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TMI Blog2012 (2) TMI 563X X X X Extracts X X X X X X X X Extracts X X X X ..... ng surcharge assessed but not realized, had been withdrawn from GH - 62.240 (Income from Sur-charge) and adjusted against GH - 23.934 (Sur-charge levied but not realized). On query, the assessee submitted that the assessee Nigam was accounting for income of surcharge on delayed payment on realization basis in pursuance of the decision of the Audit Committee of the Nigam, which was in conformity with the Accounting Standards 1&9 and the same had been recognized judicially, observing that income is required to be computed in terms of the Accounting Standards prescribed by the ICAI; that during assessment years 2006-07 and 2007-08, similar additions had been made, which were challenged before the ld. CIT(A) and the ld. CIT(A), vide order dated 6.11.2009, for assessment year 2006-07, had decided the issue in favour of the AO; that,so far as regards assessment year 2007-08, the order of the ld. CIT(A) was awaited; and that the amount of surcharge was billed for Rs. 1,74,45,62,158/- , against which, only Rs. 20,47,82,104/- had been realized, which had been taken as income during the year. The AO observed that the assessee was following the mercantile system of accounting and whenever the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the surcharge during the year did not at all affect the existence of such legal entitlement of the assessee to receive the surcharge. 4. In this manner, the AO made addition of Rs. 1,53,97,80,054/- crores on account of provision on surcharge levied but not realized. 5. By virtue of the impugned order, the ld. CIT(A) deleted the addition, accepting the assessee's contention that for assessment year 2006-07, on similar facts, the ld. CIT(A), vide order dated 6.11.09, had granted relief to the assessee. 6. Before us, the ld. DR has contended that the ld. CIT(A) has erred in deleting the addition correctly made by the AO on account of non-realization of the provision of surcharge, erroneously ignoring that the principle of res judicata is not applicable to Income Tax proceedings; that the ld. CIT(A) has failed to consider that the assessee had itself admitted that it had the right to collect the surcharge on account of delayed payment from the defaulting consumers; that the ld. CIT(A) also failed to consider that merely because the assessee had failed to realize the surcharge during the year, it did not affect the existence of the said legal right of the assessee to receive the sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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. For assessment year 2006-07, the ITAT, vide its aforesaid order dated 30.11.2011, has upheld the action of the CIT(A) in deleting the disallowance. The ITAT has held as follows:- "5. We have heard rival contentions and perused the entire material available on record. Following facts emerge from the record: (i) Assessee maintains its method on accounting as mercantile system. (ii) Prior to A.Y. 2004-05, the assessee used t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... positions: (i) Assessee's method of accounting has been accepted by the department. (ii) Since the assessee could defer the payment of sur-charge 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 consumers was not part of taxable income of the assessee. Thus, though the amount from consumers accrued to the assessee, due to the return on account of stipulation provided, rebate was held to be non-taxable rebate. 5.8. In case of Modi Rubber Ltd. (supra), The Hon'ble Delhi High Court affirmed the order of ITAT holding that mere unilateral act of the assessee debiting the books of account with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge 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 with the aforesaid Tribunal order in the assessee's own case for assessment year 2006-07, the order of the ld. CIT(A) in this regard is upheld and ground No.1 raised by the Department is rejected. 11. Coming to ground No.2, the AO asked the assessee to show cause as to why Wheeling/Transmission charges of Rs. 2,83,97,19,975/-, billed by HVPN Ltd. and State Load Dispatch Centre (SLDC) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act; that the payments were made for the work of providing technical services with TDS as provided u/s 194 J of the Act; and that the ld. CIT(A) has failed to consider that the assessee had itself accepted the factum of the making of the payment but not having deducted the tax thereon. 15. The learned counsel for the assessee, per contra, has contended that the ld. CIT(A) has correctly followed the Tribunal order dated 23.10.2009 in the assessee's own case for assessment years 2006-07 to 2008-09; that as held therein, the assessee was not liable to deduct tax at source on the payments made. 16. Qua this issue, it is seen, the Tribunal, in the assessee's own case for assessment years 2006-07 to 2008-09, vide order dated 23.10.2009 (copy placed on record) has observed, inter alia, as follows:- "At the time of hearing, both the counsels agreed that identical issue arose before ITAT Jaipur Bench in the case of Jaipur Vidyut Vitran Nigam Ltd. v. ITO in ITA Nos. 127 to 131/JP/2009 dated 30.4.2009. In the said case also the assessee was treated as assessee in default within the meaning of section 201(1) of the Act for failure to deduct tax at source as required u/s 194 J of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 clause (va) of section 28. shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein : Provided that no deduction shall be made under this section- (A) ........... (B) ........... (2) (......) (3) (......) Explanation : For the purposes of this section,- (b) "fees for technical services" shall have the same meaning as in Expln. 2 to clause (vii) of sub-section (1) of section 9;" (c) ............ The expression "fees for technical services" has not been defined under section 194J of the Act but Expln. (b) to section 194J of the Act, provides that the said expression shall have the same meaning as in Expln. 2 to clause (vii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 executive or supervisory function within an organization etc.; a person controlling the activities of a person or team in sports, entertainment, etc. It is therefore, clear that a managerial service would be one which pertains to or has the characteristic of a manager. It is obvious that the expression 'manager' and consequently 'managerial service' has a definite human element attached to it. To put it bluntly, a machine cannot be a manager. 14. Similarly, the word 'consultancy' has been defined in the said dictionary as 'the work or position of a consultant; a Department of consultants'. 'Consultant' itself has been defined, inter alia, as 'a person who gives professional advice or services in a specialized field'. It is obvious that the word 'consultant' is a derivative of the word 'consult' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 one meaning of the whole expression 'technical services' has to be seen. Moreover, the expression 'technical service' is not to be construed in the abstract and general sense but in the narrower sense as circumscribed by the expressions 'managerial service' and 'consultancy service' as appearing in Expln. 2 to section 9(1)(vii) of the said Act. Considered in this light, the expression 'technical service' could have reference to only technical service rendered by a human. It would not include any service provided by machines or robots." 9.4. The Hon'ble Madras High Court in the case of Skycell Communications Ltd. (supra), has held as under : "4. 'Fees for technical services' is not defined in section 194J. Explanation (b) in that section provides that expression shall have the same meaning as in Expln. 2 to clause (vii) of sub-s.(l) of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ology 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 instrument or facility used by a person cannot be regarded as providing technical service. When a person hires a taxi to move from one place to another, he uses a product of science and technology, viz., an automobile. It cannot on that ground be said that the taxi driver who controls the vehicle, arid monitors its movement is rendering a technical service to the person who uses the automobile. Similarly, when a person travels by train or, in an aeroplane, it cannot be said that the railways or airlines is rendering a technical service to the passenger and, therefore, the passenger is under an obligation to deduct tax at source on the payments made to the railway or the airline for having used it for travelling from one destination to another. When a person travels by bus, it cannot be said that the undertaking which owns the bus service is rendering technical servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that score, every subscriber of the internet service provider cannot be regarded as having entered into a contract for availing of technical services from the provider of the internet service, and such subscriber regarded as being obliged to deduct tax at source on the payment made to the internet service provider. 8. At the time the IT Act was enacted in the year 1961, as also at the time when Expln. 2 to section 9(1)(vii) was introduced by the Finance (No. 2) Act, w.e.f. 1st April, 1977, the products of technology had not been in such wide use as they are today. Any construction of the provisions of the Act must be in the background of the realities of day-to-day life in which the products of technology play an important role in making life smoother and more convenient. Sec. 194J, as also Expln. 2 in section 9(1)(vii) of the Act were not intended to cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 section 194J would come into effect only when by making payment of fee for technical services, assessee acquired certain skill/knowledge/intellect which can be further used by him for its own purpose/research. Where facility is provided by use of 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. Similar is the proposition laid down in other cases relied by the learned Authorized Representative supra. 9.7. The arguments of the learned Departmental Representative that human element is involved in providing such service making the payment of wheeling/SLDC charges liable for deduction of tax at source as technical service has no merit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ather report, instruction overflights 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 services to fly the aircraft the technical knowledge of a person was made available to the assessee and therefore it was held to be a payment for technical services which is not the facts of the present case. The case of Canara Bank ( supra) in respect of payment of MICR charges to SBI which involved human skill and computerised machine and not simply making available the technical equipment working on its own and therefore held to be a payment towards managerial services. The case Dr. Hutarew & Partner ( India) ( P) Ltd. (supra) is with reference to section 195 and not section 194J. In this case also the non-resident to whom payment was made was not maintaining any server for everybody that anyone can feed the data and get the solutions. The solutions were provided on the specific needs of the customers. The information supplied is specific which help the assessee in finalizing its design. The Information supplied to the assessee was a technical information which has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 profit involved in the said bills. It was thus a clear case of reimbursement of actual expenses incurred by the assessee and the same, therefore, was not of the nature of payment covered by s, 194J, requiring the assessee to deduct tax at source therefrom. The CBDT Circular No. 715, dt. 8th Aug., 1995 [(1995) 127 CTR (St) 13], relied upon by the AO in support of his case on this issue was applicable only in the cases where bills are raised for the gross amount inclusive of professional fees as well as reimbursement of actual expenses and the same, therefore, was not applicable to the facts of the present case where bills were raised separately by the consultants for reimbursement of actual expenses incurred by them. As such, considering all the facts of the case, the provisions of section 194J were not applicable to the reimbursement of actual expenses and the assessee company was not liable to deduct tax at source from such reimbursement." Under these circumstances, we hold that the lower author ..... X X X X Extracts X X X X X X X X Extracts X X X X
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