Wheeling Charges, Open Access Charges or Transmission Charges by whatever name it may be called, Income Tax Authorities have tried to cover it under TDS obligations whether as technical services u/s 194J, rent u/s 194I or as transport services u/s 194C. It is a contentious issue from a long time that transmission services for power should be considered under which section to deduct the TDS or these services are not liable for any TDS deduction at all.
Recently, Delhi High court and Mumbai High Court has dealt this matter in the case of Delhi Transco Ltd and Maharashtra State Electricity Distribution Company Limited in its decision pronounced on August 6, 2015 and May 8, 2015.
In the case of CIT v. M/s Delhi Transco Ltd (ITA No. 323 to 325/2015, 341/2015, 384/2012, 566/2013 & 570/2013), Delhi High Court has held that
“….by virtue of the BPTA agreement between DTL and PGCIL there is transportation of the electricity from PGCIL to DTL, through the equipment and network required statutorily to be maintained by PGCIL through its technical personnel using technical expertise. This, however, does not result in PGCIL providing technical services to DTL. Therefore the wheeling charges paid by DTL to PGCIL for such transportation of electricity cannot be characterized as fee for technical service.” (Emphasis Applied)
Further in the case of CIT (TDS), Mumbai v. Maharashtra State Electricity Distribution Co. Ltd. [2015] 58 taxmann.com 339 (Bombay), the Bombay High Court has held that
“In our view the Transmission charges and / or Wheeling charges are not amounts paid under any arrangement for use of land, building, plant machinery, equipment, furniture, fitting, etc. and, therefore, not rent.”
It has also been held that
“…..the distribution system and facilities of the MSEDCL in its capacity as transmission licensee may be allowed to be used by other persons for conveyance of electricity in exchange for payment of charges to be determined under section 62. Section 62 provides for determination of the tariff of the MERC for transmission of the electricity and wheeling of electricity. Thus ‘Wheeling’ contemplated some form of permissive use of the STU by a third party for consideration determined by MERC. This consideration termed ‘wheeling charge’ would neither be ‘rent’ nor fees for technical services.” (Emphasis Applied)
Previously number of ITATs has also dealt this issue in their decisions whether it is Bangalore ITAT, Hyderabad ITAT, Cuttak ITAT or Jaipur ITAT where it has been decided that open access charges are not liable for deduction of TDS. I hope that decision of these two High Courts may give rest to this controversy and it will be allowed to deduct no TDS while making the payment of transmission charges.
In the decision of Bangalore Electricity Supply Co. Ltd v. ITO [2013] 33 taxmann.com 641 (Bangalore ITAT), it was held that
“in view of the decision of Jaipur Vidyut Vitram Nigam Ltd v. Dy. CIT [2009] 123 TTJ 888 (jp.) the assessee was not liable to deduct tax at source on payments of transmission charges as the provisions of section 194J were not attracted thereon.”
Further, in respect of SLDC charges, it was held that
“so far as payment of SLDC charges was concerned it was seen that though the functions, which personnel of SLDC performed, might be of managerial and technical nature, the assessee or its employees did not receive or derive any benefit in their sphere of work, i.e., distribution and retailing of electricity, neither did they perform any of assessee’s work. What was paid by assessee as SLDC charges was only reimbursement of actual expenses as per the direction in Karnataka Gazette Notification on 18-11-2004. Therefore, on SLDC charges paid by the assessee, no deduction of tax was to be made at source as the provisions of section 194J were not attracted or applicable.”
In the decision of DCIT v. Central Power Distribution Co. of AP Ltd. [2014] 41 taxmann.com 515 (Hyderabad-Trib) the ITAT has held that
“There are plethora of judgments where the Tribunal has taken a consistent view that the fees paid for transmission charges paid to the transmission company were neither in the nature of fees for technical services nor rent and therefore the same do not come under the purview of sections 194J and 194-I of the Act. Being so, payment of transmission charges cannot be considered as fee for technical services and the Commissioner (Appeals) has taken a correct view that the payment of transmission charges are not to be considered for deduction of TDS from the transmission charges under section 194J/194-I.” [Para 13]
“From the assessee’s agreement with APTRANSCO, it is noticed that the services rendered by the payees not only included the services in connection with transmission of the power but also several other distinct services such as maintenance of metering system, noting down meter reading, sealing and resealing of meters etc. It was not confined only to purchasing power by the assessee from the generation company and selling it to consumers through transmission network. It is the nature of services which decides about the section under which tax is deductible, if required. Being so, the assessee is liable to deduct TDS under section 194C. If it is deducted, the assessee is not considered as defaulter under section 201 and 201(1A). With the above observation, all the departmental appeals stand dismissed.” [Para 15]
In the decision of GRIDCO Ltd vs. ACIT [2011] 15 taxmann.com 354 (Cuttack ITAT),
- The Tribunal held that section 194-I was not applicable in respect of transmission and wheeling charges:
- The AO was of the view that TDS was applicable on these charges under section 194-I since the transmission/wheeling charges paid were for the use of equipments.
- The assessee company paid transmission/wheeling charges to the OPTCL/PGCIL and other transmission companies and on which it did not deduct any TDS.
- The assessee was a company engaged in the business of trading of power. Power was purchased from the generators (Power generating companies) and sold to the distribution companies (DISCOMs) and others by utilizing the transmission network of Orissa Power Transmission Corporation Ltd. (OPTCL), Power Grid Corporation of India Ltd. (PGCIL) and others. The above Companies, the generators, DISCOMs and assessee were regulated by Orissa Electricity Regulatory Commission (OERC) whose functions, inter alia, were to issue licenses, determine the conditions therein, and regulate the purchase, distribution and supply of electricity and the tariffs payable. The assessee after purchasing power from the generators sold it to the distribution companies. The assessee had entered into a bulk supply agreement with the distribution companies in the year 1999 and on the terms of these agreements, it used to sell electricity to the distribution companies.
a) The assessee never utilized, applied, employed the transmission lines of OPTCL/PGCIL and hence there was no use of any equipment by the assessee.
b) The assessee only used the facility without himself using equipments
c) The assessee never had possessory right in relation to equipments
d) In this case, the assessee merely obtained a service from OPTCL which had got infrastructure in form of equipment and transmission lines and hence it could not be said that assessee had used equipment and machineries of OPTCL, and, therefore, section 194-I was not applicable in respect of transmission and wheeling charges
The Cuttack ITAT in its order in Para 17 in regard to applicability of TDS u/s. 194-J has observed as under
“The payment of transmission charges will not also come within the purview of Section 194-J as for technical services, since operation and maintenance of transmission lines and use of these lines for transmitting powers does not resulted into any technical services being rendered to the assessee. The provisions of Section 194J will be applicable when the technology or technical knowledge is made available to others and not where use of technical system services are provided to others. Rendering of services by allowing use of technology system is different than charging fees for rendering technical services. In case where any facility is provided by use of machinery or where equipments are installed with a view to earn income by allowing customers to avail benefit by using of such equipment the same does not mean technical services to the customers for a fee.”
This proposition is fortified by the following judicial pronouncements:
(i) Bharti Cellular Ltd. (supra)
(ii) Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53 (Mad.)
(iii) Asia Satelite Telecommunications v. DIT [2011] 332 ITR 340 (Delhi)
(iv) Vodafone Essar Ltd.’s (supra)
The Cuttack ITAT in its order in Para 18 to 20 in regard to applicability of TDS u/s. 194-C has observed as under
“The provisions contained in Section 194C are also not applicable to the facts of the case as detailed hereunder. The provisions of Section 194C laid down that liability to deduct tax at source is in respect of work carried out in pursuance of contract between the contractor and the specified person. The word “work” in section 194C would not apply to contract for sale of goods.
Further the scope of Section 194C was extended by inserting Explanation III . By inserting Explanation III the word “work” in Section 194C has been extended so as to include four types of service contracts within the purview of section 194C. Therefore, Section194C now covers only four types of services beyond what was original enacted i.e., advertising, broadcasting and telecasting including production of programmes for such broadcasting or telecasting, carriage of goods and passengers by any mode of transport other than by railways, and catering. Undisputedly the transmission and wheeling charges are not covered in this amendment. Accordingly it could not be said that transmission charges or wheeling charges require deduction of tax at source u/s.194C of the Act.”
In the case of Chhattisgarh State Electricity Board vs. Income-tax Officer (TDS) [2012] 18 taxmann.com 150 (Mumbai ITAT)
- In this case, the assessee, a public sector undertaking, was engaged, inter alia, in the business of distribution of electricity to consumers within the State of Chattisgarh. The assessee bought the power from NTPC and the power so purchased was transmitted by PGCIL to the points where it needed electrical power
- The AO took a view that the payments made by the assessee to PGCIL, for the purpose of transmitting power from NTPC’s delivery point to assessee’s facilities, could be said to be payments in the nature of rent for transmission facilities, and, accordingly, be hit by the provisions of section 194-I.
- The Tribunal held:
a) The control and possession of equipment is a condition precedent for invoking section 194-I
b) The assessee had no control over operations of transmission lines, and all that it used to get from arrangements was that it could draw electrical power purchased from PGCIL’s transmission lines in an agreed manner, section 194-I had no application to payments made by assessee to PGCIL.
In the case of Jaipur Vidyut Vitran Nigam Ltd. vs. Dy. CIT [2009] 123 TTJ 888 (Jaipur ITAT)
- In this case, the Jaipur Vidhyut Vitran Nigam Ltd., the assessee was a power distribution company. The AO noted that assessee is purchasing power from the generation company and selling it to consumers. The power from the generation point to the consumers is transmitted through the transmission network of RVPN. RVPN charged fees from the assessee for transmission of power.
- The Assessing Officer held that the payment made by the assessee to RVPN was a payment for technical service liable for deduction of tax at source under section 194J.
- The Tribunal held that section 194-I was not appliacble:
a) 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 did not arise
b) The operation and maintenance of transmission lines by RVPN and the user of these lines by the assessee for transmitting energy did 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 discharged their function. They did not render any technical service to the assessee.
c) 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 services by allowing use of technical system is different from 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 acquires 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.
d) 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 was made available/rendered by the RVPN to the assessee. The assessee itself had its own engineers and technicians who consistently monitored and supervised the flow of the electricity to its system and ultimately supplied 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 was statutory function which was also entrusted to RVPN and, therefore, RVPN by discharging such statutory function did not provide any technical service. There was also force in alternate argument of the assessee that the payment of transmission/wheeling/SLDC charges was reimbursement of the cost. The provisions of Chapter XVII-B were not applicable since there was no payment of income/revenue by the assessee.
Further, the provisions of Chapter XVII-B are not applicable since there is no payment of income/revenue by the assessee. 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. On actual reimbursement, provision of deduction of tax at source would not apply as held in case of Dr. Willmar Schwabe India (P) Ltd. 95 TTJ (Delhi) 53
Conclusion-
It can be opined after going through the above mentioned case laws and interpretation of sections 194C, 194I & 194J that there is no liability of deduction of TDS on payment of transmission charges. In can be summarized as further:
a. Section 194I
The assessee merely obtains a service from transmission companies which has got infrastructure in form of equipment and transmission lines and hence it cannot be said that assessee has used equipment and machineries, and, therefore, section 194-I is not applicable in respect of transmission and wheeling charges
b. Section 194J
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 services by allowing use of technical system is different from charging fees for rendering technical services
c. Section 194C
The word “work” in section 194C would not apply to contract for sale of goods. Further the scope of Section 194C was extended by inserting Explanation III. By inserting Explanation III the word “work” in Section 194C has been extended so as to include four types of service contracts within the purview of section 194C. Therefore, Section194C now covers only four types of services beyond what was original enacted i.e., advertising, broadcasting and telecasting including production of programmes for such broadcasting or telecasting, carriage of goods and passengers by any mode of transport other than by railways, and catering. Undisputedly the transmission and wheeling charges are not covered in this amendment.
(Author may be contacted at navneet.singal@gmail.com )
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