2016 (5) TMI 1149 - HC - Income Tax

TDS u/s 194J - whether analysis and distribution (SLDC) of electricity by KPTCL from generation point to the consumers of the assessee involving utilization of sophisticated machineries, involvement of technical expertise, application of science, services of Engineers, engagement of qualified technicians and trained, skilled personal/manpower doesnot amount to technical services? - Held that - The scheme of the Act contemplates mechanism to set right the error, if any committed by the Assessing Officer. We cannot give our acceptability to the arguments advanced by the revenue contrary to the well established machinery provided under the Act. It is an attempt to deviate from the scheme of the Act, having noticed that the substantial questions of law raise d in these appeals are answered against the revenue in identical cases referred to above i.e., nature of services or transaction entered into between the assessee and KPTCL are not in the nature of technical services to attract the provisions of Section 194-J of the Act. It is not a chance litigation to switch over to a different provision alien to proceedings initiated. It is also discerned that this point was at no point of time raised, considered and examined by the authorities. Sections 194-J and 194-I are two independent provisions which operate in different fields. It is not possible to import the existence or the consideration of any point not raised and adjudicated before the authorities or the Tribunal, much against the principles of natural justice and that too at this juncture in the appeal proceedings under the fiscal statute. The arguments advanced on behalf of the revenue deserve to be rejected and accordingly they are rejected.

Summary

Issues:
1. Interpretation of technical services under Section 194-J of the Income Tax Act.
2. Application of other provisions of TDS after determining non-applicability of Section 194-J.
3. Deletion of interest levied under Section 201(1A) for non-deduction of tax at source.

Analysis:
1. The primary issue in this case revolved around whether the transmission of electricity by Karnataka Power Transmission Corporation Limited (KPTCL) to the consumers of the assessee constituted technical services under Section 194-J of the Income Tax Act. The Assessing Officer and the Appellate Commissioner held that the services provided by KPTCL amounted to technical services attracting TDS provisions. However, the Income Tax Appellate Tribunal disagreed, stating that the transmission of electricity did not fall under Section 194-J. The High Court upheld the Tribunal's decision, emphasizing that the nature of services provided did not meet the criteria for technical services as defined under the Act. The Court rejected the revenue's argument to consider the transaction under Section 194-I as rent, stating that such new grounds cannot be raised at the appeal stage.

2. Following the determination that Section 194-J did not apply, the issue of whether other TDS provisions should have been considered arose. The Tribunal's decision to delete the interest levied under Section 201(1A) for non-deduction of tax at source was upheld by the High Court. The Court emphasized that the revenue's attempt to introduce new arguments at the appeal stage, contrary to the established procedures under the Act, was not acceptable. The Court highlighted the importance of maintaining the integrity of the assessment proceedings and rejected the revenue's attempt to introduce a different provision at a later stage.

3. The judgment in the case of Hubli Electric Supply Company Ltd. was cited as precedent, where similar issues were decided against the revenue. The High Court found the reasoning in the cited case applicable to the present situation and dismissed the appeals, upholding the view that the services provided by KPTCL did not amount to technical services under Section 194-J. The Court reiterated that new grounds cannot be introduced during appeal proceedings and that the established procedures under the Act must be followed.