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TMI Blog2015 (5) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... ocus of the revenue is only the requirement of deduction of tax whether under Section 194-I or Section 194-J. This approach is erroneous. The revenue contends that the WT charges could be rent or fees for technical services but in our view it is neither. Wheeling charges represent the charge for permitting use of the STU by persons other than the Distribution licence. The Transmission charges simply constitute fees for availing of the said transmission utility to be used by open access concept for distribution of electricity to licensees and consumers. In view of the above discussion, we are of the view that the WT charges are neither rent nor fees for technical services. Keeping the said interpretation into effect into effect, we find that while interpreting the expression 'rent' in the present scenario, we must bear in mind that taking into account the functioning of MSEDCL which is a public utility, it will not be appropriate to equate the transmission charges or wheeling charges to rent or fees for technical service. Electricity Act of 2003 was enacted partly on account of deteriorating performance of the State Electricity Boards on account of various factors, including diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to entities like MSETCL and PGCIL should have been treated as fees for technical services and tax should have been deducted at source u/s.194J of the Act from the payments ? (c) Whether on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in holding that payments made for use of transmission lines could not be considered as rent under section 194I without properly appreciating the factual and legal matrix brought out by the Assessing Officer in the assessment order wherein, in respect of payment of WT charges made without deduction of tax at source made without deduction of tax at source, the Assessing Officer had treated the assessee in default under section 194J as well as 194I which was modified by the CIT(A) as payment covered under section 194I only and the same was not appealed further by the Revenue as there was no loss of revenue as the rates of TDS for the sections 194I and 194J were the same ? (d) Whether on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in mechanically following the earlier order of the ITAT in the case of Chhattisgarh State Electri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice since there was no human service element involved. The only activities are of transmission of the electricity produced to different locations. The AO rejected the assessee's contention that the WT charges includes technical manpower services and it actually involves an intricate system of checking, managing of transmission losses, metering, management of interconnection points, managements of delivery voltages as per grid code connection conditions, management of protection systems including maintenance of the metering system regarding non involvement of human part. The AO found that the tax was to be deducted on all payments under Section 194J of the Act at the rate of 11.33%. Furthermore and without prejudice to these considerations though the assessee was liable to deduct tax under section 194J of the Act, the AO was of the view that TDS on payment of WT charges was required to be deducted under Section 194-J of the Act. Admittedly, he did not elaborate the rate of deduction of tax under Sections 194I or 194J of the Act. 5. According to the revenue, the total amount of WT charges paid during the year upto the date of Survey on 18th December, 2008 was `1554.10 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... desirous of transmitting energy from the Central Sector Power Station(s) to the bulk power beneficiaries (the Boards) and that the said Boards are desirous of receiving the same through the Power Grid Transmission System (PGTS) on mutually agreed terms and conditions. In this respect, the Boards are to pay to PGCIL monthly charges computed in the manner set out in the formula. It provided for a fixed charge which was divided between the beneficiaries in the ratio of the power evacuated by a beneficiary to the total sale of power from that delivery point. It is stated that the transmissions lines are in the physical control of PGCIL and these are maintained and operated by the PGCIL and so far as the assessee is concerned, its interest in the transmission lines is restricted to the fact that electrical power purchased by the assessee, along with electric power purchased by other bulk power beneficiaries were simultaneously transmitted through these transmission lines. The Tribunal set out the modus operandi which reveals that the power available at delivery points, collectively for all the Boards is loaded for transmission on these transmission lines or power grid and each Board is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section.] Explanation.-For the purposes of this section,- [(i) rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,- (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings, whether or not any or all of the above are owned by the payee;] (ii) where any income is credited to any account, whether called Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.] 194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of- (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section; (b) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; [(ba) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;] (c) where any sum referred to in sub-section (1) is credited to any account, whether called suspense account or by any other name, in the books of account of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply accordingly. 9. According to Mr. Chhotaray, whether WT charges are treated as rent or fees for technical service, tax should have been deducted at source under Sections 194I or 194J, as the case may be. He submitted that since the rate of tax under section 194I and 194J is the same, the choice was only which section to attribute the deductions to. He defended the interpretation of the AO and the Commissioner. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 . 11. Mr. Chhotaray further submitted that the Electricity Act in the statement of objects and reasons sets out the history of the electricity supply industry in India. He took us through the basic structure of the electricity industry and highlighted the fact that Electricity Act, 2003 was intended to consolidate laws relating to generation, transmission, distributing and trading and use of electricity, apart from generally taking measures for development of the industry including rationalisation of tariffs, thereby permitting competition and promoting the interests of the consumers. Mr.Chhotaray then submitted that by virtue of formation of different entities, the business of distribution of electricity is now looked after by the assessee whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xing statutes. He submitted that in construing a taxing statute, the construction beneficial to the assessee could be taken only in case of ambiguity. He submitted that only if two interpretations are possible one favorable to the assessee may be preferred but in the present case, according to Mr. Chhotaray, only one interpretation was possible viz. the WT charges was 'rent'. He then referred to the decision of Supreme Court in the case of S. P. Gupta Vs. Union of India and others reported in 1982 SC AIR 232 and submitted that the interpretation of the statutory provisions must keep pace with changing concepts and values to the extent its language permits and does not prohibit. Accordingly he submitted the term 'Rent' must be interpreted so as to include the WT Charges paid by the assessee to MSEDCL and PGCIL. He quoted from the said decision and submitted that the language of the statutory provision is not a static vehicle of ideas and concepts and as ideas and concepts change the Court is called upon to perform a creative function and inject flesh and blood into the dry skeleton provided by the legislature by process of dynamic interpretation and invest it with me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on involved lending of machinery and equipment is completely unsustainable. He relied upon the principle of contextual interpretation and requested us to read the word 'rent' in context of the Electricity Act. He differentiated the decision in United Airlines where the assessee's argument was that it has used land as a runway. The assessee in that case had used the runway to land its Aircraft and utilise Airport services and to park the aircraft in course of commercial flying operations. He submitted that specified services had been utilised in that case whereas in the present case, there is no specific determinable usage of any equipment. Merely drawing power and carrying power through transmission lines and transmission system would not amount to renting up equipment or its charge or rent. He submitted that the Maharashtra State Electricity Board which was the erstwhile body which controlled the generation and distribution of power had been restructured into four entities. The erstwhile board, after enactment of the Electricity Act, 2003 had undergone comprehensive market reforms, namely, MSEB holding company. Maharashtra State Power Generation Co. Ltd., Maharashtra S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax Vs. Narendra Joshi (2002) 254 ITR 606 in which the Supreme Court observed that the revenue not having challenged the correctness of two decisions of the Gujarat High Court must be bound by the principle laid down therein. 21. He then relied upon the decision of Berger Paints India Ltd. Vs. Commissioner of Income Tax (2004) 266 ITR 99 (SC) and submitted that once a contention of an assessee has been accepted by the department by not challenging the correctness of the decision, it is not open for the department to challenge a decision on a similar issue in the case of another assessee without just cause . In our view, although the facts in that case pertain to the Excise and Customs duty, the ratio will be applicable to the present case as well. In yet another case relied upon by Mr.Mistri that of Commissioner of Income Tax vs. N.S. Getti Chettiar (1971) 82 ITR 599 the Supreme Court considered the meaning of word gift and whether gift amounted to transfer of property. In that case the facts pertain to portion of immovable property which was subject matter of a registered deed. The question was therefore whether by allotting greater share to the other members of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case if the expression rent was to be considered, WT charges in the course of carriage of electricity could not be equated to rent. 23. Mr.Mistri also took us through the judgment of the Hon'ble Supreme Court in the case of Reserve Bank of India Vs. Peerless General Finance and Investment Co. Ltd. Others reported in (1987) 1 SCC 424 in which the Court was considering the contextual construction and considering what amounted to prize chits . In that case the Court observed that if the Legislature intended to enlarge the meaning of the words and phrases so as to take in ordinary, popular and natural sense of words and included meaning by using words it would do so by using the word 'includes'. The interpretation, therefore, must depend on the text and the context as famously observed in the said decision as follows ; we may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important . That interpretation is best which makes the textual interpretation match the contextual. The Supreme Court went on to observe that the statute is best interpreted when we know what is intended. 24. Mr.Mistri then rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er an agreement which carries the characteristic of lease or tenancy. It was held that mere use of land for landing and payment charged therefore is not use of land but for various services including navigational assistance and this would not automatically bring the transaction and the charges within meaning of either lease or sub-lease of tenancy attracting definition of 'rent'. Thus, the Madras High Court rejected the case of the revenue and confirmed the order of the tribunal. Adverting to this decision Mr. Mistri submitted that in the present case as well there was no justification in questioning the decision of the Tribunal. 27. Even otherwise he submitted that the alternate case under Section 194J was never pleaded. It was never case of the revenue that payment of transmission charges amounted to fees for technical services. Mr.Mistri submitted that perusal of the order of the Tribunal would reveal that no such case of payment of fees for technical services was ever made out. This is purely an afterthought. 28. Mr.Mistri also relied upon circular No.1 of 2008 dated 10th January, 2008 issued by the CBDT wherein the department clarified that in respect of cold sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee is a distribution licensee engaged in distribution of electricity to the consumers and MSETCL is a transmission licensee of the said STU during the licence period MSEDCL is authorised to operate the transmission lines which forms the Intra-State Transmission system. (ISTU). MSEDCL has allotted to MSETCL certain transmission capacity. MSEDCL exploits this transmission capacity allotted to it and distributes power in its area of supply, no doubt for consideration. As far as relationship inter se MSEDCL and MSETCL is concerned, this is a Principal to Principal arrangement. The agreement refers to terms and conditions for distribution of electricity. The amount of consideration payable by the transmission licensee, namely, MSETCL is based on a tariff that is determined by MERC from time to time by issuing Tariff Orders on the terms and conditions of Tariff Regulations 2003. MSETCL gets its rights as Transmission Licensee by means of what is known as a 'Transmission License' which is the authority granted to it by MERC. It is thus seen that MSETCL is merely a licensee of the STU / transmission system. However, by virtue of clause (iv) of the BPTA it is MSETCL&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en financial year is limited to what would be accessed at different times to different extents. 34. The utilisation of the STU was also subject to availability of electricity at inter connection points as provided in the agreement. It is pertinent to mention that under clause 8.2.2 the tariff transmission charges and other related charges are to be mentioned as per various orders of MERC and to be paid to said STU and the State Load Despatch Centre (SLDC). Thus, the payments are not made to any one entity. 35. The payment being made to any one or both of the entities will not be payment of rent. It is not possible to construe the same as rent even adopting to changing times and technology as suggested by Mr. Chhotaray. Moreover, as stated above MSETCL is merely a transmission licensee. The expression of transmission licensee is defined in schedule I of the definition of BPTA and which reads as under:- 'Transmission Licensee' or 'Licensee' means the entity to whom the Transmission License is granted by MERC. 36. A grant of such licence does not, therefore, entail that the licensee MSETCL will be vested with the right to collect WT charges as directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad come to a halt it is led to a parking space allotted to it once again with the navigational help. It is only thereafter that the aircraft is said to be parked till it resumes it flight. As an example Mr.Mistri narrated the use of a toll road (instead of highway). If use of a toll road could be characterised as use of land, it would be an extreme view if we held that toll to be paid for use of a toll road would be subject to deduction of tax at source only because it could also be characterised as rent for use of land. Such an extreme view will not be justified under any circumstances, particularly when we consider the context in the Peerless case (supra) and those line of cases. Thus, quite apart from the fact that the revenue has not challenged the decision of the Tribunal in the previous years, we believe that the issue involved deserved consideration on merits which is why we have proceeded to devote a good deal of attention to these aspects of the matter. 39. The Hon'ble Supreme Court has also shown us some direction in this behalf. While interpreting the expression 'rent', the applicability of Section 194-I must be gathered from whether the WT charge draws it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that MSETCL is deemed to have provided technical services to MSEDCL in consideration of which WT charges that are being paid. This contention is also unsustainable for the following reasons. 43. The MSEDCL is a licensee holding a transmission license which entitles it to non discriminatory use of the transmission lines. It uses the STU as and when required to draw electricity from the said transmission utility. MSEDCL will also access electricity by means of transmission lines as contemplated by the expression 'transmit' idefined in 2(74) of the Electricity Act. MSEDCL as a transmission licence may also engage any Wheeling operations as defined in Section 2(76), meaning thereby that the distribution system and facilities of the MSEDCL in its capacity as transmission licensee may be allowed to be used by other persons for conveyance of electricity in exchange for payment of charges to be determined under Section 62 of the Act. Section 62 provides for determination of the tariff of the MERC for transmission of the electricity and wheeling of electricity. Thus 'Wheeling' contemplated some form of permissive use of the STU by a third party for consideration de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioning of MSEDCL which is a public utility, it will not be appropriate to equate the transmission charges or wheeling charges to rent or fees for technical service. 45. We are constrained to observe that although the revenue has taken up an alternative argument that wheeling charges on account of transmission amount to fees for technical service for the very first time in this appeal. Before the Tribunal, this submission is conspicuous by its absence although the Commissioner had taken this alternate view. We have heard Mr. Chhotaray on this aspect and we have decided it on merits. We may note that it will not be permissible for either the revenue or the assessee to take such up contentions in Income Tax Appeals purporting to raise substantial questions of law when such issues were not before the Tribunal. We also find that the revenue itself has considered and recognized the impracticality of imposing Section 194 to cooling charges levied by a Cold Storage facility. 46. Before parting with this judgment, we must note that the Electricity Act of 2003 was enacted partly on account of deteriorating performance of the State Electricity Boards on account of various factors, incl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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