2016 (10) TMI 551 - AT - Income Tax

TDS u/s 194J - whether open access charges paid by the assessee towards transmission of electricity from its plants to various parts of the country is coming within the definition of royalty as defined u/s 9(1)(vi) of the Act? - Held that - We find that the assessee has used transmission lines owned by M/s. Power Grid Corporation of India Ltd. for transmitting power from its plant to various parts of India. The assessee has paid open access charges through M/s. Reliance Energy Trading Ltd. for use of transmission lines. There is nothing on record to show that the assessee has used any patent, invention, model, design, secret formula or process or trade mark or similar property and associated rights in that property to say that the open access charges paid by the assessee is coming within the meaning of royalty as defined u/s 9(1)(vi) of the Act. In our considered view, the A.O. without understanding the provisions, brought in the concept of definition of royalty provided in sub clause (iva) of explanation2 of section 9(1)(vi) of the Act, the use or right to use any industrial, commercial or scientific equipment to cover open access charges incurred by the assessee within the definition of royalty as defined u/s 9(1)(vi) of the Act. Therefore, we are of the view that open access charges incurred by the assessee towards transmission of electricity from its plant to various parts of the country, through transmission lines owned by M/s. Power Grid Corporation of India is not a royalty and accordingly, the assessee need not to deduct TDS under the provisions of section 194J of the Act. The CIT(A) after considering the relevant facts rightly deleted additions made by the A.O. We do not see any error or infirmity in the order passed by the CIT(A),. Hence, we inclined to uphold the CIT(A) order and dismiss the appeals filed by the revenue. - Decided in favour of assessee.

Summary

Issues:
- Whether open access charges paid by the assessee towards transmission of electricity constitute royalty as defined under section 9(1)(vi) of the Income Tax Act, 1961?
- Whether the assessee was required to deduct TDS under section 194J of the Act on such open access charges?
- Whether the CIT(A) correctly deleted the demand raised under sections 201(1) & 201(1A) of the Act?

Analysis:

1. Issue 1: Royalty Definition
The Assessing Officer (A.O.) contended that the open access charges paid by the assessee should be considered as royalty under section 9(1)(vi) of the Act, as it involved the use of transmission lines owned by public sector companies. However, the assessee argued that the charges did not involve the use of any patented technology or intellectual property, and therefore did not fall under the definition of royalty.

2. Issue 2: TDS Requirement
The A.O. held the assessee as an assessee in default for not deducting TDS under section 194J on the open access charges. The CIT(A), after examining the power purchase agreement and the nature of the transaction, concluded that the charges were for the sale of energy and not technical services, hence TDS deduction was not required.

3. Issue 3: CIT(A) Decision
The CIT(A) directed the A.O. to delete the demand raised under sections 201(1) & 201(1A) of the Act, disagreeing with the A.O.'s interpretation of the charges as royalty. The Revenue appealed this decision, arguing that the charges should be considered royalty and TDS should have been deducted.

4. Judicial Precedents
The ITAT referred to various judicial precedents, including decisions by the High Courts of Delhi and Karnataka, which clarified that charges for transmission of electricity did not constitute technical services or royalty under the Act. These decisions supported the assessee's argument that TDS deduction was not required on the open access charges.

5. Final Decision
The ITAT upheld the CIT(A)'s decision, stating that the open access charges paid by the assessee did not fall under the definition of royalty as per section 9(1)(vi) of the Act. The ITAT found no error in the CIT(A)'s order and dismissed the appeals filed by the Revenue, thereby concluding that the assessee was not liable to deduct TDS on the open access charges.

In conclusion, the judgment clarified the classification of open access charges for transmission of electricity and emphasized that such charges did not constitute royalty under the Income Tax Act, thereby relieving the assessee from the obligation to deduct TDS on these payments.