2016 (9) TMI 551 - HC - Income Tax

TDS u/s 194J - non deduction of tds - payments of transmission charge - mandating deduction of tax at source - Held that - We answer the substantial question of law raised, in favour of the assessee and against the revenue by saying that the provisions of Section 194J of the Act was not attracted in present case and the assessee was not liable to deduct the tax at source from the payments of transmission charge made by it to the KPTCL and SLDC and therefore, the additions made by the assessing authority in the returned income of the assessee on this account were rightly set aside by the Income Tax Appellate Tribunal.

Summary

Issues Involved:
1. Whether the assessee was liable to deduct tax at source under Section 194J of the Income Tax Act, 1961, for transmission charges payable to the Karnataka Power Transmission Corporation Limited (KPTCL) and State Load Dispatching Centre (SLDC).

Detailed Analysis:

1. Background and Facts:
The respondent/assessee is engaged in the business of buying and selling electricity. For the Assessment Year 2009-10, the assessee filed its returns declaring a loss. The Income Tax Officer (ITO) conducted a survey and found that the assessee had made payments for transmission charges to KPTCL and SLDC without deducting tax at source, which the Revenue deemed as payments for "technical services" under Section 194J of the Income Tax Act, 1961.

2. Assessment and Appeals:
The Assessing Officer (AO) held the assessee as an 'assessee in default' under Section 201(1) of the Act for not deducting tax at source on transmission charges and SLDC charges under Section 194J. The AO disallowed these payments under Section 40(a)(ia) of the Act, resulting in an increased assessed income.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who allowed the appeal based on a prior decision of the Tribunal in the assessee's own case. The Revenue then appealed to the Income Tax Appellate Tribunal (ITAT), which upheld the CIT(A)'s order.

3. Substantial Question of Law:
The High Court framed the following substantial question of law while admitting the Revenue's appeal:
“Whether the Tribunal below was justified in accepting the plea of the assessee that the assessee was not liable to deduct tax at source under Section 194J of the Income Tax Act, 1961 in respect of transmission charges payable to the Karnataka Power Transmission Corporation Limited and State Load Despatching Centre?”

4. Arguments by the Parties:
The Revenue argued that the payments made by the assessee to KPTCL and SLDC were for technical services, thus requiring tax deduction at source under Section 194J. The Revenue also contended that the ITAT's order was not a speaking order as it did not address the ground of disallowance under Section 194C.

The assessee's counsel justified the ITAT's order, relying on a coordinate bench decision in a similar case involving Gulbarga Electricity Supply Company Limited, which held that such payments did not constitute technical services under Section 194J.

5. Legal Provisions and Interpretation:
Section 194J mandates tax deduction at source for fees for professional or technical services. The Court examined whether the transmission charges paid to KPTCL and SLDC fell under "technical services."

6. Relevant Judicial Precedents:
The Court referred to its own prior decisions in similar cases, such as Hubli Electric Supply Company Limited and Gulbarga Electricity Supply Company Limited, where it was held that the use of transmission networks for electricity did not amount to technical services. The Delhi High Court's decision in Commissioner of Income Tax vs. Delhi Transco Ltd, affirmed by the Supreme Court, supported this view, stating that wheeling charges for electricity transmission do not constitute fees for technical services under Section 194J.

7. Conclusion:
The Court concluded that the provisions of Section 194J were not attracted in the present case. The assessee was not liable to deduct tax at source from the payments of transmission charges made to KPTCL and SLDC. The additions made by the AO were rightly set aside by the ITAT.

Final Judgment:
The High Court dismissed the Revenue's appeal, upholding that the assessee was not required to deduct tax at source under Section 194J for transmission charges payable to KPTCL and SLDC. The substantial question of law was answered in favor of the assessee and against the Revenue.