2015 (5) TMI 396 - HC - Income Tax

TDS on wheeling and transmission charges - payment made by the assessee to entities like Maharashtra State Electricity Transmission Company Limited (MSETCL) and Power Grid Corporation of India Limited (PGCIL) for the use of transmission lines or other infrastructure i.e. plant, machinery and equipment - whether payment could not be termed as rent under the provisions of section 194I and consequently the provisions of sections 201 and 201(1A) could not be applied ? - Held that - No service is being provided by the MSETCL or the STU. No doubt, MSEDCL as transmission licensee is required to provide superintendence, maintenance and repairs to the system. However, no such service is rendered by the MSETCL to MSEDCL. MSETCL is obliged to maintain the system by value of operation of law under the Electricity Act. MSEDCL accesses the STU and distributes electricity passing through the STU. Our views stand fortified by the very fact that the revenue itself is confused and unsure as to the nature of the charge. The focus of the revenue is only the requirement of deduction of tax whether under Section 194-I or Section 194-J. This approach is erroneous. The revenue contends that the WT charges could be rent or fees for technical services but in our view it is neither. Wheeling charges represent the charge for permitting use of the STU by persons other than the Distribution licence. The Transmission charges simply constitute fees for availing of the said transmission utility to be used by open access concept for distribution of electricity to licensees and consumers. In view of the above discussion, we are of the view that the WT charges are neither rent nor fees for technical services. Keeping the said interpretation into effect into effect, we find that while interpreting the expression rent in the present scenario, we must bear in mind that taking into account the functioning of MSEDCL which is a public utility, it will not be appropriate to equate the transmission charges or wheeling charges to rent or fees for technical service. Electricity Act of 2003 was enacted partly on account of deteriorating performance of the State Electricity Boards on account of various factors, including difficulties in power tariff fixation by the erstwhile electricity boards which were unable to take decisions on the tariff in a professional and independent manner. As a result, there were subsidies of unsustainable levels. The restructuring of the electricity boards had created various relationships amongst the four entities inter se namely, MSEB Holding Company Limited, Maharashtra State Electricity Transmission Company Limited, Maharashtra Power Generation Co., Maharashtra State Electricity Distribution Company Limited. Our decision in this appeal is restricted to the State Electricity Boards and the reconstituted entities, to exclusion of others in an attempt to avoiding any absurd results which was not intended by the Legislature. In this behalf, we find it appropriate to make a reference to the following observations of the Hon ble Supreme Court in the case of Commissioner of Income-Tax, Bangalore V/s. J.S. Gotla Yadagiri reported in (1985 (8) TMI 5 - SUPREME Court ). Thus Transmission charges and / or Wheeling charges are not amounts paid under any arrangement for use of land, building, plant machinery, equipment, furniture, fitting, etc. and, therefore, not rent. Equally, the amounts are not fees for technical services.- Decided in favour of the Assessee

Issues Involved:
1. Whether payments of wheeling and transmission charges made by the assessee to entities like MSETCL and PGCIL could be termed as rent under Section 194I of the Income Tax Act.
2. Whether such payments should have been treated as fees for technical services and tax should have been deducted at source under Section 194J of the Income Tax Act.
3. Whether the Income Tax Appellate Tribunal was justified in following the earlier order in the case of Chhattisgarh State Electricity Board without considering recent decisions like that of the Authority of Advance Ruling in the case of Ajmer Vidyut Vitran Nigam Limited.

Detailed Analysis:

1. Whether payments of wheeling and transmission charges could be termed as rent under Section 194I of the Income Tax Act:
The Tribunal held that payments made by the assessee for the use of transmission lines could not be considered as rent under Section 194I. The Tribunal relied on previous decisions, including the case of Chhattisgarh State Electricity Board, where it was determined that the use of transmission lines did not amount to rent. The Tribunal found that the payments were for the transmission of electricity and not for the use of any specific plant, machinery, or equipment, which would be necessary to classify the payments as rent under Section 194I.

The High Court agreed with the Tribunal, noting that the payments were not made for the use of any identifiable equipment or machinery. The Court emphasized that the charges were determined by the Maharashtra Electricity Regulatory Commission (MERC) and were not fixed amounts describable as rent. The Court also considered the nature of the Bulk Power Transmission Agreement (BPTA) and found that the payments were for accessing transmission capacity, not for renting equipment.

2. Whether such payments should have been treated as fees for technical services under Section 194J of the Income Tax Act:
The Assessing Officer initially found that the payments were in the nature of fees for technical services, requiring tax deduction under Section 194J. However, the Tribunal disagreed, stating that there was no human service element involved in the transmission of electricity, which is a requirement for classifying payments as fees for technical services.

The High Court upheld the Tribunal's view, stating that the transmission of electricity did not involve any managerial, technical, or consultancy services. The Court noted that MSETCL, as a transmission licensee, was obligated to maintain the transmission system by law, and no additional technical services were provided to the assessee. Therefore, the payments did not qualify as fees for technical services under Section 194J.

3. Whether the Income Tax Appellate Tribunal was justified in following the earlier order without considering recent decisions:
The Revenue argued that the Tribunal should not have mechanically followed its earlier order in the case of Chhattisgarh State Electricity Board without considering the evolving law and recent decisions like the Authority of Advance Ruling in the case of Ajmer Vidyut Vitran Nigam Limited.

The High Court found that the Tribunal was justified in relying on its earlier decisions, as the facts of the present case were similar to those in the Chhattisgarh State Electricity Board case. The Court noted that the Revenue had not appealed against the Tribunal's decision in the earlier case, implying acceptance of the Tribunal's interpretation. The Court also stated that the recent decision of the Authority of Advance Ruling did not change the legal position regarding the classification of WT charges.

Conclusion:
The High Court concluded that the payments of wheeling and transmission charges made by the assessee to MSETCL and PGCIL could not be termed as rent under Section 194I or as fees for technical services under Section 194J of the Income Tax Act. The Tribunal's decision to rely on its earlier order was justified, and the appeal was disposed of in favor of the assessee.

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