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2012 (8) TMI 519 - AT - Income TaxNon deduction of tax at source from rent u/s 194-I - Demand raised u/s 201(1)/201(1A) - whether or not the payment for transmission charges can be termed as rent for the purposes of section 194-I - Assessee purchases power from various sources and distributes and sells to the consumers - Held that - As evident from a plain reading of the agreements under which impugned payments have been made are for the services of transmission of electricity and not the use of transmission wires per se - transmission lines used for transmission of electricity to the assessee and to various other entities effectively in the control of PGCIL, without any involvement of the assessee in actual operations of the same. It is a condition precedent for invoking section 194-I that the asset, for the use of which the payment in question is made, should have some element of its control by the assessee. Here is a case in which the assessee has no control over the operations of the transmission lines, and all that he gets from the arrangements is that he can draw the electrical power purchased from PGCIL s transmission lines in an agreed manner - in a situation in which the payment is made only for the purpose a specific act, i.e. power transmission in this case, and even if an asset is used in the said process, the payment cannot be said to be for the use of an asset - section 194-I has no application so far as the impugned payments for transmission of electricity is concerned. The authorities below were thus quite unjustified in brushing aside the assessee s contentions to the effect that since PGCIL has already discharged all his income-tax obligations, demands under section 201(1) cannot be raised at all - as the provisions of section 194-I cannot apply in respect of payments made for transmission of power by the PGCIL , the impugned demands raised under section 201(1) read with sections 194-I and 201(1A) read with section 201(1A) are cancelled - in favour of assessee.
Issues Involved:
1. Levy of TDS under Section 194I of the Income Tax Act on transmission charges paid by the assessee. 2. Applicability of interest under Section 201(1A) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Levy of TDS under Section 194I of the Income Tax Act on transmission charges paid by the assessee: Assessee, a company established by the Government of Maharashtra, paid transmission charges to Maharashtra State Electricity Transmission Company Ltd (MSETCL) and Power Grid Corporation of India Ltd (PGCIL) for the transmission of electricity. The Assessing Officer (AO) observed that the assessee had not deducted TDS on these payments, which amounted to Rs. 1961.20 crores, under Section 194I of the Income Tax Act. Consequently, a demand of Rs. 176.08 crores was raised along with interest under Section 201(1A). During the proceedings, it was noted that similar issues had been adjudicated by ITAT Mumbai-H Bench in the case of Chhattisgarh State Electricity Board and ITAT Cuttack Bench in the case of GRIDCO Ltd. In these cases, it was held that payments for transmission of electricity do not constitute "rent" under Section 194I. The agreements indicated that the payments were for the transmission services and not for the use of transmission lines per se. The transmission lines remained under the control of PGCIL, and the assessee did not have any control over their operations. The statutory provision under Section 194I defines "rent" as any payment under any lease, sub-lease, tenancy, or any other agreement or arrangement for the use of land, building, plant, machinery, or equipment. However, it was determined that the payments made by the assessee were for the transmission of electricity, not for the use of transmission lines. Therefore, the provisions of Section 194I were not applicable to the payments made by the assessee. In light of these findings, the ITAT concluded that the payments made by the assessee to MSETCL and PGCIL could not be considered as "rent" under Section 194I, and thus, the levy of TDS was not justified. 2. Applicability of interest under Section 201(1A) of the Income Tax Act:Since it was established that the payments for transmission of electricity do not fall under the definition of "rent" as per Section 194I, the question of levying interest under Section 201(1A) did not arise. The ITAT noted that the assessee could not be treated as an assessee in default under Section 201(1) as there was no obligation to deduct TDS on the payments made for transmission charges. Furthermore, the ITAT referenced the insertion of the Explanation to Section 191, which states that a person can be treated as an assessee in default under Section 201(1) only when there is a lapse in deduction of tax at source and the recipient of income has also failed to pay such tax directly. Since PGCIL had already discharged its income-tax obligations, the provisions of Section 201(1) could not be invoked against the assessee. Consequently, the ITAT held that the levy of interest under Section 201(1A) was also not applicable in this case. Conclusion:In view of the above discussions, the ITAT allowed the appeal of the assessee, holding that the provisions of Section 194I did not apply to the payments made for transmission of electricity, and therefore, the demands raised under Section 201(1) and Section 201(1A) were cancelled. Order pronounced in the open court on 27th June, 2012.
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