DCIT, CORPORATE CIRCLE-1(1), BHUBANESWAR vs. M/S. GRIDCO LIMITED, BHUBANESWAR

S/Shri Ved Jain and P.Venugopal Rao, S/Shri Ved Jain and P.Venugopal Rao, ld AR ld ARs appeared for the assessee and Shri M.K.Gautam, ld CIT DR appeared for the revenue. assessee and Shri M.K.Gautam, ld CIT DR appeared for the revenue. assessee and Shri M.K.Gautam, ld CIT DR appeared for the revenue.

It was submitted by ld CIT DR that the issue in revenue’s appeal was It was submitted by ld CIT DR that the issue in revenue’s appeal was It was submitted by ld CIT DR that the issue in revenue’s appeal was against the acti gainst the action of the ld CIT(A) in deleting the disallowance made by the (A) in deleting the disallowance made by the Assessing Officer on account of non Assessing Officer on account of non-deduction of TDS u/s.194J of the Act deduction of TDS u/s.194J of the Act and consequently section 40(a)(ia) of the Act. It was the submission that and consequently section 40(a)(ia) of the Act. It was the submission that and consequently section 40(a)(ia) of the Act. It was the submission that P a g e 1 | 19 the assessee is a company engaged in the business of purchase and sale of power. It was the submission that the assessee purchases power from the generating companies and sells the same to DISCOMs. It was the submission that for this purpose, the assessee uses the transmission line of Orissa Power Transmission Corporation Limited (OPTCL) and Power Grid Corporation of India Limited (PGCIL). It was the submission that during the relevant assessment year, the assessee had deducted TDS at 2% of the transmission/wheeling charges paid to PGCIL. It was the submission that similar TDS had not been made by the assessee in respect of payments to OPTCL. Ld AR relied on the decision of the Co-ordinate Bench of Mumbai Tribunal in the case of Maharashtra State Electricity Distribution Co Ltd vs ACIT (2011) 16 taxmann.com 46 (Mum), wherein, in para 9, it has been held as follows:

“9. It is further important to note that after the survey was conducted by the Department at the assessee’s premises, it started deducting tax at source on such payments made under BPTA from assessment year 2009-2010 u/s.194-I. A copy of the certificate u/s 197(1) issued to payee for the year financial relevant to assessment year 2010-2011authorising deduction of tax at source at a lower rate of 5.5%, has also been placed on record. It means that in assessment year 2009- 2010, the assessee voluntarily held the opinion that tax at source was required to be deducted at source on wheeling and transmission charges and the same position continued in subsequent year as well. Further the payee applied to the ACIT(TDS) Circle, seeking permission for getting the deduction of tax at source u/s 194-I at a lower rate of 5.5% which has been issued and the assessee has admittedly deducted tax at source on wheeling and transmission charges at a lower rate as per the certificate issued u/s.197(1) of the Act. When the payee is treating the receipt of wheeling and transmission charges as liable for deduction of tax at P a g e 2 | 19 source, it is beyond our comprehension as to how the assessee can contend that such charges are not liable for deduction of tax at source.”

There was no reason as to why the assessee should have deducted TDS in the case of PGCIL but not deducted TDS in respect of payment to OPTCL. It was the further submission that under similar circumstances, the Authority of Advance Rulings (Income Tax) New Delhi in the case of Ajmer Vidyut Vitran Nigam Ltd. (2012) 24 taxmann.com 300(AAR) has held that the transmission of power involves technical services. He placed reliance paras 9 to 12 of the said order, which reads as follows:

It was the submission that the assessee purchases 440 KVA power from the generating companies and when supplied to the DISCOMs, the power is reduced at 11KVA. Though the assessee has used transmission network of both OPTCL and PGCIL for reduction of the power and thus, clearly technical services are involved. It was the submission that in view of the principles laid down by the Co-ordinate Bench of this Tribunal Varanasi Bench in the case of Smt. Husna Parveen vs CIT (20220 142 taxmann.com 2 (Varanasi-Trib), wherein, it has been held that whether the assessee routes GST through the profit and loss account or not, still the provisions of section 43B is applicable. In the present case, as the assessee has not deducted TDS u/s.194J on payments to OPTCL, the same is hit by the provisions of section 40(a)(ia) of the Act. It was the prayer that the order

Thus, I am wholly satisfied that the transmission, and wheeling charges paid by the applicant to RVPN are in the nature of fees for technical services and the applicant is obliged to withhold tax thereon under section 194J of the Act.”

In reply, ld AR on behalf of the assessee submitted that the issue is squarely covered by the decision of the Co-ordinate Bench of this Tribunal in assessee’s own case for the assessment year 2009-2010 in dated 7.1.2016, wherein, in paras 15 to 26, it has been held as follows: “15. we have considered rival contentions, carefully gone through the orders of the authorities below and also deliberated on the judicial Pronouncements referred by lower authorities in their respective orders as well as cited by td, AR & DR during the course of hearing before us in the context of factual matrix of the case. We had also gone through the order of the Tribunal in the assessee's own case for the assessment year 2008- 2009, dated 17-11-2011, and particularly the observation made by the Tribunal with reference to the nature of payment whether fees for technical services within the meaning of Section 194-J. 16, From the record we found that transmission charge is to be paid by the distributing companies and privity of contract is between OPTCL and the Distributing Companies. The transmission charges bill is being raised by the OPTCL directly on the Distributing Companies i.e. Central Electricity Supply Company of Orissa Ltd, (CESU), Western Electricity Supply Company of Orissa Ltd. (WESCO), North Eastern Electricity Supply Company of Orissa Ltd. (NESCO) and P a g e 8 | 19 Southern Electricity Supply Company of Orissa Ltd' (SOUTHCO). The tariff is determined independently by the Orissa Electricity Regulatory Commission on the application filed by the OPTCL and Distributing companies. Thus, the assessee company is nowhere involved in the transmission charges. The Tribunal in its order for the preceding assessmeflt year has held as under:- 6. on careful consideration of the material made available to the Tribunal in the light of the rival submission of the parties, it is found that the issue lo be decided is whether the at of the assessee in asking the OPTCL to transmit the power purchased from various producers will fall within the scope of section 194-I. For this purpose, first of all we have to analyse the scope of the functioning of the various companies related to the production, distribution of powers to the ultimate consumers. For this purpose, it is to be taken into consideration the development of the power transmission in the State of Orissa. The Electricity Act of 2003 explains the electricity reform taken by the Central Government in the State Governments. The electricity supply industries in India is being governed by the Indian Electricity Act, 1910 this being the basic frame work of supply of electricity in India. At that state the electricity industry was in its infancy and this Act envisages the growth of industry through providing licenses. This continued till the independence of India. With a new Act i.e. The Electricity (Supply)Act, 1948 was enacted for growth of the State Electricity Board. This enactment was made to ensure for expansion of electricity across India not limited to its cities only. Since performance of the State Electricity Boards deteriorated over a period on account of various reasons there raise a need in 1990 for Electricity Regulatory Reform.

Orissa is the first state to notify the State Electricity Reform by enacting the Orissa Electricity Reform Act, 1995 to combat tthe problem arising to the Stale Electricity Board where the power production, trading and transmissions and distribution were bifurcated into three different entities. The production of power was given lo Orissa Hydro Power Corporation Ltd, Trading and transmission was given lo the assessee Company. The act of distribution was assigned to four different entities (1) Central Electricity Supply Co. of Orissa, (2) Western Electricity Supply Co., (3) Eastern Electricity Supply Co,, and (4) Southern Electricity Supply Co. All these entities are called ‘DISCOMs’ 8. Consequent to these reforms, the assessee company was incorporated on 20..4.1995 with the object of carrying on the P a g e 9 | 19 business of purchasing, selling transmission and wheeling of power in the State of Orissa. The duty of the assessee was to purchase powers from power producers and to sell and transmit the same to the distributing companies. Accordingly, the assessee is having the twin object of trading as well as the transmission and wheeling of powers. In order to achieve this duty, the assessee obtained bulk supply agreement with the distribution companies thereby purchasing powers from the producers, transmitting powers to DISCOMs stated supra.

While so, the Central Act namely, the Electricity Act, 2003 was enacted in order to further carry out the reforms in the power sector. One of the important features of this act was that there has to be a separate entity for which all the activities i.e. for generation, trading, transmission and distribution. This enactment envisages an independent transmission entity having responsibility of power transmission or wheeling of powers and for that purpose to own and develop transmission work in a planned manner, In the line of that requirement of Electricity Act, 2003, Orissa Government issued a notification dt.9.6.2005 namely, the Orissa Electricity Reforms (transmission and related activities) scheme of 2005 in order to divide the function of GRIDCO i.e. the assessee into two companies whereby the assessee is to restrict itself to trading. The transmission and wheeling of powers was to be done by a new and independent company. Accordingly, a new company was created with the name and style ‘Orissa Power Transmission Corporation Ltd (OPTCL) and the entire transmission undertaken by the assessee company was transferred to new company and the assessee was left with the trading undertaking only without any assets. To support this contention a notification dt.9.6.2005 made in the Gazettee which is placed atg pages 52 to 63 of the PB filed by the assessee. In this notification various definitions are given. Consequently, a bulk supply agreement was entered into by the assessee and three distributing companies on 24.5.1999 and another agreement was entered into with CESCO dt.19.9.1999 modified under the obligation of transmission and wheeling of power stood transferred to OPTCL. This is fortified by clause 11 sub-clause (1) and (ii) which is placed at page 58 of the PB filed by the assessee. This specifically provides that bulk supply agreement stands modified and all the obligation of transmission towards DISCOMs stated therein shall be that of the transferee i.e. OPTCL. As per the notification placed at page 54 of the PB filed b the assessee, the transferee i.e,. OPTCL shall be responsible for all contracts rates, deeds, schemes, arrangements, agreements and other items of whatever nature relating to the P a g e 10 | 19 transmission undertaking transferred to the transferee i.e. OPTCL to which the transferor i.e. the assessee was a party subsisting or having effect of transfer in the same manner as the transferor was liable immediately before the transfer. Consequent to gazette notification dt.9.2.2005 and coming into existence of OPTCL, an independent company engaged in transmission and wheeling of power, the bulk supply agreement stood automatically modified and the assessee has no role to transmission of power to the distributing companies. This is borne out by the invoices being raised thereafter by the OPTCL directly on the DISCOMs and the copies of such invoices are also placed at pages 96 to 203 of the PB filed by the assessee.

A notification dt.6.6.2006 issued by the Orissa Electricity Regulatory Commission clarified that OPTCL and GRIDCO i.e. the assessee are separate companies with different licenses and revenue requirements have been approved separately, so also the transmission charges and the bulk tarrif , it was further clarified by this notification that two separate bills have to be issued by the two separate licenses for the services rendered by each of them. Under these facts and circumstances, the privities of contract for payment for transmission charges are between the OPTCL and DISCOMs. Thereafter, the AO cannot hold that the asserssee is liable to deduct tax at source in respect of transmission charges merely because the basis of the escrow arrangement for payment whereby the sale proceeds of EISCOMs are coming into the bank account of the assessee.

It is clear from the findings recorded by the Tribunal in assessee’s own case that assessee is just holding payment which comes into its bank account from the distributing companies because of escrow arrangements and the same goes to the OPTCL and as such there is no income in the hands of the assessee. In view of this finding, which has not been controverted by ld DR we do not find any justification in the observation of the ld CIT(A) to the effect that assessee company was liable for transmission charges. The privity of contract is between the Distributing Companies and the OPTCL for the transmission charges and accordingly the ld CIT (A) was wrong in giving finding that the assessee company is liable for TDS on transmission charges.

From the record we also found that the OPTCL has made an application for lower deduction of TDS by the Distributing Companies and the certificate under section 197 has been allowed by the TDS Officer directing the Distributing Companies to deduct TDS at lower rate vide its order dated 30th March, 2009 (Copy at PB Pg 230). This confirms the fact that privity of the contract for transmission charges is between the OPTCL and Distributing Companies and not the assessee company. In this certificate the issue of all the three sections i.e, 194C, 1941 and 194 J has been covered and in the annexure directions are to all the DISCOMS'. Thus the TDS officer admits this fact that transmission charges is the liability of DISCOMs and these DISCOMs have been directed to deduct tax @ 1.1%.

We had also carefully gone through the orders of the Tribunal in case of Jaipur Vidyut Vltran Nigam Limited. Versus Deputy Commissioner Of lncome-Tax TTJ 123, 888, wherein following was the observations of the bench:- “9.6 An analysis of above cases lays down the proposition that s.194 J would have application only when the technology or technical knowledge of a person is made available to others and not where by using technical systems, services are rendered to others. Rendering of services by allowing use of technical system 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 can be further used by him for its own purpose/research. Where facility is provided by use of machine/robot

Similarly, in the case of Bangalore Electricity Supply Co, l.td,, Versus lncome Tax Officer (TDS), Ward 16(1), Bangalore 20 ITR 365, it was observed that 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. Therefore, The assessee was not liable to deduct tax at source on payments of Transmission charges to OPTCL as the provisions of Sec. 194J are not attracted thereon. it was held that provisions of Section 194J are not attracted in the case of payment of transmission charges in so far as it is not a fee of technical services. 21 . Similarly in the case of Asstt. Commissioner of Income Tax Versus Dakshin Haryana BijliVitran Nigam Ltd, 2012 (7) TMI 340 ITAT, DELHI, it was held that (here is no liability to deduct tax at source on payment of transmission/wheeling/ charges under section 194J or for that matter under section 194c- transmission/wheeling/SLDC charges is reimbursement of the cost,

This disallowance is unsustainable also in view of the amendment made by the Finance Act, 2012 whereby the following proviso has been inserted:- 'Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of chapter XVII- B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (l) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso," corresponding amendment has been made in section 201(1) as under:- 'provided that any person, including the Principal officer of a company, who falls to deduct the whole or any part of the tax in accordance with the provisions of this chapter on the with 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 such return of income and (iii) Has paid the tax due on the income declared by him in the return of income

The cumulative impact of this amendment is that in case the deductee has included the amount of which TDS was deductible while computing its income and has filed the return and paid the taxes thereon, then the deductor is not considered to be anb assessee in default and consequently no disallowance can be made under section 40(a)(ia).

In the present case the deductee is OPTCL. It has filed the return of lncome for the assossment year under consideration i,e, 2009-10. It has been assessed under section 143(3) whereby tax payable is Nil. Thus, in view of these facts the assessee cannot be considered to be an assessee in default.

The amendment made by the Finance Act,2012 is clarificatory in nature and hence applicable retrospectively, ln this regard reliance is being placed on the following judgments :- i) Rajeev Kumar Agargwal vs ACIT (Case law PB pg Nos.131-137'. ii) ITO vs Gaurimal Mahajan & Sons ITA No.1852/PN/2012 dated 6.1.2014 (ITAT Pune Benches) iii) Sea Food Park India Ltd vs DCIT (ita No.762/Coch/2013 dtd.31.3.2014 (ITAT Cochin Bench) iv) DCIT vs Entrance Powers System Pvt Ltd ITA No.1039/PN/2012/dated 30.4.2014 (ITAT pune benches) v) Satish Chand Agarwal vs JCIT ita No.339/Agra/2013dated 29.5.2014 ITAT Agra Bench. vi) DCITG vs Ansal Landmark Township Pvt Ltd. ITA Nos.2859, 2972 & 877/Del/2013 dated 22.7.2014 (ITAT Delhi Benches.) vii) ITO vs Dr Jaideep Kumar Sharma ITA Nos.3893, 5696/Del/2011 dated 25.7.2014 (itat Delhi Benches viii) Shri G.Shankar vs Acit ita No.1832/Bang/2013 dated 10.10.2014(itat Bangalroe Benches) ix) DCIT vs Jaipur Vidyut Vitran Nigam Ld ITA No.224/JP/2014 dated 21.11.2014 (itat Jaipur Benches) Recently, the Hon'ble Delhi High court in the case of CIT Vs. Ansal Land Mark Township (P) Ltd., ITA N0.16012015, dated 26-8.2015, held that the amendment made by the Finance Act 2012 is clarificatory in nature'

Iln view of the above discussion, we do not find any merit for disallowance made u/s,40(a)(ia), either with reference to Section 1494-l or Section 194-J of l.T.Act.”

We have considered the rival submissions. At the outset, coming to the decision in the case of Maharashtra State Electricity Distribution Co Ltd(supra) relied upon by ld CIT DR clearly shows that it is a case of stay petition. For the purpose of staying of demand, the Co-ordinate Bench of this Tribunal has taken a view that the assessee has not shown a prima facie case. It is not the decision on merits and what has happened to the merits of the addition, has not been placed before us. 9. Coming to the decision in respect of The Authority for Advance Rulings (AAR) in the case of Ajmer Vidyut Vitran Nigam Limited (supra), a perusal of the said decision shows that the same has admittedly been overruled by the Hon’ble Rajasthan High Court in 2016(10)TMI 1124 and the Hon’ble Rajasthan High Court has categorically held that interconnected charges/port access charges cannot be regarded as fees for technical services, hence not liable for tax deduction at source. 10. Coming to the decision of the Co-ordinate Bench of this Tribunal Varanasa Bench in the case of Smt. Husna Parveen(supra), same has no P a g e 17 | 19 applicability to the issue in revenue’s appeal insofar as there is no claim by the assessee that the provisions of section 43B are applicable or not. The claim of the assessee that it is not liable for TDS insofar as it is not a payment by the assessee to OPTCL but it is the assessee only acting as a banker and deposited in ESCROW arrangements and subsequently payments were made to OPTCL. In any case, the decision in the assessee’s own case shows that in the immediately preceding the issue has been held in favour of the assessee and the revenue has not been able to show that any appeal has been filed against the said decision. This being so, respectfully following the decision of the Co-ordinate Bench in assessee’s own case (supra), we have no reason to interfere with the order of the ld CIT(A) as the ld CIT(A) has judiciously decided the issue following the decision of the Co-ordinate Bench of this Tribunal for the earlier assessment years. Consequently, we uphold the same.

In the result, appeal of the revenue stands dismissed.