Commissioner Of Income Tax Sector 14 Hisar vs Dakshin Haryana Bijli Vitran Nigam Ltd

The revenue has filed the present appeal under Section 260A of the Income Tax Act, 1961 (for brevity 'the Act') against the order dated

27.06.2012 of the Income Tax Appellate Tribunal, Delhi Bench 'B',

New Delhi (for short 'the Tribunal') passed in ITA No. 1388/Del/2011. The assessment year involved is 2007-08.

Following substantial questions of law arise for consideration in the present appeal:

(i) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in upholding the order of the ld. CIT (A) Rohtak,

whereby the addition made by the AO treating the surcharge accrued during the year amounting Rs.89.66 crore on account of delayed payment of

electricity bills by the consumers as income had been deleted, ignoring the facts and circumstances of the case including the fact that the assessee has

been following mercantile system of accounting?

(ii) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in upholding the order of the ld. CIT(A) Rohtak,

whereby the disallowance u/s 40(a)(ia) made by the AO on account of non-deduction of tax on the payment of wheeling/transmission charges of

Rs.1,52,53,40,469/- to M/s HVPN Ltd. has been deleted?

(iii) Whether the learned Tribunal has misread and misconstrued the statutory provisions of Income Tax Act, while making a mention of explanation 2

to section 9(1)

(viii) of I.T.Act, regarding term ''technical service'' by using the word ''human'' in violation of principle of interpretation of statutes?

(iv) Wehther on the facts and circumstances of the case, the learned ITAT was right in law in holding that the payments made by the assessee in

form of transmission/wheeling & SLDC charges were not liable for deduction of tax at source under section 194J of the Income Tax Act?

On 02.02.2015 notice of motion was issued for consideration of questions No. (ii) (iii) and (iv). Question No.(i) was answered against the revenue in

view of the decision of this Court in ITA No. 209 of 2014 titled The Commissioner of Income Tax, Hisar, Vs. Dakshin Haryana Bijli Vitran Nigam

Ltd. Hisar, decided on 1.10.2014.

The brief facts necessary for adjudication of the controversy involved relating to questions No. (ii) to (iv) are that respondent-M/s Dakshin Haryana

Bijli Vitran Nigam Ltd. is a company under the Companies Act, 1956, is engaged in the distribution of power in the State of Haryana. It purchases

electricity from M/s Haryana Power Generation Corporation Limited, Panchkula (HPGCL) and distributes the same to the consumers. The electricity

from the source i.e. generation point to the consumers is transmitted through the transmission network of Haryana Vidyut Prasaran Nigam Ltd.

(HVPNL). The rates of purchase and supply of electricity are fixed by the Haryana Electricity Regulatory Commission (HERC). Thus, the electricity

purchased from HPGCL is transmitted through the distribution points of HVPNL. Respondent makes payment for transmission of electricity to

HVPNL on the rates fixed by the HERC. The respondent is thus rendering ''technical services'' and is earning income within the meaning of Section

9(1) (vii) of the Act and as such duty bound to deduct tax at source. The assessee is making payment to HVPNL on account of transmission charges

called 'wheeling charges' and State Load Dispatch Centre charges (SLDC). According to the Assessing officer, the assessee should have deducted

TDS on wheeling charges and SLDC paid by it to HVPNL. Since the assessee had not deducted TDS from the payments made by it to HVPNL, the

Assessing Officer passed order dated 24.12.2009; dis-allowing expenses claimed by the respondent-assessee for wheeling and SLDC charges paid to

HVPNL for the assessment year 2007-08. Aggrieved of the assessment order, the respondent filed appeal before the Commissioner of Income Tax

(Appeals) [CIT(A)]. Vide order dated 03.01.2011 the appeal was allowed.

The revenue assailed order of CIT(A) before the Tribunal. The Tribunal vide order dated 27.06.2012 following the earlier orders in the case of

assessee for the assessment years 2006-07 and 2008-09 and relying upon decision of Jaipur Bench of the Tribunal in the case of Jaipur Vidyut Vitran

Nigam Limited Vs. ITO in ITA Nos.127 to 131/JP/2009 dated 30.04.2009, dismissed the appeal. It was held that there was no liability of the

respondent to deduct at source on transmission/wheeling charges and SLDC charges under Section 194-J of the Act. Hence, the present appeal by

the revenue.

Learned counsel for the revenue submitted that identical question has been decided by this Court in ITA No. 652 of 2010 decided on 08.05.2014. In

the said ITA, the orders of the lower authorities were set aside and the matter was remanded back to the Assessing Officer for decision afresh in

thelight of the observation of the Supreme Court in the case of CIT, DELHI VS. BHARTI CELLULAR LIMITED (2011) 330 ITR 239. The

relevant portion of the order is extracted below:

After giving our thoughtful consideration to the respective submissions of learned counsel for the parties, we are of the opinion that the issue arising

in these appeals requires to be re-adjudicated by the Assessing Officer keeping in view the principles of law enunciated by the Apex Court in Bharti

Cellular Limited's case (supra).

The Apex Court while discussing the scope of “technical serviceâ€​ had recorded as under:-

“7. The problem which arises in these cases is that there is no expert evidence from the side of the Department to show how human intervention

takes place, particularly, during the process when calls take place, let us say, from Delhi to Nainital and vice versa. If, let us say, BSNL has no

network in Nainital whereas it has a network in Delhi, the Interconnect Agreement enables M/s. Bharti Cellular Limited to access the network of

BSNL in Nainital and the same situation can arise vice versa in a given case. During the traffic of such calls whether there is any manual intervention,

is one of the points which requires expert evidence. Similarly, on what basis is the “capacity†of each service provider fixed when Interconnect

Agreements are arrived at? For example, we are informed that each service provider is allotted a certain “capacityâ€. On what basis such

“capacity†is allotted and what happens if a situation arises where a service provider's “allotted capacity†gets exhausted and it wants, on an

urgent basis, “additional capacity� Whether at that stage, any human intervention is involved is required to be examined, which again needs a

technical data. We are only highlighting these facts to emphasise that these types of matters cannot be decided without any technical assistance

available on record.

There is one more aspect that requires to be gone into. It is the contention of Respondent No.1 herein that Interconnect Agreement between, let us

say, M/s. Bharti Cellular Limited and BSNL in these cases is based on obligations and counter obligations, which is called a “revenue sharing

contractâ€. According to Respondent No.1, Section 194J of the Act is not attracted in the case of “revenue sharing contractâ€. According to

Respondent No.1, in such contracts there is only sharing of revenue and, therefore, payments by revenue sharing cannot constitute “fees†under

Section 194J of the Act. This submission is not accepted by the Department. We leave it there because this submission has not been examined by the

Tribunal.

In short, the above aspects need reconsideration by the Assessing Officer. We make it clear that the assessee(s) is not at fault in these cases for

the simple reason that the question of human intervention was never raised by the Department before the CIT. It was not raised even before the

Tribunal; it is not raised even in these civil appeals. However, keeping in mind the larger interest and the ramification of the issues, which is likely to

recur, particularly, in matters of contracts between Indian Companies and Multinational Corporations, we are of the view that the cases herein are

required to be remitted to the Assessing Officer (TDS).

Accordingly, we are directing the Assessing Officer (TDS) in each of these cases to examine a technical expert from the side of the Department

and to decide the matter within a period of four months. Such expert(s) will be examined (including cross-examined) within a period of four weeks

from the date of receipt of the order of this Court. Liberty is also given to Respondent No.1 to examine its expert and to adduce any other evidence.â€​

The primary basis whereby the Apex Court had concluded services to the falling under 194J of the Act to be technical services that whether any

human intervention was involved in the activity or not. The Apex Court observed that wherever there was human intervention requiring examination of

technical data, the same would fall within the definition of technical services and in the absence thereof, the same would not partake the character of

technical services. The Apex Court in that case had remitted the matter to the Assessing Officer to examine the technical expert and after examining

him adjudicate the matter afresh. In the present case as well from the perusal of the orders of the authorities below, it is not discernible whether there

was any intervention of the human element in the services provided to the assessee.

Accordingly, while setting aside the orders of the authorities below, the matter is remitted to the Assessing Officer to examine afresh in the light of

the observations made by the Apex Court in Bharti Cellular Limited's case (supra), noted above. Further, the assessing authority shall also examine

whether the Provisos inserted in Sections 201(1) and 201(1A) by Finance Act, 2012 are applicable retrospectively, as urged by learned counsel for the

assessee. Since the Tribunal had followed its order of the Jaipur Bench and in such circumstances, it cannot be said that any independent finding has

been recorded regarding element of income in this case, therefore, it shall be open for the Assessing Officer to consider the element of income in the

transaction as well before passing fresh order in accordance with law.

Considering decisions referred above, the order of lower authorities with regard to dis-allowance of expenses claimed of Wheeling and SLDC

charges are set aside. The matter is remanded back to the A.O. to decide the said issue afresh in view of the observations in ITA No. 652 of 2010.

The substantial questions of law are decided accordingly. The appeal is disposed of accordingly.