2015 (12) TMI 1533 - HC - Income Tax

TDS u/s 194J - tds liability - Held that - There is no mention of any offer with regard to any technical services by the KPTCL. Plain and simple intention of the parties to the agreement as discernable from the power transmission agreement is that the assessee was desirous of using the transmission network belonging to the KPTCL in accordance with the provisions of the Electricity Act subject to payment of charges applicable and determined by KERC. KPTCL was willing to provide its transmission network for the purpose of carrying electricity to its users subject to payment of transmission and other charges as determined by KERC. There is neither an offer nor an acceptance of any technical service inter se between the parties. Admittedly, KPTCL is a State owned Company and the only power transmitting agency. It has installed and developed its own infrastructure. Assessee is also a State owned electricity distribution company. The only service which the assessee has availed from the KPTCL is transmission of power on payment of charges fixed by KERC. No material is placed by the Revenue before this Court to substantiate its contention that assessee had availed of any technical services. In our considered view, assessee has done nothing more than transmitting certain quantum of power from one place to the other for a price fixed by KERC. Assessee was oblivious to the technical expertise which the KPTCL may possess. There was neither transfer of any technology nor any service attributable to a technical service offered by the KPTCL and accepted by the assessee. Therefore, application of Section 194J of the Act to the facts of this case by the Revenue is misconceived. - Decided against revenue

Summary

Issues Involved:
1. Applicability of Section 194J of the Income Tax Act, 1961 to the payments made by the assessee towards transmission charges and SLDC charges.
2. Determination of whether the services provided by KPTCL can be categorized as "technical services" under Section 194J.
3. Impact of tax payment by the payee (KPTCL) on the assessee's liability under Section 201(1) and 201(1A) of the Act.

Issue-wise Detailed Analysis:

1. Applicability of Section 194J of the Income Tax Act, 1961:
The primary question of law considered was whether Section 194J, which mandates the deduction of tax at source for fees for technical services, applies to the payments made by the assessee towards transmission charges and SLDC charges. The Revenue argued that KPTCL provides "technical services" to the assessee, thus requiring the deduction of tax at source under Section 194J. However, the Tribunal held that Section 194J was not applicable to the facts and circumstances of this case.

2. Determination of Technical Services:
The court examined whether the services provided by KPTCL could be categorized as "technical services." The Revenue contended that the functions of KPTCL and SLDC, which involve the transmission of electricity, constitute technical services. However, the court found that the agreement between the assessee and KPTCL was purely for the use of KPTCL's transmission network to carry electricity to the users. The court noted that there was no mention of any "technical services" in the power transmission agreement. The relationship between the parties was limited to the transmission of power, and there was no transfer of technology or technical expertise involved. Therefore, the court concluded that the application of Section 194J by the Revenue was misconceived.

3. Impact of Tax Payment by the Payee (KPTCL):
The court also considered the fact that the payee, KPTCL, had already paid the taxes due on its income. Citing the Supreme Court's decision in Hindustan Coca Cola Beverages (P) Ltd. vs. CIT, the court noted that no demand could be visualized under Section 201(1) if the assessee demonstrated that the taxes were already paid by the payee. The Commissioner (Appeals) had directed the ITO (TDS) to work out interest under Section 201(1A) from the date of remittance of TDS till the date of filing of the return by the payee. The court found that since KPTCL had paid the taxes, there was no loss of revenue, rendering the appeals purely academic.

Conclusion:
The court held that the appeals were devoid of merit and answered the question of law against the Revenue. The services provided by KPTCL did not constitute "technical services" under Section 194J, and the assessee was not liable to deduct tax at source on the payments made towards transmission charges. Additionally, since KPTCL had already paid the taxes, there was no loss of revenue. Consequently, the appeals were dismissed with no costs.