Income Tax Appellate Tribunal - Delhi
Dakshin Haryana Bijli Vitran Nigam ... vs Department Of Income Tax on 6 November, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH "B" DELHI)
BEFORE SHRI A.D. JAIN AND SHRI A.N. PAHUJA
ITA NO. 4606(Del)2011
Assessment year: 2008-09
Dy. Commissioner of Income Tax, The Dakshin Haryana Bijli
Hisar. V.Vitran Nigam Ltd., Hisar.
(Appellant) (Respondent)
Appellant by: Shri Krishna, CIT/DR
Respondent by: S/Shri K. Sampath, Adv./V.Raj Kumar, Adv.
ORDER
PER A.D. JAIN, J.M.
This is Department's appeal for assessment year 2008-09, taking the following grounds:-
"1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the addition of ` 1,53,97,80,054/- made by the Assessing Officer on account of non-realization of provisions of surcharge.
2. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the addition of ` 2,44,55,32,835/- made u/s 40(a)(ia) on account of payment made on account of SLDL & wheeling charges, which are made in the work of providing technical services, without deducting TDS as provided under section 194 J of the Income Tax Act, 1961."
2 ITA 4606(Del)2011
2. Apropos ground No.1, the AO observed that as per Notes to Schedule 10 of the Audited Report, a sum of ` 153.97 crores, being surcharge assessed but not realized, had been withdrawn from GH -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 ` 1,74,45,62,158/- , against which, only ` 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 3 ITA 4606(Del)2011 system of accounting and whenever the right to receive money in the course of a trading transaction accrues or arises, even though income is not realized, income embedded in the receipt is deemed to accrue or arise; that during the year, however, the income of surcharge levied on delayed payments was being accounted for on the basis of its actual realization/collections, which was inconsistent with the mercantile system of accounting and so, not allowable; that as soon as the surcharge is levied on the delayed payment, the assessee has a right to receive money from the customers, even though the income has not been realized from the customers; that during the year, an amount of ` 153.98 crores had been transferred to "provision for surcharge not realized"; and that this income had been reduced from the total income in the profit and loss account and also reduced from the debtors of the assessee company. The AO placed reliance on the following case laws:-
1. "CIT vs. Govind Prasad Prabhu Nath", 171 ITR 147(All);
2. "CIT v. Bharat Petroleum Corporation Ltd.", 202 ITR 492(Cal);
3. "Morvi Industries Ltd. v. CIT", 82 ITR 835(SC); and
4. "CAG IT v. Raja Rajeswari Narikelly Estate", 199 ITR 383(Ker).
4 ITA 4606(Del)2011
3. The AO further observed that the assessee's submission was also not acceptable when it had been contended that the income by way of surcharge was a hypothetical income, since this was not borne out from the facts on record; that a part of the surcharge levied by the assessee during the year had been realized and accounted for as income, amounting to ` 20.48 crores; that the consumers subjected to levy of surcharge had accepted the surcharge in principle; that merely since the same had not been deposited by the consumers with the assessee company during the year could not defeat the right of the assessee to realize the surcharge levied; that the surcharge amount was also reflected in the debtors of the assessee Company which had subsequently been reduced from the debtors on account of non-
realization thereof during the year, as given in the Annual Report of the assessee Company; that this position stood also reflected in the details of the debtors submitted during the assessment proceedings; and that therefore, the assessee had itself admitted existence of its legal right to collect the surcharge on account of delayed payments from the defaulting consumers and its mere failure to realize the surcharge during the year did not at all affect the existence of such legal entitlement of the assessee to receive the surcharge.
5 ITA 4606(Del)2011
4. In this manner, the AO made addition of ` 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 surcharge, particularly since the assessee was following the mercantile system of accounting, as per which, whenever the right to receive money in the course of a trading transaction accrues or arises, the income embedded 6 ITA 4606(Del)2011 in the receipt is deemed to accrue or arise, notwithstanding the factum of the income having not been realized.
7. The learned counsel for the assessee, on the other hand, has contended that it might be that res judicata is not applicable to Income Tax proceedings, but consistency, as is well settled, has to be followed in order to avoid chaos; that the Tribunal, in the assessee's own case for assessment year 2006-07, in ITA No. 250(Del)2010, in the Department's appeal against the CIT(A)'s order, vide order dated 30.11.2011 (copy placed on record) has sustained the ld. CIT(A)'s findings decided the issue in favour of the assessee.
8. We have heard the parties on the issue and have gone through the material placed on record with regard thereto. As per the Statement of Facts filed before the ld. CIT(A), the assessee is a Government Undertaking, carrying on the business of distribution of electricity in Southern Haryana. It is levying surcharge on the bills issued by it, if the payment is not made within the time allowed. However, there is a general practice, whereby, most of the rural area consumers of domestic and agricultural categories do not make the payment of even the 7 ITA 4606(Del)2011 original bill, much less of surcharge. The Government frequently announces Waiver Schemes of Surcharge to reduce the debtors.
Thereby, it becomes extremely difficult to recover the amount or to start legal proceedings against the defaulters. During the year, the surcharge realized was of ` 20.48 crores. This was booked as income as against the surcharge levy of ` 174.46 crores. The AO made addition by disallowance of ` 153.98 crores representing surcharge levied but not realized, which was deleted by the ld. CIT(A).
9. The assessee maintains that specific Notes in this regard were given in the balance sheet and the Notes to Accounts. It has been submitted that this action was taken on the basis of the advice of statutory Auditors in keeping with the Accounting Standards. This system, it is seen, has started being followed from assessment year 2004-05. The statutory Auditors of the assessee Nigam had, in their Audit Report on the accounts for the year ending 31.3.2003, 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 8 ITA 4606(Del)2011 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 to offer surcharge calculated in the bills.
(iii) Vide Audit Committee of Board of Directors meeting dated 21-2-2003 (supra), on the basis of prudence norms the method of accountancy was change and the sur-charge was held to be accountable on the basis of actual receipt.
5.1. Department has accepted the method of accounting in A.Y. 2004-05 and 2005-06, which is not disputed. This clearly establishes that neither action u/s 148 nor u/s 263 is proposed by the department against A.Y. 2004-05 and 2005-0, completed assessments which have 9 ITA 4606(Del)2011 become final.
5.2. Coming to the merits, the assessee is a state PSU and the electricity policy of the Electricity Board has been subject to many exigencies, depending on public policy. It has not been disputed that though the assessee's rules provide levy of sur-charge on belated payment of bills but at the same time payment of surcharge is subject to protest/ waiver and is not mandatorily enforceable by assessee at the time of payment of bill. The sur-charge exist in the rule and is printed in the bill but it has not been disputed that the assessee has regular mechanism to accept the bills without payment of sur-charge. The same is deferred till the consumer dispute is settled by the appropriate means which may be provided by the instructions of the declared policy of the government.
5.3. In view of these facts, coupled with the fact that assessee changed its method of accounting after seeking necessary approval of CAG, shows that as far as the assessee is concerned, the collection of sur-charge was contingent and did not accrue due to assessee. The liability will accrue on the basis of crystallization i.e. the payment of the surcharge or passing of a suitable order by the appropriate authority on the dispute raised by the customer.
5.4. Coming to the case laws, Hon'ble Supreme Court in the case of Shoorji Vallabh Das & Co. (supra) had to deal with an issue of managing agency commission transferred by the assessee to two other companies. Subsequent agreement after the end of accounting year resulted in assessee's receiving lesser commission, though book entries of higher amount were made. Revenue sought to tax the higher income, Hon'ble Court held that assessee cannot be taxed on the basis of hypothetical income. In our view this judgment is applicable to the facts of assessee's case, keeping in mind following prepositions:
(i) Assessee's method of accounting has been accepted by the 10 ITA 4606(Del)2011 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 the amount of interest, which was disputed by the debtor, did not amount to accrual of income to the assessee.
5.9. There is no dispute on the issue raised by the learned DR that principles of res-judicata are not applicable to income-tax proceedings. However, in view of Hon'ble Supreme Court judgment in the case of Radha Swami Satsang (supra), has laid down rule of consistency, which has been followed in facts of various cases in subsequent judgments. By now it is a settled principle that unless facts and circumstances have drastically changed, the principle of 11 ITA 4606(Del)2011 consistency is to be maintained in departmental action. In view thereof, we are of the view that department having accepted a clear cut amendment of method of accounting, as per the provisions of Income-tax Act, in the above mentioned facts, it will not be desirous that the course of action accepted by the department is subject to variation by adopting different interpretation on any settled issue.
5.10. In our view the Woodward Governor case (supra), relied on by ld. D.R. is of no avail to revenue as itself lays down that profits and gains of any previous year are required to be computed in accordance with relevant accounting standards. Similarly, the case of G.R. Karthikeyan (supra) also will not benefit the revenue as it did not decide any controversy of accrual or mercantile system of accounting. The judgment deals with winning from gambling and batting income, there is no issue about accounts or accrual in this case.
5.11. Coming to learned DR reliance on the case of Tuticorin Alkali Chemicals (supra), the same deals with the receipts being in the nature of capital or revenue. The factum of receipt was not disputed and whether the receipt was capital or revenue, Hon'ble Supreme Court held that while deciding the question, the same has to be on the basis of principle of law and not in accordance with the accountancy practice. In our vie the case before us pauses a picture on different facts which have been mentioned in detail above.
5.12. In our considered opinion, all the above judgments clearly favour the stand taken by the assessee. We may hasten to mention that looking at the intricacies the facts may vary, therefore, basic principles of accrual or mercantile system as laid down by various authorities are to be applied in a careful manner. The assessee being a state PSU; the sur-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 12 ITA 4606(Del)2011 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 ` 2,83,97,19,975/-, billed by HVPN Ltd. and State Load Dispatch Centre (SLDC) at ` 4,55,10,855/-, also billed by HVPN Ltd., after taking into account the rebate amounting to ` 46,96,97,994/- allowed by HVPNL, the net transmission charges and SLDC charges amounting to ` 2,41,55,32,835/- paid to HVPNL be not added to the income of the assessee, being disallowable u/s 40(a)(ia) of the Income Tax Act, there 13 ITA 4606(Del)2011 being non-deduction of tax u/s 194 J of the Act on these payments.
The assessee contended that the Tribunal, in the assessee's own case for assessment years 2006-07 to 2008-09, had held that Wheeling charges did not fall under the category of technical services since these charges were not liable to deduction u/s 194 J of the Act, Section 194 J of the Act would be applicable only when the knowledge of technology is made available and not where by using a technical system, the services are rendered, rendering of services by allowing use of a technical system is different from charging fee for rendering technical services, Section 194 J would come into play only when making payment of fee for technical services, and the assessee acquires certain skill/knowledge/intellect by use of Machines/Robot or where sophisticated equipments are installed and operated.
12. The AO, however, rejected the contention of the assessee. It was held that the assessee had accepted that it had made payment on account of Wheeling charges and SLDC charges of ` 2,37,00,21,981/-
and ` 4,55,10,855/-, respectively, to HVPN Ltd,; that HVPNL had provided technical services, for which, the assessee was paying the Wheeling charges and SLDC charges; that however, the assessee had failed to deduct tax under the provisions of section 194 J of the Act; and 14 ITA 4606(Del)2011 that therefore, the assessee was liable for non-deduction of tax on the total amount of ` 2,41,55,32,835/- made to HVPNL and these expenses were disallowable u/s 40(a)(ia) of the I.T. Act.
13. The ld. CIT(A) deleted this disallowance also, taking into consideration the assessee's contention that the Tribunal, vide its order dated 23.10.2009, in the assessee's own case for assessment years 2006-07 to 2008-09, had held that the assessee was not required to deduct tax at source within Section 194 J of the Act in respect of the payments by way of Wheeling charges and SLDC charges.
14. The ld. DR, in this regard, has contended that the ld. CIT(A) has erred in deleting the addition correctly made u/s 40(a)(ia) of 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 15 ITA 4606(Del)2011 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 Act in respect of payment of wheeling charges (transmission charges) and Steate Load Dispatch Centre Charges (SLDC) charges. The Tribunal in the said order held as under:-
"9. Considering the submission of the parties on the issue as to what is the nature of payment of wheeling/transmission/SLDC charges on the basis of documents on records and the facts explained and the nature of such payments as well as facts on records whether the same is liable for deduction of tax at source under the IT Act, 1961 specifically under section 194J which provides for deduction of tax at source on payment of fees for professional or technical services and whether section 40(a)(ia) is applicable on the present facts of the case. 9.1. On going through the various clauses of transmission service agreement we find that as per clause 3 of the agreement assessee is allowed the user of the transmission system. Clause 5 provides for open access transmission capacity whereby any other customer is also allowed to use the transmission lines for long-term open access and short- term open access. Clause 8 provides for compliance of grid code as approved by the Commission both by RVPN and 16 ITA 4606(Del)2011 assessee and further provides that all the parties shall comply with the direction of SLDC for ensuring integrated grid operation for achieving the' maximum economy and efficiency in the operation of power system in the State. As per clauses 10 and 12 the tariff for transmission and wheeling and SLDC charges is to be as approved by the Regulatory Commission. From all these clauses it is clear that all the parties involved with generation, transmission and distribution of electricity are to comply with the direction of State Load Dispatch Centre 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 service 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 section 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 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--
17 ITA 4606(Del)2011 (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) of sub-section (1) of section 9. The said section is reproduced hereinbelow for ready reference--
"9. Income deemed to accrue or arise in India.--(1) The following incomes shall be deemed to accrue or arise in India :
(vii)income by way of fees for technical services payable by--
Explanation 2 : For the purposes of this clause, "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".
9.3. The expression "fees for technical service" as used in section 194J of the Act has been exhaustively examined by the Hon'ble Delhi High Court in the case of Bharti Cellular Ltd. ( supra) and the observations are reproduced as under :
"13. We have already pointed out that the expression 'fees for technical services' as appearing in section 194J of the said Act has the same meaning as given to the expression in Expln. 2 to section 9(l)( vii) of the said Act. In the said Explanation the expression 'fees for technical services' 18 ITA 4606(Del)2011 means any consideration for rendering of any 'managerial, technical or consultancy services'. The word 'technical' is preceded by the word 'managerial' and succeeded by the 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 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 19 ITA 4606(Del)2011 the word 'consultant' is a derivative of the word 'consult' which entails deliberations, consideration, conferring with someone, conferring about or upon a matter. Consult has also been defined in the said dictionary as 'ask advice for, seek counsel or a professional opinion from; refer to (a source of information); seek permission or approval from for a proposed action'. It is obvious that the service also necessarily entails human intervention. The consultant, who provides the consultancy service, has to be a human being. A machine cannot be regarded as a consultant.
15. From the above discussion, it is apparent that both the words 'managerial' and 'consultancy' involve a human element. And, both, managerial service and consultancy service, are provided by humans. Consequently, applying the rule of noscitur a sociis, the word 'technical' as appearing in Expln. 2 to section 9(1)(vii) would also have to be construed as involving a human element. But, the facility provided by MTNL/other companies for interconnection/port access is one which is provided automatically by machines. It is independently provided by the use of technology and that too, sophisticated technology, but that does not mean that MTNL/other companies which provide such facilities are rendering any technical services as contemplated in Expln. 2 to section 9(1)(vii) of the said Act. This is so because the expression 'technical services' takes colour from the expressions 'managerial services' and 'consultancy services' which necessarily 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 section 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 20 ITA 4606(Del)2011 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 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 section 9. That Expln. 2 in section 9(1)(vii) reads thus :
'For the purposes of this clause, 'fees for technical services' means any consideration (including any lump sum consideration) for 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'.' This definition shows that consideration paid for the rendering of any managerial, technical or consultancy service, as also the consideration paid for the provision of services of technical or other personnel, would be regarded as fees paid for 'technical services'. The definition excludes from its ambit consideration paid for construction, 21 ITA 4606(Del)2011 assembly, or mining or like project undertaken by the recipient, as also consideration which would constitute income of the recipient chargeable under the head 'Salaries'.
Thus while stating that 'technical service' would include managerial and consultancy service, the legislature has not set out with precision as to what would constitute technical' service to render it 'technical service'.
The meaning of the word 'technical' as given in the New Oxford Dictionary is adjective 1 of or relating to a particular subject, art or craft or its techniques; technical 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 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 22 ITA 4606(Del)2011 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 service to the passenger and, therefore, the passenger must deduct tax at source on the payment made to the bus service provider, for having used the bus. The electricity supplied to a consumer cannot, on the ground that generators are used to generate electricity, transmission lines to carry the power, transformers to regulate the flow of current, meters to measure that consumption, be regarded as amounting to provision of technical services to the consumer resulting in the consumer having to deduct tax at source on the payment made for the, power consumed and remit the same to the Revenue. Satellite television has become ubiquitous, and is spreading its area and coverage, and covers millions of homes. When a person receives such transmission of television signals through the cable provided by the cable operator, it cannot be said that the home owner who has such a cable connection is receiving a technical service for which he is required to deduct tax at source on the payments made to the cable operator.
Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision to technical service to the customers for a fee.
6. When a person decides to subscribe to a cellular telephone service in order to have the facility of being able to communicate with others, he does not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which 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 23 ITA 4606(Del)2011 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 section 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 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 cover the charges paid by the average householder or consumer for utilizing the products of modern technology, such as, use of the telephone fixed or mobile, the cable TV, the internet, the automobile, the railway, the aeroplane, consumption of electrical energy, etc., such facilities which when used by individuals are not capable of being regarded as technical service cannot become so when used by firms 24 ITA 4606(Del)2011 and companies. The facility remains the same whoever the subscriber may be individual, firm or company.
9. Technical service' referred in section 9(1)(vii) contemplates rendering of a 'service' to the payer of the fee. Mere collection of a 'fee' for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received from technical services." Thus Hon'ble Court while dealing with the case of "transmission of voice" has equated the same with the "transmission of the electricity" and held that the same does not amount to providing the technical service. 9.5. In case of Parasrampuria Synthetics Ltd. (supra) it was held as under :
"There may be use of services of technically qualified person to render the services but that itself do not bring the amount paid as 'fees for technical services' within the meaning of Expln, 2 to section 9(1)(vii). The amount paid are towards annual maintenance contract of certain machinery or for converting partially oriented yard (POY) into texturised/twisted yarn. The technology 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 section 194J of the Act."
9.6. An analysis of above cases lays down the proposition that 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 25 ITA 4606(Del)2011 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 as the technical service is not provided to the personnel of the assessee. We are also unable to pursue (sic) ourself with the contention of the learned Departmental Representative that other persons are making deduction at source on such payment under section 194C/194J/194H. On going through the papers-filed at pp. 34 to 41 of the paper book filed by the Department we note that as per those papers only some report/letters has been issued by the TDS officer requiring the deduction of tax at source on such payment. Similarly M/s Hindustan Zinc Ltd. is deducting the tax at source under section 194C in respect of payment of transmission charges to RVPN cannot lay down the law. The CIT(A) has given a finding on p. 54 of his order that these payments are not covered under section 194C against which no appeal is filed by the Department though we are otherwise convinced with the argument of learned Authorised Representative that section 194C is not applicable on this payment in view of the detailed submission made in this regard at paper book pp. A-23 to A-27.
26 ITA 4606(Del)2011 9.8. The decision relied by the AO in the case of Oberoi Hotels ( India) ( P) Ltd. (supra), Circular No. 187, dt. 23rd Dec, 1975 and in the case of Continental Construction Ltd. ( supra) though relates to section 80-O of the IT Act, supports the case of the assessee that a technical service is involved where 'information 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 State Load Dispatch Centre 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 does 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 case of Singapore Airlines Ltd. ( supra) the navigation charges paid was for getting the technical service like weather 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 27 ITA 4606(Del)2011 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 used in further generating the product of the assessee. Therefore, such specific client based information was held not equatable with the standard services provided by telecommunication company. Thus these decisions are quite distinguishable and not applicable on 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 section 194J or for that matter under section 194C.
9.10. We also find force in alternate argument of the learned Authorised Representative that the of transmission/wheeling/SLDC charges is reimbursement of the cost. Therefore the provisions of Chapter XVII-B are not applicable since there is no payment of income/revenue by the assessee. We find that the tariff is fixed by an independent regulatory body i.e., Rajasthan Electricity Regulatory Commission. The transmission company is not allowed any return on its capital; the tariff is determined on the principle of no profit no loss. From the tariff order (paper book 90-93) we find that tariff is fixed, by estimating the actual cost of operation of RVPN. In case, on the basis of such tariff, any surplus is left with the RVPN, they give credit of the same to the assessee as evident from the extract of the minutes of the board and the copy of the journal voucher by which such credit is given to the assessee (paper book 136-138). 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 section 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 modes 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 Dr. Willmar 28 ITA 4606(Del)2011 Schwabe India (P) Ltd. (supra ) (paper book 124-125), 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 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 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. The ground No.1 is thus allowed.""
17. The facts before us, for the year under consideration, have not been shown to be any different from those before the Tribunal in
29 ITA 4606(Del)2011 assessment years 2006-07 to 2008-09. Therein, the Tribunal has followed the decision dated 30.4.09 in the case of Jaipur Vidyut Vitran Nigam Ltd. v. ITO, 123 wherein also, the issue was exactly the same, i.e., correctness or otherwise of addition u/s 40(a)(ia) of the Act on account of payment made as Wheeling charges and SLDC charges, for non-deduction of TDS as per Section 194 J of the Act. In its detailed order reproduced as above, the Jaipur Tribunal has considered all the aspects touching the issue and has thereafter held the assessee not liable to deduct tax on the payments made, the provisions of Section 194 J of the Act being not attracted. The Jaipur Tribunal decision has been followed by the Delhi Tribunal in the assessee's case for assessment years 2006-07 to 2008-09. The Revenue has not been able to make out as to why this decision is not applicable for the year under consideration before us. Therefore, following the Tribunal order in the assessee's own case for assessment years 2006-07 to 2008-09, ground No.2 is also rejected, upholding the CIT(A)'s order for this issue also.
18. In the result, the appeal of the Department is dismissed.
Order pronounced in the open court on 10.02.2012.
Sd/- sd/-
(A.N. Pahuja) (A.D. Jain)
Accountant Member Judicial Member
30 ITA 4606(Del)2011
Dated: 10.02.2012
*RM
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
True copy
By order
Deputy Registrar