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TMI Blog2011 (11) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... e u/s.40(a)(ia). - ITA No. 404/CTK./2011 - - - Dated:- 17-11-2011 - Shri K.K. Gupta, and Shri K.S.S. Prasad Rao, JJ. Represented By:- Shri V.Jain/D.Mohanty, ARs For the appellant: Smt. Paramita Tripathy, DR For the respondent K.S.S. Prasad Rao,. The assessee has filed this appeal having been aggrieved against the order dt.03.08.2011 of the Commissioner of Income-tax (Appeals) for the Assessment Year 2008-09. 2. The assessee raised the following issues in its grounds of appeal. "(1) That the order of the CIT(A)-II, Bhubaneswar dismissing the appeal filed on 28.01.2011 is arbitrary, uncalled for, without appreciating the facts of the case, by wrongful application of law and hence bad in law. (2)(a) That the Ld. A.O. erred in disallowing and the CIT(A) wrongly confirmed the application of section 40(a)(ia) to the case of the appellant in regard to a sum of Rs. 367.06 crores being the transmission charges paid to OPTCL by WESCO, NESCO, SOUTHCO and CESU under the regulatory mechanism devised by Orissa Electricity Regulatory Commission (OERC). (b) That the Ld. A.O. and the CIT(A) wrongly assumed that the appellant paid rent for the use of the transmission l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a book loss of Rs. 3.86 crores." 3. Both the parties were heard regarding the issues raised by the assessee and their legal implications. 4. On careful consideration of the material made available to the Tribunal in the light of the rival submissions of both the parties, the undisputed facts relating to the issues are that the assessee is a Public Limited Company. It filed its return for the Assessment Year 2008-09 on 25.10.2008 showing the total income at NIL. It has shown deemed total income at NIL under MAT u/s.115JB. The case was selected for scrutiny and in the scrutiny assessment, the Assessing Officer found that the assessee is a Company engaged in the business of trading of power. Power is purchased from the generators (power generating companies) and sold to the DISCOMs and others utilizing the transmission, network of OPTCL, PGCIL and other. The above Companies, the generators, DISCOMs and GRIDCO are regulated by Orissa Electicity Regulatory Commission(OERC) whose functions, inter alia, are to issue licenses, determine the conditions therein, regulate the purchase, distribution and supply of electricity and the tariffs payable. The assessee company after purchasing po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the amounts paid to OPTCL. Accordingly, the Assessing Officer issued show cause in response to which, the assessee submitted as under: "GRIDCO is supplying power to the DISCOMs through Orissa Power Transmission Corporation Limited (OPTCL) network and the power purchase bill raised by GRIDCO is based on the measurement of power through the meters at the intersection points. Similarly, OPTCL is raising the transmission charges bill to the DISCOMs based on the measurement of power through the meters at intersection points. The payment of both the bills i.e. Bulk Supply Tariff (BST bill raised by GRIDCO and Transmission Charges bill raised by OPTCL to DISCOMs is made in favour of GRIDCO as per the clarificatory order given by Orissa Electricity Regulatory Commission (OERC). GRIDCO in turn transfers the amount received towards transmission charges to OPTCL on priority after which the balance amount is adjusted against the amount due towards the BST bill of GRIDCO. The transmission charges of OPTCL received from DISCOMs is neither an income when it is received nor expenditure when it is paid to OPTCL. Hence the transaction is not routed through the-profit and loss account of GRIDCO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all we have to analyze the scope of the functioning of the various companies related to the production, distribution of powers to the ultimate consumers. For this purpose, it is to be taken into consideration the development of the power transmission in the State of Orissa. The Electricity Act of 2003 explains the electricity reform taken by the Central Government in the State Governments. The electricity supply industries in India is being governed by the Indian Electricity Act, 1910 this is being the basic frame work of supply of electricity in India. At that stage the electricity industry was in its infancy and this Act envisages the growth of industry through providing licenses. This continued till the independence of India. With a new Act i.e., The Electricity (supply) Act, 1948 was enacted for growth of the State Electricity Board. This enactment was made to ensure for expansion of electricity across India not limited to its cities only. Since performance of the State Electricity Boards deteriorated over a period on account of various reasons there raise a need in 1990 for Electricity Regulatory Reform. 7. Orissa is the first state to notify the State Electricity Reform by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany was transferred to new Company and the assessee was left with the trading undertaking only without any assets. To support this contention a notification dt.9.6.2005 made in the Gazette which is placed at pages 52 to 63 to the PB filed by the assessee. In this notification various definitions are given. Consequently a bulk supply agreement was entered into by the assessee and three distributing companies on 24.5.1999 and another agreement was entered into with CESCO dt.19.9.1999 modified under the obligation of transmission and wheeling of power stood transferred to OPTCL. This is fortified by clauses 11 sub-clause (1) and (ii) which is placed at page 58 of the PB filed by the assessee. This specifically provides that bulk supply agreement stands modified and all the obligation of transmission towards DISCOMS stated therein shall be that of the transferee i.e., OPTCL. As per the notification placed at page 54 of the PB filed by the assessee, the transferee i.e., OPTCL shall be responsible for all contracts, rates, deeds, schemes, arrangements, agreements and other items of whatever nature relating to the transmission undertaking, transferred to the transferee i.e., OPTCL to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of DISCOMs. This arrangement of securing payment from escrow account in no way creates the liability of the assessee company towards OPTCL nor does it create the privities of contract between the assessee and the OPTCL. The OPTCL having coming into existence as an independent company doing transmission work, getting tariff determined by its own, charging the transmission charges directly to DISCOMs. DISCOMs also participating in determination of tariff thereby there is no reason to assume that the assessee company is making payment to the OPTCL on its on account. To support this aspect, the assessee has placed at pages 139 to 189 of the PB where objections have been filed by these distributing companies before the Orissa Electricity Regulatory Commission on the issue of determination of transmission and wheeling charges and Orissa Electricity Regulatory Commission has determined the transmission charges to be paid by DISCOMs to OPTCL. In this view of the matter, it is clear that the distributing companies have participated in tariff determination and on that basis OPTCL was to issue bills on DISCOMs . The bills for sale of power are being raised by the assessee on the DISCOMs whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the Taxation Laws (Amendment) Act, 2006 to include payment for the use of machinery or plant or equipment or furnitures or fittings. The analysis of provisions of Section 194-I clearly shows that "rent" by whatever name called used the words "any other agreement or arrangement" will have its meaning from the word "rent". The legislation has used the word "rent" and thereafter inserted the words "whatever name called". The effect of this will be that if the different nomenclature has been used for the word "rent" in any agreement or arrangement which in effect is payment like rent, rent that will be considered as payment covered by Section 194-I. Hence, the words "other agreement or arrangement" shall also have the same meaning which is akin to or in the nature of "rent". In support of this proposition, the assessee has relied on the following judicial pronouncements. (1) United Airlines v. CIT [2006] 287 ITR 281 (Delhi) (2) CIT v. Asiana Airlines, (Delhi). (3) CIT v. Japan Airlines, 325 ITR 298 (Delhi). (4) Vodafone Essar Ltd. v. Dy. CIT 135 TTJ 385 (Mumbai) 14. The Legislation has initially used the words "any lease, sub-lease and tenancy" as these words have to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the currency of the agreement. Ongoing through the above Circular, it is clear that the payment made under a rate contract is not an agreement or arrangement to fall within the provisions of Section 194-I. This circular also confirms the fact that any agreement or arrangement referred to in Section 194-I is akin to rent. Had it not been so, there would not have any need to exclude the rate contract agreement on the basis of logic given in the said Circular. Accordingly, the provisions of Section 194-I cannot be interpreted de horse the intention of the legislation as manifested by using the words "lease, sub-lease or tenancy". 16. That apart the payment of transmission and wheeling charges in any case is not payment for the use of plant and machinery. The payment alleged to have been made by the assessee to OPTCL is for the use by the assessee of any machinery or equipment of OPTCL. The responsibility of the transmission and wheeling of power is that of OPTCL. The transmission and wheeling of powers have to be carried out by the OPTCL and plant, machinery and equipments will be used by OPTCL and not by the assessee. As per the provisions of Section 43(3) of the Income-tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facility is provided by use of machinery or where equipments are installed with a view to earn income by allowing customers to avail benefit by using of such equipment the same does not mean technical services to the customers for a fee. This proposition is fortified by the following judicial pronouncements: (i) CIT v. Bharati Cellular Ltd. (319 ITR 139) (ii) Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53 (Mad.) (iii) Asia Satelite Telecommunication v. DIT (320 ITR 340) (iv) Vodafone Essar Ltd. v. Dy. CIT 135 TTJ 385 (Mumbai) 18. The provisions contained in Section 194C are also not applicable to the facts of the case as detailed hereunder. The provisions of Section 194C laid down that liability to deduct tax at source is in respect of work carried out in pursuance of contract between the contractor and the specified person. This Section 194C is inserted in the statute w.e.f.1.4.1972.The word "work" was not been defined in the statute. But vide Circular No.86 dt.29.5.1972 it was clarified that the provisions of Section 194C would apply in relation to work contracts, labour contracts and section 194C would not apply to contract for sale of goods. It was also stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of services beyond what was original enacted i.e., advertising, broadcasting and telecasting including production of programmes for such broadcasting or telecasting, carriage of goods and passengers by any mode of transport other than by railways, and catering. Undisputedly the transmission and wheeling charges are not covered in this amendment. Accordingly it could not be said that transmission charges or wheeling charges require deduction of tax at source u/s.194C of the Act. 20. The scope of Section 194C has been analyzed by the Hon'ble Supreme Court in the case of Birla Cement v. CBDT (248 ITR 216 (SC) holding that the key words of Section 194C are "carrying out any work". A word or collection of words should fit into the structure of the sentence in which the word is used or collection of words found in the context of Section 194C carrying out any work indicates doing something to conduct the work to completion or something which produces such result. Applying the above ratio of the judgments to the present facts, the transmission and wheeling charges unless there is specific amendment making the same covered within the scope as has been done by insertion of Explanation III ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the provisions of TDS liability u/s.194-I. Since the assessee Company has failed to deduct tax and deposit such TDS, the Assessing Officer after giving reasonable opportunity to the assessee decided that the amount of Rs. 512.44 Crores to be added to the total income of the assessee. To support the claim of the Assessing Officer the Department heavily relied on the applicability of the TDS provisions u/s.194-I to the above payments. More stress is laid on the meaning of "rent" contained in Section 194-I of the I.T. Act. It was further submitted by the learned DR that the word "rent" has been defined in the Section and it will have the meaning assigned to it in the definition. The definition of "rent" in other enactments like the Transfer of Property Act or the Indian Succession Act or the meaning of the word in common use or common parlance is of no relevance and should not influence the judgment as what can fall within the ambit or the word "rent" One has to look within the definition to find the answer. Lease, sub-lease and tenancy are the common arrangements for renting land and premises and certainly there is transfer of significant rights to the lessee and the tenant. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability of section 194-I to the charges paid for use and occupation of hotel rooms. The court observed that the expressions "any payment", by whatever name called, and any other agreement or arrangement" occurring in the definition of the term "rent" in the Explanation to section 194-I have the widest import. According to Black's Law Dictionary, the word "any" is often synonymous with either "every" or "all" its generality may be restricted by the context in which that word occurs in a statute. Hon'ble Supreme Court in Lucknow Development Authority v. M.K. Gupta (1994) 80 Comp. Cases 714 (SC); AIR 1994 SC 787, dealing with the use of the word "service" in the context it has been used in the definition of the term in clause (o) of section 2 of the Consumer protection Act has opined that the word "any" indicates that it has been used in a wider sense extending from "one to all". In G. Narsingh Das Agarwal v. Union of India (1967) 1 MLJ 197, the court opined that the words "any" means "all" except where such a wide construction is limited by the subject matter and context of the statute. Hon'ble Patna High Court in Ashiq Hasan Khan v. Sub-Divisional Officer, AIR 1965 Patna 446 and Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut why it is not necessary to take recourse to principles of interpretation in this case. The facts in the case of United Airlines v. CIT 287 ITR 281 (Delhi) are quite close to the present case. In this case, Hon'ble Delhi High Court was dealing with the applicability of section 194-I to the landing and parking charges paid by an Airline. Hon'ble Court observed as under: - "A perusal of the above provision shows that the word "rent" as defined above has a wider meaning than "rent" in common parlance. It includes any agreement or arrangement for uses of land." "The word "rent" in the aforesaid definition has a wider meaning, as already stated above, than in common parlance and it amounts to a legal fiction. Legal fictions are well-known in law. For instance, section 43(3) of the Income-tax Act defines "plant" to include a book. Normally, in common parlance "plant" means a factory but section 43(3) includes books within the meaning of the word "plant" for the purpose of depreciation." "In our opinion, the definition of the word "rent" in Explanation (i) to section 194-I is very clear and the plain meaning of that provision shows that even the landing of aircraft or parking airc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of supply of electricity. In the explanation rent is defined to mean any payment, by whatever name called under any arrangement for the use of machinery, plant or equipment. It is undisputed that in order to supply electricity to the distribution companies, the assessee has to use the machinery, plant and equipment belonging to OPTCL and PGCIL. As regards the assessee's contention that cost of power and cost of transmission at every stages are determined by OERC, the fact that OERC determines the cost of power and cost of transmission does not in any way come to friction with the taxability of such payments or receivables. It is immaterial whether the receipts and payments are routed through the P L Account or not when it is already established that the payment is in the nature of "rent". Thus the transmission charges paid to OPTCL and TGCIL or NTPC cannot be treated as reimbursement of expenses by the assessee company and other users of transmission network. 24. Countering the contention of the assessee that transmission charges paid to OPTCL has not been claimed as expenses nor as income earned by it when payments made by the assessee to OPTCL is only reimbursement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion charges and wheeling charges are payments in the nature of "rent" and the assessee was duty bound to deduct tax at source on such payments. The learned CIT(A) has confirmed the order of the Assessing Officer on this issue by rejecting the contentions of the assessee on the principles of ejusdem generis. The learned CIT(A) has also held that for applying the provisions of Section 194-I there is no need to restrict the meaning of term "physical use". 27. The contention of the learned AR of the assessee is that the meaning of the word "rent" cannot be given such wide meaning to include every type of payments de hors the meaning of the words lease, sub-lease or tenancy. The learned AR of the assessee has tried to make out a case on the basis of the reasoning given by some of the Circulars issued by CBDT but we do notice that while interpreting the meaning of the word "rent" in the case of payment of hotel in Circular No. 5 dt. 30.7.2002, for payments made by film distributor to a film exhibitor owning a cinema theatre in Circular No. 736 dt.17.2.1996 restricted meaning has been given to the word "rent". However, in view of the judgments referred to by the learned DR in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided by another cannot be said that the customer uses the equipment. It would be a case of a customer merely making use of the facility without himself using the equipment. If the customers did nothing to add for the equipment did not exercise any possessory right in relation thereto it can only be said that he made use of the facility created by service provider who was the owner of the entire network and related equipments. This principle will also address the issue and examples given by the learned AR of the assessee in respect of use of books by an Advocate while providing consultation service to the clients. When a client walks into the room of an advocate and the advocate consulting the books and provides the advice and charges the client for the services rendered by him, it cannot be said that the client had made payment for use of the books. It is the Advocate who has used the books and not the client. Similar is the case where a Doctor carrying out operation. In that case the Doctor has used the equipment but not the patient. The situation would have been different had a person walks into the room of an Advocate and seeks permission of the Advocate to allow him to use his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chakki. What he paid to the owner of the Chakki was for the service of grinding the wheat into Atta. These may be commonplace examples but they do not put the point less effectively for that reason. The subscriber of the assessee who is entitled to use the roaming service merely obtains a service from the other service provider, say IDEA or Airtel, with whom the assessee has a GSM Roaming Agreement. He has neither seen the equipment nor has any direct contact with the same. All that he knows is that because he has the roaming facility in his cellphone, he can make a call from Delhi to any other place even though he is registered with the assessee only in Mumbai. He is the person who is entitled to the roaming service which is provided by the other service provider with whom the assessee has a working arrangement and for that reason he cannot be said to use the equipment involved in providing the roaming facility. Even if we assume for the sake of argument that the subscriber is the person who makes use of the equipment, the liability to deduct tax would be on him and not on the assessee." 30. This view also gets support from various CBDT Circulars on applicability of Section 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed AR of the assessee has also argued on the issue of applicability of Section 194J and 194C on the transmission charges. But the Assessing Officer has invoked the provisions of Section 194-I only for making the disputed disallowance and therefore, we have not adverted to the issue of applicability of Section194J or Section 194C. 33. Since we have held that Section 194-I is not applicable in respect of transmission charges and consequently, no disallowance can be made u/s.40(a)(ia) in respect of transmission charges, the other grounds raised by the assessee including ground No.2 to the effect that it has not availed any services from the OPTCL and on the ground it is a merely debit and credit entry without any claim of expenditure and groundNo.10 regarding OPTCL being a loss making Company and as such, having no tax implication, is only academic and hence, they are not adverted to. 34. For the reasons discussed in the foregoing paragraphs, we are of the considered view that the Assessing Officer was not justified in invoking the provisions of Section 40(a)(ia) of the I.T. Act for disallowance of the transmission and wheeling charges. Hence, we direct deletion of the said disall ..... X X X X Extracts X X X X X X X X Extracts X X X X
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