2015 (8) TMI 378 - HC - Income Tax

TDS liability on wheeling charges - whether it did not amount to fees for technical services within the meaning of Section 194J? - whether there is any rendering of any managerial, technical or consultancy services (including the provision of services or technical or other personnel) by PGCIL to DTL by virtue of the BPTA within the meaning of Section 194 J (1) read with Explanation 2 of Clause (vii) of sub-section (1) of Section 9 of the Act? - Held that - Although the wheeling charges may be fixed by the CERC, that by itself is not a determinative factor. In the present case, DTL is seeking to characterize the wheeling charges as payment for use of PGCIL s equipment within the meaning of Section 194C of the Act. Interestingly, the CIT (A) in its order has accepted the plea that the job of DTL is to transport the electricity and it is therefore like carriage of goods. Despite accepting the above plea, the CIT (A) has simply concurred with the AO only because of absence of sufficient legal precedent on the subject . Once it is accepted that all what PGCIL does is to transmit the electricity to DTL through the network without any human intervention, it cannot be characterized as a provision of technical services and sought to be brought within the fold of Section 194 J of the Act. By virtue of the BPTA agreement between DTL and PGCIL there is transportation of the electricity from PGCIL to DTL, through the equipment and network required statutorily to be maintained by PGCIL through its technical personnel using technical expertise. This, however, does not result in PGCIL providing technical services to DTL. Therefore the wheeling charges paid by DTL to PGCIL for such transportation of electricity cannot be characterized as fee for technical service. The ultimate conclusion of the ITAT holding that the wheeling charges paid by the Assessee, in the facts of this case, was deductable as it did not amount to fees for technical services within the meaning of Section 194J of the Act is therefore not erroneous. - Decided in favour of the Assessee.

Issues Involved:
1. Whether the "wheeling charges" paid by the Assessee constitute "fees for technical services" under Section 194J of the Income Tax Act.
2. Interpretation and application of the Bulk Power Transmission Agreement (BPTA) between Delhi Transco Ltd. (DTL) and Power Grid Corporation India Ltd. (PGCIL).
3. Determination of tax deduction at source (TDS) liability under Section 194C versus Section 194J of the Income Tax Act.
4. Analysis of the relevant statutory provisions and judicial precedents regarding "technical services."

Detailed Analysis:

Issue 1: Whether the "wheeling charges" paid by the Assessee constitute "fees for technical services" under Section 194J of the Income Tax Act.

The court examined whether the "wheeling charges" paid by DTL to PGCIL for the transmission of electricity could be classified as "fees for technical services" under Section 194J of the Income Tax Act. The Assessing Officer (AO) initially held that these charges were for technical services, which required TDS under Section 194J. However, the Income Tax Appellate Tribunal (ITAT) disagreed, stating that the services did not involve human intervention, a key element for classifying a service as technical. The court supported ITAT's view, emphasizing that the transmission of electricity through PGCIL's system did not amount to technical services rendered to DTL.

Issue 2: Interpretation and application of the Bulk Power Transmission Agreement (BPTA) between Delhi Transco Ltd. (DTL) and Power Grid Corporation India Ltd. (PGCIL).

The BPTA defined "wheeling" as the use of a transmission licensee's system for conveying electricity. Under this agreement, DTL paid PGCIL for transmitting electricity, with charges determined by the Central Electricity Regulatory Commission (CERC). The court noted that the agreement was primarily for the transportation of electricity, not for any technical services provided by PGCIL to DTL. The technical maintenance of PGCIL's system benefited PGCIL itself, not DTL.

Issue 3: Determination of tax deduction at source (TDS) liability under Section 194C versus Section 194J of the Income Tax Act.

The AO had treated DTL as a defaulter for not deducting TDS under Section 194J, instead of Section 194C, which applies to payments for work contracts. The CIT (A) initially upheld the AO's decision but acknowledged that electricity could be considered "goods" under the Sales of Goods Act, thus supporting DTL's argument for applying Section 194C. The ITAT and the court ultimately concluded that the wheeling charges were not for technical services, thereby negating the need for TDS under Section 194J.

Issue 4: Analysis of the relevant statutory provisions and judicial precedents regarding "technical services."

The court analyzed various judicial precedents, including CIT v. Bharti Cellular Ltd. and Skycell Communications Ltd. v. DCIT, which highlighted the necessity of human intervention for classifying a service as technical. The court also referred to the Bombay High Court's decision in CIT v. Maharashtra State Electricity Distribution Co. Ltd., which held that wheeling charges did not amount to fees for technical services. The court concluded that the transmission of electricity by PGCIL, maintained by its technical personnel, did not constitute technical services to DTL.

Conclusion:

The court concluded that the wheeling charges paid by DTL to PGCIL for the transmission of electricity could not be characterized as fees for technical services. Therefore, these charges were not subject to TDS under Section 194J of the Income Tax Act. The appeals by the Revenue were dismissed, affirming the ITAT's decision in favor of the Assessee.

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