2015 (2) TMI 677 - HC - Income Tax

Transmission charges - TDS under section 194C and section 194J - whether it is in the nature of sale or contract in between the respondent-assessee and the Gas Authority of India Ltd ( GAIL ) - Held that - Tribunal committed no error in coming to the conclusion that the case was not covered under section 194C/194J of the Act. It may be that the transportation component of gas was paid separately by the assessee to GAIL. Here also the transportation charges did not depend on the consumption of quantity of gas but was of fixed monthly charges to be borne by the assessee as part of the agreement between the parties. The ownership of the gas vested in GAIL till it was transported and delivered to the assessee's premises at the outlet of the gas metering station. The pipeline was laid down by GAIL and was permitted to be utilised for further onward transportation of gas to other consumers. The circular of the Central Board of Direct Taxes, which has been referred by the Income-tax Appellate Tribunal, bearing No. 13 of 2006, dated December 13, 2006 (supra), in our view, also clarifies the situation envisaged in the present case and considering the circular as well as the facts available on record, we have no hesitation in holding that the agreement of supply of gas by GAIL to the assessee, in the instant case, is a simpliciter transaction of sale and purchase and cannot be termed to be an agreement for work/providing of technical services. The ITAT has rightly come to the conclusion and, in our view, it is based on appreciation of evidence and facts and no question much less substantial question of law can be said to emerge out of the said order of the Income- tax Appellate Tribunal - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 194C and Section 194J of the Income-tax Act, 1961.
2. Nature of payments made towards transmission charges-whether it is a sale or a contract.
3. Justification for imposition of TDS and interest under Sections 194J and 201(1A) respectively.
4. Consideration of the transaction as sale under the VAT Act.

Issue-wise Detailed Analysis:

1. Applicability of Section 194C and Section 194J of the Income-tax Act, 1961:
The court was called upon to decide if the provisions of Section 194C and Section 194J were applicable to payments made by the respondent-assessee towards transmission charges to GAIL. The Assessing Officer (AO) argued that these payments were for technical services, thus attracting TDS under these sections. However, the respondent-assessee contended that the payments were part of a sale agreement for natural gas, not technical services. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal (ITAT) both concluded that the agreement was for the sale of goods and not for technical services or a works contract, thus Sections 194C and 194J were not applicable.

2. Nature of Payments Made Towards Transmission Charges-Whether it is a Sale or a Contract:
The court analyzed the agreement between the assessee and GAIL, focusing on clauses related to delivery, pressure, and maintenance of facilities. The AO highlighted clauses suggesting the provision of technical services. However, the court found that these clauses did not alter the nature of the agreement, which was fundamentally a sale of gas. The court noted that VAT was charged on the gas sales, reinforcing that the transaction was a sale. The court also referred to the definitions of "sale" and "sale price" under the Rajasthan Value Added Tax Act, 2003, concluding that the transaction was a sale and not a service contract.

3. Justification for Imposition of TDS and Interest Under Sections 194J and 201(1A) Respectively:
The AO imposed TDS and interest, arguing that the payments for transmission charges were for technical services. The respondent-assessee provided evidence, including GAIL's profit and loss account, showing that GAIL treated the transaction as a sale and paid taxes accordingly. The Commissioner of Income-tax (Appeals) and the ITAT found that since GAIL had paid taxes on the transaction, there was no scope for invoking Section 201 of the Income-tax Act. The court upheld this view, citing the Supreme Court's judgment in Hindustan Coca Cola Beverage P. Ltd. v. CIT, which held that if the payee has paid tax on the income, recovery cannot be made again from the tax deductor.

4. Consideration of the Transaction as Sale Under the VAT Act:
The court examined the transaction under the VAT Act, referring to the definitions of "sale" and "sale price." It concluded that the transfer of property in goods (gas) from GAIL to the assessee was a sale. The court noted that GAIL had shown the receipts from the transaction in its profit and loss account and paid taxes on the income. The court also referred to the Supreme Court's judgment in Hindustan Sugar Mills Ltd. v. State of Rajasthan, which held that any sum charged by the dealer in respect of goods at the time of or before delivery is part of the sale price.

Conclusion:
The court concluded that the predominant purpose of the contract was the sale of gas, not the provision of technical services. Therefore, the transaction was outside the purview of Sections 194C and 194J of the Income-tax Act. The court dismissed the appeals, finding no substantial question of law arising from the ITAT's order. The circular issued by the Central Board of Direct Taxes (CBDT) also supported the view that the transaction was a sale. Consequently, the imposition of TDS and interest was unjustified, and the appeals were dismissed in limine.