Authority For Advance Rulings (Income-Tax), New Delhi
Ajmer Vidyut Vitran Nigam Ltd., In Re
Section : 194J, 194C
Justice P.K. Balasubramanyan, Chairman
A.A.R. No. 1012 Of 2010
August 27, 2012
1. This application is by a Public Sector Company seeking an advance ruling on the question whether the wheeling and State Load Dispatch Centre (SLDC) Charges payable by the applicant, a govt. company engaged in the business of transmission of electricity, would be fees for technical services as defined in the Income-tax Act on which the applicant is obliged to withhold taxes under sections 194J or 194C of the Act. The applicant has invoked section 245N(b)(iii) of the Act to maintain its application.
2. The applicant submits that it is making payment of transmission, Wheeling and SLDC Charges to Rajasthan Rajya Vidyut Prasaran Nigam Limited (RVPN) and others under transmission service agreement or agreements. The services include maintenance of transmission lines which does not involve any technical qualified staff and application of mind, according to the applicant.
3. This Authority allowed the application under section 245R(2) of the Act to give a ruling on the following question:
Whether TDS provisions u/s 194J or 194C of the IT Act, 1961 are applicable on Transmission, Wheeling & SLDC Charges paid by the appellant company to M/S RRVPNL & others vide demand of interest u/s 201(1) and 201 (IA) of the Act, by the Ld. AO and upheld by the Ld. Commissioner (Appeals) vide the above mentioned order is justified?
Considering the jurisdiction of this Authority under the Act, its place in the scheme of things and taking note of the pendency of regular proceedings under the Act against the applicant, I reframe the question for ruling as follows:
“Whether TDS provisions under sections 194J or 194C of the Income-tax Act, 1961 are applicable on the Transmission, Wheeling & SLDC Charges paid by the applicant company to M/s RVPN & others?”
4. It is submitted by the applicant that the applicant is engaged in the business of Distribution & Supply of Electricity to customers in various Districts of the State of Rajasthan. The activity of distribution is preceded by the production of electricity and its transmission from the point of production to the point of distribution. The production is by the Generating Company, another entity and transmission to the applicant is through the Transmission System Network of the Transmission Company, RRVPNL. RVPN carries the electrical energy to the applicant at the Distribution System Network of the applicant. The applicant then distributes the energy to end customers.
5. The transmission of electricity from the generation point to the distribution point of the applicant is termed as “Wheeling”. For this Wheeling, the applicant pays transmission and wheeling charges. The transmission Company RVPN also functions as State Load Dispatch Centre. The applicant, in addition, pays to RVPN charges for it, called SLDC charges. According to the applicant the transmission and wheeling are done by RRVPNL as part of its statutory functions. The charges paid cannot be seen as anything other than statutory charges. Similarly, SLDC Charges are collected in terms of the Electricity Act, 2003 and they have also to be viewed only as statutory charges. The transmission does not involve the rendering of any technical services nor are the technically qualified staff of RRVPNL involved in transmission of electrical energy. The SLDC Charges are mere statutory dues and there is no rendering of technical services involved to the applicant justifying consideration of the payment made by the applicant therefor, as fees for technical services. In any event, the payments of transmission wheeling and SLDC Charges are in the nature of reimbursement of actual cost and hence do not generate any income in the hands of RRVPNL warranting the withholding of tax under the Act.
6. The Revenue on the other hand contends that the transmission of electrical energy from the point of generation to the point of distribution of the applicant involves rendering of technical services and consequently the applicant was bound to withhold tax in terms of section 194J of the Act. The assertion of the applicant that technically qualified personnel of RVPN are not involved in the transmission of electrical energy is unsubstantiated and unsustainable. Alternatively, it will be a payment coming within the purview of section 194C of the Act and it behoves the applicant to withhold taxes on the charges paid to RVPN. The SLDC charges would also be fees for technical services warranting the withholding of tax by the applicant. What the applicant has entered into with RVPN is a service agreement. Transmission of electrical energy is a technical service in itself as it requires constant involvement of a technical system consisting of sophisticated instruments, constant monitoring and supervision by persons with a technical ability and knowledge to operate and manage the system. The help of science and technology and technical manpower of qualified engineers and others is required for transmission and for maintaining the transmission. Therefore, the transmission and wheeling charges are found to be fees for technical services. As far as SLDC charges are concerned it is not a case of just using the system set up of RVPN. RVPN has to undertake certain activities to provide the services and to maintain the requisite quality of service. These activities require the technical support and services of technically qualified staff and therefore they are technical services within the meaning of section 194J of the Act.
7. The emphasis laid by the applicant on the statutory character of the companies and the entrustment of certain statutory obligations to them may not help in determining the nature of the payment made by the applicant. It is the duty of the transmission company to maintain the transmission system permit open access to its system for use by authorized persons under the Act and to ensure that the transmission system is maintained and the activity of transmission duly performed. That includes constant monitoring of the power being transmitted. The SLDC is responsible for optimum scheduling and dispatch of electricity within the state, to monitor the grid operation and be responsible for carrying out real time operations for grid control and dispatch of electricity within the state. The SLDC center may levy and collect fees and charges from the generating companies and the licencees engaged in transmission of electricity as specified by the state commission.
8. According to the agreement entered into by the applicant with RVPN, the applicant is entitled to utilize the RVPN transmission system for receiving the entire power it needs for distribution. RVPN is bound to deliver power at the required voltage as per the grid code. The authority under the statute could set the transmission performance standards and RVPN was bound to operate in terms of the standards set for providing efficiency, reliably coordinated and economic system of electricity supply and transmission.
9. From a survey of the duties and obligations of RVPN viz-a-viz the applicant, it is not possible to accept the argument that for maintaining proper and regular transmission of electrical energy, no rendering of technical services is involved. It is not a mere case of RVPN maintaining its system with the help of its professional and technical personnel. It is also a case of such personnel ensuring regular and consistent transmission of electrical energy at the grid voltage at the distribution point of the applicant. The fact that the contract between the parties is backed by the statutory obligation of either or both of them, cannot alter the nature of the services rendered. The argument on behalf of the applicant that in ensuring due and proper transmission of electrical energy from the generation point to the distribution point of the applicant, the services of technical personnel are not needed cannot be accepted.
10. Section 194J of the Act has only indicated that for the purpose of that section, fees for technical services would be as defined in section 9(1)(vii) of the Act. On considering that definition and what is involved in the proper transmission of the electrical energy as involved in this case. I am satisfied that the transmission involves the rendering of technical services and the consideration paid towards transmission charges partakes the character of fees for technical services.
11. The ruling of this Authority in 315 ITR 2 (sic) relied on by the applicant is in my view distinguishable. That was a case of providing services of transmission of voice through a telecom band width. The transmission of potent electrical energy at proper voltage without causing damage to the system, to nature and lives, in my view, stands on a different footing. The decision of the Madras High Court in 215 1TR 53 (sic) seems to proceed on the basis that every provider of every instrument or facility used by a person may not be regarded as providing technical services. With respect, I am not in a position to agree with the conclusion therein that a transmission of electricity merely involves providing of an instrument or facility by a person receiving consideration for it. In my view it involves the rendering of services which is technical in nature, especially to ensure a proper and uninterrupted supply of electrical energy, at the required quantity and at the required voltage.
12. 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.
13. As far as SLDC charges are concerned, it is paid to the State Load Dispatch Centre. State Load Dispatch Centers are constituted for the purpose of exercising the powers and discharging the functions under Part V of the Electricity Act. Part V of the Act deals with the Transmission of electricity. The centre is the apex body to ensure integrated operation of the power system in the state. It is responsible for optimum scheduling and dispatch of electricity within the state in accordance with the contracts entered into with licencees and generating companies. It is to monitor grid operations, to keep accounts of the quantity of electricity transmitted through the state grid and exercise supervision and control over the transmission system. It is entitled to collect a fee from the generating company and the licencee engaged in transmission. On a consideration of the duties of the centre, it is seen that its main duty is the general co-ordination of production and transmission of electricity for an even distribution. Here RVPN, which collects transmission charges, also functions as the centre and collects a fee from the applicant. Considering the nature of the obligations placed in the centre, and the role it performs, it cannot be said that it is rendering any technical services to the applicant. On the whole, I am inclined to accept the submission of the applicant that the fee paid to the centre would not qualify as fees for technical services. It appears to be more of a supervisory charge with a duty to ensure just and proper generation and distribution in the state as a whole.
14. In the light of my discussion above, I rule that the transmission and wheeling charges paid by the applicant to the transmission company, RVPN is fees for technical services and the applicant has the obligation to withhold taxes under section 194J of the Act on such charges paid. I rule that SLDC Charges are not fees for technical services and no withholding of tax in terms of section 194J or 194C of the Act is called for on the said charges.
15. Accordingly the ruling is pronounced on this 21th day of August 2011.
[Citation : 353 ITR 640]