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2009 (4) TMI 944 - AT - Income TaxLiability to deduct tax u/s 194J or 194C - Payment of wheeling charges (transmission charges) and State Load Dispatch Centre Charges (SLDC charges) as fees for technical services - liability of interest u/s 201(1A) and tax u/s 201(1) - The Jaipur Vidhyut Vitran Nigam Ltd. the assessee (JVVNL) is a company incorporated under the Companies Act 1956 - 100 per cent Government company in consonance with a mandate prescribed under the Rajasthan Power Sector Reforms Act 1999. What is the nature of payment of wheeling/transmission/ SLDC charges on the basis of documents on records and the facts explained and after considering the nature of such payments as well as facts on records whether the same is liable for deduction of tax at source under the IT Act 1961 specifically under s. 194J which provides for deduction of tax at source on payment of fees for professional or technical services? HELD THAT - From all these clauses of transmission service agreement it is clear that all the parties involved with generation transmission and distribution of electricity are to comply with the direction of SLDC and the Regulatory Commission for achieving the economy and efficiency in the operation of power system and therefore question of any person rendering service to another does not arise. The operation and maintenance of transmission lines by RVPNL and the use of these lines by assessee for transmitting energy does not result into any technical services being rendered to the assessee. The technical staff of RVPN by operating and maintaining its grid station and transmission lines simply discharge their function. They do not render any technical service to the assessee. Section 194J would have application only when the technology or technical knowledge of a person is made available to others and not where by using technical systems services are rendered to others. Rendering of services by allowing use of technical system is different than charging fees for rendering technical services. The applicability of s. 194J would come into effect only when by making payment of fee for technical services assessee acquired certain skill/knowledge/intellect which can be further used by him for its own purpose/research. Where facility is provided by use of machine/robot or where sophisticated equipments are installed and operated with a view to earn income by allowing the customers to avail of the benefit by use of such equipment the same does not result in the provision of technical service to the customer for a fee. On going through the paper book filed by the Department we note that as per those papers only some report/letters has been issued by the TDS officer requiring the deduction of tax at source on such payment. Similarly M/s Hindustan Zinc Ltd. deducting the tax at source under s. 194C in respect of payment of transmission charges to RVPN cannot lay down the law. Here it would be pertinent to mention that even the CIT(A) in assessee s own case for asst. yr. 2006-07 against the order of AO under s. 143(3) has given a finding on p. 54 of his order that these payments are not covered under s. 194C against which no appeal is filed by the Department though we are otherwise convinced with the argument of learned Authorised Representative that s. 194C is not applicable on this payment in view of the detailed submission made in this regard at paper book pp. A-18 to A-21. The case of CANARA BANK. VERSUS INCOME-TAX OFFICER TDS - 1 SURAT. 2008 (2) TMI 515 - ITAT AHMEDABAD-B in respect of payment of MICR charges to SBI which involved human skill and computerised machine and not simply making available the technical equipment working on its own and therefore held to be a payment towards managerial services. The decision in the case of DR. HUTAREW AND PARTNER (I) (P) LTD. VERSUS ITO 2008 (9) TMI 414 - ITAT DELHI-C is with reference to s. 195 and not s. 194J. In this case also the non-resident to whom payment was made was not maintaining any server for everybody that anyone can feed the data and get the solutions. The solutions were provided on the specific needs of the customers. The information supplied is specific which helps the assessee in finalizing its design. The information supplied to the assessee was a technical information which has been used in further generating the product of the assessee. Therefore such specific client based information was held not equitable with the standard services provided by telecommunication company. Thus these decisions are quite distinguishable and not applicable on the facts of the present case. We therefore hold that there is no liability to deduct tax at source on payment of transmission/wheeling/SLDC charges under s. 194J or for that matter under s. 194C. Thus the lower authorities were not justified in holding that the assessee is liable for deduction of tax at source on the payment of transmission/SLDC charges to RVPN. We thus set aside the order of the lower authorities and allow the ground of the assessee. Demand of interest under s. 201(1A) relying on Circular No. 275 dt. 29th Jan. 1997 - ITO (TDS) held that the assessee was liable to deduct the tax at source on the payment of transmission/wheeling and SLDC charges - HELD THAT - The provision of the Act is a measure to compensate the Revenue for delay in payment of taxes. In the present case RVPN to whom transmission charges are paid are assessed with the same AO with whom the assessee is assessed with. RVPN has regularly filed its return of income for asst. yrs. 2005-06 to 2008-09 declaring nil income and having substantial carry forward of unabsorbed depreciation. For asst. yrs. 2005-06 and 2006-07 RVPN is assessed under s. 143(3) at nil income with substantial carry forward of unabsorbed depreciation. Thus RVPN has no tax liability and it has been allowed the refund of tax which was deducted at source on some other payments by some other parties. Thus there is no loss of revenue to the Department by not deducting tax at source by the assessee on the transmission payment. In the present case from the copy of the IT return for asst. yrs. 2005-06 to 2008-09 and copy of the assessment order for asst. yrs. 2005-06 and 2006-07 it is noted that whatever tax was deduted at source has been claimed/allowed as refund to RVPN. Therefore no interest under s. 201(1A) for earlier years is leviable on the assessee. Appeal allowed.
Issues Involved:
1. Liability of deduction of tax at source on payment of wheeling charges (transmission charges) and State Load Dispatch Centre Charges (SLDC charges) under Section 194J. 2. Levy of interest under Section 201(1A) for non-deduction of tax at source. Issue-Wise Detailed Analysis: Issue 1: Liability of Deduction of Tax at Source under Section 194J Facts and Arguments: - The assessee questioned the first appellate order confirming the action of the ITO, TDS, in holding that payments of wheeling charges and SLDC charges are liable for deduction of tax at source as fees for technical services under Section 194J. - The assessee argued that RVPN deploying technically qualified staff does not equate to providing technical services to the assessee and that the payments are statutory levies or reimbursements of actual expenses. - The ITO (TDS) held that the payments are for technical services requiring deduction of tax at source under Section 194J, citing the involvement of technically qualified staff and sophisticated instruments. - The CIT(A) upheld the ITO's decision, stating that the functions performed by RVPN involve human involvement and application of mind, thus constituting technical services. Judgment: - The Tribunal examined the provisions of the Electricity Act, 2003, and the terms of the Transmission Service Agreement. - It was determined that the functions of RVPN, such as maintaining the transmission system and complying with SLDC directions, are statutory functions and do not constitute technical services rendered to the assessee. - The Tribunal referred to the Delhi High Court's interpretation in CIT vs. Bharti Cellular Ltd., which emphasized that technical services must involve a human element and direct assistance to the payer. - The Tribunal concluded that the payments for wheeling and SLDC charges do not involve the provision of technical services to the assessee and thus are not liable for deduction of tax at source under Section 194J. - Additionally, the Tribunal found that the payments are reimbursements of actual costs, not income, and therefore outside the scope of Chapter XVII-B of the IT Act. Issue 2: Levy of Interest under Section 201(1A) Facts and Arguments: - The ITO (TDS) levied interest under Section 201(1A) for non-deduction of tax at source on the payments made by the assessee. - The assessee argued that RVPN, the recipient of the payments, had no tax liability due to substantial carry forward of unabsorbed depreciation and had been assessed at nil income. Judgment: - The Tribunal noted that RVPN had no tax liability and had been allowed refunds for taxes deducted at source by other parties. - The Rajasthan High Court in CIT vs. Rajasthan Rajya Vidyut Prasaran Nigam Ltd. held that interest under Section 201(1A) is not justified when the recipient has no tax liability. - The Tribunal referred to CBDT Circular No. 275/201/95-IT(B), which states that interest under Section 201(1A) is only applicable until the date of payment of taxes by the deductee. - Since RVPN had no tax liability, the Tribunal concluded that no interest under Section 201(1A) is leviable on the assessee. Conclusion: The Tribunal allowed the appeals filed by the assessee, holding that: 1. The payments for wheeling and SLDC charges are not liable for deduction of tax at source under Section 194J as they do not constitute fees for technical services. 2. No interest under Section 201(1A) is leviable on the assessee since RVPN had no tax liability.
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