to 20 of the compilation of the assessee, transmission and all the wheeling charges payable to UPPTCL by the assessee-company were adjusted. The short question arises before us is whether the payment of transmission charges to UPPTCL through UPPCL is a payment of fee for technical services as per Explanation 2 to section 9(1)(vii) of the Act. According to the assessee, it was only a reimbursement of cost of transmission charges incurred by UPPTCL, therefore, there was no element of profit in these payments and provisions of section 194J of the Act cannot be attracted. It is also a case of the assessee that no technical services were rendered for the assessee. Whatever sophisticated equipments were used and maintained by the technical staff were of UPPTCL and the assessee simply get electricity transmitted from these sophisticated equipments for its transmission from the end of UPPCL to the end of the assessee whereafter the power is transmitted for use by the consumers.

:-10-:

12. Identical issue was raised before different Benches of the Tribunal in different cases and all the Benches of the Tribunal have taken a consistent view that the provisions of deduction of tax at source does not apply on actual reimbursement, therefore, there is no liability to deduct tax at source on payment of transmission/wheeling/SLDC charges under section 194J of the Act or for that matter under section 194C of the Act. It was also held that the payment could not be disallowed under section 40(a)(ia) of the Act, as the said provision applies only when payment is payable i.e. due; whereas the assessee has made actual payment of reimbursement. The ld. CIT(A) has examined the issue in the light of the order of the Tribunal in the case of Bangalore Electric Supply vs. I.T.O; Maharashtra State Electricity vs. I.T.O. and Jaipur Vidyut Vitran Nigam Limited vs. DCIT and has finally concluded that there is no human interference involved in transmission of power from the end of UPPCL to the end of the assessee. The ld. CIT(A) has also concluded that there is no liability of TDS on payment of transmission charges under section 194J of the Act, therefore, disallowance under section 40(a)(ia) of the Act is not justified. For the sake of reference, we extract the relevant portion of the order of the ld. CIT(A) as under:-

"4(2) I have examined the facts and circumstances of the case. I have considered the findings of the AO and the submissions of the appellant. The appellant is a wholly owned company of the Government of UP. It is a public utility company engaged in the distribution of electricity. The appellant purchases power for distribution to consumers from its holding company which is UPPCL, which is also a wholly owned company of the Government of UP. The purchase of power is at rates fixed by UPERC. During the year under consideration the appellant made payments to UPPCL under two heads namely, power purchase tariff and power transmission tariff. The payment for power transmission charges or wheeling charges :-11-:

was in the opinion of the AO liable for deduction of TDS under section 194J of the Act as it was construed to be a payment in the nature of technical services. The issue is therefore whether the payment is disallowable under section 40(a)(ia) of the Act. 4(3)(i) First and foremost point to consider is that the payment for power transmission charges or wheeling charges is in the nature of reimbursement of cost. The transmissions charges can be construed to be the cost incurred in transmission of power from the end of UPPCL to the end of the appellant where after the power is transmitted for use by the consumers. The transmission charges are paid at rates fixed by the UPERC. In fixing such charges, nothing is brought on record to show that there is an element of profit to the UPPCL to whom the payment is paid, Since the payment is in reality the reimbursement at rates fixed by UPERC, I am of the opinion that the provisions of section .194J of the Act are not applicable. Further, in order to determine the applicability of section 194J of the Act a reference may be made to the decision of Hon'ble ITAT, Banglore in the case of Banglore Electric Supply Vs 1TO dated 16.03.2012 wherein the Hon'ble Court provided as under -

We have already pointed out that the expression 'fees for technical services' as appearing in section 194J of the said Act has the same meaning as given to the expression in Expln. 2 to section 9(( viz) of the said Act. In the said Explanation the expression 'fees for technical services' means any consideration for rendering of any 'managerial, technical or consultancy services'. The word 'technical' is preceded by the word 'managerial1 and succeeded by the word consultancy1. Since the expression 'technical services' is in doubt and is unclear, the rule of noscitur a sociis is clearly applicable. The said rule is explained in Maxwell on The Interpretation of Statutes (Twelfth Edition) in the following words: Where two or more words which are susceptible of analogous meaning are coupled together, noscitur a sociis, they are :-12-:

understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general. This would mean that the word 'technical' would take colour from the words 'managerial' and 'consultancy' between which it is sandwiched. The word 'managerial' has been defined in the Shorter Oxford English Dictionary, Fifth Edition as: Of pertaining to, or characteristic of a manager of or within an organization, business, establishment, etc. The word 'manager' has been defined, inter alia, as: A person whose office it is to manage an organization, business establishment, or public institution, or part of one; a person with the primarily executive or supervisory function within an organization etc.; a person controlling the activities of a person or team in sports, entertainment, etc. It is therefore, clear that a managerial service would be one which pertains to or has the characteristic of a manager. It is obvious that the expression 'manager' and consequently 'managerial service' has a definite human element attached to it. To put it bluntly, a machine cannot be a manager.

Similarly, the word 'consultancy' has been defined in the said dictionary as 'the work or position of a consultant; a Department of consultants'. 'Consultant' itself has been defined, inter alia, as 'a person who gives professional advice or services in a specialized field'. It is obvious that the word 'consultant' is a derivative of the word 'consult' which entails deliberations, consideration, conferring with someone, conferring about or upon a matter. Consult has also been defined in the said dictionary as 'ask advice for, seek counsel or a professional opinion from; refer to (a source of information); seek permission or approval from for a proposed action'. It is obvious that :-13-:

the service also necessarily entails human intervention. The consultant, who provides the consultancy service, has to be a human being. A machine cannot be regarded as a consultant.

From the above discussion, it is apparent that both the words 'managerial1 and 'consultancy' involve a human element. And, both, managerial service and consultancy service, are provided by humans. Consequently, applying the rule of noscitur a sociis, the word 'technical' as appearing in Expln. 2 to section 9(i)(viz) would also have to be construed as involving a human element. But, the facility provided by MTNL/other companies for interconnection/port access is one which is provided automatically by machines. It Is Independently provided by the use of technology and that too, sophisticated technology, but that does not mean that MTNL/other companies which provide such facilities are rendering any technical services as contemplated in Expln. 2 to section 9(1 )(vn) of the said Act. This is so because the expression 'technical services' takes colour from the expressions 'managerial services' and 'consultancy services' which necessarily involve a human element or, what is now a days fashionably called, human interface. In the facts of the present appeals, the services rendered qua interconnection/port access do not involve any human interface and, therefore, the same cannot be regarded as 'technical services' as contemplated under section 194J of the said Act.

4(3)(ii) In view of the above, it could be said that the technical staff by operating and maintaining its grid stations and transmissions lines simply discharge their functions and do not render any technical service to the assessee, therefore, section 194J of the Act does not apply. Similarly, the Hon'ble ITAT, Mumbai Bench in the case of Maharashtra State Electricity Vs ITO dated 27.06.2012 held that - :-14-:

It may be mentioned here that the applicability of section 194J and also sec. 194C was examined by the coordinate Bench of the Tribunal in the case of Jaipur Vidyut Vitaran Nigam Ltd (supra) and it has been the contention of the assessee that the agreement in that case also contain similar terms and the facts are also similar. This contention of the assessee has not been controverted by the revenue by specifically pointing out that there was any major difference between the terms of the agreement considered in that case and the terms of contract in the present case as well as in the facts of both the cases. It has been categorically held in the said case that there was no liability on the assessee to deduct tax on the payments of transmission/wheeling and SLDC charges u/s 194J. No contrary decision has been brought to our notice in which it has been held that tax on such charges is deductible under either of the sections viz 19C, 194J; 194 I of the Act.

4(3)(iii) A reference may also be made to the decision of Hon'ble ITAT, Jaipur in the case of Jaipur Vidyut Vitran Nigam Limited Vs DCIT (2009) 123 TTJ 888/ (2009) 26 DTR 79 wherein it was laid down that there was no liability to deduct IDS on payment of transmission charges under section 194J or section 194C of the Act. 4(4) in view of discussion above, I find that there is no human interference involved in transmission of power from the end of UPPCL to the end of the appellant. No such finding has been arrived at by the AO. Respectfully following the decisions cited supra, I am of the considered opinion that there is no liability of IDS on payment of transmission charges under section 194J of the Act. The disallowance under section 40(a)(ia) of the Act is therefore not justified. The addition of Rs.165,32,88,040/- made by the Assessing Officer under :-15-:

section 40(a)(ia) of the Act is deleted giving consequent relief to the appellant."

13. Our attention was also invited to the order of the Jaipur Bench of the Tribunal in the case of Jaipur Vidyut Vitran Nigam Ltd. vs. DCIT (supra), in which identical issue was raised and the Tribunal vide its order dated 30.4.2009 held that there is force in the alternate argument of authorized representative that the payment of transmission/wheeling/SLDC charges is reimbursement of the cost, as the tariff is fixed by an independent regulatory body i.e. Rajasthan Electricity Regulatory commission. The transmission company is not allowed any return on its capital. The tariff is determined on the principle of no profit no loss basis. The tariff is fixed by estimating the actual cost of operation of RVPN. It was also held in that judgment that in case on the basis of such tariff any surplus is left with RVPN, they give credit of the same to the assessee as evident from the extract of the minutes of the Board and copy of the journal voucher by which such credit is given to the assessee. Thus, when no income is paid by the assessee to transmission company, the question of deduction of tax at source does not otherwise arise even when under certain section of Chapter XVII-B liability of TDS is on payment of any sum and under certain sections, it is on payment of income as ultimately the tax is on the income and deduction of tax at source is only one of the modes of collection and recovery of the tax. It was further held that on actual reimbursement, provision of deduction of tax at source would not apply. So far as rendering technical services are concerned, the Tribunal has held in that case that no scientific knowledge, experience or skill is made available/rendered by RVPN to the assessee. The assessee itself has its own engineers and technicians who consistently monitor and supervise the flow of the electricity to its system and ultimate supply to its customer. :-16-:

The function of SLDC as regulator and controller for optimum scheduling and dispatch of electricity, and supervision over the intra-State transmission system is statutory function which is also entrusted to RVPN and therefore, RVPN by discharging such statutory function does not provide any technical service. Therefore, there is no liability to deduct tax at source on payment of transmission/wheeling/SLDC charges under section 194J of the Act.

14. In the case of Chattisgarh State Electricity Board vs. Income Tax Officer (supra), the Tribunal again held that transmission lines are in the physical control of PGCIL, these are maintained and operated by it. So far as the assessee is concerned, its interest in the transmission lines is restricted to the fact that electrical power purchased by the assessee, simultaneously with other bulk power beneficiaries, is transmitted through these transmission lines. The assessee has no control over the operations of the transmission lines, and all that it gets from the arrangements is that it can draw the electrical power purchased from PGCIL's transmission lines in an agreed manner. The Tribunal accordingly held that there is no application of provisions of section 194I of the Act to the impugned payments for transmission of electricity. The relevant observations of the Tribunal are extracted hereunder for the sake of reference:-

"The power purchase agreement entered into by the assessee with NTPC specifically provides that "power shall be made available by the NTPC at the busbars of the station and it shall be obligation and responsibility of the CSEB to make the required arrangement for evacuation of power from such delivery points of NTPC". It is pursuant to these obligations that the assessee, along with other bulk power beneficiaries has entered into a 'bulk power transmission agreement' with PGCIL. This agreement provides that "Powergrid shall operate and maintain the transmission system belonging to it in the western region as per agreed guidelines and the directives of the Western Regional Electricity Board and the regional load dispatch :-17-:

centers, and co-operate with the bulk power beneficiaries of the region, so as to maintain the system parameters within acceptable/ reasonable limits except where it is necessary to take measures to prevent imminent damage to any equipment". In respect of these services, the bulk power beneficiaries are to pay to PGCIL a monthly charge computed in the manner set out in cl. 9 of the said agreement. This clause, in turn, refers to formula set out in A. 4 of Annex. 1 which refers to the same ratio of agreed annual charges divided by 12 as is between power transmitted to each beneficiary to total sales from that particular point of delivery. In other words, while the annual charges are fixed, these are divided between the beneficiaries in the same ratio as is ratio of power evacuated by a beneficiary to the total sale of power from that delivery point. It is, however, not in dispute that the transmission lines are in the physical control of PGCIL, these are maintained and operated by the PGCIL and, so far as the assessee is concerned, its interest in the transmission lines is restricted to the fact that electrical power purchased by the assessee, simultaneously along with electrical power purchased by other bulk power beneficiaries, is transmitted through these transmission lines.

Explanation (i) to s. 194-I defines rent as any payment, by whatever name called, under any lease, sub-lease, or tenancy or any other agreement or arrangement "for the use of" ,and, building, plant, machinery or equipment etc. As evident from a plain reading of the agreements under which impugned payments have been made, the payments have been 1 'made for the services of transmission of electricity and not the use of transmission wires ner se. It is a significant fact that these transmission lines are not only being used for :-=nsmission of electricity to the assessee but also for transmission of electricity to various other entities. The transmission lines continue to be not only under control and possession of the PGCIL in legal terms, but, what is more important, these transmission lines are effectively in the control of PGCIL, without any involvement of the assessee in actual operations of the same. On these facts, the :-18-:

assessee has made the payments for transmission of electricity in which transmission lines have been used rather than for the use of transmission lines per se. The payments could be said to have been made for "the use of transmission lines" in a case in which the object of consideration for which payments are made was the use of transmission lines simpliciter, and such a use by the assessee does not extend beyond the transmission of electricity through such lines in the sense that the same transmission lines continue to be in the control of PGCIL for transmission of electricity for other entities and for all practical purposes. Even as electricity purchased by the assessee is transmitted to the assessee from the NTPC busbar to its landing points, the same transmission lines continue to be engaged in similar transmission of electricity for other entities and the assessee has no say in the manner in which such transmission lines can be controlled and used by the PGCIL. Undoubtedly, for the purpose of an arrangement being termed as in the nature of rent for the purpose of s. 194-I, the control and 'possession', in legal terms, of an asset may not needed to be with the person benefiting from the asset in question, it is a condition precedent for invoking s. 194- I that the asset, for the use of which the payment in question is made, should have some element of its control by the assessee. Here is a of tax at source on his part and, in addition to this lapse, the recipient of income has also failed to pay such tax directly. The reasons are not difficult to fathom. Proceedings under s. 201(1) are not penal proceedings. These are vicarious proceedings to make good the shortfall in tax collection, and when the tax liability is duly discharged by the recipient of income embedded in the payment, such a vicarious liability cannot be invoked. Unlike s. 271C, s. 201(1) is not of the penalty nature, and, therefore, the core consideration for invoking s. 201(1) is not the lapse on the part of the tax deductor, but loss of revenue to the exchequer. As long as taxes payable by the recipient of income are paid, the provisions of s. 201(1) cannot be pressed into service. The authorities below were thus quite unjustified in brushing aside the assessee's contentions to :-19-:

the effect that since PGCIL has already discharged all its income-tax obligations, demands under s. 201(1) cannot be raised at all. However, now that it is held, on merits, that payments made for transmission of electricity by the transmission lines owned by PGCIL do not constitute payments for rent under s. 194-I, it is not really necessary to go into this aspect of the matter."

15. In the case of Gridco Ltd. vs. ACIT (supra), the Cuttack Bench of the Tribunal has reiterated the same view. In that case, the power is purchased from the power generating companies and sold to the DISCOMs and others utilizing the transmission, network of OPTCL, PGCIL and other. The above Companies, the generators, DISCOMs and GRIDCO are regulated by Orissa Electricity Regulatory Commission(OERC) whose functions, inter alia, are to issue licenses, determine the conditions therein, regulate the purchase, distribution and supply of electricity and the tariffs payable. The assessee company after purchasing power from the generators sells it to the Distribution Companies. The assessee company had entered into a Bulk Supply Agreement with the Distribution companies in the year 1999 and on the terms of these agreements, it used to sell electricity to the Distribution companies. The supply is affected through the transmission lines of OPTCL. The Tribunal was of the view that the assessee merely obtains a service from OPTCL which has got the infrastructure in the form of equipments and transmission lines. In such circumstances it cannot be said that the assessee is using the equipments involved itself in transmitting the powers. The OPTCL was created as an independent company to carry out the work of transmission and wheeling of power. The payment is for service of transmission of power and not for use of plant and/or equipments. Transmission of power is the main business of the OPTCL and for use of its infrastructure including equipment and transmission lines owned by it, transmission charges are paid. All the :-20-:

cost of maintenance of transmission lines, equipment, employees cost and other cost risk is on account of OPTCL.

16. Similarly, in the case of Maharashtra State Electricity Distribution Co. Ltd. Vs. ACIT (supra), the Tribunal has held, following the order of the Jaipur Bench of the Tribunal in the case of Jaipur Vidyut Vitran Nigam Ltd. vs. DCIT (supra), that the payments have been made by the assessee according to the orders of State Electricity Commission and it has been shown that it is only reimbursement of cost and payments are made to State transmission entity for onward distribution to transmission companies.

17. We have also carefully perused the order of the Authority for Advance Rulings and we find that the A.A.R. has not taken into account certain important aspects that the assessee-company is making payment of transmission charges to the transmission company in consideration of availing the benefits of the standard technical facility i.e. transmission System Network of transmission company for the purpose of Transmission of Electricity from the Generation Point to the Distribution Point and as such by merely making available the benefits of its sophisticated Transmission System Network to the applicant company, the transmission company is not rendering any "Technical Services" within the meaning of Explanation 2 to section 9(1)(vii) of the Act. The important factor which was not appreciated by the A.A.R. is that the technical staff of Transmission Company by operating and maintaining its grid station and transmission lines, are simply discharging their own statutory functions and all are on the payrolls of the transmission company. Therefore, they do not render any technical service to the assessee-company. We have carefully examined the order of the A.A.R. and orders of the Tribunal on the issue and we find that the Tribunal has taken a consistent view that the payment of transmission charges is not payment for fee for technical services, therefore, the provisions of section 194J of the Act are not attracted. The :-21-:

Tribunal has also taken a view in all those cases that it is not a payment, it is only a reimbursement of the cost incurred on transmission charges. Therefore, provisions of section 40(a)(ia) of the Act is not applicable.

18. Following the view taken by the Tribunal in different cases, we are also of the view that TDS is not required to be deducted on payment of transmission charges. Since the ld. CIT(A) has adjudicated the issue following various orders of the Tribunal, we find no infirmity therein. Accordingly, we confirm his order.

I.T.A. No. 505/LKW/2012:

19. In this appeal, the assessee has assailed the order of the ld. CIT(A) on various grounds, which are as under:-

1. Because the learned first Appellate Authority ought to have held that there was no short deduction by the assessee (deductor) and the learned Assessing Officer erred in treating the assessee (deductor) as assessee in default.

2. Because no short deduction was incurred by the assessee (deductor) as the issue of IDS on transmission charges stands settled by the decisions of various Benches of ITAT that IDS whether u/s 194C or 194J or 194-I is not applicable on transmission charges and the first Appellate Authority ought to have held that there was no short deduction by the assessee (deductor).

3. Because in view of the fact that the issue stands settled by various decisions, the learned first Appellate Authority had no warrant to direct the Assessing Officer to examine the technical matters and obtain report of technical experts.

4.1 Because the learned first Appellate Authority erred in directing the Assessing Officer to examine whether the payments towards transmission charges partake the character of rental charges and whether the provisions of Section 194-1 are :-22-:

applicable or not as the issue stands settled in favour of the assessee (deductor) by the decisions of various Benches of ITAT on this issue.

4.2 Because such directions were beyond the scope of power of the learned 1st appellate authority

5. Because, in any case, the liability for tax u/s 191 is of the deductee and it having been conclusively demonstrated that the tax liability of the deductee being NIL on the basis of income assessed u/s 143(3)/154, the learned first Appellate Authority ought to have held that there was no short deduction by the assessee (deductor) and hence the deductor cannot be deemed to be an assessee in default.

6. Because the learned lower authorities failed to appreciate that payment of wheeling charges is only reimbursement of expenses and since no income is paid, it is outside the provisions of Chapter XVII-B of the Income Tax Act, 1961.

7. Because in any case the amount of Rs. 165,32,88,040/-

determined by the ACIT, Range - IV, Lucknow on estimated basis as transmission charges and which was challenged by the assessee in appeal could not be treated as basis for determining short deduction and IDS liability u/s 194J without an independent verification by the learned DCIT and the demand raised on this basis is liable to be set aside.

8. Because the learned fist Appellate authority ought to have held that the assessee was not liable for interest u/s 201(1A) of the Income Tax Act, 1961.

9. Because in any case the assessee (deductor) was not liable for any interest on short deduction as the tax liability of the deductee has been assessed at Nil and a substantial refund was due to the deductee and hence the question of charging interest u/s 201(1 A) does not arise.

10. Because the order appealed against is contrary to the fact, law :-23-:

and principles of natural justice.

20. Though various grounds are raised, but they all relate to the deduction of TDS on payment of transmission charges.

21. The facts in brief are that on non-deduction of tax, assessee was held to be an assessee in default under section 201(1) and interest under section 201(1A) of the Act was also charged.

22. In the foregoing appeal, the liability of deduction of tax on payment of transmission charges has been examined in detail and it was held that payment on transmission charges is not payment for technical services or otherwise, therefore, TDS is not required to be deducted. Once TDS is not required to be deducted under any provisions of the Act, as the payment was made for reimbursement of cost incurred for transmission of electricity by the UPPTCL, the assessee cannot be held to be in default. Therefore, interest under section 201(1A) of the Act cannot be charged. We, therefore, set aside the order of the ld. CIT(A) and hold that the assessee was not required to deduct TDS on payment of transmission charges.

Therefore, interest under section 201(1A) of the Act cannot be charged.

23. In the result, appeal of the Revenue dismissed and the appeal of the assessee is allowed.

Order was pronounced in the open court on the date mentioned on the captioned page.

Sd/- Sd/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER

DATED:27th February, 2015 :-24-:

JJ:13/1602

Copy forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR Assistant Registrar