2015 (5) TMI 788 - AT - Income Tax

Disallowance of transmission charges paid to U.P. Power Corporation Limited - non-deduction of TDS under section 194J - Held that - Assessee-company is making payment of transmission charges to the transmission company in consideration of availing the benefits of the standard technical facility i.e. transmission System Network of transmission company for the purpose of Transmission of Electricity from the Generation Point to the Distribution Point and as such by merely making available the benefits of its sophisticated Transmission System Network to the applicant company, the transmission company is not rendering any Technical Services within the meaning of Explanation 2 to section 9(1)(vii) of the Act. The important factor which was not appreciated by the A.A.R. in the case of Ajmer Vidyut Vitran Nigam Limited 2012 (8) TMI 742 - AUTHORITY FOR ADVANCE RULINGS is that the technical staff of Transmission Company by operating and maintaining its grid station and transmission lines, are simply discharging their own statutory functions and all are on the payrolls of the transmission company. Therefore, they do not render any technical service to the assessee-company. We have carefully examined the order of the A.A.R. and orders of the Tribunal on the issue and we find that the Tribunal has taken a consistent view that the payment of transmission charges is not payment for fee for technical services, therefore, the provisions of section 194J of the Act are not attracted. The Tribunal has also taken a view in all those cases that it is not a payment, it is only a reimbursement of the cost incurred on transmission charges. Therefore, provisions of section 40(a)(ia) of the Act is not applicable. - Decided in favour of assesse.

Issues Involved:
1. Deletion of addition made by the Assessing Officer (A.O.) under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Non-deduction of Tax Deducted at Source (TDS) under Section 194J on transmission charges.
3. Nature of transmission charges as fees for technical services.
4. Reimbursement of transmission charges.
5. Applicability of various judicial precedents and Advance Rulings.
6. Liability of the assessee as "assessee in default" under Section 201(1) and interest under Section 201(1A).

Issue-wise Detailed Analysis:

1. Deletion of Addition Made by the A.O. under Section 40(a)(ia):
The CIT(A) deleted the addition of Rs. 1,65,32,88,040/- made by the A.O. under Section 40(a)(ia) of the Income Tax Act, 1961, on the grounds that the assessee was not liable to deduct TDS on transmission charges. This decision was based on the understanding that the transmission charges were not fees for technical services but rather reimbursements.

2. Non-deduction of TDS under Section 194J on Transmission Charges:
The A.O. had disallowed the transmission charges on the premise that they were fees for technical services and thus liable for TDS under Section 194J. The CIT(A) and the Tribunal both found that the transmission charges paid by the assessee to UPPCL were not for technical services but were reimbursements, and thus, TDS under Section 194J was not applicable.

3. Nature of Transmission Charges as Fees for Technical Services:
The Tribunal examined whether the transmission charges could be considered fees for technical services under Explanation 2 to Section 9(1)(vii). It was concluded that the services rendered by UPPTCL did not involve human intervention or the transfer of technical knowledge to the assessee. The Tribunal applied the rule of noscitur a sociis to interpret "technical services" and found that the transmission of electricity did not qualify as such.

4. Reimbursement of Transmission Charges:
The Tribunal and CIT(A) concluded that the transmission charges were reimbursements of costs incurred by UPPTCL for transmitting electricity. These charges were determined by the UPERC and did not include any element of profit. Therefore, they could not be considered payments for technical services, and the provisions of Section 194J were not applicable.

5. Applicability of Various Judicial Precedents and Advance Rulings:
The Tribunal relied on several judgments, including those from the Bangalore, Mumbai, and Jaipur Benches of the Tribunal, which consistently held that payments for transmission charges were reimbursements and not fees for technical services. The Tribunal also noted that the A.A.R. ruling in the case of Ajmer Vidyut Vitran Nigam Limited did not consider the distinction between technical services and technology-driven services adequately.

6. Liability of the Assessee as "Assessee in Default" under Section 201(1) and Interest under Section 201(1A):
Since the Tribunal concluded that TDS was not required on the transmission charges, the assessee could not be held as an "assessee in default" under Section 201(1). Consequently, interest under Section 201(1A) could not be charged. The Tribunal set aside the order of the CIT(A) on this issue and allowed the assessee's appeal.

Conclusion:
The Tribunal upheld the CIT(A)'s decision that the transmission charges were reimbursements and not fees for technical services. Therefore, TDS under Section 194J was not applicable, and the addition made by the A.O. under Section 40(a)(ia) was rightly deleted. The assessee was not liable as an "assessee in default" under Section 201(1), and interest under Section 201(1A) could not be charged. The appeal of the Revenue was dismissed, and the appeal of the assessee was allowed.

← Previous Next →