CIT CHD V. DAKSHAN HARYANA BIJLI VITRAN NIGAM LTD

ITA/652/2010

AI Insights

The case involves the Commissioner of Income Tax (TDS), Chandigarh, as the appellant, and Dakshin Haryana Bijli Vitran Nigam Limited, as the respondent. The core issue revolves around the deduction of tax at source on payments made for transmission/wheeling and SLDC charges under Section 194J of the Income Tax Act, 1961. The Income Tax Appellate Tribunal had previously ruled in favor of the respondent, stating that these charges did not qualify as 'technical services' requiring TDS. The High Court's decision to remit the case to the Assessing Officer was influenced by the need for a detailed examination of the technical nature of the services provided and the involvement of human intervention, as highlighted by the Supreme Court in the Bharti Cellular Limited case.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 742546 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 08-05-2014
• Assessment Year: misc
• Other Referred Cases: CIT, Delhi v. Bharti Cellular Limited, CIT-I (TDS) vs. Chief Manager, State Bank of India, Jaipur Vidyut Vitran Nigam Limited vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: SALIL KAPOOR; SAURABH KAPOOR; VIKAS JAIN
• Assessee Lawyers: YOGESH PUTNEY
• Keywords: Human intervention; SLDC Charges; TDS; Technical Services; Wheeling Charges
• Section: 201(1); 194J; 260A; 9(1)(vii); 201(1)(a)

Judgement Text

"ITA No.652 of 2010 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.652 of 2010 (O&M) Date of decision:08.05.2014 Commissioner of Income Tax (TDS) Chandigarh ……Appellant Vs. Dakshin Haryana Bijli Vitran Nigam Limited …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE JASPAL SINGH Present: Mr. Yogesh Putney, Advocate for the revenue-appellant. Mr. Salil Kapoor, Mr. Saurabh Kapoor and Mr. Vikas Jain, Advocates for the respondents in ITA Nos.652, 654 and 655 of 2010. None for the respondent in other connected matters. Ajay Kumar Mittal,J. 1. This order shall dispose of a bunch of eight appeals i.e. ITA Nos.652, 654, 655 of 2010, 100, 101, 199, 202 and 204 of 2011, as learned counsel for the parties are agreed that identical proposition of law is involved in all these appeals. However, the facts are being extracted from ITA No.652 of 2010. Singh Gurbax 2014.06.10 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.652 of 2010 2 2. ITA No.652 of 2010 has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 23.10.2009, Annexure P.3, passed by the Income Tax Appellate Tribunal, Delhi Bench ‘I’, New Delhi (in short, “the Tribunal”). It was admitted on 19.9.2011 to consider following substantial questions of law:- “Í) Whether the learned Tribunal has misread and misconstrued the statutory provisions of Income Tax Act, while making a mention of Explanation 2 to section 9(1)(vii) of I.T.Act, regarding term ‘technical service’ by using the word ‘human’ in violation of principle of interpretation of statutes? ii) Whether on the facts and circumstances of the case, the learned ITAT was right in law in holding that the payments made by the assessee in form of transmission/wheeling and SLDC charges were not liable for deduction of tax at source under section 194J of the Income Tax Act? iii) Whether on the facts and circumstances of the case, the learned ITAT was justified in law in holding that the respondent is not liable to pay interest under section 201(1-A) of the I.T.Act, 1961 because there was no tax liability on the income of the deductee? 3. Briefly, the facts necessary for adjudication of the controversy involved as narrated in ITA No.652 of 2010 may be noticed. The respondent Dakshin Haryana Bijli Vitran Nigam Limited is a company under the Companies Act, 1956. It is engaged in the distribution of power in the State of Haryana. It purchases power from the generation company M/s Haryana Power Generation Corporation Limited, Panchkula (HPGCL) and is selling it to the consumers. The power from the generation point to the Singh Gurbax 2014.06.10 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.652 of 2010 3 consumers is transmitted through the transmission network of Haryana Vidyut Prasaran Nigam (HVPN). The purchase rates and the rates which are to be charged by it from the consumers are fixed by the Haryana Electricity Regulatory Commission (HERC). Thus, the electricity purchased from HPGCL is transmitted to the distribution points through HVPN and from the distribution point, the respondent supplies electricity to the consumers. It makes payment for transmission of electricity by HVPN on the rates fixed by the HERC. The respondent is thus rendering “technical services” and is earning income within the meaning of section 9(1) (vii) of the Act and as such is duty bound to deduct tax at source. The appellant is making payment to HVPN on account of transmission charges called ‘wheeling charges’ and State Load Dispatch Centre charges(SLDC). According to the Assessing officer, the appellant should have deducted TDS on wheeling charges and SLDC paid by it to HVPN. Since the appellant had not deducted TDS from the payments made by it to HVPN, the Assessing officer passed order dated 12.2.2009, Annexure P.1 under Sections 201(1) and 201 (1-A) of the Act creating a demand of ` 34,97,93,179/- for the financial year 2007-08, Annexure A.1. Aggrieved by the order, the respondent filed appeal before the Commissioner of Income Tax (A) [CIT(A)]. Vide order dated 7.8.2009, Annexure A.2, the CIT(A) dismissed the appeal and upheld the order of the Assessing officer that the services rendered by HVPN were in the nature of “technical services” on which TDS was liable to be deducted under Section 194 J of the Act. Aggrieved by the order, the respondent filed appeal before the Tribunal. Vide order dated 23.10.2009, Annexure A.3, the Tribunal allowed the appeal of the assessee relying upon decision of the Jaipur Bench Singh Gurbax 2014.06.10 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.652 of 2010 4 of the Tribunal in the case of Jaipur Vidyut Vitran Nigam Limited vs. ITO in ITA Nos. 127 to 131/JP/2009 dated 30.4.2009. It was held that there was no liability of the respondent to deduct at source on transmission/wheeling charges and SLDC charges under section 194J of the Act and as such demand raised was required to be cancelled. Hence the present appeals by the revenue. 4. Learned counsel for the revenue submitted that in view of the judgment of the Apex Court in CIT, Delhi v. Bharti Cellular Limited, (2011) 330 ITR 239 and decision of this Court in ITA No.940 of 2008 decided on 11.7.2011, CIT-I (TDS) vs. Chief Manager, State Bank of India, the matter requires to be remanded to the Assessing Officer to examine afresh as to whether there was any human intervention requiring examination of technical data and therefore, the services rendered would fall under section 194J of the Act to be “technical services”. It was also pointed out that in view of the decision of the Apex Court in Bharti Cellular Limited’s case (supra), the Central Board of Direct Taxes had issued Instruction No.5/2011 [F.No.225/61/2011-IT(A-II)] dated 30.3.2011 to the following effect:- “The Hon’ble Supreme Court has made the following observations in an order dated 12.8.2010 in the case of CIT vs. Bharti Cellular Limited (2010) 193 Taxman 97 (SC): ‘We are directing CBDT to issue directions to all its officers, that in such cases, the department need not proceed only by the contracts placed before the officers. With the emergence of our country as one of the BRIC countries and with the technological advancement matters such as present one will Singh Gurbax 2014.06.10 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.652 of 2010 5 keep on recurring and hence time has come when department should examine technical experts so that the matters could be disposed of expeditiously and further it would enable the appellate Forums, including this court, to decide legal issues based on the factual foundation. We do not know the constraints of the department but time has come when the department should understand that when the case involves revenue running into crores, technical evidence would help the Tribunals and courts to decide matters expeditiously based on factual foundation.’ 2. The above directions of the Supreme Court may be brought to the notice of all the officers in your region. In view of these directions in all cases that are taken up for scrutiny, the Assessing officers/Transfer Pricing officers should frame assessments only after bringing on record appropriate technical evidence that may be required in a case. The process of identification of such cases and initiation of the proceedings to obtain the technical evidence should be taken up well in advance before the date of limitation. The officer concerned shall bring such cases to the notice of the CCIT/DGIT concerned, who will look into the complexities of the technical issues and monitor the progress of the case and if required assist in obtaining the opinion of the technical experts in the relevant field of expertise and endeavour to arrange for the opinion of the concerned technical expert well within time. Further, the evidence so gathered shall be made available to the assessee and reasonable opportunity provided before the assessment order is passed. 3. After a reference is made to an expert in the above manner, intimation must be sent to the Board through Member (IT) in the following proforma: Singh Gurbax 2014.06.10 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.652 of 2010 6 Name of case and assessment year Brief description of the technical issue involved Name and address of the expert Tax effect” 5. On the other hand, learned counsel for the assessee besides supporting the order passed by the Tribunal submitted that the Finance Act 2012 which was effective from 1.7.2012 had inserted provisos in Sections 201(1) and 201(1-A) which read thus:- Proviso to Section 201(1) “Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident - i) has furnished his return of income under section 139, ii)has taken into account such sum for computing income in such return of income; and iii)has paid the tax due on the income declared by him in such return of income and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed. xx xx xx xx xx xx xx Proviso to Section 201(1A) Provided that in case any person, including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident but is not deemed to be an assessee in Singh Gurbax 2014.06.10 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.652 of 2010 7 default under the first proviso to sub section (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident.” 6. Learned counsel for the respondent further argued that there was no human intervention and, therefore, the provisions of section 194J(1) of the Act were not attracted. It was also urged that there was no income element and, therefore, no deduction of tax was required to be made under Section 194J of the Act. 7. After giving our thoughtful consideration to the respective submissions of learned counsel for the parties, we are of the opinion that the issue arising in these appeals requires to be re-adjudicated by the Assessing Officer keeping in view the principles of law enunciated by the Apex Court in Bharti Cellular Limited's case (supra). The Apex Court while discussing the scope of “technical service” had recorded as under:- “7. The problem which arises in these cases is that there is no expert evidence from the side of the Department to show how human intervention takes place, particularly, during the process when calls take place, let us say, from Delhi to Nainital and vice versa. If, let us say, BSNL has no network in Nainital whereas it has a network in Delhi, the Interconnect Agreement enables M/s. Bharti Cellular Limited to access the network of BSNL in Nainital and the same situation can arise vice versa in a given case. During the traffic of such calls whether there is any manual intervention, is one of the points which requires expert evidence. Similarly, on what basis is the “capacity” of each service provider fixed when Interconnect Agreements are arrived at? For example, we are informed that each service provider is allotted a certain “capacity”. On what basis such Singh Gurbax 2014.06.10 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.652 of 2010 8 “capacity” is allotted and what happens if a situation arises where a service provider's “allotted capacity” gets exhausted and it wants, on an urgent basis, “additional capacity”? Whether at that stage, any human intervention is involved is required to be examined, which again needs a technical data. We are only highlighting these facts to emphasise that these types of matters cannot be decided without any technical assistance available on record. 8. There is one more aspect that requires to be gone into. It is the contention of Respondent No.1 herein that Interconnect Agreement between, let us say, M/s. Bharti Cellular Limited and BSNL in these cases is based on obligations and counter obligations, which is called a “revenue sharing contract”. According to Respondent No.1, Section 194J of the Act is not attracted in the case of “revenue sharing contract”. According to Respondent No.1, in such contracts there is only sharing of revenue and, therefore, payments by revenue sharing cannot constitute “fees” under Section 194J of the Act. This submission is not accepted by the Department. We leave it there because this submission has not been examined by the Tribunal. 9. In short, the above aspects need reconsideration by the Assessing Officer. We make it clear that the assessee(s) is not at fault in these cases for the simple reason that the question of human intervention was never raised by the Department before the CIT. It was not raised even before the Tribunal; it is not raised even in these civil appeals. However, keeping in mind the larger interest and the ramification of the issues, which is likely to recur, particularly, in matters of contracts between Indian Companies and Multinational Corporations, we are of the view that the cases herein are required to be remitted to the Assessing Officer (TDS). 10. Accordingly, we are directing the Assessing Officer (TDS) in each of these cases to examine a technical expert from the side of the Department and to decide the matter within a period Singh Gurbax 2014.06.10 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.652 of 2010 9 of four months. Such expert(s) will be examined (including cross-examined) within a period of four weeks from the date of receipt of the order of this Court. Liberty is also given to Respondent No.1 to examine its expert and to adduce any other evidence.” 8. The primary basis whereby the Apex Court had concluded services to the falling under 194J of the Act to be technical services that whether any human intervention was involved in the activity or not. The Apex Court observed that wherever there was human intervention requiring examination of technical data, the same would fall within the definition of technical services and in the absence thereof, the same would not partake the character of technical services. The Apex Court in that case had remitted the matter to the Assessing Officer to examine the technical expert and after examining him adjudicate the matter afresh. In the present case as well from the perusal of the orders of the authorities below, it is not discernible whether there was any intervention of the human element in the services provided to the assessee. 9. Accordingly, while setting aside the orders of the authorities below, the matter is remitted to the Assessing Officer to examine afresh in the light of the observations made by the Apex Court in Bharti Cellular Limited's case (supra), noted above. Further, the assessing authority shall also examine whether the Provisos inserted in Sections 201(1) and 201(1A) by Finance Act, 2012 are applicable retrospectively, as urged by learned counsel for the assessee. Since the Tribunal had followed its order of the Jaipur Bench and in such circumstances, it cannot be said that any independent finding has been recorded regarding element of income in this Singh Gurbax 2014.06.10 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.652 of 2010 10 case, therefore, it shall be open for the Assessing Officer to consider the element of income in the transaction as well before passing fresh order in accordance with law. The substantial questions of law stand decided accordingly. All the eight appeals are disposed of. (Ajay Kumar Mittal) Judge May 08, 2014 (Jaspal Singh) ‘gs’ Judge Singh Gurbax 2014.06.10 13:32 I attest to the accuracy and integrity of this document High Court Chandigarh "