The order of the Bench was delivered by
1. The present five appeals are directed at the instance of the Revenue against the separate orders of the learned Commissioner of Income-tax (Appeals) dated March 28, 2013 in I.T.A. No. 3527 is an appeal arose from penalty proceeding initiated under section 271(1)(c) of the Income-tax Act. The grievance of the Revenue is that learned Commissioner of Income-tax (appeals) has erred in deleting the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act.
2. In the other four appeals the grievance of the Revenue is that the assessee was required to deduct TDS under section 194J on wheeling charges paid by it for transmission of electricity. It has deducted the tax short and, therefore, the Assessing Officer has rightly taken action under section 201/201A.
3. The brief facts of the case are that a survey under section 133A was carried out in the business premises of the assessee at Shakti Sadan, Rouse Avenue Kotla Road, New Delhi, on January 22, 2009. During the course of survey, it was noticed that the assessee has deducted TDS at 2 per cent. under section 194C on payments of wheeling charges paid to Power Grid Corporation of India Ltd. (hereinafter referred to as PGCIL for the sake of brevity). The assessee had also made payment to Bhakara Beas Management for transmission of electricity. The Assessing Officer was of the view that the assessee was required to deduct the tax at sources at 5 per cent. of the payment under section 194J as PGCIL was providing technical services to the assessee by transmitting the electricity. Therefore, an order was passed under section 201(1) and 201(1A) of the Act raising demand against the assessee in all these years.
4. On appeal, the learned Commissioner of Income-tax (Appeals) deleted the demand by observing that the assessee was not required to deduct tax at source under section 194J as held by the Income-tax Appellate Tribunal in the assessment year 2005-06 in the case of the assessee. The learned Commissioner of Income-tax (Appeals) further observed the deductee has already paid the taxes and claimed refund and thus the deductee has already discharged its entire tax liability well in advance and even paid more taxes than, what was required to be paid, therefore, no interest liability can be put upon by the assessee-company.
5. Before us learned counsel for the assessee at the very outset submitted that similar issue was considered by the Income-tax Appellate Tribunal in the assessment year 2005-06 in I.T.A. No. 755/Delhi/2011. He placed on a record copy of the Tribunal's order. It was also brought to our notice that in the case of Chhattisgarh State Electricity Board v. ITO (TDS) [2012] 50 SOT 33/18 taxmann.com 150 (Mum.) a similar demand was raised, that the assessee was also a bulk purchaser of electricity from the NTPC which was transmitted from the NTPC up to the point of the assessee where it was required by the PGCIL. The learned Assessing Officer in that case observed that the assessee had paid rental for the use of transmission line. Therefore, it ought to have deducted TDS under section 194-I of the Act, whereas the assessee had deducted the TDS under section 194C. The Tribunal has allowed the appeal of the assessee and held that the TDS was not to be deducted under section 194-I.
6. The learned Departmental representative was unable to controvert the contention of learned counsel for the assessee.
7. We have duly considered the rival contention and gone through the record carefully the Income-tax Appellate Tribunal in the assessment year 2005-06 has considered an identical issue. The finding recorded by the Income-tax Appellate Tribunal read as under :
"We have considered the facts of the case and submissions made before us. In the case of CIT v. Bharti Cellular Ltd. [2009] 319 ITR 139 (Delhi), the hon'ble court, by applying the rule of noscitur a sociis, has come to a conclusion that involvement of human element is essential for rendering any service as 'technical service'. In the case of Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53 (Mad), the stress has been laid on imparting technical 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 technical 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 transmits electricity. While there may be supervision of transmission work by the technical personnel of the payee, there is no human intervention in so far as the assessee is concerned regarding the transmission. Therefore, none of the conditions is satisfied in this case. Even if it is assumed that technical knowledge can be upgraded without the presence of human beings by way of handing over drawings and designs or a technical service can be rendered by robot (machines) without intervention of human element, the classification of the services rendered by the assessee 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 expected to deduct tax on the basis of commonly understood meaning of the provision.
4.1 We may also look at the issue from the point of view of the recipient. The transmission of electricity for the assessee has been undertaken in the normal course of its business and the income is to be classified as business income. This may lead to 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 learned Commissioner of Income-tax (Appeals) erred in allowing the appeal partly."
8. This finding has been followed by the Income-tax Appellate Tribunal in I.T.A. No. 3965/Del/2011 in the case of the assessee for the assessment year 2006-07. Apart from the finding of the Tribunal recorded in the assessee's own case, we deem it pertinent to take note of the finding recorded by the Tribunal in the case ofChattisgarh State Electricity Board (supra). The relevant finding read as under (page 98) :
"11. We find that the power purchase agreement entered into by the assessee with the NTPC (copy placed before us at pages 15-27 of the paper book), specifically provides that 'power shall be made available by the NTPC at the busbars of the station and it shall be obligation and responsibility of the CSEB to make the required arrangement for evacuation of power from such delivery points of NTPC'. It is pursuant to these obligations that the assessee, along with other bulk power beneficiaries namely, M.P. State Electricity Board, Gujarat Electricity Board, Maharashtra State Electricity Board, Electricity Department-Government of Goa, Administration of Daman and Diu, and Electricity Department-Administration of Dadra and Nagar Haveli, has entered into a 'bulk power transmission agreement' with PGCIL. The preamble of this agreement, inter alia, notes that the PGCIL 'is desirous to transmit energy from the Central Sector Power Station(s) to the bulk power beneficiaries and that the said bulk power beneficiaries are desirous of receiving the same through powergrid transmission system on mutually agreed terms and conditions'. This agreement provides that 'powergrid shall operate and maintain the transmission system belonging to it in the western region as per agreed guidelines and the directives of the Western Regional Electricity Board and the Regional Load Dispatch Centers, and cooperate with the bulk power beneficiaries of the region, so as to maintain the system parameters within acceptable/reasonable limits except where it is necessary to take measures to prevent imminent damage to any equipment'. In respect of these services, the bulk power beneficiaries are to pay to PGCIL a monthly charges computed in the manner set out in clause 9 of the said agreement. This clause, in turn, refers to formula set out in A.4 of Annexure 1 which refers to the same ratio of agreed annual charges divided by 12 as is between power transmitted to each beneficiary to total sales from that particular point of delivery. In other words, while the annual charges are fixed, these are divided between the beneficiaries in the same ratio as is ratio of power evacuated by a beneficiary to the total sale of power from that delivery point. It is, however, not in dispute that the transmission lines are in the physical control of PGCIL, these are maintained and operated by the PGCIL and, so far as the assessee is concerned, its interest in the transmission lines is restricted to the fact that electrical power purchased by the assessee, simultaneously along with electrical power purchased by other bulk power beneficiaries, is transmitted through these transmission lines. The way it works is like this. The power available at the delivery points, collectively for all the bulk power beneficiaries, is loaded for transmission on these transmission lines or powergrid and each of the beneficiaries is allowed to utilize the power to the extent allocated to him. It is not the case that purchases by each of the bulk beneficiary can be physically identified and that particular beneficiary is only allowed to use that physically identified portion of power. Strictly speaking, therefore, it is not the transmission of power from one point to another but availability of power on the entire power grid or transmission lines enabling the beneficiary to utilise the power to the extent of his allocation. On these facts, the question that requires our adjudication is whether or not the payment for transmission charges can be termed as 'rent'for the purposes of section 194-I of the Act.
12. Let us now take a look at the statutory provision with regard to tax withholding from rent payments, which is set out in section 194-I of the Act, and analyse the same. Section 194-I provides as follows :
'Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of-(a) two per cent. for the use of any machinery or plant or equipment; and (b) ten per cent. for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings :
Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred eighty thousand rupees :
Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section.
Explanation : For the purposes of this section,
| (i) |
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'rent' means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,- |
(a) |
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land; or |
(b) |
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building (including factory building) ; or |
(c) |
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land appurtenant to a building (including factory building) ; or |
(d) |
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machinery; or |
(e) |
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plant; or |
(f) |
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equipment; or |
(g) |
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furniture; or |
(h) |
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fittings, |
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whether or not any or all of the above are owned by the payee ; |
(ii) |
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where any income is credited to any account, whether called 'suspense account' or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. |
13. The case of the Assessing Officer, which has been sustained in the first appeal, is that since expression 'rent', for the purpose of section 194-I, includes 'any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement' for the use of machinery, plant or equipment, and since the assessee has made the payments towards transmission charges for use of the machinery, plant and equipment collectively constituting mode of transmission of power, the provisions of section 194-I come into play on the facts of this case.
14. The core issue that we must deal with is whether the present arrangement under the bulk power transmission agreement can be covered by the scope of expression 'any other agreement or arrangement for the use of' appearing in Explanation (i) to section 194-I.
15. Explanation (i) to section 194-I, as we have noted above, defines rent as any payment, by whatever name called, under any lease, sub-lease, or tenancy or any other agreement or arrangement 'for the use of' land, building, plant, machinery or equipment etc. As evident from a plain reading of the agreements under which impugned payments have been made, the payments have been made for the services of transmission of electricity and not the use of transmission wires per se. It is a significant fact that these transmission lines are not only being used for transmission of electricity to the assessee but also of transmission of electricity to various other entities. The transmission lines continue to be not only under the control and possession of the PGCIL in legal terms, but, what is more important, these transmission lines are effectively in the control of PGCIL, without any involvement of the assessee in actual operations of the same. On these facts, in our humble understanding, the assessee has made the payments for transmission of electricity in which transmission lines have been used rather than for the use of transmission lines per se. The payments could be said to have been made for 'the use of transmission lines' in a case in which the object of consideration for which payments are made was the use of transmission lines simplicitor, and such a use by the assessee does not extend beyond the transmission of electricity through such lines in the sense that the same transmission lines continue to be in the control of PGCIL for transmission of electricity for other entities and for all practical purposes. Even as electricity purchased by the assessee is transmitted to the assessee from the NTPC busbar to its landing points, the same transmission lines continue to be engaged in similar transmission of electricity for other entities and the assessee has no say in the manner in which such transmission lines can be controlled and used by the PGCIL. Undoubtedly, for the purpose of an arrangement being termed as being in the nature of rent for the purpose of section 194-I, the 'control' and 'possession', in legal terms, of an asset may not needed to be with the person benefiting from the asset in question ; it is a condition precedent for invoking section 194-I that the asset, for the use of which the payment in question is made, should have some element of its control by the assessee. Here is a case in which the assessee has no control over the operations of the transmission lines, and all that he gets from the arrangements is that he can draw the electrical power purchased from PGCIL's transmission lines in an agreed manner.
16. While on the issue of distinction between use of an asset and benefit from an asset, we may usefully refer to the following distinction brought out by the Karnataka High Court between leasing out of equipment and the use of equipment by its customer. This was done in the case of Lakshmi Audio Visual Inc. v. Asst. Commr. of Commercial Taxes [2001] 124 STC 426 (Karn), which has been followed by hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd. v.DIT [2011] 332 ITR 340 (Delhi), in the following terms (page 366 of 332 ITR) :
'9. Thus if the transaction is one of leasing/hiring/letting simpliciter under which the possession of the goods, i.e., effective and general control of the goods is to be given to the customer and the customer has the freedom and choice of selecting the manner, time and nature of use and enjoyment, though within the framework of the agreement, then it would be a transfer of the right to use the goods and fall under the extended definition of "sale". On the other hand, if the customer entrusts to the assessee the work of achieving a certain desired result and that involves the use of goods belonging to the assessee and rendering of several other services and the goods used by the assessee to achieve the desired result continue to be in the effective and general control of the assessee, then, the transaction will not be a transfer of the right to use goods falling within the extended definition of "sale". Let me now clarify the position further, with an illustration which is a variation of the illustration used by the Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. v. CTO [1990] 77 STC 182 (AP).
Illustration
(i) |
A customer engages a carrier (transport operator) to transport one consignment (a full lorry load) from place A to B, for an agreed consideration which is called freight charges or lorry hire. The carrier sends its lorry to the customer's depot, picks up the consignment and proceeds to the destination for delivery of the consignment. The lorry is used exclusively for the customer's consignment from the time of loading, to the time of unloading at destination. Can it be said that the right to use of the lorry has been transferred by the carrier to the customer? The answer is obviously in the negative, as there is no transfer of the 'use of the lorry' for the following reasons : (i) The lorry is never in the control, let alone effective control of the customer ; (ii)the carrier decides how, when and where the lorry moves to the destination, and continues to be in effective control of the lorry; (iii) the carrier can at any point (of time or place) transfer the consignment in the lorry to another lorry ; or the carrier may unload the consignment en route in any of his godowns, to be picked up later by some other lorry assigned by the carrier for further transportation and delivery at destination. |
(ii) |
On the other hand, let us consider the case of a customer (say, a factory) entering into a contract with the transport operator, under which the transport operator has to provide a lorry to the customer, between the hours 8 a.m. to 8 p.m. at the customer's factory for its use, at a fixed hire per day or hire per km. subject to an assured minimum, for a period of one month or one week or even one day; and under the contract, the transport operator is responsible for making repairs apart from providing a driver to drive the lorry and filling the vehicle with diesel for running the lorry. The transaction involves an identified vehicle belonging to the transport operator being delivered to the customer and the customer is given the exclusive and effective control of the vehicle to be used in any manner as it deems fit; and during the period when the lorry is with the customer, the transport operator has no control over it. The transport operator renders no other service to the customer. . . ' |
17. It is thus clear that in a situation in which the payment is made for the use of an asset simpliciter, whether with control and possession in its legal sense or not, the payment could be said to be for the use of an asset. However, in a situation in which the payment is made only for the purpose a specific act, i.e. power transmission in this case, and even if an asset is used in the said process, the payment cannot be said to be for the use of an asset. When control of the asset (transmission lines in the present case) always remains with the PGCIL, any payment made to the PGCIL for transmission of power on the transmission lines and infrastructure owned controlled and in physical possession of PGCIL can be said to have been made for 'the use of ' these transmission lines or other related infrastructure. Viewed in this perspective, section 194-I has no application so far as the impugned payments for transmission of electricity is concerned. For this short reason alone the impugned demands must be held to unsustainable in law."
9. On due consideration the order of the co-ordinate Bench in the assessee's own case in the assessment years 2005-06 and 2006-07 as well as in the case of Chattisgarh State Electricity Board (supra), we are of the view that the learned Commissioner of Income-tax (Appeals) has appreciated the controversy in the right prospective and no interference is called for. Therefore, I.T.A. Nos. 3526, 3528, 3629, 3530 are dismissed.
10. In I.T.A. No. 3527 in this appeal the Revenue is impugning the deletion of penalty amounting to Rs. 5,92,71,691 imposed under section 271(1)(c) of the Act. Section 271(1)(c) provides :
"If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any Proceedings under this Act, is satisfied that any person—
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,
he may direct that such person shall pay by way of penalty,—
(iii) in the cases referred to in clause (c) or clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income."
11. Thus a bare perusal of the section suggests that in case an assessee has concealed the particulars of income or furnished inaccurate particulars, then, he may be directed to pay by way of penalty an amount which is equivalent to the taxes sought to be evaded or three times of the such taxes. It is brought to our notice that addition in the assessment year 2006-07 has been deleted by the Tribunal. Therefore there is no liability upon the assessee to pay taxes on the additions made therefore, it cannot be asked to pay penalty equivalent to taxes sought to be evaded. Once there are no taxes sought to be evaded then, there cannot be any penalty under section 271(1)(c). The learned Commissioner of Income-tax (Appeals) has rightly held that no penalty is imposable upon the assessee because additions have already been deleted. In view of above discussion, there is no merit in the appeal of the Revenue, it is dismissed.
12. In the result all the appeals are dismissed.
The order pronounced in the open court on May 9, 2014.