M/s Delhi Transco Ltd., New Delhi V. ACIT, New Delhi

ITA 755/DEL/2011

• Counselvise Citation: 75520114 RSA 2011
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 25-11-2011
• Assessment Year: misc
• Appeal Filed On: 07-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H L DIHANA
• Assessee Lawyers: SUDESH PUNHANIC A
• Keywords: Business income
• Section: 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 755(DEL)/2011 ASSESSMENT YEAR: 2005-06 DELHI TRANSCO LTD., ASSISTANT COMMISSIONER OF SHAKTI SADAN, ROUSE AVENUE, VS. INCOME -TAX, CIRCLE 49(1), KOTLA ROAD, NEW DELHI. NEW DELHI. PAN: AABCD6342A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDESH PUNHANI,C.A. RESPONDENT BY : SHRI H.L. DIHANA, CIT, DR DATE OF HEARIN G: 25.11.2011 DATE OF PRONOU NCEMENT: 09.12.2011. ORDER PER K.G. BANSAL : AM THE ASSESSEE HAS TAKEN UP THREE GROUNDS IN THE A PPEAL. IN THE COURSE OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASS ESSEE POINTED OUT THAT ONLY GROUND NO. 1 IS REQUIRED TO BE DECIDED AS OTHER G ROUNDS ARE IN THE NATURE OF FACTS AND ARGUMENTS. GROUND NO. 1 IS TO THE EFFE CT THAT THE LD. CIT(APPEALS) WAS NOT JUSTIFIED IN TREATING THE FEES PAID FOR WHEELING/TRANSPORT CHARGES AS PAYMENT FOR TECHN ICAL SERVICES, LEADING TO ITA NO. 755(DEL)/2011 2 DEDUCTION OF TAX AT SOURCE UNDER SECTION 194J OF THE INCOME-TAX ACT, 1961. 2. THE FACTS OF THE CASE ARE THAT A SURVEY WA S CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE SITUATED AT ROU SE AVENUE, NEW DELHI ON 22.01.2009. IT WAS FOUND THAT THE ASSESSEE HAS B EEN CARRYING ON THE BUSINESS OF PURCHASE AND SALE OF ELECTRICITY IN BULK. THIS BUSINESS REQUIRES TRANSMISSION OF ELECTRICITY ALSO. IN RES PECT OF TRANSPORTATION CHARGES, THE ASSESSEE HAD DEDUCTED TAX AT SOURCE @ 2% U/S 194C OF THE ACT. THE AO WAS OF THE VIEW THAT THE ASSESSEE WAS REQUIRED TO DEDUCT THE TAX AT SOURCE @ 5% OF THE PAYMENT U/S 194J AS IT WAS PROVIDING TECHNICAL SERVICES BY TRANSMITTING THE ELECTRICI TY. THEREFORE, AN ORDER WAS PASSED U/S 201(1) AND 201(1A) OF THE ACT RAI SING THE TOTAL DEMAND OF RS.3,19,87,617/-. THE LD. CIT(APPEALS) PARTLY A LLOWED THE APPEAL OF THE ASSESSEE BY MAKING FOLLOWING OBSERVATIONS:- 17. NOW THE MAJOR QUESTION WHICH IS TO BE DECI DED IS WHETHER TRANSPORTATION OF ENERGY (GOODS) SHOULD BE SUBJECT TO TDS U/S 194C (2% TDS ON PAYMENT) OR U/S 194J (5% TDS ON PAYMENT). SINCE THERE ARE NOT MANY CASE L AWS OF HCS/SC ON SUCH ISSUE, AND IN THE ABSENCE OF SUFFIC IENT LEGAL PRECEDENT ON THE SUBJECT, I AM UNABLE TO REJECT TH E VIEW TAKEN BY THE LD. ASSESSING OFFICER AND AGREE TO THE DEM AND RAISED BY THE AO OF INTEREST U/S 201(1A) WHILE TREATIN G THE FEES FOR ITA NO. 755(DEL)/2011 3 WHEELING CHARGES/TRANSMISSION CHARGES AS PAYME NT FOR TECHNICAL SERVICES AND THUS LIABLE FOR TDS U/S 194J. HOWEVER, IN TERMS OF THE CBDT CIRCULAR NO. 275/20 1/95-IT(B) AND THE ORDER OF HONBLE SUPREME COURT IN HINDUSTA N COCA COLA BEVERAGES (P) LTD. VS. CIT (S.C., THE SAID INTEREST SHOULD BE CHARGED TILL THE TAX DEPOSITED BY THE DEDUCTEE (I.E., PGCIL) WHICH WORKS OUT TO RS. 28,49,281/- AS PER THE STATEMENT PRODUCED BY THE AR DURING THE APPELLATE P ROCEEDINGS. THUS, THE DEMAND OF INTEREST PAYABLE BY THE ASSESS EE IS RESTRICTED TO RS. 34,99,876/- (RS. 28,49,281/- PLU S RS. 6,50,595/-) AS CALCULATED IN PARA 14 & 15 OF THIS ORDER. HOWEVER, THE AO (TDS) SHOULD GIVE OPPORTUNITY T O ARS TO EXPLAIN THE TABLE IN DETAIL WHILE GIVING APPEAL EF FECT TO THIS ORDER. IF THE TAX TO BE DEDUCTED U/S 201(1)/20 1(1A) IS LESS THAN TAX PAID BY DEDUCTEE ENTITIES, THEN THE AO (TDS) SHOULD CHARGE INTEREST U/S 201(1A) FROM DUE DATE OF D EDUCTION UP TO DATE OF FILING OF RETURN BY DEDUCTEE COMPANIES/FI RMS. 2.1 AGGRIEVED BY THIS ORDER, THE ASSESSEE IS IN A PPEAL BEFORE US. THE LD. COUNSEL SUBMITTED THAT THE QUESTION TO BE DEC IDED IS IN REGARD TO THE APPLICABILITY OF SECTION 194C OR SECTION 194J FOR DEDUCTION OF TAX AT SOURCE FROM PAYMENT MADE FOR TRANSPORTATION CH ARGES (KNOWN AS WHEELING CHARGES IN THE INDUSTRY). IT IS HIS CAS E THAT ELECTRICITY IS GOODS IN SO FAR AS THE ASSESSEE IS CONCERNED AND, THEREFO RE, THE WHEELING CHARGES COULD AT BEST BE SAID TO BE TRANSPORTATION OF GOO DS COVERED U/S 194C OF THE ACT. A REFERENCE IS MADE TO THE DECISION OF HO NBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHARTI CELLULAR LTD., (2008) 220 CTR (DEL) 258. IN PARAGRAPH NO. 15 OF THE JUDGMENT, IT IS MENTIONE D THAT THE WORDS MANAGERIAL AND CONSULTANCY INVOLVE A HUMAN E LEMENT AND BOTH THESE ITA NO. 755(DEL)/2011 4 SERVICES ARE PROVIDED BY HUMAN BEINGS. SUCH ELEM ENT SHOULD ALSO BE INVOLVED IN THE WORD TECHNICAL BY APPLYING THE RULE OF NOSCITUR A SOCIIS . THE SERVICES ARE PROVIDED BY THE TELECOM COMPA NIES FOR INTERCONNECTION AUTOMATICALLY BY MACHINES. THAT DOES NOT MEAN TH AT THESE COMPANIES ARE PROVIDING TECHNICAL SERVICES. FOR READY REFERENC E, THIS PARAGRAPH IS REPRODUCED BELOW:- 15. FROM THE ABOVE DISCUSSION, IT IS APPARENT THAT BOTH THE WORDS MANAGERIAL AND CONSULTANCY INVOLVE A HUMAN ELEM ENT. AND, BOTH, MANAGERIAL SERVICE AND CONSULTANCY SERVICE, ARE PRO VIDED BY HUMANS. CONSEQUENTLY, APPLYING THE RULE OF NOSCITUR A SOCIIS , THE WORD TECHNICAL AS APPEARING IN EXPLANATION 2 TO SECTION 9 (1) (VII ) WOULD ALSO HAVE TO BE CONSTRUED AS INVOLVING A HUMAN ELEMENT. BUT, THE FA CILITY PROVIDED BY MTNL/OTHER COMPANIES FOR INTERCONNECTION/PORT ACCES S IS ONE WHICH IS PROVIDED AUTOMATICALLY BY MACHINES. IT IS INDEPENDE NTLY PROVIDED BY THE USE OF TECHNOLOGY AND THAT TOO, SOPHISTICATED TECHN OLOGY, BUT THAT DOES NOT MEAN THAT MTNL/OTHER COMPANIES WHICH PROVIDE SUCH F ACILITIES ARE RENDERING ANY TECHNICAL SERVICES AS CONTEMPLATED IN EXPLANATION 2 TO SECTION 9 (1) (VII) OF THE SAID ACT. THIS IS SO BEC AUSE THE EXPRESSION TECHNICAL SERVICES TAKES COLOUR FROM THE EXPRESSI ONS MANAGERIAL SERVICES AND CONSULTANCY SERVICES WHICH NECESSARILY INVOLVE A HUMAN ELEMENT OR, WHAT IS NOW DAYS FASHIONABLY CALLED, HUMAN INTERFAC E. IN THE FACTS OF THE PRESENT APPEALS, THE SERVICES RENDERED QUA INTERCON NECTION/PORT ACCESS DO NOT INVOLVE ANY HUMAN INTERFACE AND, THEREFORE, THE SAME CANNOT BE REGARDED AS TECHNICAL SERVICES AS CONTEMPLATED UN DER SECTION 194J OF THE SAID ACT. 2.2 OUR ATTENTION HAS ALSO BEEN DRAWN TOWARDS TH E DECISION IN THE CASE OF JAIPUR VIDYUT VITRAN NIGAM LTD. VS. DY. CIT, RENDERED BY A BENCH OF JAIPUR TRIBUNAL IN ITA NO. 132/JP/2009 FOR AS SESSMENT YEAR 2006-07, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK BETWEEN PAGE NOS. 144 ITA NO. 755(DEL)/2011 5 TO 173. IN PARAGRAPH NO. 9.6, IT HAS BEEN MENTI ONED THAT TECHNICAL SERVICES ARE SAID TO BE RENDERED WHEN TECHNOLOGY OR TECHNICAL KNOWLEDGE OF A PERSON IS MADE AVAILABLE TO OTHERS. RENDERI NG OF SERVICES BY ALLOWING USE OF TECHNICAL SYSTEM IS A DIFFERENT MATTER. FOR THE SAKE OF READY REFERENCE, THIS PARAGRAPH IS REPRODUCED BELOW:- 9.6 AN ANALYSIS OF ABOVE CASES LAYS DOWN THE PROPOSITION THAT S. 194J WOULD HAVE APPLICATION ONLY WHEN T HE TECHNOLOGY OR TECHNICAL KNOWLEDGE OF A PERSON I S MADE AVAILABLE TO OTHERS AND NOT WHERE BY USING TECH NICAL SYSTEMS, SERVICES ARE RENDERED TO OTHERS. RE NDERING 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 WHICH C AN 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 OPE RATED WITH A VIEW TO EARN INCOME BY ALLOWING THE CUSTOMERS TO AVAIL OF THE BENEFIT BY USER OF SUCH EQUIPMENT THE SAM E DOES NOT RESULT IN THE PROVISION OF TECHNICAL SERVICE TO THE CUSTOMER FOR A FEE. SIMILAR IS THE PROPOSITION LAID D OWN IN OTHER CASES RELIED BY THE LD. AUTHORIZED REPRESENTA TIVE SUPRA. 2.3 OUR ATTENTION HAS BEEN DRAWN TO PAGE NO. 88 O F THE PAPER BOOK, WHICH IS THE STATEMENT OF SHRI SURENDER BABBAR RECORDED ON 22.01.2009 IN THE COURSE OF SURVEY. QUESTION NO. 10 WAS REGAR DING THE MODE AND METHOD OF TRANSPORTATION AND HE WAS REQUIRED TO S TATE WHETHER ITA NO. 755(DEL)/2011 6 MAINTENANCE OF SOPHISTICATED SYSTEMS WOULD INVOLV E COMPETENT MANPOWER TO HANDLE THE SAME. IT WAS ANSWERED THAT IT IS A HIGHLY TECHNICAL QUESTION WHICH ALSO INVOLVES LEGAL IMPLICATION. THEREFORE, THE TIME WAS SOUGHT TO SEND A WRITTEN REPLY LATER ON. THE CASE OF THE LD. COUNSEL IS THAT AT BEST THE ISSUE IS COMPLEX AND THERE IS NO CLEAR ANSWER WHETHER WHEELING CHARGES ARE IN THE NATURE OF TRANSPORTAT ION OF GOODS OR RENDERING OF TECHNICAL SERVICES. SINCE THE ASSESSEE-COMPA NY WAS DEALING IN ELECTRICITY, IT WAS TAKEN THAT THE ELECTRICITY IS GOODS AND, THEREFORE, TRANSPORTATION CHARGES ARE COVERED U/S 194C. 2.4 IN VIEW OF THE AFORESAID, IT WAS ARGUED THA T THE DEMAND RAISED MAY BE DELETED BY NOT TREATING THE ASSESSEE AS AN ASSESSEE IN DEFAULT. 3. IN REPLY, THE LD. CIT, DR RELIED UPON PARAGR APH NO. 5.1 OF THE ASSESSMENT ORDER. IN THIS PARAGRAPH, HE HAS DIS TINGUISHED THE FACTS OF THE CASE OF BHARTI CELLULAR LTD., DECIDED BY HONBLE DELHI HIGH COURT IN 175 TAXMAN 573; AND SKYCELL COMMUNICATIONS LTD. VS. DCIT, (2001) 251 ITR 53 (MAD). ITA NO. 755(DEL)/2011 7 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. IN THE CASE OF BHARTI CELLULAR LTD. (SUPRA), THE HONBLE COURT BY APPLYING THE RULE OF NOSCITUR A SOCIIS, HAS COME TO A CONCLUSION THAT INVOLVEMENT OF HUMAN ELEMENT IS ESSENTIAL FOR REN DERING ANY SERVICE AS TECHNICAL SERVICE. IN THE CASE OF SKYCELL CO MMUNICATIONS LTD. (SUPRA), THE STRESS HAS BEEN LAID ON IMPARTING TECHNIC AL KNOWLEDGE. HOWEVER, IT CANNOT BE SAID WHETHER ANY ONE OF THE ELEMENT OR BOTH THE ELEMENTS SHOULD BE PRESENT FOR TERMING A SERVICE TO BE A TECHN ICAL SERVICE. COMING TO THE FACTS OF THIS CASE, NONE OF THESE ELEMENTS ARE PRESENT. THE PAYEE DOES NOT UPGRADE THE KNOWLEDGE OF THE ASSESSEE WHEN IT T RANSMITS ELECTRICITY. WHILE THERE MAY BE SUPERVISION OF TRANSMISSION WOR K BY THE TECHNICAL PERSONNEL OF THE PAYEE, THERE IS NO HUMAN INTERVE NTION IN SO FAR AS THE ASSESSEE IS CONCERNED REGARDING THE TRANSMISSION. THEREFORE, NONE OF THE CONDITIONS IS SATISFIED IN THIS CASE. EVEN IF I T IS ASSUMED THAT TECHNICAL KNOWLEDGE CAN BE UPGRADED WITHOUT THE PRESENCE OF HUMAN BEINGS BY WAY OF HANDING OVER DRAWINGS AND DESIGNS OR A TE CHNICAL SERVICE CAN BE RENDERED BY ROBOT (MACHINES) WITHOUT INTERVENTION OF HUMAN ELEMENT, THE CLASSIFICATION OF THE SERVICES RENDERED BY THE AS SESSEE AS TECHNICAL SERVICE IS NOT FREE FROM DOUBT. IN SUCH CIRCUMSTANCES, THE ASSESSEE CANNOT BE SADDLED WITH HIGHER LIABILITY FOR TAX DEDUCTED AT SOURCE AS IT IS ONLY ITA NO. 755(DEL)/2011 8 EXPECTED TO DEDUCT TAX ON THE BASIS OF COMMONLY U NDERSTOOD MEANING OF THE PROVISION. 4.1 WE MAY ALSO LOOK AT THE ISSUE FROM THE POI NT OF VIEW OF THE RECIPIENT. THE TRANSMISSION OF ELECTRICITY FOR T HE ASSESSEE HAS BEEN UNDERTAKEN IN THE NORMAL COURSE OF ITS BUSINESS AND THE INCOME IS TO BE CLASSIFIED AS BUSINESS INCOME. THIS MAY LEAD T O NO LIABILITY FOR TAX DEDUCTION AT ALL. THUS, THE ISSUE IS VEXED AND IN SUCH A SITUATION, THE ASSESSEE IS NOT LIABLE TO BE SADDLED WITH HIGHER LIABILITY FOR DEDUCTION OF TAX AT SOURCE. ACCORDINGLY, IT IS HELD THAT NO FURTHER LIABILITY COULD BE FASTENED ON THE ASSESSEE AND THE LD. CIT(APPEAL S) ERRED IN ALLOWING THE APPEAL PARTLY. 5. IN THE RESULT, THE APPEAL IS ALLOWED. SD/- SD/- (RAJPAL YADAV) (K.G. BANSA L) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA COPY OF THE ORDER FORWARDED TO:- DELHI TRANSCO LTD., DELHI. ACIT, CIRCLE 49(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.