Commissioner of Income-tax (TDS) v. Maharashtra State Electricity Distribution Co. Ltd
[Citation -2015-LL-0508]

Citation 2015-LL-0508
Appellant Name Commissioner of Income-tax (TDS)
Respondent Name Maharashtra State Electricity Distribution Co. Ltd.
Court HIGH COURT OF BOMBAY
Relevant Act Income-tax
Date of Order 08/05/2015
Judgment View Judgment
Keyword Tags deduction of tax at source • distribution of power • technical assistance • technical service • electrical power • state electricity board • hindu undivided family • computation of income • power generation • public utility • plant
Bot Summary: According to the Commissioner of Income-tax, the wheeling and transmission charges were payable for utilisation of the machinery and equipment and although it is described as rent, the wheeling and transmission charges are equivalent to the payment of rent for use of the facilities of MSETCL and PGCIL. He ruled that no regular rental or hiring agreement was necessary and the expression any agreement or arrangement referred to in the Explanation to section 194J would bring the wheeling and transmission charges within the definition of rent. According to him, the assessee's business included transmission of electricity to its customers against payment of charges and in terms of the bulk power transmission agreements between the parties, the assessee had paid the wheeling and transmission charges to MSETCL and PGCIL for transmission of electricity by using the transmission lines from the generation point to the distribution point. Mr. Mistri has relied upon the order dated August 27, 2006, passed by MERC pursuant to which the Electricity Act recognised transmission as two distinct activities that which deals with facilitation of transmission by the transmission utility, and the access to the electricity by the transmission licensee. The relevant ones are reproduced below as under: MSEDCL is a distribution licensee engaged in distribution and supply of electricity to its consumers in its area of supply within the State of Maharashtra through MSEDCL's distribution business MSETCL is a transmission licensee within the State of Maharashtra who is authorised to establish and operate transmission lines which forms Intra-State transmission system. From the aforesaid recitals, it is clear that the assessee is a distribution licensee engaged in distribution of electricity to the consumers and MSETCL is a transmission licensee of the said State transmission utility during the licence period MSEDCL is authorised to operate the transmission lines which forms the Intra-State transmission system. Clause 8 provides that tariff, billing and payment shall be governed by procedure and rules provided by the State transmission utility and the tariff issued by MERC. The charges for use of Inter State transmission shall be determined on monthly basis and State transmission utility shall raise monthly bills comprising monthly transmission charges, late payment of surcharge, outstanding amount, if any. The expression of transmission licensee is defined in schedule I of the definition of the bulk power transmission agreement and which reads as under: 'Transmission licensee' or'licensee' means the entity to whom the transmission licence is granted by MERC. A grant of such licence does not entail that the licensee MSETCL will be vested with the right to collect the wheeling and transmission charges as directed by MERC. The argument of the Revenue that the payments to MSETCL amounts to rent cannot be accepted.


JUDGMENT judgment of court was delivered by A. K. Menon J.-By this appeal, Revenue has proposed following questions to be substantial questions of law: "(a) Whether, on facts and in circumstances of case and in law, Income-tax Appellate Tribunal was justified in holding that payments of wheeling and transmission charges made by assessee to entities like Maharashtra State Electricity Transmission Co. Ltd. (MSETCL) and Power Grid Corporation of India Ltd. (PGCIL) for use of transmission lines or other infrastructure, i.e., plant, machinery and equipment could not be termed as rent under provisions of section 194-I of Act and, consequently, provisions of section 201 and section 201(1A) could not be applied? (b) Without prejudice to above, whether, on facts and in circumstances of case and in law, payment of wheeling and transmission charges to entities like MSETCL and PGCIL should have been treated as fees for technical services and tax should have been deducted at source under section 194J of Act from payments? (c) Whether, on facts and in circumstances of case and in law, Income-tax Appellate Tribunal was justified in holding that payments made for use of transmission lines could not be considered as rent under section 194-I without properly appreciating factual and legal matrix brought out by Assessing Officer in assessment order wherein, in respect of payment of wheeling and transmission charges made without deduction of tax at source made without deduction of tax at source, Assessing Officer had treated assessee in default under section 194J as well as 194-I which was modified by Commissioner of Income-tax (Appeals) as payment covered under section 194-I only and same was not appealed further by Revenue as there was no loss of revenue as rates of TDS for sections 194-I and 194J were same? (d) Whether, on facts and in circumstances of case and in law, Income-tax Appellate Tribunal was justified in mechanically following earlier order of Income-tax Appellate Tribunal in case of Chhattisgarh State Electricity Board without appreciating that law in this new area was evolving as is evidence from recent decision of Authority for Advance Rulings dated August 27, 2012, in case of Ajmer Vidyut Vitran Nigam Ltd., In re as reported in [2013] 353 ITR 640 (AAR); [2012] 24 Taxmann.com 300 where it has been held that wheeling and transmission charges are fees for technical services?" In our view, questions are of some importance. We have, therefore, proceeded to admit this appeal. With consent of both sides we have taken it up and heard it finally. relevant facts are as under: assessee is company established by Government of Maharashtra incorporated on May 31, 2005, pursuant to provisions of sections 131 of Electricity Act of 2003. It came into being pursuant to reorganisation of Maharashtra State Electricity Board on or about January 24, 2005, when Government of Maharashtra notified four companies which are as follows: (a) MSEB Holding Co. Ltd.; (b) Maharashtra State Electricity Transmission Co. Ltd. (MSETCL); (c) Maharashtra Power Generation Co. (MAHAGENCO); (d) Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL). assessee purchases power from various sources and distributes and sells to its consumers. assessee has entered into agreement for purpose of transmission of power titled bulk power transmission agreement (BPTA). Separate bulk power transmission agreements have been entered into by assessee with MSETCL and Power Grid Corporation of India Ltd. (PGCIL) for transmission of electricity and by using their transmission system from generation point to distribution point across different regions. It transpires that on December 18, 2008, survey was conducted by Revenue authorities at assessee's premises to verify compliance with provisions in Income-tax Act, 1961 ("the Act"), relating to tax deduction at source (TDS). In course of survey, it was noticed that assessee had made payments to MSETCL and PGCIL under bulk power transmission agreements without deducting tax at source. Accordingly, Assessing Officer ("the AO") had found that payment was in nature of fees for technical services. assessee had contended that in present case, there is no question of payment of wheeling charges and/or transmission charges (hereinafter referred to "wheeling and transmission charges" being treated as technical service since there was no human service element involved. only activities are of transmission of electricity produced to different locations. Assessing Officer rejected assessee's contention that wheeling and transmission charges includes technical manpower services and it actually involves intricate system of checking, managing of transmission losses, metering, management of interconnection points, managements of delivery voltages as per grid code connection conditions, management of protection systems including maintenance of metering system regarding non- involvement of human part. Assessing Officer found that tax was to be deducted on all payments under section 194J of Act at rate of 11.33 per cent. Furthermore and without prejudice to these considerations though assessee was liable to deduct tax under section 194J of Act, Assessing Officer was of view that TDS on payment of wheeling and transmission charges was required to be deducted under section 194J of Act. Admittedly, he did not elaborate rate of deduction of tax under section 194-I or section 194J of Act. According to Revenue, total amount of wheeling and transmission charges paid during year up to date of survey on December 18, 2008, was Rs. 1554.10 crores and tax ought to have been deducted amounting to Rs. 176.08 crores. assessee was treated as assessee in default, pursuant to section 201(1) of Act. It was contended that assessee was liable to pay interest under section 201(1A) quantified at Rs. 8.2383 crores. Being aggrieved by assessment order assessee filed appeal before Commissioner of Income-tax (Appeals) who dismissed appeal of assessee. Commissioner of Income-tax (Appeals) preferred alternate interpretation to that of Assessing Officer, namely, wheeling and transmission charges constituted "rent" and thereby inviting application of section 194-I of Act. According to Commissioner of Income-tax (Appeals), wheeling and transmission charges were payable for utilisation of machinery and equipment and although it is described as rent, wheeling and transmission charges are equivalent to payment of rent for use of facilities of MSETCL and PGCIL. He ruled that no regular rental or hiring agreement was necessary and expression "any agreement or arrangement" referred to in Explanation to section 194J would bring wheeling and transmission charges within definition of rent. According to Commissioner of Income-tax (Appeals) bulk power transmission agreement was agreement or arrangement under which rent was payable. bulk power transmission agreements were certainly used to specified effect and assessee derived right to utilise assets of MSETCL and PGCIL. Commissioner of Income-tax (Appeals) thus upheld order of Assessing Officer. Being aggrieved, assessee filed appeal before Income-tax Appellate Tribunal. Tribunal allowed appeal of assessee by relying on Tribunal, Mumbai "H" Bench order dated November 30, 2011, in case of Chhattisgarh State Electricity Board being I. T. A. Nos. 20 to 23/BLPR/2010 and order dated November 17, 2011 , in case of GRIDCO Ltd. in I. T. A. No. 404/Ctk/2011 passed by Cuttack Bench. Tribunal observed that both parties, namely, Revenue and assessee had agreed that decision in case of Chhattisgarh State Electricity Board as also decision of Cuttack Bench in GRIDCO Ltd.'s case covers issue since facts were similar. Tribunal extracted portions of its order in case of Chhattisgarh State Electricity Board. It appears that CSEB along with other bulk beneficiaries, M. P. State Electricity Board (MPSEB) and Gujarat State Electricity Board (GSEB), Maharashtra State Electricity Board (MSEB) collectively "the Boards" entered into bulk transmission agreement/s in which it was agreed, inter alia, that, PGCIL is desirous of transmitting energy from Central sector power station(s) to bulk power beneficiaries (the Boards) and that said Boards are desirous of receiving same through power grid transmission system (PGTS) on mutually agreed terms and conditions. In this respect, Boards are to pay to PGCIL monthly charges computed in manner set out in formula. It provided for fixed charge which was divided between beneficiaries in ratio of power evacuated by beneficiary to total sale of power from that delivery point. It is stated that transmission lines are in physical control of PGCIL and these are maintained and operated by PGCIL and so far as assessee is concerned, its interest in transmission lines is restricted to fact that electrical power purchased by assessee, along with electric power purchased by other bulk power beneficiaries were simultaneously transmitted through these transmission lines. Tribunal set out modus operandi which reveals that power available at delivery points, collectively for all Boards is loaded for transmission on these transmission lines or power grid and each Board is allowed to utilise power to extent allocated to it. Tribunal found that each of purchasers' entitlements could not be physically identified and that particular beneficiary is only allowed to use that unidentified portion of power. It is not transmission of power from one point to another but availability of power on entire power grid or transmission lines that enables beneficiary to utilise power to extent of allocation. Tribunal came to conclusion that utilisation of transmission lines by CSEB cannot be considered to be rent. Submissions on behalf of Revenue On behalf of Revenue, Mr. Chhotaray submitted that important and substantial questions of law arise from order of Tribunal. On one hand, it is submitted that payment of wheeling and transmission charges amounts to rent and tax ought to have been deducted at source under section 194-I of Act. Alternatively, Mr. Chhotaray submits that payment of wheeling and transmission charges should have been treated as fees for technical services and tax should have been deducted under section 194J of Act. Sections 194-I and 194J read as under: "194-I. Any person, not being individual or Hindu undivided family, who is responsible for paying to resident any income by way of rent, shall, at time of credit of such income to account of payee or at time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at rate of- (a) two per cent. for use of any machinery or plant or equipment; and (b) ten per cent. for use of any land or building (including factory building) or land appurtenant to building (including factory building) or furniture or fittings: Provided that no deduction shall be made under this section where amount of such income or, as case may be, aggregate of amounts of such income credited or paid or likely to be credited or paid during financial year by aforesaid person to account of, or to, payee, does not exceed one hundred and eighty thousand rupees: Provided further that individual or Hindu undivided family, whose total sales, gross receipts or turnover from business or profession carried on by him exceed monetary limits specified under clause (a) or clause (b) of section 44AB during financial year immediately preceding financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section. Explanation.-For purposes of this section,- (i)'rent' means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for use of (either separately or together) any,(a) land; or (b) building (including factory building); or (c) land appurtenant to building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings; whether or not any or all of above are owned by payee; (ii) where any income is credited to any account, whether called 'suspense account' or by any other name, in books of account of person liable to pay such income, such crediting shall be deemed to be credit of such income to account of payee and provisions of this section shall apply accordingly. 194J. (1) Any person, not being individual or Hindu undivided family, who is responsible for paying to resident any sum by way of- (a) fees for professional services, or (b) fees for technical services, or (ba) any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to director of company; or (c) royalty, or (d) any sum referred to in clause (va) of section 28, shall, at time of credit of such sum to account of payee or at time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct amount equal to ten per cent. of such sum as income-tax on income comprised therein: Provided that no deduction shall be made under this section- (A) from any sums as aforesaid credited or paid before 1st day of July, 1995; or (B) where amount of such sum or, as case may be, aggregate of amounts of such sums credited or paid or likely to be credited or paid during financial year by aforesaid person to account of, or to, payee, does not exceed- (i) thirty thousand rupees, in case of fees for professional services referred to in clause (a), or (ii) thirty thousand rupees, in case of fees for technical services referred to in clause (b), or (iii) thirty thousand rupees, in case of royalty referred to in clause (c), or (iv) thirty thousand rupees, in case of sum referred to in clause (d): Provided further that individual or Hindu undivided family, whose total sales, gross receipts or turnover from business or profession carried on by him exceed monetary limits specified under clause (a) or clause (b) of section 44AB during financial year immediately preceding financial year in which such sum by way of fees for professional services or technical services is credited or paid, shall be liable to deduct income-tax under this section: Provided also that no individual or Hindu undivided family referred to in second proviso shall be liable to deduct income-tax on sum by way of fees for professional services in case such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. Explanation.-For purposes of this section,- (a)'professional services' means services rendered by person in course of carrying on legal, medical, engineering or architectural profession or profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by Board for purposes of section 44AA or of this section; (b)'fees for technical services' shall have same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (ba)'royalty' shall have same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (c) where any sum referred to in sub-section (1) is credited to any account, whether called'suspense account' or by any other name, in books of account of person liable to pay such sum, such crediting shall be deemed to be credit of such sum to account of payee and provisions of this section shall apply accordingly." According to Mr. Chhotaray, whether wheeling and transmission charges are treated as rent or fees for technical service, tax should have been deducted at source under section 194-I or section 194J, as case may be. He submitted that since rate of tax under section 194-I and 194J is same, choice was only which section to attribute deductions to. He defended interpretation of Assessing Officer and Commissioner of Income-tax (Appeals). While canvassing Revenue's case, Mr. Chhotaray submitted that tariff is paid by assessee under bulk power transmission agreements as determined by Maharashtra Electricity Regulatory Commission (MERC). He submitted that tariff was fixed and it should be treated as "rent". Making reference to section 194-I, Mr. Chhotaray submitted that Explanation to section 194-I clarifies that "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for use of land, building, plant, machinery, equipment, etc., either separately or together. Thus, according to Mr. Chhotaray, MSETCL and PGCIL, transmission system fits description of equipment and machinery and payment being made for said use of system amounted to rent. According to him, assessee's business included transmission of electricity to its customers against payment of charges and in terms of bulk power transmission agreements between parties, assessee had paid wheeling and transmission charges to MSETCL and PGCIL for transmission of electricity by using transmission lines from generation point to distribution point. He submitted that assessee has paid advance tax in anticipation of income. Although total sum of Rs. 1,554.10 crores was paid towards transmission charges up to December, 2008, and relevant assessment years it had paid Rs. 1,961.20 crores, TDS in respect of said amounts to Rs. 176.08 crores which assessee had failed to deduct and pay. Accordingly, assessee is visited with interest liability under section 201(1A) to extent of Rs. 8.238 crores whereby totalling to Rs. 181.2983 crores. He faulted reasoning of Tribunal and submitted that since assessee was already paying advance tax, tax should have been deducted at source while making payment of wheeling and transmission charges and not having deducted tax, assessee is liable to said amount along with interest. In alternative, Mr. Chhotaray submitted that facility for transmission of electricity through transmission lines amounted to payment of fees for technical services. With reference to definition to section 9(1)(vii) of Act, he contended that any income by way of fees for technical service was liable to be taxed and tax was to be deducted at source after April 1, 1996. Explanation 2 to section 9(1)(vii) provides that fees for technical services means any consideration (including any lump sum consideration) for rendering of any managerial, technical or consultancy services (including provision of services of technical or other personnel) but does not include consideration for any construction, assembly mining or like project undertaken by recipient or consideration which would be income of recipient chargeable under head "Salaries". Mr. Chhotaray further submitted that Electricity Act, 2003, in Statement of Objects and Reasons sets out history of electricity supply industry in India. He took us through basic structure of electricity industry and highlighted fact that Electricity Act, 2003, was intended to consolidate laws relating to generation, transmission, distributing and trading and use of electricity, apart from generally taking measures for development of industry including rationalisation of tariffs, thereby permitting competition and promoting interests of consumers. Mr. Chhotaray then submitted that by virtue of formation of different entities, business of distribution of electricity is now looked after by assessee which is subjected to income-tax and, therefore, deduction of tax was mandatory. It is not as if assessee were exempted from ambit of taxation statutes and as such any payment made for use of transmission lines and transmission system to owners of system and by whatever name called, it will amount to payment of rent or fees for technical service. He then relied upon definitions of "open access" and "wheeling" being transactions under section 2(47) and section 2(76) of said Act and few other provisions of Act as discussed hereafter. He also submitted that under Part II of Electricity Act, national electricity policy was laid down and further submitted that State transmission utility (STU) was obliged to provide non-discriminatory open access through these transmission systems for use (i) by any transmission licensee such as assessee on payment of transmission charges, or (ii) any consumer or as and when open access is provided by said MERC on payment of charges. According to Mr. Chhotaray, principle underlying wheeling and transmission charges was "cost plus" formula and whatever MERC decides will form basis for determining tariff and upon payment of which assessee is bound to deduct tax at source. Mr. Chhotaray then relied upon decision of Delhi High Court in case of United Airlines v. CIT reported in [2006] 287 ITR 281 (Delhi), wherein Division Bench of Delhi High Court had occasion to consider whether landing fees and parking fees for aircraft amounts to rent. In case of United Airlines, Delhi High Court was called upon to consider whether use of air field for landing of aircraft and thereafter parking of aircraft which would give rise to landing and parking fees could be defined as "rent". Delhi High Court was of opinion that definition of word "rent" in Explanation (i) to section 194-I is very clear and plain meaning of word "rent" shows that landing or parking of aircraft amounts to user of land of airport hence landing fees and parking fees were classified as "rent". Mr. Chhotaray then relied upon decision of Supreme Court in case of CIT v. Podar Cement Pvt. Ltd. reported in [1997] 226 ITR 625 (SC) which deals with interpretation of taxing statutes. He submitted that in construing taxing statute, construction beneficial to assessee could be taken only in case of ambiguity. He submitted that only if two interpretations are possible one favourable to assessee may be preferred but in present case, according to Mr. Chhotaray, only one interpretation was possible, viz., wheeling and transmission charges was "rent". He then referred to decision of Supreme Court in case of S. P. Gupta v. Union of India reported in [1982] AIR 1982 SC 149 and submitted that interpretation of statutory provisions must keep pace with changing concepts and values to extent its language permits and does not prohibit. Accordingly, he submitted term "rent" must be interpreted so as to include wheeling and transmission charges paid by assessee to MSEDCL and PGCIL. He quoted from said decision and submitted that language of statutory provision is not static vehicle of ideas and concepts and as ideas and concepts change court is called upon to perform creative function and inject flesh and blood into dry skeleton provided by Legislature by process of dynamic interpretation and invest it with meaning which would be harmonious law. Relying upon this observation Mr. Chhotaray submitted that wheeling and transmission charges must be equated to rent. He then relied upon decision of Supreme Court in CIT v. Bharti He then relied upon decision of Supreme Court in CIT v. Bharti Cellular Ltd. and Hutchison Essar Telecom Ltd. reported in [2011] 330 ITR 239 (SC) wherein it was held that as far as technological matters were concerned, it would justify remanding matters for determination with technical assistance rather then merely examining contract. This case is relied upon in support of his alternate submissions that if wheeling and transmission charges are not treated as "rent" it would nevertheless amount to "fees for technical services". Mr. Chhotaray then relied upon advance ruling dated August 27, 2012, in case of Ajmer Vidyut Vitran Nigam Ltd., In re [2013] 353 ITR 640 (AAR) and sought to submit that by advance ruling chairman had determined that transmission and surcharge were technical charges and, therefore, amenable to provisions of section 194J. Be that as it may, we are not convinced that advance ruling should be cited as precedent. Mr. Chhotaray continued in his attempt to persuade us to hold that tax was deductible at source, whether wheeling and transmission charges were found to be rent or fees for technical services. assessee's submissions On other hand, Mr. Mistri, learned senior counsel appearing on behalf of respondent submitted at outset that Revenue's appeal does not raise any substantial question of law. According to Mr. Mistri, questions posed by Revenue could not have arisen from order of Tribunal. He submitted that before Tribunal, Revenue had proceeded only on basis that tax was deductible at source under section 194-I and there was no mention of section 194K or section 194J being applicable. He submitted that in case of Chhattisgarh State Electricity Board no appeal had been filed by Revenue and Revenue accepted decision of Tribunal which was followed by Tribunal in case of present assessee as well. He further submitted that even expanded definition of expression "rent" cannot destroy original meaning of word. Even assuming wheeling and transmission charges are to be considered as rent, charge or levy must ex facie bear characteristics of rent as normally understood. He submitted that Revenue's contention that electricity distribution involved lending of machinery and equipment is completely unsustainable. He relied upon principle of contextual interpretation and requested us to read word "rent" in context of Electricity Act. He differentiated decision in United Airlines where assessee's argument was that it has used land as runway. assessee in that case had used runway to land its aircraft and utilise airport services and to park aircraft in course of commercial flying operations. He submitted that specified services had been utilised in that case whereas in present case, there is no specific determinable usage of any equipment. Merely drawing power and carrying power through transmission lines and transmission system would not amount to renting up equipment or its charge or rent. He submitted that Maharashtra State Electricity Board which was erstwhile body which controlled generation and distribution of power had been restructured into four entities. erstwhile board, after enactment of Electricity Act, 2003, had undergone comprehensive market reforms, namely, MSEB holding company, Maharashtra State Power Generation Co. Ltd., Maharashtra State Electricity Transmission Co. Ltd. (MSETCL), Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL) which is present assessee. All of these commenced operations on June 6, 2005. It was further notified that with effect from February 17, 2005, MSETCL would operate as State transmission utility for Maharashtra. Mr. Mistri has relied upon order dated August 27, 2006, passed by MERC pursuant to which Electricity Act recognised transmission as two distinct activities that which deals with (a) facilitation of transmission by transmission utility, and (b) access to electricity by transmission licensee. order specifies that transmission was licenced activity which is regulated as per licence conditions. expression "transmit" and "wheeling" were distinct activities defined in Electricity Act under section 2(74) and section 2(76). It envisages that transmission charges would be determined in keeping in mind inter se State transmission systems so as to ensure adequacy of revenue requirements of transmission licensee. Mr. Mistri then took us to earlier decision of Tribunal in case of Chhattisgarh State Electricity Board. In support of his submission he relied upon decision of Division Bench of this court in Income Tax Appeal No. 269 of 2013 (CIT v. State Bank of India [2015] 375 ITR 20 (Bom)) wherein Division Bench observed that if Revenue omits to challenge another decision rendered on same issue by filing appeal, it must be construed that Revenue had accepted order by not filing appeal and, therefore, Revenue should not challenge subsequent order on same issue. That in case appeal is preferred from subsequent order (despite earlier order not being appealed against), memorandum of appeal must indicate reasons as to why appeal is being preferred in later case. Relying upon said order of this court Mr. Mistri stated that present appeal is not maintainable. We are, however, of view that it would not be appropriate to shut out Revenue's case at threshold on this preliminary ground especially in view of fact that issue raised has wide ranging effect although it would largely be relevant for purpose of present assessee. We have, therefore, proceeded to hear Mr. Mistri on merits as well. Mr. Mistri relied upon decision of Supreme Court in CIT v. Narendra Joshi [2002] 254 ITR 606 (SC) in which Supreme Court observed that Revenue not having challenged correctness of two decisions of Gujarat High Court must be bound by principle laid down therein. He then relied upon decision of Berger Paints India Ltd. v. CIT [2004] 266 ITR 99 (SC) and submitted that once contention of assessee has been accepted by Department by not challenging correctness of decision, it is not open for Department to challenge decision on similar issue in case of another assessee without "just cause". In our view, although facts in that case pertain to excise and customs duty, ratio will be applicable to present case as well. In yet another case relied upon by Mr. Mistri that of CIT v. N. S. Getti Chettiar [1971] 82 ITR 599 (SC) Supreme Court considered meaning of word "gift" and whether gift amounted to transfer of property. In that case, facts pertain to portion of immovable property which was subject matter of registered deed. question was, therefore, whether by allotting greater share to other members of co-parcener and what they were entitled to assessee could be held to have made "gift". hon'ble Supreme Court held that partition did not affect any transfer as generally understood in law and did not, therefore, fall within definition of "gift" under Income-tax Act. Thus, test which would apply, according to Mr. Mistri, is whether wheeling and transmission charges would amount to rent as generally understood in law. He submitted that transaction in question must takes its colour from main clause that is to say wheeling and transmission charges for transmission of electricity through State transmission utility (STU) should take colour of "rent". We are inclined to agree with submission of Mr. Mistri for more than one reason as hereafter set out. Mr. Mistri then referred to decision of Supreme Court in case of K. Govindan and Sons v. CIT reported in [2001] 247 ITR 192 (SC) where Supreme Court was concerned with meaning of words "regular assessment". court was of view that expression "regular assessment" would be taken to mean first or initial assessment under section 147. Thus, meaning has to be contextually derived. In case of Vania Silk Mills P. Ltd. v. CIT [1991] 191 ITR 647 (SC) hon'ble Supreme Court construed expression "capital gains" and expression "transfer" under section 2(47). In that case, definition of "transfer" under section 2(47) was found to be exclusive definition and, therefore, extended to events and transactions which would otherwise not amount to transfer. It found that if Legislature intended to extend definition to any "extinguishment of any rights" it would not have included obvious instances of transfer, sale, exchange, etc. It was held that expression "extinguishment of rights" therein will have to be confined to rights on account of transfer and cannot be extended to mean extinguishment of rights without such transfer. He further submitted that in CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd. [1992] 196 ITR 149 (SC) Supreme Court had observed that it is settled law that expressions used in taxing statute would ordinarily be understood in sense in which it is harmonious to object of statute. In order to adopt legislative intent, contextual meaning has to be ascertained and given effect to and in present case if expression "rent" was to be considered, wheeling and transmission charges in course of carriage of electricity could not be equated to rent. Mr. Mistri also took us through judgment of hon'ble Supreme Court in case of Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. reported in [1987] 61 Comp Cas 663 (SC); [1987] 1 SCC 424 in which court was considering contextual construction and 424 in which court was considering contextual construction and considering what amounted to "prize chits". In that case, court observed that if Legislature intended to enlarge meaning of words and phrases so as to take in ordinary, popular and natural sense of words and included meaning by using words it would do so by using word "includes". interpretation, therefore, must depend on text and context as famously observed in said decision as follows: "we may well say if text is texture, context is what gives colour. Neither can be ignored. Both are important". That interpretation is best which makes textual interpretation match contextual." Supreme Court went on to observe that statute is best interpreted when we know what is intended. Mr. Mistri then relied upon decision of CIT (TDS) v. Shree Mahalaxmi Transport Co. reported in [2011] 339 ITR 484 (Guj) wherein Gujarat High Court held that transactions in question being in nature of contracts for shifting of goods from one place to another would be covered as works contracts, thereby attracting provisions of section 194C of Act. Similarly, in CIT (TDS) v. Swayam Shipping Services Pvt. Ltd. [2011] 339 ITR 647 (Guj), wherein Gujarat High Court held that contract of transportation of goods belonging to assessee through other vehicles was not payment of rent. Yet again in case of CIT v. Singapore Airlines Ltd. reported in [2013] 358 ITR 237 (Mad) Madras High Court held that payment for use of land under lease or agreement with reference to use of land for landing and parking aircraft was not rent. This decision runs contrary to decision of Delhi High Court in case of United Airlines (supra) which held that in case of United Airlines definition of "rent" covered landing and parking fees. court had not taken into consideration facts projected in Singapore Airlines' case in which there is not only use of land but also services rendered by airport authority in providing facility for landing including navigational facilities and payment is measured with reference to various parameters which were given by International Airport Authority in various circulars. It was further observed that hon'ble Delhi High Court's decision in United Airlines had not considered any of these aspects while dealing with issue of "rent" to whether charges would fit into definition of "rent". Delhi High Court merely interpreted provisions of law to come to conclusion that when wheels of aircraft coming into airport touches surface of air field, there is immediate use of land. Madras High Court expressed disagreement with decision of Delhi High Court and held that in case of United Airlines Department neither produced any material before court on nature of service rendered for any arrangement or agreement in nature of lease deed or licence deed for use of land so as to characteristic of payments to be called as rent. According to Madras High Court, Explanation to section 194-I contemplated systematic use of land specified, for consideration under agreement which carries characteristic of lease or tenancy. It was held that mere use of land for landing and payment charged, therefore, is not use of land but for various services including navigational assistance and this would not automatically bring transaction and charges within meaning of either lease or sub-lease of tenancy attracting definition of "rent". Thus, Madras High Court rejected case of Revenue and confirmed order of Tribunal. Adverting to this decision Mr. Mistri submitted that in present case as well there was no justification in questioning decision of Tribunal. Even otherwise he submitted that alternate case under section 194J was never pleaded. It was never case of Revenue that payment of transmission charges amounted to fees for technical services. Mr. Mistri submitted that perusal of order of Tribunal would reveal that no such case of payment of fees for technical services was ever made out. This is purely afterthought. Mr. Mistri also relied upon Circular No. 1 of 2008, dated January 10, 2008 (see [2008] 297 ITR (St.) 83), issued by Central Board of Direct Taxes wherein Department clarified that in respect of cold storage facilities, section 194C would be applicable and provisions of section 194-I are not applicable to payment of charges to customers on account of cooling charges to cold storage owners. clarification came to be issued with reference to applicability of section 194-I to cooling charges paid by various customers to cold storage owners. Mr. Mistri submitted that Revenue erroneously had taken view that payment of wheeling and transmission charges by assessee amounted to "rent". Likewise, he assailed charges by assessee amounted to "rent". Likewise, he assailed Revenue's alternate contention that payment of transmission charges amounted to fees for technical services. We have heard both learned counsel extensively. Mr. Chhotaray took us through genesis of Electricity Act in attempt to establish Revenue's case that transmission charges that were paid were in fact charge for using transmission lines which constitute State transmission utility. He has equated same to machinery and equipment. We are unable to agree with Mr. Chhotaray. In our view, payment of wheeling and transmission charges neither amounts to rent nor fees for technical services. It is necessary and appropriate that we consider definitions and provisions of bulk power transmission agreement. We have before us copy of bulk power transmission agreement dated January 12, 2009, between assessee, MSEDCL and MSETCL, copy of which Mr. Mistri had provided us and at our request to Mr. Chhotaray as well. This is admitted document. Both sides are agreed on its existence and contents. recitals deal with distribution and supply of electricity to its consumers are quite revealing. relevant ones are reproduced below as under: "(a) MSEDCL is distribution licensee engaged in distribution and supply of electricity to its consumers in its area of supply within State of Maharashtra through MSEDCL's distribution business (hereafter referred to as'MSEDCL') (b) MSETCL is transmission licensee (and State transmission utility) within State of Maharashtra who is authorised to establish and operate transmission lines which forms Intra-State transmission system (InSTS of Maharashtra). (c) MSEDCL agrees to use transmission capacity allotted to it as per terms and conditions of this agreement and to pay charge for same in accordance with terms of this agreement, and." From aforesaid recitals, it is clear that assessee is distribution licensee engaged in distribution of electricity to consumers and MSETCL is transmission licensee of said State transmission utility during licence period MSEDCL is authorised to operate transmission lines which forms Intra-State transmission system (ISTU). MSEDCL has allotted to MSETCL certain transmission capacity. MSEDCL exploits this transmission capacity allotted to it and distributes power in its area of supply, no doubt for consideration. As far as relationship inter se MSEDCL and MSETCL is concerned, this is principal to principal arrangement. agreement refers to terms and conditions for distribution of electricity. amount of consideration payable by transmission licensee, namely, MSETCL is based on tariff that is determined by MERC from time to time by issuing tariff orders on terms and conditions of Tariff Regulations, 2003. MSETCL gets its rights as transmission licensee by means of what is known as "transmission licence" which is authority granted to it by MERC. It is thus seen that MSETCL is merely licensee of State transmission utility/transmission system. However, by virtue of clause (iv) of bulk power transmission agreement it is MSETCL's obligation to maintain transmission system in accordance with section 40 of Electricity Act, 2003. assessee-MSEDCL distribution licence receives operating procedures from MSETCL with respect to dealing with operation interfaces. This includes round clock communication between two for handling defaults, disputes, safety rules and procedure, seeking permits for work of planning even partial or total shut down, monitoring of transmission and general maintenance. MSETCL as transmission licensee is to provide for superintendence for maintenance and provide skilled personnel for respective tasks. Clause 8 provides that tariff, billing and payment shall be governed by procedure and rules provided by State transmission utility and tariff issued by MERC. charges for use of Inter State transmission shall be determined on monthly basis and State transmission utility shall raise monthly bills comprising monthly transmission charges, late payment of surcharge, outstanding amount, if any. It is, therefore, seen that wheeling and transmission charges payable is not fixed amount describable to rent for use of any system. transmission charge will fluctuate depending on MERC transmission licence conditions and transmission license issued to MSEDCL and supply and demand parameters. payment by assessee-MSEDCL cannot be termed as rent for simple reason that payment is not being made only to utilise any identified equipment or machinery or plant let alone land, building, furniture or equipment. Mr. Chhotaray's contention that wheeling and transmission charges should be construed as rent notwithstanding its nomenclature has no merit. He had contended that whatever nomenclature, nature of charge will amount to rent. This, in our view, is incorrect since charge in present case is not only for accessing transmission lines of State transmission utility but it is to access up to 8,672 mega watts during financial year 2008-09 in case of this agreement (see clause 4(iv) of bulk power transmission agreement dated January 12, 2009), subject to availability of elements of transmission system. charge payable by MSEDCL is determined by MERC and not MSETCL. Ownership is nonissue considering Explanation to section 194-I MSEDCL merely collects amount in its capacity as licensee of system based on licence granted to it by MERC. Furthermore, we find that capacity that assessee is entitled to utilise for given financial year is limited to what would be accessed at different times to different extents. utilisation of State transmission utility was also subject to availability of electricity at interconnection points as provided in agreement. It is pertinent to mention that under clause 8.2.2 tariff transmission charges and other related charges are to be mentioned as per various orders of MERC and to be paid to said State transmission utility and State load despatch centre (SLDC). Thus, payments are not made to any one entity. payment being made to any one or both of entities will not be payment of rent. It is not possible to construe same as rent even adopting to changing times and technology as suggested by Mr. Chhotaray. Moreover, as stated above MSETCL is merely transmission licensee. expression of transmission licensee is defined in schedule I of definition of bulk power transmission agreement and which reads as under: "'Transmission licensee' or'licensee' means entity to whom transmission licence is granted by MERC. " grant of such licence does not, therefore, entail that licensee MSETCL will be vested with right to collect wheeling and transmission charges as directed by MERC. argument of Revenue that payments to MSETCL amounts to rent cannot be accepted. According to Black's Law Dictionary, "rent" is defined as consideration paid for periodical use or occupancy of property. Various types of rent are contemplated such as ceiling rent, crop rent, ground rent, etc. Even taking widest possible definition of rent, in our view wheeling and transmission charges cannot be considered as rent. It is well settled that court may in its discretion construe legislative provisions so as giving effect to intended use and applying test of contextual interpretation. We are of view that expression "rent" used in section 194-I does not apply to wheeling and transmission charges or any other part thereof. In our view, expression "rent" would also entail element of possession. In each of instances contemplated by Explanation to section 194-I, we see in them element of possession, be it land, building (including factory building), land appertaining to building, plant, equipment, furniture or fittings. person using it has some degree of possessory control, at least momentarily, although it cannot entrust user title to subject matter of charge. Even mere right to "use" is vested with element of possessory control over subject matter. In present case, wheeling and transmission charges are bereft of such possessory control and, hence, in our view, completely outside purview of Explanation to section 194-I. While holding as above we are conscious of decision of Delhi High Court judgment in case of United Airlines (supra) which has been relied upon by Revenue. However, we have also to bear in mind decision of Madras High Court in case of CIT v. Singapore Airlines (supra) and while respectfully differing from view of Delhi High Court in case of United Airlines (supra), we find ourselves in agreement with view taken by Madras High Court inasmuch as, decision of United Airlines (supra) did not take into account navigational services, etc. which go along with landing of aircraft and payment of charges for parking aircraft thereof. Right from moment flight is permitted to land at particular airport, process is set into motion, to guide aircraft to runaway, for successful landing and after aircraft had come to halt it is led to parking space allotted to it once again with navigational help. It is only thereafter that aircraft is said to be parked till it resumes it flight. As example, Mr. Mistri narrated use of toll road (instead of highway). If use of toll road could be characterised as use of land, it would be extreme view if we held that toll to be paid for use of toll road would be subject to deduction of tax at source only because it could also be characterised as rent for use of land. Such extreme view will not be justified under any circumstances, particularly when we consider context in Peerless case (supra) and those line of cases. Thus, quite apart from fact that Revenue has not challenged decision of Tribunal in previous years, we believe that issue involved deserved consideration on merits which is why we have proceeded to devote good deal of attention to these aspects of matter. hon'ble Supreme Court has also shown us some direction in this behalf. While interpreting expression "rent", applicability of section 194-I must be gathered from whether wheeling and transmission charges draw its colour from basic meaning of expression "rent". It is seen from decision of Supreme Court in Singapore Airlines (supra) that meaning of "rent" must be understood in context in which they are used. In present set of facts, it is not possible to equate wheeling and transmission charges payable MSETCL with rent. On facts it is seen that MERC order dated June 27, 2006, deals with MSEDCL's contentions, apropos methodology proposed by MERC. transmission charges contemplated by MERC includes cross- subsidisation of transmission charges across licensees when found to be uneconomical and uncompetitive. It is further observed that MERC has considered pooling of transmission charges during bulk power transmission from one licensee to another licensee. It is after considering all these aspects that composite charge method for any such transmission was adopted. Thus, it is seen that methodology for determining of transmission tariff could not be determined in mechanical manner as if charge was only for use of State transmission utility. MERC while passing this order on transmission charges had received various objections some, inter alia, supporting composite tariff, some against. However, we need not divert our attention to details of pricing formula finally adopted. There is nothing on record to support Revenue's contention that wheeling and transmission charges assumes character of rent. We are in agreement with Mr. Mistri that expression "rent" must be conceptually understood. concept of rent under Income-tax Act does not encompass, in our view, wheeling and transmission charges payable by assessee especially when assessee is discharging public function. expression of "transmission charges and/or "wheeling charges" entails distribution of electricity in area of corporation and they cannot be subjected to provisions of section 194-I of Act. We, however, clarify that this is restricted to case of assessee in view of public function to be undertaken by it, as result of restructuring of Maharashtra State Electricity Board. Now, having dealt with Revenue's arguments on applicability of section 194-I, we now consider Revenue's contention that if wheeling and transmission charges are not rent, it would amount to payment of fees for technical services. Revenue has contended that MSETCL is deemed to have provided technical services to MSEDCL in consideration of which wheeling and transmission charges that are being paid. This contention is also unsustainable for following reasons. MSEDCL is licensee holding transmission licence which entitles it to non-discriminatory use of transmission lines. It uses State transmission utility as and when required to draw electricity from said transmission utility. MSEDCL will also access electricity by means of transmission lines as contemplated by expression "transmit" is defined in section 2(74) of Electricity Act. MSEDCL as transmission licence may also engage any "wheeling" operations as defined in section 2(76), meaning thereby that distribution system and facilities of 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 of Act. Section 62 provides for determination of tariff of under section 62 of Act. Section 62 provides for determination of tariff of MERC for transmission of electricity and wheeling of electricity. Thus, "wheeling" contemplated some form of permissive use of State transmission utility by third party for consideration determined by MERC. This consideration termed "wheeling charge" would neither be "rent" nor "fees for technical services". It is pertinent to mention here that section 62 of Act provides that Commission may, in case of supply of electricity fix maximum ceiling of tariff, in attempt to promote competition amongst distribution licensees. Thus, very concept of charge for transmission of electricity and wheeling of electricity, as case may be, is subject to tariff that will be determined by MERC in public interest. Hence, it is incomprehensible that tariff passes test as fees for technical services. Once again applying principles of conceptual interpretation to tariff to be fixed for wheeling and transmission charges of electricity, it cannot be interpreted to mean fees for providing technical services. Under open access system, it is MSEDCL which will be availing of said transmission facility. No "service" is being provided by MSETCL or State transmission utility. No doubt, MSEDCL as transmission licensee is required to provide superintendence, maintenance and repairs to system. However, no such service is rendered by MSETCL to MSEDCL. MSETCL is obliged to maintain system by value of operation of law under Electricity Act. MSEDCL accesses State transmission utility and distributes electricity passing through State transmission utility. Our views stand fortified by very fact that Revenue itself is confused and unsure as to nature of charge. focus of Revenue is only requirement of deduction of tax whether under section 194-I or section 194J. This approach is erroneous. Revenue contends that wheeling and transmission charges could be rent or fees for technical services but, in our view it is neither. Wheeling charges represent charge for permitting use of State transmission utility by persons other than distribution licence. transmission charges simply constitute fees for availing of said transmission utility to be used by open access concept for distribution of electricity to licensees and consumers. In view of above discussion, we are of view that wheeling and transmission charges are neither rent nor fees for technical services. Keeping said interpretation into effect, we find that while interpreting expression "rent" in present scenario, we must bear in mind that taking into account functioning of MSEDCL which is public utility, it will not be appropriate to equate transmission charges or wheeling charges to rent or fees for technical service. We are constrained to observe that although Revenue has taken up alternative argument that wheeling charges on account of transmission amount to fees for technical service for very first time in this appeal. Before Tribunal, this submission is conspicuous by its absence although Commissioner had taken this alternate view. We have heard Mr. Chhotaray on this aspect and we have decided it on merits. We may note that it will not be permissible for either Revenue or assessee to take such up contentions in income-tax appeals purporting to raise substantial questions of law when such issues were not before Tribunal. We also find that Revenue itself has considered and recognised impracticality of imposing section 194-I to cooling charges levied by cold storage facility. Before parting with this judgment, we must note that Electricity Act of 2003 was enacted partly on account of deteriorating performance of State Electricity Boards on account of various factors, including difficulties in power tariff fixation by erstwhile electricity boards which were unable to take decisions on tariff in professional and independent manner. As result, there were subsidies of unsustainable levels. restructuring of electricity boards had created various relationships amongst four entities inter se, namely, MSEB Holding Co. Ltd., Maharashtra State Electricity Transmission Co. Ltd., Maharashtra Power Generation Co., Maharashtra State Electricity Distribution Co. Ltd. Our decision in this appeal is restricted to State Electricity Boards and reconstituted entities, to exclusion of others in attempt to avoiding any absurd results which was not intended by Legislature. In this behalf, we find it appropriate to make reference to following observations of hon'ble Supreme Court in case of CIT v. J. H. Gotla reported in [1985] 156 ITR 323 (SC); [1985] 4 SCC 343 in which while dealing with object and purpose of legislative provision held as under (page 339 of 156 ITR) : (page 339 of 156 ITR) : "If purpose of particular provision is easily discernible from whole of scheme of Act which in this case, is to counteract effect of transfer of assets so far as computation of income of assessee is concerned, then bearing that purpose in mind, we should find out intention from language used by Legislature and if strict literal construction leads to absurd result, i.e., result not intended to be subserved by object of legislation found in manner indicated before, then another construction is possible apart from strict literal construction then that construction should be preferred to strict literal construction." In our view, 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. Equally, amounts are not fees for technical services. In facts and circumstances of this case, we answer question in favour of assessee and against Revenue. appeal is disposed of accordingly. There will be no order as to costs. *** Commissioner of Income-tax (TDS) v. Maharashtra State Electricity Distribution Co. Ltd
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