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2019 (10) TMI 354 - AT - Income TaxTDS u/s 194I or 194J - transmission charges and SLDC charges paid by the assessee for the use of transmission network owned by AP Transco - HELD THAT - First proposition of the assessee that the payments were made as per the order of the DRT and the TDS provisions are not attracted for payments made to DRT is concerned, we have gone through the order of the Hon ble DRT. The Hon ble DRT after considering the facts and merits of the case, allowed the petition filed by Industrial Development Bank of India (in short IDBI ) and directed the AP Transmission Corporation of India to deposit monies payable to the IDBI for the period from September 2002 to October 2003 and for subsequent period covered under the said contract. The DRT has not directed the AP Transco not to deduct the tax at source as required u/s 194I of the Act. The assessee also did not get clarification from the Hon ble DRT. Therefore, the assessee is bound to deduct the tax at source on the payments made to Klenn Marshall u/s 194I of the Act. Accordingly, we reject the contention of the Ld.AR on this argument. Contract was between the AP Transco and APSPDCL, but there was no contract or agreement between the assessee and Klenn Marshall and the liability was related to the period 2002-03 and 2003-04 for which the AP Transco has already raised the liability and the assessee is only discharging the liability, but not making any payment to Klenn Marshall - It is true that the tax deduction is required to be made on the payment which results into income of the beneficiary. The same attracts deduction at source. Every payment may not attract the TDS at source. In the instant case, the Ld.AR argued that the company M/s AP Transco is following the mercantile system of accounting and the liability was related to the F.Y.2003-04 and 2004-05 pertained to AP Transco, but not related to APSPDCL. Therefore, contended that the provisions of TDS are not applicable. For a query from the Bench, the Ld.AR did not place the financial statements, evidencing that the AP Transco has claimed the expenditure during the F.Y. 2002-03, 2003-04, 2004-05 and credited the amounts to the account of M/s Klenn Marshall and kept the payment pending and resultant the liability was transferred to the assessee company. AR failed to furnish the balance sheet of AP Transco and the account copy of the Klenn Marshall in the books of AP Transco before transfer and after transfer of the liability. As observed from the order of the AO, it is found that no credit entry was made prior to 01.06.2007, therefore, in the interest of justice, we are of the considered view that this issue requires verification at the level of the AO to examine whether the AP Transco has debited the expenditure and transferred liability to the assessee. Appeal of the assessee on this ground is allowed for statistical purpose. Payments made by the assessee to AP Transco is income in the hands of the payee and would fall for deduction of Tax at source u/s 194I Assessee in default u/s 201(1) - as observed from the order of the AO neither the demand u/s 201(1A) was raised in the order nor the demand notice was enclosed in the appeal papers. Though in appeal memo in form No.36 column No.5 mentioned the sections of 201(1)/201(1A) of the act, the department did not raise any ground with regard to interest u/s 201(1A) in the grounds of appeal. As a result the AO did not consider the assessee as assessee in default for the A.Y. 2008-09 and 2009-10 for the purpose of section 201(1) and no demand was raised u/s 201(1A), hence, the appeals filed by the revenue for the A.Y. 2008-09 and 2009-10 becomes in fructuous and hence dismissed. Demand raised by the AO for the F.Y. 2009-10, relevant to the A.Y. 2010-11 treating the assessee as assessee in default for application of provisions of section 194J - AO of the payee had issued the lower deduction certificate u/s 197 on 05.11.2009 for payment of transmission charges and SLDC charges for the F.Y. 2009-10 authorizing the payer for deduction of tax at source @1.75% for the amounts receivable by the payee on account of transmission and SLDC charges for the F.Y. 2009-10. The certificate u/s 197 is issued for whole year, but not for part of the year. Once the AO of the payee/or the authority concerned issue s the certificate for lower deduction the same is binding on the department and the payer is also obliged to deduct the TDS as per the certificate issued by the AO. The certificate is issued considering the estimated income of the assessee for the relevant assessment year and the tax payable thereon taking into consideration of the earlier records as well as the estimated receipts of the current year. This exercise is under taken to avoid unnecessary hardship and the financial burden to the tax payer and to avoid unnecessary refunds to the department which results in to the payment of interest. Therefore, on the basis of the certificate, if the assessee deducts the tax at source @1.75%, the same would be adequate and meet the liability and the AO (TDS) cannot find fault with it. It is accepted principle that the department need not collect the tax more than the tax liability of the tax payer. The department required to collect the correct and due taxes from the tax payer and the collection of more tax would cause financial hardship and effect the cash flow of the taxpayer. That is the reason, the provisions of section 197 were incorporated in the Act, so as to enable the payee to get the relief by obtaining certificate from the AO authorizing lower deduction of tax at source in genuine cases. Thus, we do not see any default in the case of the assessee for non deduction of tax at source over and above 1.75%.
Issues Involved:
1. Non-deduction of TDS on lease rentals paid to M/s Klenn & Marshall under Section 194I. 2. Non-deduction of TDS on transmission and SLDC charges paid to M/s AP Transco Ltd. under Section 194J. 3. Applicability of Section 194I versus Section 194J for payments made to AP Transco Ltd. 4. Condonation of delay in filing appeals. 5. Determination of TDS liability for different financial years. Issue-wise Detailed Analysis: 1. Non-deduction of TDS on Lease Rentals Paid to M/s Klenn & Marshall under Section 194I: A survey conducted on 29.09.2008 revealed that the assessee did not deduct TDS on lease rentals paid to M/s Klenn & Marshall. The AO noted that although there was no provision for TDS on such payments before 31.03.2007, an amendment effective from 01.06.2007 required TDS on leasing equipment. The AO determined that payments made after 01.06.2007 attracted TDS under Section 194I, resulting in a liability of ?38,34,243/- for FY 2007-08 and 2008-09. The CIT(A) upheld the AO's decision, noting that payments made to the Debt Recovery Tribunal (DRT) were effectively lease rentals and thus subject to TDS under Section 194I. The Tribunal remitted the issue back to the AO for verification of whether the liability was transferred from AP Transco to the assessee and if the expenditure was debited in earlier years, which could negate the TDS requirement. 2. Non-deduction of TDS on Transmission and SLDC Charges Paid to M/s AP Transco Ltd. under Section 194J: The AO found that the assessee did not deduct TDS on transmission and SLDC charges paid to AP Transco Ltd., treating these payments as royalty under Section 194J. The AO argued that transmission involves using a medium (transmission network) without moving it, unlike transportation. The CIT(A) disagreed, holding that the payments were rentals under Section 194I, supported by a lower deduction certificate issued by the AO of AP Transco. The Tribunal upheld the CIT(A)'s decision, noting that payments for using the transmission network were not royalty but rentals, thus falling under Section 194I. 3. Applicability of Section 194I versus Section 194J for Payments Made to AP Transco Ltd.: The Tribunal considered whether payments to AP Transco were subject to TDS under Section 194I (rentals) or Section 194J (royalty/technical services). The AO argued for Section 194J, while the CIT(A) and the assessee contended for Section 194I. The Tribunal referenced the ITAT Bangalore's decision in a similar case, concluding that payments for using the transmission network were not for technical services or royalty. The Tribunal upheld the CIT(A)'s decision that payments were rentals under Section 194I, noting that both parties had agreed on this classification. 4. Condonation of Delay in Filing Appeals: The assessee initially filed a single appeal for multiple assessment years, later submitting separate appeals, resulting in a delay. The Tribunal condoned the delay, finding sufficient cause as the original appeal was filed within the due date, and the defect was later rectified. 5. Determination of TDS Liability for Different Financial Years: For FY 2007-08 and 2008-09, the AO did not treat the assessee as in default under Section 201(1) due to the payee admitting the income and paying taxes. However, the assessee was liable for interest under Section 201(1A). For FY 2009-10, the AO treated the assessee as in default under Section 194J, but the Tribunal upheld the CIT(A)'s decision for lower deduction at 1.75% under Section 194I, based on the lower deduction certificate issued by the AO of AP Transco. Conclusion: The Tribunal's decision resulted in: - Allowing the assessee's appeals for FY 2008-09 and 2009-10 for statistical purposes. - Dismissing the assessee's appeal for FY 2010-11 as infructuous. - Dismissing the revenue's appeals for FY 2008-09, 2009-10, and 2010-11.
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