Techinical services – transmission of electricity – Without any human intervention – No TDS u/s 194J – SLP Dismissed

The assessee Delhi Transco Ltd. (DTL) entered into Bulk Power Transmission Agreement (BPTA ) with the Power Grid Corporation India Ltd. (PGCIL). In one of the preamble clauses of the BPTA , it was recorded that DTL “is desirous of receiving energy through power grid transmission system on mutually agreed terms and conditions”. The BPTA defined several terms including the term wheeling as under: “The 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 to be determined under Section of Section 62 (sic) of the Electricity Act, 2003 and its subsequent amendments.” 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.

A survey was carried out in the business premises of DTL under Section 133-A of the Act. It was noticed that DTL had deducted tax at source (TDS) at 2% under Section 194C of the Act 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 are technical services”. According to the AO, “the value of these services cannot be bifurcated from the total value paid by the assessee to PGCIL for transmission services in the name of wheeling charges. The transmission lines could not be of any use in isolation and without other associated services the transmission of electricity could not have been possible”. Accordingly, the AO held that wheeling charges paid by DTL were fees for technical services liable for TDS u/s. 194J of the Act. 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 under Section 201(1A) of the Act

Aggrieved by the AO’s order, DTL filed an appeal before CIT(A). The CIT (A), confirmed the said order of the AO. DTL then carried the matter further in appeal to the ITAT . The ITAT agreed with the DTL that what had been availed by it from PGCIL was not a technical service. It was held that DTL was not liable to be saddled with higher liability of TDS. The appeal was accordingly allowed. The ITAT based its opinion on the decision of this Court in CIT vs. Bharti Cellular Ltd. (2008) 220 CTR (Del) 258 and of the Madras High Court in Skycell Communications Ltd. vs. DCIT (2001) 251 ITR 53 (Mad). The ITAT noted that both the decisions laid emphasis on the involvement of a ‘human element’ for rendering technical services and imparting of technical knowledge. The ITAT held that none of those conditions were satisfied in the present case. While there might 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”. It was further held that even if technical knowledge could be upgraded without “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”.

The Hon’ble High Court observed 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. The ultimate conclusion of the ITAT is therefore not erroneous. Accordingly the question framed by the Court was answered in the negative i.e., against the Revenue and in favour of the Assessee. The appeals were dismissed affirming the order of the ITAT.

The Revenue filed SLP before Supreme Court which was dismissed.