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TMI Blog2009 (4) TMI 489X X X X Extracts X X X X X X X X Extracts X X X X ..... n the operation of power system and therefore question of any person rendering service to another does not arise - when no income is paid by assessee to transmission company the question of deduction of tax at source do not otherwise arise even when under certain section of Chapter XVII-B liability of TDS is on payment of any sum and under certain sections it is on payment of income as ultimately the tax is on the income and deduction of tax at source is only one of the modes of collection and recovery of the tax - Held that: provisions of s. 40(a)(ia) are not applicable in the present facts of the case Regarding interest u/s 234B - levy of interest under s. 234B is mandatory but it is so only when the condition precedent for payment of advance tax exist - Since assessee made no default in paying advance tax in regular assessment, interest under s. 234B could not be levied in reassessment proceedings - Appeal is allowed by way of remand to AO X X X X Extracts X X X X X X X X Extracts X X X X ..... n are prior to the decision given in the assessee's own case in this issue. 2.1 The learned Authorised Representative relied on the decision of Karnataka High Court in case of CIT vs. Sabari Enterprises (2007) 213 CTR (Kar) 269 : (2008) 2 DTR (Kar) 394 : (2008) 298 ITR 141 (Kar) and CIT vs. P.M. Electronics Ltd. (2008) 220 CTR (Del) 635 : (2009) 177 Taxman 1 (Del). He further submitted that against the order of Tribunal dt. 30th Sept., 2008 an application under s. 254(2) has been filed which is pending for disposal. He also relied on the subsequent decision of this Bench in ITA No. 185/Jp/2008, dt. 13th Feb., 2009 and ITA No. 914/Jp/2008, dt. 31st Dec., 2008 wherein it was held that employees' contribution to PF and ESI if paid before due date of filing of return under s. 139(1) could not be disallowed. The learned Departmental Representative on the other hand relied on the orders of the lower authorities. 2.2 After hearing the parties we find that there is no dispute in the present case that the employees' contribution to PF and ESI was paid before the due date of filing of return under s. 139(1) though after the statutory dates specified in the respective Acts. This is suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-stations. The Government of Rajasthan notified the RVPN as the State transmission utility (STU) under s. 14 of the Electricity Act, 2003. 3.3 Sec. 39 of the Electricity Act, 2003 mandates the STU to undertake various functions wherein sub-s. (2) of s. 39, provides as under; "(2) The functions of the STU shall be- (a) to undertake transmission of electricity through intra-State transmission system; (b) to discharge all functions of planning and co-ordination relating to intra-State transmission system with- (i) Central transmission utility; (ii) State Governments; (iii) Generating companies; (iv) Regional power committees; (v) Authority; (vi) Licensees; (vii) any other person notified by the State Government in this behalf; (c) to ensure development of an efficient, co-ordinated and economical system of intra-State transmission lines for smooth flow of electricity from a generating station to the load centers; (d) to provide non-discriminatory open access to its transmission system for use by- (i) any licensee or generating company on payment of the transmission charges; or (ii) any consumer as and when such open access is provided by the State Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the grid standards and the State grid code. (3) The SLDC may levy and collect such fee and charges from the generating companies and licensees engaged in intra-State transmission of electricity as may be specified by the State Commission. 33. Compliance of directions.-(1) The SLDC in a State may give such directions and exercise such supervision and control as may be required for ensuring the integrated grid operations and for achieving the maximum economy and efficiency in the operation of power system in that State. (2) Every licensee, generating company, generating station, substation and any other person connected with the operation of the power system shall comply with the direction issued by the SLDC under sub-s. (1). (3) The SLDC shall comply with the directions of the Regional Load Despatch Centre. (4) If any dispute arises with reference to the quality of electricity or safe, secure and integrated operation of the State grid or in relation to any direction given under sub-s. (1), it shall be referred to the State Commission for decision: Provided that pending the decision of the State Commission, the direction of the SLDC shall be complied with by the licen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies allocated to them from State generating stations and inter-State generating stations by Government of Rajasthan and any additional contracted power with generators/traders, including the inter-Discom trades. The Government of Rajasthan may review and revise the capacity allocations in one or more power stations from time to time and the allotted transmission capacity for Discoms would change to some extent. Additional generation capacity can be contracted by any Discom only with the prior agreement of RVPN and will be subject to availability of transmission capacity and other conditions as per the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulations, 2004. 5. Open access transmission capacity Discoms have the highest priority in allotment of open access capacity on intra-State transmission system under the provisions of the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulations, 2004. Subject to above, the RVPN is free to allow its spare available transmission capacity to other long-term open access and short-term open access customer in terms of Rajasthan Electricity Regulatory Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge the transmission and wheeling charges for the power transmitted for Discoms as per transmission and wheeling tariff approved by the Commission for the respective year. For the financial year 2004-05, the Commission has approved transmission tariff of Rs. 83.5 per KW of contracted transmission capacity per month. Besides transmission charges of Rs. 83.5 per month, the Discoms shall also pay on quarterly basis a balancing charge equal to difference between the approved AAR recovery of Rs. 12,637 lakhs per quarter and actual billing during that quarter in the ratio of their billing for that quarter. Till the Commission approves a new tariff, the existing tariff shall continue to apply and will be subject to adjustment of issue of a tariff order. Transmission and wheeling tariff during subsequent years shall be applicable on the basis approved by the Commission for respective years. 10. SLDC charges In addition to transmission and wheeling charges as mentioned at cl. 10 of this TSA, the Discoms shall also pay the SLDC charges as specified by the Commission for the respective year. For the financial year 2004-05, the Commission specified SLDC charges of Rs. 139.25 lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order by stating that various functions undertaken by RVPN involve human element. He also tried to distinguish the further case laws relied by the assessee. The assessee against this remand report filed its rejoinder. After considering the above, the CIT(A) decided the issue as per his finding in paras 2.7 to 2.10. The summary of these findings are as under: - Even if RRVPN has no income liable to tax, still the provisions of s. 40(a)(ia) does not give any discretion to the AO not to make any disallowance of the expenditure claim on which TDS was deductible and not deducted unless a certificate is issued under s. 197(1). - RVPN has to facilitate and monitor the transmission process by maintaining delivery voltage, transmission performance standards and compliance of grid code as evident from cls. (vi), (vii) and (viii) of transmission service agreement and s. 34 of Electricity Act, 2003 which is done with the help of sophisticated technology and technical as well as experienced engineers and technicians. It is not necessary to include a definite human element in the word 'technical' since it is not specified as such. - The services provided by RVPN in connection with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto effect only when by making payment of fee for technical services, assessee acquired certain rights which can be further used for its own use/purpose/research. Where facility is provided automatically by machine/robot, or where sophisticated equipments are installed and operated with a view to earn income by allowing the customers to avail of the benefit by user of such equipment, the same does not result in the provision of technical service to the customer for a fee. In case of Skycell Communications Ltd., it is specifically provided that use of transmission lines to carry the power, transformers to regulate the flow of current, meters to measure that consumption, would not be regarded as amounting to provision of technical services to the consumer so as to warrant deduction of tax at source. He submitted that if the principles laid down in the above cases are applied to the present agreement of transmission services, the various objections raised by the AO/findings given CIT(A) are incorrect. His submission in this regard is reproduced as under: (i) Simply because the agreement is styled transmission service agreement it would not fall in s. 194J as all services are not cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tee on Manpower, Certification and Incentives for System Operation and the Ring Fencing Load Dispatch Centre issued by Ministry of Power, Government of India, has directed that SLDC, Hirapura, be recognised a separate entity under Electricity Act, 2003 and accordingly its financial accounts be maintained separately for financial year 2008-09 and onwards. Thus, SLDC is a monitoring authority discharging statutory function. The payment made as SLDC charges is a statutory payment. It is for this reason that it is empowered to levy penalty under s. 33(5) of the Electricity Act, 2003 for non-compliance of its direction. This establishes that SLDC charges are not for any service rendered but a statutory levy. Had it been a payment towards services the users of service could have claimed compensation for deficiency in services and not that State Load Dispatch Centre could impose penalty for non-compliance of its direction. (iv) The various clauses in the transmission service agreement only provides for compliance of the grid code and SLDC directions which are binding both on the assessee as well as RVPN. Thus when all the parties involved with generation to distribution of electricity a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e work, the State Load Dispatch Centre and the transmission company has its own manpower and technical staff. The Power Line Career Communication Department in RVPN is to facilitate the communication between its two or more sub-stations. The supervisory/technical Staff positioned there does the work relating to State Load Dispatch Centre and the transmission utility. These, manpower do not render any technical service to the assessee. The various points raised in paras 1 to 12 on pp. 6 to 9 of remand report are factually incorrect rather RVPN is to work under direction of State Load Dispatch Centre and the involvement of human element therein does not result in rendering of any technical service to the assessee. (vi) The lower authorities have tried to distinguish the case of Skycell Communications Ltd. by referring to the decision of Chennai Bench in the case of Singapore Airlines Ltd. and Ahmedabad Bench in case of Canara Bank vs. ITO. In the former case the payment towards navigational facilities was held to be a technical service under s. 194J as in that case assessee was getting technical service which is required for flying the aircraft over the Indian territory. Thus, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the services are provided. Based on these arguments it was submitted that the conclusion drawn by the lower authorities that the payment of transmission charges to RVPN is a "Fees for technical service" under s. 194J liable for deduction of tax at source is not correct. 6.2 The learned Authorised Representative further argued that the entire mechanism of payment of transmission tariff is determined by an independent regulatory body i.e., Rajasthan Electricity Regulatory Commission to reimburse the actual cost incurred by RRVNL in developing/maintaining its transmission system. The transmission company is not allowed any return on its capital. The tariff is determined on the principle of no profit no loss. Thus no income is paid by the distribution companies to the transmission company but only cost incurred by transmission company is reimbursed by distribution companies through the mechanism of tariff fixed by Regulatory Commission. He relied on the case of ITO vs. Dr. Willmar Schwabe India (P) Ltd. (2005) 95 TTJ (Del) 53 to argue that on actual reimbursement provision of deduction of tax at source would not apply. He pointed out that the CIT(A) though accepted that the Regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended that M/s Hindustan Zinc Ltd. who also transmit the electricity by using the transmission line of RVPN makes deduction of tax at source under s. 194C. He also referred to the survey report under s. 133A in case of M/s BSES Rajdhani Power Ltd., Delhi, M/s BSES Yamuna Power Ltd., Delhi, M/s Delhi Transco Ltd., Delhi, Chatisgarh State Electricity Board and Gujarat Urja Vikas Ltd. wherein the liability of TDS on transmission payment is sought to be covered under s. 194C/194-I/194J. Supporting the order of lower authorities and the cases relied therein he further referred to the decision of Dr. Hutarew & Partner (India) (P) Ltd. vs. ITO (2008) 25 SOT 347 (Del) wherein it was held that data processing payments for specialized service are in the nature of technical services liable to deduct tax at source. On the applicability of s. 40(a)(ia) he argued that this section applies when taxes are not deducted at source irrespective of whether the amount is payable or paid. He elaborated all the issues mentioned in the orders of lower authorities below and supported the same. 8. In the rejoinder the learned Authorised Representative submitted that transmission system maintained by RVP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on payment of fees for professional or technical services and whether s. 40(a)(ia) is applicable on the present facts of the case. 9.1 On going through the various clauses of transmission service agreement we find that as per cl. 3 of the agreement assessee is allowed the user of the transmission system. Clause 5 provides for open access transmission capacity whereby any other customer is also allowed to use the transmission lines for long-term open access and short-term open access. Clause 8 provides for compliance of grid code as approved by the Commission both by RVPN and assessee and further provides that all the parties shall comply with the direction of SLDC for ensuring integrated grid operation for achieving the maximum economy and efficiency in the operation of power system in the State. As per cls. 10 and 12 the tariff for transmission and wheeling and SLDC charges is to be as approved by the Regulatory Commission. From all these clauses it is clear that all the parties involved with generation, transmission and distribution of electricity are to comply with the direction of State Load Dispatch Centre and the Regulatory Commission for achieving the economy and efficienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". 9.3 The expression "fees for technical service" as used in s. 194J of the Act has been exhaustively examined by the Hon'ble Delhi High Court in the case of CIT vs. Bharti Cellular Ltd. and the observations are reproduced as under: "13. We have already pointed out that the expression 'fees for technical services' as appearing in s. 194J of the said Act has the same meaning as given to the expression in Expln. 2 to s. 9(1)(vii) of the said Act. In the said Explanation the expression 'fees for technical services' means any consideration for rendering of any 'managerial, technical or consultancy services'. The word 'technical' is preceded by the word 'managerial' and succeeded by the word 'consultancy'. Since the expression 'technical services' is in doubt and is unclear, the rule of noscitur a sociis is clearly applicable. The said rule is explained in Maxwell on The Interpretation of Statutes (Twelfth Edition) in the following words: Where two or more words which are susceptible of analogous meaning are coupled together, noscitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o s. 9(1)(vii) would also have to be construed as involving a human element. But, the facility provided by MTNL/other companies for interconnection/port access is one which is provided automatically by machines. It is independently provided by the use of technology and that too, sophisticated technology, but that does not mean that MTNL/other companies which provide such facilities are rendering any technical services as contemplated in Expln. 2 to s. 9(1)(vii) of the said Act. This is so because the expression 'technical services' takes colour from the expressions 'managerial services' and 'consultancy services' which necessarily involve a human element or, what is nowadays fashionably called, human interface. In the facts of the present appeals, the services rendered qua interconnection/port access do not involve any human interface and, therefore, the same cannot be regarded as 'technical services' as contemplated under s. 1941 of the said Act. 20. Before concluding we would also like to point out that the interconnection/port access facility is only a facility to use the gateway and the network of MTNL/other companies. MTNL or other companies do not provide any assistance or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the head 'Salaries'.' Thus while stating that 'technical service' would include managerial and consultancy service, the legislature has not set out with precision as to what would constitute 'technical' service to render it 'technical service'. The meaning of the word 'technical' as given in the New Oxford Dictionary is adjective 1. of or relating to a particular subject, art or craft or its techniques; technical terms (especially of a book or article) requiring special knowledge to be understood; a technical report, 2. of involving, or concerned with applied and industrial sciences: an important technical achievement, 3. resulting from mechanical failure: a technical fault, 4. according to a strict application or interpretation of the law or the rules: the arrest was a technical violation of the treaty. Having regard to the fact that the term is required to be understood in the context in which it is used, 'fee for technical services' could only be meant to cover such things technical as are capable of being provided by way of service for a fee. The popular meaning associated with 'technical' is 'involving or concerning applied and industrial science'. 5. In the modern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avail of the benefit of the user of such equipment does not result in the provision to technical service to the customers for a fee. 6. When a person decides to subscribe to a cellular telephone service in order to have the facility of being able to communicate with others, he does not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. That fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber, does not on that score, make it provision of a technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telephone service. Neither service can be regarded as 'technical service' for the purpose of s. 194J of the Act. 7. The use of the internet and the world wide web is incr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to render the services but that itself do not bring the amount paid as 'fees for technical services' within the meaning of Expln. 2 to s. 9(1)(vii). The amount paid are towards annual maintenance contract of certain machinery or for converting partially oriented yard (POY) into texturised/twisted yarn. The technology or technical knowledge of persons is not made available to the assessee but only by using such technical knowledge services are rendered to the assessee. In such a case, it cannot be said that the amount is paid as 'fees for technical services'. Rendering services by using technical knowledge or skill is different than charging fees for technical services. In the later case the technical services are made available due to which assessee acquired certain right which can be further used. Accordingly where the persons rendering certain services has only maintained machinery or converted yarn but that knowledge is not vested with the assessee by which itself it can do research work, the amount paid cannot be considered as fees for technical services within the meaning of s. 194J of the Act." 9.6 An analysis of above cases lays down the proposition that s. 194J would hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction Ltd. vs. CIT though relates to s. 80-O of the IT Act, supports the case of the assessee that a technical service is involved where 'information concerning industrial, commercial or scientific knowledge, experience or skill is made available'. In the present case no scientific knowledge, experience or skill is made available/rendered by the RVPN to the assessee. The assessee itself has its own engineers and technicians who consistently monitor and supervise the flow of the electricity to its system and ultimately supplies to its customer. The function of State Load Dispatch Centre as regulator and controller for optimum scheduling and dispatch of electricity, and supervision over the intra-State transmission system is statutory function which is also entrused to RVPN and therefore, RVPN by discharging such statutory function does not provide any technical service. 9.9 We have also considered the other decisions relied by the learned Departmental Representative which are clearly distinguishable on facts. In case of Singapore Airlines Ltd. vs. ITO the navigation charges paid was for getting the technical service like weather report, instruction overflights to fly over technic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the board and the copy of the journal voucher by which such credit is given to the assessee. Thus when no income is paid by assessee to transmission company the question of deduction of tax at source do not otherwise arise even when under certain section of Chapter XVII-B liability of TDS is on payment of any sum and under certain sections it is on payment of income as ultimately the tax is on the income and deduction of tax at source is only one of the modes of collection and recovery of the tax. On actual reimbursement, provision of deduction of tax at source would not apply as held in case of ITO vs. Dr. Willmar Schwabe India (P) Ltd., headnote of which reads as under: "As agreed by and between the assessee company and ITCL, a vehicle was to be provided by the assessee company to the said consultant for attending to its work and thus, the assessee company was to bear the vehicle expenses actually incurred by the said party. Bills for such expenses incurred by the said consultant were separately raised by them on the assessee company in addition to bills for fees payable on account of technical services and since the amount of bills so raised was towards the actual expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction of amount which remains payable to a resident in respect of fees for technical services etc. It is not applicable where expenditure is paid. It is applicable only in cases where the payments are due and outstanding. The word payable is not defined though the word paid is defined under s. 43(2) to mean actually paid or incurred. Hence, by implication the word payable does not include paid. The difference in the word paid and payable is also there in the rules for depositing the TDS and also for levy of interest under s. 234B where interest is worked out on the basis of tax actually deducted at source and not on the basis of tax deductable. Sec. 40(a)(ia) otherwise being a legal fiction needs to be construed strictly in view of the decision of Supreme Court in CIT vs. Mother India Refrigeration Industries (P) Ltd. (1985) 48 CTR (SC) 176 : (1985) 155 ITR 711 (SC). The CBDT in Circular No. 5 of 2005, dt. 15th July, 2005 [(2005) 197 CTR (St) 1] has also clarified that the provision of the s. 40(a)(ia) is to augment compliance of TDS provision in the case of residents and curb bogus payments to them. In present case the payment is not in dispute and on the issue whether tax is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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