9911796707
TMI Blog2012 (7) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... either u/s. 194J or u/s. 194C of the Income Tax Act, 1961. 2. The assessee company is a Govt. undertaking carrying out the business of distribution of electricity in ten districts of southern Haryana. The AO made additions on two accounts:- i) Provision made on account of surcharge levied but not realized amounting to Rs. 89.66 Crs. ii) Disallowance u/s. 40(a)(ia) on account of non deduction of tax on the payment of wheeling / transmission charges of Rs. 152,53,40,469/- to M/s HVPN Ltd. 3. Assessee took the matter before the First Appellate Authority raising two effective grounds. First ground related to addition of Rs. 89.66 Crs on account of provision of surcharge levied but not realized. During the appeal proceedings the A.R. submitted that relief has been granted by CIT(A) for the A.Y. 2006-07 in the case of the assessee in appeal no. 387/HSR/08-09 dated 6.11.2009 on the same issue and therefore relief may be granted in the year under appeal. Ld. CIT(A) observed from the order of the CIT(A) for the A.Y. 2006-07 that the issue has been considered elaborately and relief granted. So, following the same the impugned addition made by the AO came to be deleted and allowed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat specific Notes in this regard were given in the balance sheet and the Notes to Accounts. It has been submitted that this action was taken on the basis of the advice of statutory Auditors in keeping with the Accounting Standards. This system, it is seen, has started being followed from assessment year 2004-05. The statutory Auditors of the assessee Nigam had, in their Audit Report on the accounts for the year ending 31.3.2003, pointed out that the recognition of income by charging surcharge on delayed payments was in contravention of the basic accounting of assumption of purchase as contained in ASI-1 on Disclosure of Accounting Policies and without any certainty as to its recognition, as provided in AS-9 on Revenue Recognition, issued by the Institute of Chartered Accountants of India. It was on considering the said objection of the Auditors, that the Audit Committee of the Board of Directors of the assessee decided in its second meeting, held on 21.3.2003, to account for the delayed payment of surcharge on receipt basis thereafter. It was in accordance with this decision that the income from surcharge on delayed payment started being accounted for on the basis of collection. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee to two other companies. Subsequent agreement after the end of accounting year resulted in assessee's receiving lesser commission, though book entries of higher amount were made. Revenue sought to tax the higher income, Hon'ble Court held that assessee cannot be taxed on the basis of hypothetical income. In our view this judgment is applicable to the facts of assessee's case, keeping in mind following prepositions: (i) Assessee's method of accounting has been accepted by the department. (ii) Since the assessee could defer the payment of surcharge under consumer protest, the taxing of such contingent receipt is a hypothetical income. 5.5. In case of UCO Bank (supra), in case of sticky advances, the interest income though provided in the books of accounts, were not assessable. 5.6. In case of Godhara Electricity Co. Ltd. (supra), though the tariff was revised and was enforceable by rules, its deferment by state of Gujarat was held to be resulting into non-accrual of deferred portion on the basis of real income concept. 5.7. In the case of Poona Electric Supply Co. (supra), also the Hon'ble Supreme Court held that portion exceeds over clear profits returned as rebate to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been mentioned in detail above. 5.12. In our considered opinion, all the above judgments clearly favour the stand taken by the assessee. We may hasten to mention that looking at the intricacies the facts may vary, therefore, basic principles of accrual or mercantile system as laid down by various authorities are to be applied in a careful manner. The assessee being a state PSU; the surcharge on delayed payment being disputable item; was not mandatorily payable at the time of payment of electricity consumption bill; was not an accrued receipt in view of the accounting policy accepted by the revenue. Therefore, such amount of surcharge cannot be held to be taxable as it is not the real income of the assessee and is hypothetical by nature in given facts and circumstances. 5.13. In view of the foregoings, we are of the view that the amount of sur-charge not realized by the assessee, does not amount to accrued of receipt taxable as income. CIT(A) has rightly deleted the addition, which we uphold." 10. The facts for the year under consideration are in pari materia and exactly similar to those in assessment year 2006-07. Therefore, following the principle of consistency, in keeping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired u/s 194 J of the Act in respect of payment of wheeling charges (transmission charges) and Steate Load Dispatch Centre Charges (SLDC) charges. The Tribunal in the said order held as under:- "9. Considering the submission of the parties on the issue as to what is the nature of payment of wheeling/transmission/SLDC charges on the basis of documents on records and the facts explained and the nature of such payments as well as facts on records whether the same is liable for deduction of tax at source under the IT Act, 1961 specifically under section 194J which provides for deduction of tax at source on payment of fees for professional or technical services and whether section 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 clause 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 longterm open access and short-term open access. Clause 8 provides for compliance of grid code as approved by the Commission both by RVPN a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of subsection (1) of section 9. The said section is reproduced hereinbelow for ready reference- "9. Income deemed to accrue or arise in India.- (1) The following incomes shall be deemed to accrue or arise in India : (vii) income by way of fees for technical services payable by- Explanation 2 : For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, 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 section 194J of the Act has been exhaustively examined by the Hon'ble Delhi High Court in the case of Bharti Cellular Ltd. (supra) and the observations are reproduced as under : "13. We have already pointed out that the expression 'fees for technical services' as appearing in section 194J of the said Act has the same meaning as given to the expression in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eek counsel or a professional opinion from; refer to (a source of information); seek permission or approval from for a proposed action'. It is obvious that the service also necessarily entails human intervention. The consultant, who provides the consultancy service, has to be a human being. A machine cannot be regarded as a consultant. 15. From the above discussion, it is apparent that both the words 'managerial' and 'consultancy' involve a human element. And, both, managerial service and consultancy service, are provided by humans. Consequently, applying the rule of noscitur a sociis, the word 'technical' as appearing in Expln. 2 to section 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 section 9(1)(vii) of the said Act. This is so because the expression 'technical services' takes colou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salaries'.' This definition shows that consideration paid for the rendering of any managerial, technical or consultancy service, as also the consideration paid for the provision of services of technical or other personnel, would be regarded as fees paid for 'technical services'. The definition excludes from its ambit consideration paid for construction, assembly, or mining or like project undertaken by the recipient, as also consideration which would constitute income of the recipient chargeable under 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 repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er resulting in the consumer having to deduct tax at source on the payment made for the, power consumed and remit the same to the Revenue. Satellite television has become ubiquitous, and is spreading its area and coverage, and covers millions of homes. When a person receives such transmission of television signals through the cable provided by the cable operator, it cannot be said that the home owner who has such a cable connection is receiving a technical service for which he is required to deduct tax at source on the payments made to the cable operator. Installation and operation of sophisticated equipments with a view to earn income by allowing customers to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subscriber may be individual, firm or company. 9. Technical service' referred in section 9(1)(vii) contemplates rendering of a 'service' to the payer of the fee. Mere collection of a 'fee' for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received from technical services." Thus Hon'ble Court while dealing with the case of "transmission of voice" has equated the same with the "transmission of the electricity" and held that the same does not amount to providing the technical service. 9.5. In case of Parasrampuria Synthetics Ltd. (supra) it was held as under : "There may be use of services of technically qualified person 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 section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch payment. Similarly M/s Hindustan Zinc Ltd. is deducting the tax at source under section 194C in respect of payment of transmission charges to RVPN cannot lay down the law. The CIT(A) has given a finding on p. 54 of his order that these payments are not covered under section 194C against which no appeal is filed by the Department though we are otherwise convinced with the argument of learned Authorised Representative that section 194C is not applicable on this payment in view of the detailed submission made in this regard at paper book pp. A-23 to A-27. 9.8. The decision relied by the AO in the case of Oberoi Hotels ( India) ( P) Ltd. (supra), Circular No. 187, dt. 23rd Dec, 1975 and in the case of Continental Construction Ltd. ( supra) though relates to section 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 supervi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the learned Authorised Representative that the of transmission/wheeling/SLDC charges is reimbursement of the cost. Therefore the provisions of Chapter XVII-B are not applicable since there is no payment of income/revenue by the assessee. We find that the tariff is fixed by an independent regulatory body i.e., Rajasthan Electricity Regulatory Commission. The transmission company is not allowed any return on its capital; the tariff is determined on the principle of no profit no loss. From the tariff order (paper book 90-93) we find that tariff is fixed, by estimating the actual cost of operation of RVPN. In case, on the basis of such tariff, any surplus is left with the RVPN, they give credit of the same to the assessee as evident from the extract of the minutes of the board and the copy of the journal voucher by which such credit is given to the assessee (paper book 136-138). 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pur Vidyut Vitran Nigam Ltd. v. ITO, 123 wherein also, the issue was exactly the same, i.e., correctness or otherwise of addition u/s 40(a)(ia) of the Act on account of payment made as Wheeling charges and SLDC charges, for non-deduction of TDS as per Section 194 J of the Act. In its detailed order reproduced as above, the Jaipur Tribunal has considered all the aspects touching the issue and has thereafter held the assessee not liable to deduct tax on the payments made, the provisions of Section 194 J of the Act being not attracted. The Jaipur Tribunal decision has been followed by the Delhi Tribunal in the assessee's case for assessment years 2006-07 to 2008-09. The Revenue has not been able to make out as to why this decision is not applicable for the year under consideration before us. Therefore, following the Tribunal order in the assessee's own case for assessment years 2006-07 to 2008-09, ground No.2 is also rejected, upholding the CIT(A)'s order for this issue also." 10. Ld. D.R. could not controvert the fact that issue is squarely covered in favour of the assessee, but relied upon the order of the AO and pleaded for reversal of the order of the Ld. CIT(A). 11. After heari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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