Saturday 8 August 2015

Whether wheeling charges paid on transfer of electricity under bulk power transmission pact without any distribution licence are to be treated as fees for technical services - NO: HC

THE issue before the court is - Whether 'wheeling charges' paid in respect of transfer of electricity under a bulk power transmission agreement without any distribution licence, can be categorised as 'fees for technical services'. NO is the verdict.
Facts of the case
The assessee is the State Transmission Utility for National Capital Territory of Delhi, which is responsible for the transmission of power and for upgrading, operating and maintaining the high voltage network. The assessee had entered into bulk power transmission agreement with the Power Grid Corporation India Ltd. (PGCIL). In one of the preamble clauses of the BPTA, it was recorded that DTL "was desirous of receiving energy through power grid transmission system on mutually agreed terms and conditions". Under Clause 8 of the BPTA, it was agreed that the transmission charges would be paid to PGCIL by DTL for transmitting private sector power through PGCIL lines 'as per the guidelines of the Central Electricity Regulatory Commission (CERC). Clause 10 stated that the 'transmission tariff and terms and conditions for the power to be transferred by PGCIL would be in terms of the notification to be issued by CERC from time to time. On the commissioning of the new transmission system DTL was to pay "the provisional transmission tariff in line with the tariff norms issued by CERC". The tariff was subject to adjustment in terms of CERC notification. The wheeling for the transmission power was to be in terms of the CERC guidelines. The BPTA came into force with effect from 1st April 2002 and was to remain valid for a period of five years, that is, up to 31st March 2007. A survey was carried out in the business premises of DTL u/s 133-A. It was noticed that DTL had deducted tax at source at 2% u/s 194C on the wheeling charges paid to PGCIL. The AO held that DTL was not only using the transmission system set up of PGCIL but also availing of other services from PGCIL "such as maintaining the delivery voltage, economic transmission, minimum loss of electricity in transmission of regular and uninterrupted supply etc., which were technical services". According to the AO, "the value of these services could not be bifurcated from the total value paid by the assessee to PGCIL for transmission services in the name of wheeling charges. Accordingly, the AO held that wheeling charges paid by DTL were fees for technical services liable for TDS u/s 194J. The AO referred to the replies provided by Mr. R. Rajagopalan, Chief Manager (Finance) of PGCIL to a questionnaire sent to him. The AO then proceeded to set out the calculation of short deduction of TDS and computed it at Rs. 4,47,52,382/-.
The AO thus treated DTL as a defaulter u/s 201(1) and the matter was referred to the ACIT for initiating penalty proceedings u/s 271-C. The AO held that in terms of the CBDT circular the demand u/s 201(1) would not be enforced but that would not affect the liability of DTL regarding interest u/s 201(1A) and this worked out to Rs.78,40,426. The total demand was worked out as Rs 3,19,87,617/-. On appeal, the CIT(A) confirmed the order of the AO. He however granted some relief as far as the calculation of interest payable. On further appeal, the Tribunal agreed with the DTL that what had been availed by it from PGCIL was not a technical service. The Tribunal thus held that DTL was not liable to be saddled with higher liability of TDS.
Having heard the parties, the High Court held that,
++ the question that requires to be addressed is whether there is any 'rendering of any managerial, technical or consultancy services by PGCIL to the assessee by virtue of the BPTA within the meaning of Section 194J (1) r/w Explanation 2 of Section 9(1)(vii). In other words is the 'wheeling' of electricity, defined in the BPTA of the EA as an 'operation whereby the distribution system and associated facilities of a transmission licensee or distribution licensee, as the case may be, are used by another person for the conveyance of electricity on payment of charges', a rendering of service by PGCIL to DTL. It is seen that the Bombay High court in the case of Maharashtra State Electricity, has considered whether wheeling charges could be characterized as fee for technical services. The Bombay High Court concluded that 'wheeling charge' "would neither be rent nor fees for technical services". They represented "the charge for permitting use of the STU by persons other than the distribution licence. The transmission charges simply constitute fees for availing of the said transmission utility to be used by open access concept for distribution of electricity to licensees and consumers". In light of the decisions, it is clear that what constitutes technical services cannot be understood in a rigid formulaic manner. It will vary from industry to industry. There will have to be a specific line of enquiry for determining what in a particular industry would constitute rendering of a technical service;
+ the AO appears to have extracted in his order only two of the questions regarding details of the transmission receipts and of the tax liability. What appears to have been omitted are the specific questions to Mr. Rajagopalan, asking him to explain the process of transmission. It is apparent that despite a leading suggestion put to Mr. Rajagopalan that the transmission of electricity was a technical service, his answer was to the effect that the technical service provided was not to the purchaser of electricity but in operating and maintaining the various equipments and transmission of lines. This was an important input for understanding the nature of the service that is provided. The plea of DTL that the BPTA between it and PGCIL was essentially for transporting electricity from one point to another and that this is automatic through the network or equipments without any human intervention appears to be correct. The system operated by PGCIL and used for transmission of electricity is no doubt maintained by skilled technical personnel professional. This also ensures that PGCIL complies with the standards and norms put in place by the statutory regulations. However, the beneficiary of such services is PGCIL itself. PGCIL is operating and maintaining its own system using the service of engineers and qualified technicians. PGCIL is in that process not providing technical services to others, including DTL. Although the wheeling charges may be fixed by the CERC, that by itself is not a determinative factor. In the present case, DTL is seeking to characterize the wheeling charges as payment for use of PGCIL's equipment within the meaning of Section 194C. Interestingly, the CIT(A) in its order has accepted the plea that the job of DTL is to transport the electricity and it is therefore like carriage of goods. Despite accepting the above plea, the CIT(A) has simply concurred with the AO only because of "absence of sufficient legal precedent on the subject". Once it is accepted that all what PGCIL does is to transmit the electricity to DTL through the network without any human intervention, it cannot be characterized as a provision of technical services and sought to be brought within the fold of Section 194J;
+ to reiterate, 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. The ultimate conclusion of the ITAT is therefore not erroneous. Accordingly the question framed by the Court is answered against the Revenue and in favour of the assessee.

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