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TMI Blog2009 (4) TMI 944X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that all the parties involved with generation, transmission and distribution of electricity are to comply with the direction of SLDC and the Regulatory Commission for achieving the economy and efficiency in the operation of power system and therefore question of any person rendering service to another does not arise. The operation and maintenance of transmission lines by RVPNL and the use of these lines by assessee for transmitting energy does not result into any technical services being rendered to the assessee. The technical staff of RVPN by operating and maintaining its grid station and transmission lines simply discharge their function. They do not render any technical service to the assessee. Section 194J would have application only when the technology or technical knowledge of a person is made available to others and not where by using technical systems, services are rendered to others. Rendering of services by allowing use of technical system is different than charging fees for rendering technical services. The applicability of s. 194J would come into effect only when by making payment of fee for technical services, assessee acquired certain skill/knowledge/intellect wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the present case. We therefore hold that there is no liability to deduct tax at source on payment of transmission/wheeling/SLDC charges under s. 194J or for that matter under s. 194C. Thus, the lower authorities were not justified in holding that the assessee is liable for deduction of tax at source on the payment of transmission/SLDC charges to RVPN. We thus set aside the order of the lower authorities and allow the ground of the assessee. Demand of interest under s. 201(1A) relying on Circular No. 275, dt. 29th Jan., 1997 - ITO (TDS) held that the assessee was liable to deduct the tax at source on the payment of transmission/wheeling and SLDC charges - HELD THAT:- The provision of the Act is a measure to compensate the Revenue for delay in payment of taxes. In the present case, RVPN to whom transmission charges are paid are assessed with the same AO with whom the assessee is assessed with. RVPN has regularly filed its return of income for asst. yrs. 2005-06 to 2008-09 declaring nil income and having substantial carry forward of unabsorbed depreciation. For asst. yrs. 2005-06 and 2006-07, RVPN is assessed under s. 143(3) at nil income with substantial carry forward o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e., reimbursement of actual expenses to Rajasthan Rajya Vidhyut Prasaran Nigam Ltd., no income is paid and therefore outside the provisions of Chapter XVII-B of the IT Act, 1961; (1.4) not directing the ITO, TDS to determine the actual payment of wheeling/SLDC charges even though the ITO, TDS in its letter dt. 12th Feb., 2009 required assessee to submit the month-wise details and the reasons of difference between the figures of ledger account and the audit report of RVPN; (1.5) not adjudicating the alternate plea of the ITO, TDS that these payments are liable for deduction of tax at source under s. 194C ignoring the fact that these payments are otherwise not covered under s. 194C; and (2) confirming the levy of interest under s. 201(1A) upto the date of filing of return by the recipient Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. He has further erred in levying the interest under s. 201(1A) ignoring that no tax is payable by the recipient of income and the issue is covered by the decision of Rajasthan High Court in case of CIT vs. Rajasthan Rajya Vidyut Prasaran Nigam Ltd. (2006) 287 ITR 354(Raj) and by the CBDT Circular No. 275/201/1995-IT(B), dt. 29th Jan., 1997." 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tility (STU) under s. 14 of the Electricity Act, 2003. 3.4 Sec. 39 of the Electricity Act, 2003 mandates the STU to undertake various functions wherein sub-s. (2) of s. 39 provides as under (paper book 106-107) : "(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 Commission under sub-s. (2) of s. 42, on payment of the transmissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds 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, sub-station 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 licensee or generat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion capacity for a Discom shall be sum of the generating capacities allotted to them from State generating stations and inter-State capacities 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 tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission, the directions of the SLDC shall be complied with by RVPN and the Discoms. 10. Tariff for transmission and wheeling RVPN shall 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 ₹ 83.5 per kilowatt of contracted transmission capacity per month. Besides transmission charges of ₹ 83.5 per month, the Discoms shall also pay on quarterly basis a balancing charge equal to difference between the approved AAR recovery of ₹ 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. 12. SLDC charges In addition to transmission and wheeling charges as mentioned at cl. 10 of this TSA, the Discoms shall also pay the SLD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 386: (1992) 195 ITR 81(SC). In view of above the AO raised a demand under s. 201(1) for asst. yr. 2009-10 and interest under s. 201(1A) for asst. yrs. 2005-06 to 2009-10 from the date of payment to the date of filing of return by RVPN. 5. The learned CIT(A) in course of appellate proceedings called for a remand report from ITO (TDS) wherein he reiterated his contention made in the assessment 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 learned CIT(A) decided the issue as per his findings on p. 28, para 2. (xvi) which are reproduced as under : "(xvi) In the light of the above decision of Hon'ble Delhi High Court, it is to be seen if there is any human interface involved in the services provided by RVPN to JVVNL. In this respect, looking at the duties/functions performed by RVPN, as per the relevant sections of the Electricity Act, 2003 and the relevant clauses of the Transmission Service Agreement, it is observed that there is, definitely, a human interface involved i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved not only the technical support but also the need for managerial support to be provided by human beings. Therefore, I find that the power transmission service provided by RVPN to JVVNL, involved not only the use of its power transmission system, but also involved considerable human interface at every stage of the providing of that service, on real time basis. Hence, in light of the aforementioned decision of Hon'ble Delhi High Court, in the case of CIT vs. Bharti Cellular Ltd. (2008) 220 CTR (Del) 258: (2008) 15 DTR (Del)73, it is seen that the power transmission service provided by RVPN to the appellant company, JVVNL, is in the nature of a technical service in terms of s. 194J r/w Expln. 2 to s. 9(1)(vii) of the Act." 5.1 The learned CIT(A) in para 2.5.1(xvii) also did not accept the contention of the assessee that payment made by the assessee to RVPN is only reimbursement of expenses by holding that s. 194J covers any consideration paid towards technical service. In para 2.5.1(xviii) he distinguished the decision relied by the assessee in the case of Skycell Communications Ltd. vs. Dy. CIT (supra) and also the other decisions cited by the assessee by holding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (supra), 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 by the learned 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 covered under s. 194J but only professional and technical services are covered by it. Further simply naming an agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 SLDC 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 is binding both on the assessee as well as RVPN. Thus when all the parties involved with generation to distribution of electricity are to comply with direction of SLDC and Regulatory Commission ensuring integrated grid operation and for achieving the maximum economy and efficiency in the operation of the power sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The supervisory/technical staff positioned there does the work relating to SLDC 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 SLDC 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. (supra) by referring to the decision of Chennai Bench in case of Singapore Airlines Ltd. (supra) and Ahemdabad Bench in case of Canara Bank vs. ITO (supra). 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 that case there was an involvement of human element providing technical service which was used by the other person for its own use/purpose. Further in this case the counsel of the assessee has conceded that case of Skycell Communications Ltd. (supra) is not appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 principles 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 Regulatory Commission takes into consideration, the expenditure of RVPN while deciding the transmission tariff/SLDC charges has held that the above case is distinguishable on facts ignoring that the principle laid down in this case is squarely applicable inasmuch as the various documents referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 the flowchart at p. 30 of the paper book is in respect of transmission system maintained by RVPN which is upto 132KVA. From this transmission system electricity is transmitted to the transmission system of the assessee which is 33KVA and below that. The assessee has its own technical staff to man its own system whereas RVPN has its own technical staff to man its own grid station. The technical staff of RVPN do not render any technical service to the technical staff of the assessee. In the flowchart SLDC centre is shown as a part of RVPN whereas SLDC is an independent statutory function under the Electricity Act, 2003. RVPN has nothing to do with monitoring the demand and supply of electricity rather it is the function of SLDC where all the generating companies, transmission companies and distribution companies have to abide by its direction otherwise it has an authority to levy penalty on any person not following its direction as is specifically provided under s. 33(5) of the Electricity Act, 2003. It is argued that fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the parties involved with generation, transmission and distribution of electricity are to comply with the direction of SLDC and the Regulatory Commission for achieving the economy and efficiency in the operation of power system and therefore question of any person rendering service to another does not arise. The operation and maintenance of transmission lines by RVPNL and the use of these lines by assessee for transmitting energy does not result into any technical services being rendered to the assessee. The technical staff of RVPN by operating and maintaining its grid station and transmission lines simply discharge their function. They do not render any technical service to the assessee. 9.2 In above connection it is relevant to extract the relevant provisions of s. 194J which are as follows : 194J. Fees for professional or technical services.'(1) Any person, not being an individual or an HUF, who is responsible for paying to a resident any sum by way of- (a) fees for professional services, or (b) fees for technical services, or (c) royalty, or (d) any sum referred to in cl. (va) of s. 28, shall, at the time of credit of such sum to the account of the payee or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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, noscitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general. This would mean that the word 'technical' would take colour from the words 'managerial' and 'consultancy' between which it is sandwiched. The word 'managerial' has been defined in the Shorter Oxford English Dictionary, Fifth Edition as : Of pertaining to, or characteristic of a manager of or within an organization, business, establishment, etc. The word 'manager' has been defined, inter alia, as" A person whose office it is to manage an organization, business establishment, or public institution, or part of one; a person with the primarily executi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essarily involve a human element or, what is now-a-days 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. 194J 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 aid or help to the respondents/assessee in managing, operating, setting up their infrastructure and networks. No doubt, the facility of interconnection and port access provided by MTNL/other companies is 'technical' in the sense that it involves sophisticated technology. The facility may even be construed as a 'service' in the broader sense such as a 'communication service'. But, when we are required to interpret the expression 'technical service', the individual meaning of the words 'technical' and 'service' have to be shed. And, only the meaning of the whole exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 day world, almost every facet of one's life is linked to science and technology inasmuch as numerous things used or relied upon in everyday life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich 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 increasing by leaps and bounds, and there are hundreds of thousands, if not millions, of subscribers to that facility. The internet is very much a product of technology, and without the sophisticated equipment installed by the internet service providers and the use of the telephone fixed or mobile through which the connection is established, the service cannot be provided. However, on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 have application only when the technology or technical knowledge of a person is made available to others and not where by using technical systems, services are rendered to others. Rendering of services by allowing use of technical system is different than charging fees for rendering technical services. The applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 SLDC 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 entrusted to RVPN and therefore, RVPN by discharging such statutory function do 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 the case of Singapore Airlines Ltd. vs. ITO (supra) the navigation charges paid was for getting the technical service like weather report, instruction over flights to fly over technical territories and such other technical services which are needed to fly the aircraft on the Indian territory. By giving these instructions and technical serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks 121-137). 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 sections 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 mode 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. (supra) (paper book 109-110), 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 expenses incurred by them, there was no element of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Department by not deducting tax at source by the assessee on the transmission payment. The Rajasthan High Court in case of CIT vs. Rajasthan Rajya Vidyut Prasaran Nigam Ltd. (2006) 287 ITR 354(Raj) (paper book 41-42) has upheld the findings of Tribunal in para 7 of Tribunal order reproduced hereunder by holding that when the assessee has paid more tax than the tax payable and refund is due, even (after) tax deducted at source is counted, in such case, there is no justification for charging interest under s. 201(1A) : "After perusal of the facts of the case and relevant law as on the subject, we are of the opinion that learned CIT(A) had rightly held that interest under s. 201(1A) of the Act was to be deleted after due verification by the AO from the enclosures with supporting documents. In all the cases, the recipient of the income had claimed refund, which had arisen due to tax deducted at source. Therefore, we find no infirmity in the order of the learned CIT(A) and the same is hereby sustained." In the present case, from the copy of the IT return for asst. yrs. 2005-06 to 2008-09 and copy of the assessment order for asst. yrs. 2005-06 and 2006-07 (paper book 43 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted. The CBDT has also clarified in the circular (supra) that interest has to be recovered till the taxes are paid. In view of above, we do not find any justification for levying tax till the month of October, 1999. Since the actual date of payment of tax by the International Airport Authority of India is not available on the file of this Tribunal, the AO may verify the actual date on which the taxes were paid by International Airport Authority of India and thereafter compute the interest from the date on which the deduction has to be made till the date of actual payment at the rate applicable as per statutory provision." We have also occasion to come across with the recent decision of Hon'ble Supreme Court in the case of CIT vs. Eli Lilly & Co. (India) (P) Ltd. & Ors. (2009) 21 DTR (SC)74, wherein it has been held that as far as the period of default in concerned, the period starts from the date of deductibility, till the date of actual payment of tax, date of payment by the concerned employee can be treated as the date of actual payment. 11.3 In view of above and particularly in the facts of the present case no interest under s. 201(1A) is leviable on the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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