NOTE

One of the ground for not invoking section 40(a)(ia) is that section 40(a)(ia) applies only when the amount is payable and not paid. However, definition of "paid" in section 43(2) says "paid" means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head "Profits and gains of business or profession."

As per the definition the meaning of the word "paid" is made dependent upon the method of accounting adopted by the assessee. Where the assessee has adopted cash system of accounting then amounts actually paid only would be considered as "paid" and the same would be deductible where payment is the criterion. Where the assessee's method of accounting is mercantile even amount for which liability is incurred would be considered as "paid". Thus "paid" includes "payable".

Further, section 194J (or any other provision relating to TDS) says "Any person……….. responsible for paying……….. shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct…….". The emphasis is on liability to pay and not actual payment. If the logic of the Tribunal is accepted, section 40(a)(ia) would become otiose and the section will not be attracted where payment is made though without deducting tax at source.

ORDER

I.C. Sudhir, J.M. :

The assessee has questioned first appellate (order) on the (ground) that the learned CIT(A) has erred in facts and law in :

1. confirming the addition of Rs. 17,01,90,088 on account of delay in deposit of employees' contribution to CPF/GPF/ESI under section 36(1)(va);

2. confirming the disallowance of Rs. 2,04,83,00,000 under section 40(a)(ia) in respect of alleged non-deduction of tax at source on transmission/ wheeling/SLDC charges by holding that such payment is liable for deduction of tax at source under section 194J;

2.1. not appreciating the fact that the payment of State Load Dispatch Center charges (SLDC) to RVPN is a statutory levy which is not liable for deduction of tax at source;

2.2. confirming the disallowance under section 40(a)(ia) ignoring the fact that the recipient of the payment (RRVPN) has no income liable to tax and has been assessed by the same AO at nil income;

2.3. not appreciating the fact that payment of wheeling/SLDC charges is nothing but only sharing of cost, i.e., reimbursement of actual expenses to Rajasthan Rajya Vidhyut Prasaran Nigam Ltd., no income is paid and therefore, outside the provisions of Chapter XVII-B of the IT Act, 1961. He has further erred in observing that it is not the case of clear reimbursement of the expenditure;

2.4. not directing the Dy. CIT, Circle-6, to determine the actual payment of wheeling/SLDC charges made to RVPNL which is Rs. 182.05 crores in respect of wheeling/transmission charges and Rs. 6.29 crores in respect of SLDC charges;

2.5. not considering the fact that disallowance under section 40(a)(ia) can be made only when the amount on which tax is deductible at source is payable and not when the amount is actually paid. In the present case the amount is actually paid and therefore no disallowance under section 40(a)(ia) can be otherwise made; and

3. confirming the charging of interest under section 234B at Rs. 20,85,26,798. We have gone through the order of the lower authorities, material available on records and the decisions relied upon while considering the arguments advanced by the parties.

Ground No. 1

2. The AO made disallowance of Rs. 17,01,90,088 under section 36(1)(va) of the Act oh account of delayed payment of employees' contribution of PF and ESI. The CIT(A) by following the decision of Jaipur Bench in assessee's own case for asst. yrs. 2001-02 to 2005-06 in ITA No. 824 to 828/Jp/2008 order dt. 30th Sept., 2008 upheld the disallowance made by the AO by observing that the other decision of the Jaipur Bench Allowing the same where payment is made before due date of filing of return are prior to the decision given in the assessee's own case in this issue.

2.1. The learned Authorised Representative relied on the decision of Karnataka High Court in case of CIT v. Sabari Enterprises [2007] 213 CTR (Kar) 269 : [2008] 2 DTR (Kar) 394 : [2008] 298 ITR 141 (Kar) and Commissioner Of Income-Tax v. P.M Electronics Ltd. [2008] 220 CTR (Delhi) 635 : [2009] 177 Taxman 1 (Delhi) . He further submitted that against the order of Tribunal dt. 30th Sept., 2008 an application under section 254(2) has been filed which is pending for disposal. He also relied on the subsequent decision of this Bench in ITA No. 185/Jp/2008, dt. 13th Feb., 2009 and ITA No. 914/Jp/2008, dt. 31st Dec, 2008 wherein it was held that employees' contribution to PF and ESI if paid before due date of filing of return under section 139(1) could not be disallowed. The learned Departmental Representative on the other hand relied on the orders of the lower authorities.

2.2. After hearing the parties we find that there is no dispute in the present case that the employees' contribution to PF and ESI was paid, before the due date of filing of return under section 139(1) though after the statutory dates specified in the respective Acts. This is supported by the decision of Karnataka High Court in case of Sabari Enterprises (supra), P.M. Electronics Ltd. (supra) and Sunil Goel v. Asstt. CIT [2008] 118 TTJ (Delhi) 415 : [2008] 13 DTR (Delhi)(Trib) 126 and also by the decision of this Bench including the subsequent decisions dt. 31st Dec, 2008 and 13th Feb., 2009 (supra) may also note that against the decision of this Bench in assessee's own case dt. 30th Sept., 2008, the application under section 254(2) is pending for disposal. In view of the decision of the High Court supra and the subsequent decision of this Bench on the issue we direct to delete the said disallowance made by the lower authorities. This ground is allowed.

Ground No. 2

3. The facts of the case, the relevant provision of Electricity Act, 2003 and the important terms and conditions of the transmission service agreement as discussed in the order of the lower authorities and emanating from the Electricity Act are as follows.

3.1. The Jaipur Vidhyut Vitran Nigam Ltd., the assessee (hereinafter referred as JWNL) is a company incorporated under the Companies Act, 1956 on 19th June, 2000 as a 100 per cent Government company in consonance with a mandate prescribed under the Rajasthan Power Sector Reforms Act, 1999 wherein role of Rajasthan State Electricity Board was unbundled to reform the functioning of the Board to introduce efficiency in power generation, transmission and distribution. Accordingly, the erstwhile Rajasthan State Electricity Board was unbundled into following five Government companies under the Rajasthan Power Sector Reforms Act, 1999 as per the scheme notified by the Government of Rajasthan on 19th July, 2000.

(i) Rajasthan Rajya Utpadan Nigam Ltd. (Generating company);
(ii) Rajasthan Rajya Vidhyut Prasarn Nigam Ltd. (Transmission company);
(iii) Jaipur Vidhyut Vitran Nigam Ltd. (Distribution company);
(iv) Ajmer Vidhyut Vitran Nigam Ltd. (Distribution company);
(v) Jodhpur Vidhyut Vitran Nigam Ltd. (Distribution company).

3.2. 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. It governs all the infrastructure of electric transmission line and all grid upto the power capacity of 33KVA and carries out the activities of the construction and maintenance of EHV lines and grid sub-stations. The Government of Rajasthan notified the RVPN as the State transmission utility (STU) under section 14 of the Electricity Act, 2003.

3.3. Sec. 39 of the Electricity Act, 2003 mandates the STU to undertake various functions wherein sub-section (2) of section 39 provides as under (paper book 121-122);

"(2) The functions of the STU shall be—

(a) to undertake transmission of electricity through intra-State transmission system;
(b) to discharge all functions of planning and co-ordination relating to intra-State transmission system with—

(i) Central transmission utility;
(ii) State Governments;
(iii) Generating companies;
(iv) Regional power committees;
(v) Authority;
(vi) Licensees;
(vii) any other person notified by the State Government in this behalf;

(c) to ensure development of an efficient, coordinated and economical system of intra-State transmission lines for smooth flow of electricity from a generating station to the load centers;
(d) to provide non-discriminatory open access to its transmission system for use by—

(i) any licensee or generating company on payment of the transmission charges; or
(ii) any consumer as and when such open access is provided by the State Commission under sub-section (2) of section 42, on payment of the transmission charges and a surcharge thereon, as may be specified by the State Commission" :

Sec. 40 prescribes the various duties which a transmission licensee is required to perform.

3.4. Besides the functions of generation, transmissions and distribution of electricity, the Electricity Act conceives an additional co-ordinative function to be performed. It is towards this exercise of co-ordination of generation, transmission and distribution facilities and also to facilitate voluntary inter-connections therein that the Act calls forth for the Central and State Governments to establish National and Regional Load Dispatch Centers respectively. While section 26 of the Act provides for the establishment of the National Load Dispatch Centre towards the optimal scheduling and dispatch of electricity, section 31 mandates the State Governments to establish a SLDC for discharging the specified functions. Towards the constitution of these SLDC, clause (2) of section 31 states as under (paper book 118);

"(2) The SLDC shall be operated by a Government company or any authority or corporation established or constituted by or under any State Act, as may be notified by the State Government.

Provided that until a Government company or any authority or corporation is notified by the State Government, the STU shall operate the SLDC :

Provided further that no State Load Dispatch Centre shall engage in the business of trading in electricity."

3.5. The functions mandated to be performed by the SLDCs and their positioning inter se the other functionaries under the Act, is specified in sections 32 and 33 which state as under : {paper book 118-119);

"32. Functions of SLDCs.—(1) The SLDC shall be the apex body to ensure integrated operation of the power system in a State.

(2) The SLDC shall—

(a) be responsible for optimum scheduling and despatch of electricity within a State, in accordance with the contracts entered into with the licensees or the generating companies operating in that State;
(b) monitor grid operations;
(c) keep accounts of the quantity of electricity transmitted through the State grid;
(d) exercise supervision and control over the intra-State transmission system; and
(e) be responsible for carrying out real time operations for grid control and despatch of electricity within the State through secure and economic operation of the State grid in accordance with the grid standards and the State grid code.

(3) The SLDC may levy and collect such fee and charges from the generating companies and licensees engaged in intra-State transmission of electricity as may be specified by the State Commission.

33. Compliance of directions.—(1) The SLDC in a State may give such directions and exercise such supervision and control as may be required for ensuring the integrated grid operations and for achieving the maximum economy and efficiency in the operation of power system in that State.

(2) Every licensee, generating company, generating station, substation and any other person connected with the operation of the power system shall comply with the direction issued by the SLDC under sub-section (1).

(3) The SLDC shall comply with the directions of the Regional Load Despatch Centre.

(4) If any dispute arises with reference to the quality of electricity or safe, secure and integrated operation of the State grid or in relation to any direction given under sub-section (1), it shall be referred to the State Commission for decision :

Provided that pending the decision of the State Commission, the direction of the SLDC shall be complied with by the licensee or generating company.

(5) If any licensee, generating company or any other person fails to comply with the directions issued under sub-section (1), he shall be liable to penalty not exceeding rupees five lacs."

3.6. Sec. 34 provides that every transmission licensee shall comply with such technical standards of operation and maintenance of transmission lines, in accordance with grid standards as may be specified by authority. These grid standards are described in Indian electricity code prescribed by Central Electricity Regulatory Commission.

3.7. Accordingly in terms of the mandate under the Electricity Act, 2003, RVPN is discharging the statutory functions of transmission of electricity and carrying out SLDC function for which they charge fees as decided by Rajasthan Electricity Regulatory Commission from time to time. Accordingly, RVPN has entered into "transmission service agreement" with the distribution companies vide agreement dt. 30th Sept., 2004, the main terms and conditions of which are as follows :

"2. RVPN Transmission System

RVPN transmission system consists of entire transmission system within and outside State, owned or operated by RVPN for use of transmitting electricity for the Rajasthan power system. The transmission system means the lines, sub-stations, associated facilities and covers entire transmission system without any specific reference to any lines or sub stations and will automatically cover all new additions, modifications, upgradation, augmentations and expansion of transmission system for the State of Rajasthan.

3. Use of transmission system by Discoms

Subject to Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulations, 2004 the RVPN transmission system shall be utilised by Discoms for transmission of their entire power requirement without any reference to specific lines or sub-stations. The RVPN shall undertake new additions, modifications, upgradation, augmentations and expansion of transmission system for the State of Rajasthan taking into consideration requirement of Discoms for growth in demand and electrification etc. and all such changes shall form part of the transmission system.

4. Allotted transmission capacity

Allotted transmission capacity for a Discom shall be sum of the generating capacities allotted to them from State generating stations and inter-State capacities allocated to them from State generating stations and inter-State generating stations by Government of Rajasthan and any additional contracted power with generators/traders, including the inter-Discom trades.

The Government of Rajasthan may review and revise the capacity allocations in one or more power stations from time to time and the allotted transmission capacity for Discoms would change to some extent.

Additional generation capacity can be contracted by any Discom only with the prior agreement of RVPN and will be subject to availability of transmission capacity and other conditions as per the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulations, 2004.

5. Open access transmission capacity

Discoms have the highest priority in allotment of open access capacity on intra-State transmission system under the provisions of the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulations, 2004.

Subject to above, the RVPN is free to allow its spare available transmission capacity to other long-term open access and short-term open access customer in terms of Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulation, 2004. The transmission and wheeling charges, surcharge and additional surcharge etc. for open access customers shall be as determined by the Commission.

6. Inter-connection point and delivery voltage

The inter-connection points between RVPN transmission system and distribution system of the Discoms shall be as specified in the grid code approved by the Commission. The delivery voltage shall be as per connection conditions mentioned in the grid code. RVPN and Discoms agree to abide by the connection conditions mentioned in the grid code.

7. Transmission performance standards

Transmission licensee performance standards as specified by the Commission for RVPN set forth the levels of operational security and quality of supply, which RVPN shall be obliged to maintain in making power available to Discoms at the inter-connection points. The transmission performance standards shall serve as guidelines for RVPN to operate the intra-State transmission system for providing the efficient, reliable, co-ordinated and economical system of electricity supply and transmission.

8. Compliance of grid code and SLDC directions

RVPN and Discoms shall comply with the provisions of the grid code approved by the Commission.

All the parties shall comply with the directions of the SLDC for ensuring integrated grid operations and for achieving the maximum economy and efficiency in the operation of the power system in the State. For efficient grid management, the Discoms shall give daily schedule of drawal to SLDC and all directions of the SLDC in this regard shall be binding upon Discoms. In case of failure of any Discom to furnish daily schedule to SLDC, the SLDC shall be entitled to charge a fee as specified by the Commission from time to time for preparing schedule on behalf of Discom. In addition the SLDC shall also be free to impose a penalty on Discoms for non-compliance with the directions under section 33 of the Electricity Act, 2003.

If any dispute arises with reference to the quality of electricity or safe and integrated operations of the State grid or in relation to the directions of the SLDC, it shall be referred to the Commission for decision and pending decision of the Commission, the directions of the SLDC shall be complied with by RVPN and the Discoms.

9. Tariff for transmission and wheeling

RVPN shall charge the transmission and wheeling charges for the power transmitted for Discoms as per transmission and wheeling tariff approved by the Commission for the respective year.

For the financial year 2004-05, the Commission has approved transmission tariff of Rs. 83.5 per KW of contracted transmission capacity per month. Besides transmission charges of Rs. 83.5 per month, the Discoms shall also pay on quarterly basis a balancing charge equal to difference between the approved AAR recovery of Rs. 12,637 lakhs per quarter and actual billing during that quarter in the ratio of their billing for that quarter. Till the Commission approves a new tariff, the existing tariff shall continue to apply and will be subject to adjustment of issue of a tariff order.

Transmission and wheeling tariff during subsequent years shall be applicable on the basis approved by the Commission for respective years.

10. SLDC charges

In addition to transmission and wheeling charges as mentioned at clause 10 of this TSA, the Discoms shall also pay the SLDC charges as specified by the Commission for the respective year. For the financial year 2004-05, the Commission specified SLDC charges of Rs. 139.25 lakhs per month recoverable from Discoms in the ratio of allotted transmission capacity. In terms of this agreement the assessee has paid transmission/wheeling/ SLDC charges to Rajasthan Vidhyut Prasaran Nigam Ltd. (RVPN) for transmission of electricity by using its transmission line from the generation point to its distribution point."

4. The AO held that the payment made by the assessee to RVPN is a payment of technical service liable for deduction of tax at source under section 194J inter alia for the following reasons :

(i) The title of the agreement itself speaks that whatever work is being done by the RVPN for the assessee is service.
(ii) Transmission of electricity is a technical service in itself as it requires constant involvement of technical system consisting of sophisticated instruments and technical ability and knowledge to operate and manage the system. All these require help of science and technology and technically competent manpower such as qualified engineers etc.
(iii) The activities carried out by RVPN required technical support and services of technically qualified staff and therefore technical service under section 194J. RVPN has not only built the system but has to maintain and operate the system in a efficient, co-ordinated and economical manner and therefore they are providing technical services falling under section 194J. The contentions raised by the assessee are not found tenable as mentioned on pp. 10 to 14 of the order. The case law relied by the assessee in Skycell Communications Ltd. v. Dy. CIT [2001] 170 CTR (Mad) 238 : [2001] 251 ITR 53 (Mad) is distinguishable on facts.
(iv) It also falls in the ambit of section 194C in view of the decision of Supreme Court in case of Associated Cement Company Ltd. and CBDT Circular No. 681, dt. 8th March, 1994 [[1994] 117 CTR (St) 229].
(v) He relied, on the following decisions :

(i) Singapore Airlines Ltd. v. ITO [2006] 7 SOT 84 (Chennai);
(ii) Canara Bank v. ITO [2008] 116 TTJ (And) 689 : [2008] 9 DTR (Ahd)(Trib) 251 : [2008] 305 ITR 189 (Ahd)(AT);
(iii) CBDT & Ors. v. Oberoi Hotels (India) (P.) Ltd. [1998] 146 CTR (SC) ; 222 : (1998) 231 ITR 148 (SC);
(iv) M/S Continental Construction Ltd. v. Commissioner Of Income Tax, Central-I. [1992] 101 CTR (SC) 386 : [1992] 195 ITR 81 (SC)

5. The learned CIT(A) in course of appellate proceedings called for a remand report from ITO, TDS wherein he reiterated his contention made in the assessment order by stating that various functions undertaken by RVPN involve human element. He also tried to distinguish the further case laws relied by the assessee. The assessee against this remand report filed its rejoinder. After considering the above, the CIT(A) decided the issue as per his finding in paras 2.7 to 2.10. The summary of these findings are as under :

—Even if RRVPN has no income liable to tax, still the provisions of section 40(a)(ia) does not give any discretion to the AO not to make any disallowance of the expenditure claim on which TDS was deductible and not deducted unless a certificate is issued under section 197(1).

—RVPN has to facilitate and monitor the transmission process by maintaining delivery voltage, transmission performance standards and compliance of grid code as evident from clauses (vi), (vii) and (viii) of transmission service agreement and section 34 of Electricity Act, 2003 which is done with the help of sophisticated technology and technical as well as experienced engineers and technicians. It is not necessary to include a definite human element in the word 'technical' since it is not specified as such.

—The services provided by RVPN in connection with the transmission is not possible without the human interface. The case of cellular company cannot be equated as they are providing service to the end user which is not in the present case.

—The cases relied in case of Parasrampuria Synthetics, Moving Picture Co. and Kotak Securities Ltd. are distinguishable on facts as not relating to transmission charges whereas the case relied by the AO in case of Singapore Airlines Ltd. (supra) are identical as RVPN is responsible for supervision and control over the intra-State transmission system and those functions cannot be performed without the involvement of human beings and application of mind.

—The payment of transmission/SLDC charges is not exactly a case of clear reimbursement of expenditure and it makes no difference whether the recipient is providing the service with profit or no profit or even at loss.

—These payments are not covered under section 194C.

Accordingly the learned CIT(A) confirmed the disallowance made by the AO under section 40(a)(ia).

6. The learned Authorised Representative opened up the arguments by referring to the provision of section 194J and relied on the following decisions to explain the meaning of the term "fees for technical services" :

(i) CIT v. Bharti Cellular Ltd. [2008] 220 CTR (Delhi) 258 : [2008] 15 DTR (Delhi) 73;
(ii) Skycell Communications Ltd. v. Dy. CIT ( supra);
(iii) Dy. CIT v. Parasrampuria Synthetics Ltd. [2008] 20 SOT 248 (Delhi);
(iv) ITO v. Moving Picture Co. ( India) Ltd. [2008] 20 SOT 120 (Delhi);
(v) HFCL Infotel Ltd. v. ITO ( supra);
(vi) Kotak Securities Ltd. v. Addl. CIT [2008] 25 SOT 440 (Mumbai) : [2009] 24 DTR (Mumbai)(Trib) 214;
(vii) Pacific Internet (India) (P.) Ltd. v. ITO (ITA Nos. 1607 to 1609/Mum/ 2006, dt. 23rd Dec, 2008);
(viii) Commissioner Of Income-Tax v. Estel Communications P. Ltd. [2008] 217 CTR (Delhi) 102 : [2008] 7 DTR (Delhi) 157. SLP dismissed [2009] 310 ITR (St) 2.

6.1. The learned Authorised Representative submitted that from the law, concept and principle laid down in these decisions it is clear that section 194J would have application only when the technology or technical knowledge of a person is made available to the others and not where by using such technical systems services are rendered to the others. Rendering of services by allowing use of technical system is different than 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 acquired certain rights which can be further used for its own use/purpose/research. Where facility is provided automatically by 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. In case of Skycell Communications Ltd. (supra), it is specifically provided that use of transmission lines to carry the power, transformers to regulate the flow of current, meters to measure that consumption, would not be regarded as amounting to provision of technical services to the consumer so as to warrant deduction of tax at source. He submitted that if the principles laid down in the above cases are applied to the present agreement of transmission services, the various objections raised by the AO/findings given CIT(A) are incorrect. His submission in this regard is reproduced as under :

(i) Simply because the agreement is styled 'transmission service agreement it would not fall in section 194J as all services are not covered under section 194J but only professional and technical services are covered by it. Further simply naming an agreement as service agreement alone cannot determine the liability of deduction of tax at source under section 194J.
(ii) Where a person has developed a technical system consisting of sophisticated instruments and the technical ability and knowledge to operate and maintain the system, it does not result in providing any technical service to others. It is a case of operating and maintaining its own system by using the services of engineers and qualified technicians and not a case of providing the technical services to others by those engineers and qualified technicians. The maintaining of the delivery voltage, economic transmission, minimum loss of electricity in transmission, regular and uninterrupted supply etc. as mentioned in the agreement are the statutory functions for maintaining the transmission system by RVPN itself. By discharging those functions RVPN is not providing any technical service to the assessee. In fact from the generation point to the distribution point of the assessee company, the electricity is transmitted automatically and none of the engineers/technicians of RVPN provide any service to the assessee company or guide them as to how to capture the electricity so transmitted. The assessee itself has a fleet of engineers and technicians who constantly monitor and supervise the flow of electricity to its system and ultimate supply to its customers. The lower authorities have not correctly appreciated the various terms and conditions mentioned in the agreement inasmuch as none of those clauses in the agreement refers to any technical service being provided by RVPN to the assessee, rather the agreement specifically refers to use of transmission system of RVPN by the assessee.
(iii) The State Load Dispatch Centre is not an arm/wing of RVPNL, rather as a statutory requirement, RVPNL discharges the functions of State Load Dispatch Centre. In fact State Load Dispatch Centre is a regulator and controller for optimum scheduling and despatch of electricity, supervision over the intra-State transmission system and responsible for carrying out real time operations for grid control and despatch of electricity within the State. The Rajasthan Electricity Regulatory Commission vide letter dt. 9th Jan., 2009 (paper book 102), in Pursuance of the Report of the Committee on Manpower, Certification and Incentives for System Operation and the Ring Fencing Load Dispatch Centre' issued by Ministry of Power, Government of India, has directed that SLDC, Hirapura, be recognised a separate entity under Electricity Act, 2003 and accordingly its financial accounts be maintained separately for financial year 2008-09 and onwards. Thus, SLDC is a monitoring authority discharging statutory function. The payment made as SLDC charges is a statutory payment. It is for this reason that it is empowered to levy penalty under section 33(5) of the Electricity Act, 2003 for non-compliance of its direction. This establishes that SLDC charges are not for any service rendered but a statutory levy. Had it been a payment towards services the users of service could have claimed compensation for deficiency in services and not that State Load Dispatch Centre could impose penalty for non-compliance of its direction.
(iv) The various clauses in the transmission service agreement only provides for compliance of the grid code and SLDC directions which are binding both on the assessee as well as RVPN. Thus when all the parties involved with generation to distribution of electricity are to comply with direction of State Load Dispatch Centre and Regulatory Commission ensuring integrated grid operation and for achieving the maximum economy and efficiency in the operation of the power system in the State, the question of any person rendering service to another does not arise. In fact as a transmission licensee, the RVPN is to comply with the technical standard of operation and maintenance of transmission lines in accordance with the grids standards as may be specified by the authority. The operation and maintenance of transmission lines by RVPNL and the user of these lines by assessee for transmitting energy does not result into any technical services being rendered to the assessee. By the operation and maintenance of its own system by RVPN, no services are rendered to the assessee. The decision relied by the ITO (TDS) in his remand report on Oberoi Hotels (India) (P.) Ltd ( supra), Circular No. 187, dt. 23rd Dec, 1975 ([1976] 102 ITR (St) 83) and Continental Construction Ltd. ( supra) though relates to section 80-O of the IT Act, rather supports the case of the assessee that 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 is made available/rendered by the RVPN to the assessee so as to consider the payment of transmission charges as falling under the provisions of section 194J. This has been totally overlooked by the lower authorities.
(v) In the remand report, it has been wrongly stated that RVPN is to keep balance in demand and supply of power or take requirement of electricity from the distribution companies on daily and hourly basis or make arrangement for supply of power from generating companies. These are the functions of State Load Dispatch Centre to whom the availability of power by the generating companies, the requirement of power by the distribution companies and the availability of the transmission system are to be intimated so that there is optimum scheduling and dispatch of electricity within the State. In discharge of this function, the State Load Dispatch Centre, directs the transmission company to maintain the load and frequency at the required level. The operation and maintenance of the transmission system is the duty of the transmission company. For all these work, the State Load Dispatch Centre and the transmission company has its own manpower and technical staff. The Power Line Career Communication Department in RVPN is to facilitate the communication between its two or more sub-stations. The supervisory/technical staff positioned there does the work relating to State Load Dispatch Centre and the transmission utility. These, manpower do not render any technical service to the assessee. The various points raised in paras 1 to 12 on pp. 6 to 9 of remand report are factually incorrect rather RVPN is to work under direction of State Load Dispatch Centre and the involvement of human element therein does not result in rendering of any technical service to the assessee.
(vi) The lower authorities have tried to distinguish the case of Skycell Communications Ltd. ( supra) by referring to the decision of Chennai Bench in the case of Singapore Airlines Ltd. ( supra) and Ahmedabad Bench in case of Canara Bank v. ITO ( supra). In the former case the payment towards navigational facilities was held to be a technical service under section 194J as in that case assessee was getting technical service which is required for flying the aircraft over the Indian territory. Thus, in that case there was an involvement of human element providing technical service which was used by the other person for its own use/purpose. Further in this case the counsel of the assessee has conceded that the case of Skycell Communications Ltd. ( supra) is not applicable. In the second case, managing and clearing the cheques through MICR center by the SBI was held to be rendering of managerial services as in that case services were rendered to the other person involving human element. However in the present case, RVPN by maintaining its distribution system/delivery voltage/operational security etc. is discharging its own statutory function and is not providing any service to the distribution company.
(vii) The AO has tried to distinguish the case of Bharti Cellular Ltd. ( supra) on the ground that Department has not accepted this decision and the facts of this case are different. The CIT(A) has, however, relied on this decision by interpreting that as per this decision any service which involves use of sophisticated technology and also involves human interface in use of that technology can be called technical service. CIT(A) further referred to a decision in the case of HFCL Infotel Ltd. v. ITO [2006] 99 TTJ (Chd) 440 by quoting certain lines which is not available in this decision nor those quoted lines lead to any conclusion in absence of the facts. This decision rather supports the case of the assessee as stated above. So far the case of Bharti Cellular Ltd. ( supra) is concerned; the same is not correctly understood by the CIT(A). This decision supports the case of the assessee as explained in detail as above. Further the lower authorities have not stated anything as to how the principle laid down in various other cases relied by the assessee are not applicable in the present case. The principle laid down in case of Parasrampuria Synthetics Ltd. ( supra) clearly describes as to what is meant by fees for technical services as referred in section 194J. RVPN by deploying its own engineers/ technicians in maintaining its transmission system, takes the service of its engineers for its own purpose and not that these engineers provide any technical service to the assessee. What is required to be ascertained is whether the engineers/technicians employed by the assessee provide any technical service to the engineers/technicians' of the assessee company and if that is so it does not matter at which place the services are provided.

Based on these arguments it was submitted that the conclusion drawn by the lower authorities that the payment of transmission charges to RVPN is a "Fees for technical service" under section 194J liable for deduction of tax at source is not correct.

6.2. The learned Authorised Representative further argued that the entire mechanism of payment of transmission tariff is determined by an independent regulatory body i.e., Rajasthan Electricity Regulatory Commission to reimburse the actual cost incurred by RRVNL in developing/maintaining its transmission system. The transmission company is not allowed any return on its capital. The tariff is determined on the principle of no profit no loss. Thus no income is paid by the distribution companies to the transmission company but only cost incurred by transmission company is reimbursed by distribution companies through the mechanism of tariff fixed by Regulatory Commission. He relied on the case of ITO v. Dr. Willmar Schwabe India (P.) Ltd. [2005] 95 TTJ (Delhi) 53 to argue that on actual reimbursement provision of deduction of tax at source would not apply. He pointed out that the CIT(A) though accepted that the Regulatory Commission takes into consideration, the expenditure of RVPN while deciding the transmission tariff/SLDC charges has held that the above case is distinguishable on facts ignoring that the principle laid down in this case is squarely applicable inasmuch as the various documents referred by him clearly establish that the payment of SLDC/transmission charges by the assessee to RVPN is a case of reimbursement of actual cost. He further stated that the amount on which the liability of the TDS is worked out is incorrect as the credit allowed by RVPN in wheeling/SLDC charges was not considered by AO.

6.3. The learned counsel further argued that section 40(a)(ia) is a fiction which is to be construed strictly. The section provides for non-deductable of certain amount which is payable on which tax is deductable and such tax has not been deducted. If the amount is actually paid without deduction of tax at source section 40(a)(ia) would not apply. He also referred to the scope and effect of section 40(a)(ia) as clarified by CBDT in Circular No. 5 of 2005, dt. 15th July, 2005 to argue that there is no dispute about the genuineness of payment and therefore in the present facts of the case disallowance under section 40(a)(ia) is uncalled for. The learned Authorised Representative accordingly argued that there was no liability of deduction of tax at source on the payment of wheeling charges and SLDC under the provision of the IT Act, 1961.

7. The learned Departmental Representative submitted that there is a integral system of transmission of electricity from the generation station to the distribution point. All the grid stations and the SLDC centers are manned with technical experts having computerized monitoring round the clock. The services provided by RVPN are not automatic but a human interface is involved. RVPN is to keep balance in demand and supply of power on minute to minute basis, it is to maintain load and frequency at the requirement level for which, it gives direction to the grid sub-station, operation and maintenance of the grid station is manned by senior and skilled engineers which all require human involvement. The decision of Skycell Communications Ltd. ( supra) is not applicable as assessee is not the ultimate consumer of the electricity and the other decisions relied by the Authorised Representative are on different facts and not on the transmission of electricity. He contended that M/s Hindustan Zinc Ltd. who also transmit the electricity by using the transmission line of RVPN makes deduction of tax at source under section 194C. He also referred to the survey report under section 133A in case of M/s BSES Rajdhani Power Ltd., Delhi, M/s BSES Yamuna Power Ltd., Delhi, M/s Delhi Transco Ltd., Delhi, Chatisgarh State Electricity Board and Gujarat Urja Vikas Ltd. wherein the liability of TDS on transmission payment is sought to be covered under section 194C/194-I/194J. Supporting the order of lower authorities and the cases felied therein he further referred to the decision of Dr. Hutarew & Partner (India) (P.) Ltd. v. ITO [2008] 25 SOT 347 (Delhi) wherein it was held that data processing payments for specialized service are in the nature of technical services liable to deduct tax at source. On the applicability of section 40(a)(ia) he argued that this section applies when taxes are not deducted at source irrespective of whether the amount is payable or paid. He elaborated all the issues mentioned in the orders of lower authorities below and supported the same.

8. In the rejoinder the learned Authorised Representative submitted that transmission system maintained by RVPN which is upto 132KVA. From this transmission system electricity is transmitted to the transmission system of the assessee which is 33KVA and below that. The assessee has its own technical staff to man its own system whereas RVPN has its own technical staff to man its own grid station. The technical staff of RVPN do not render any technical service to the technical staff of the assessee. In the flowchart SLDC centre is shown as a part of RVPN whereas SLDC is an independent statutory function under the Electricity Act, 2003. RVPN has nothing to do with monitoring the demand and supply of electricity rather it is the function of State Load Dispatch Centre where all the generating companies, transmission companies and distribution companies have to abide by its direction otherwise it has an authority to levy penalty on any person not following its direction as is specifically provided under section 33(5) of the Electricity Act, 2003. It is argued that from the paper submitted by the Department in the paper book it is evident that the Department itself is not certain whether the liability of TDS on transmission payment is under section 194C or under section 194J or under section 194-I. If any other person has deducted tax at source on payment of transmission charges to RVPN under section 194C it does not mean that such payment is liable for TDS under the provisions of the Act which is to be decided independently in view of the decisions stated above. The learned Authorised Representative also distinguished the decisions relied by the learned Departmental Representative in [2008] 25 SOT 347 (Delhi) (supra) on the ground that in that case the data processing was on the specific needs of the customer whereas the use of transmission lines are open access and anybody willing to transmit the electricity can use the transmission line by making the payment of transmission charges. He thus pleaded that there is no liability of deduction of tax at source on payment of transmission/wheeling/SLDC charges.

9. Considering the submission of the parties on the issue as to what is the nature of payment of wheeling/transmission/SLDC charges on the basis of documents on records and the facts explained and the nature of such payments as well as facts on records whether the same is liable for deduction of tax at source under the IT Act, 1961 specifically under section 194J which provides for deduction of tax at source on payment of fees for professional or technical services and whether section 40(a)(ia) is applicable on the present facts of the case.

9.1. On going through the various clauses of transmission service agreement we find that as per clause 3 of the agreement assessee is allowed the user of the transmission system. Clause 5 provides for open access transmission capacity whereby any other customer is also allowed to use the transmission lines for long-term open access and short-term open access. Clause 8 provides for compliance of grid code as approved by the Commission both by RVPN and assessee and further provides that all the parties shall comply with the direction of SLDC for ensuring integrated grid operation for achieving the' maximum economy and efficiency in the operation of power system in the State. As per clauses 10 and 12 the tariff for transmission and wheeling and SLDC charges is to be as approved by the Regulatory Commission. From all these clauses it is clear that 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 does not arise. The operation and maintenance of transmission lines by RVPNL and the use of these lines by assessee for transmitting energy does 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 discharge their function. They do not render any technical service to the assessee.

9.2. In above connection it is relevant to extract the relevant provisions of section 194J which are as follows :

"194J. Fees for professional or technical services.—(1) Any person, not being an individual or an HUF, who is responsible for paying to a resident any sum by way of—

(a) fees for professional services, or
(b) fees for technical services, or
(c) royalty, or
(d) any sum referred to in clause (va) of section 28.

shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an 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) ………..

(B) ………..

(2) (……)

(3) (……)

Explanation : For the purposes of this section,—

(b) "fees for technical services" shall have the same meaning as in Expln. 2 to clause ( vii) of sub-section (1) of section 9;"
(c) …………

The expression "fees for technical services" has not been defined under section 194J of the Act but Expln. (b) to section 194J of the Act, provides that the said expression shall have the same meaning as in Expln. 2 to clause (vii) of sub-section (1) of section 9. The said section is reproduced hereinbelow for ready reference—

"9. Income deemed to accrue or arise in India.—(1) The following incomes shall be deemed to accrue or arise in India :

(vii) income by way of fees for technical services payable by—

Explanation 2 : For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".

9.3. The expression "fees for technical service" as used in section 194J of the Act has been exhaustively examined by the Hon'ble Delhi High Court in the case of Bharti Cellular Ltd. (supra) and the observations are reproduced as under :

"13. We have already pointed out that the expression 'fees for technical services' as appearing in section 194J of the said Act has the same meaning as given to the expression in Expln. 2 to section 9(l)(vii) of the said Act. In the said Explanation the expression 'fees for technical services' means any consideration for rendering of any 'managerial, technical or consultancy services'. The word 'technical' is preceded by the word 'managerial' and succeeded by the word 'consultancy'. Since the expression 'technical services' is in doubt and is unclear, the rule of noscitur a sociis is clearly applicable. The said rule is explained in Maxwell on The Interpretation of Statutes (Twelfth Edition) in the following words :

Where two or more words which are susceptible of analogous meaning are coupled together, noscitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general.

This would mean that the word 'technical' would take colour from the words 'managerial' and 'consultancy' between which it is sandwiched. The word 'managerial' has been defined in the Shorter Oxford English Dictionary, Fifth Edition as :

Of pertaining to, or characteristic of a manager of or within an organization, business, establishment, etc.

The word 'manager' has been defined, inter alia, as :

A person whose office it is to manage an organization, business establishment, or public institution, or part of one; a person with the primarily executive or supervisory function within an organization etc.; a person controlling the activities of a person or team in sports, entertainment, etc.

It is therefore, clear that a managerial service would be one which pertains to or has the characteristic of a manager. It is obvious that the expression 'manager' and consequently 'managerial service' has a definite human element attached to it. To put it bluntly, a machine cannot be a manager.

14. Similarly, the word 'consultancy' has been defined in the said dictionary as 'the work or position of a consultant; a Department of consultants'. 'Consultant' itself has been defined, inter alia, as 'a person who gives professional advice or services in a specialized field'. It is obvious that the word 'consultant' is a derivative of the word 'consult' which entails deliberations, consideration, conferring with someone, conferring about or upon a matter. Consult has also been defined in the said dictionary as 'ask advice for, seek counsel or a professional opinion from; refer to (a source of information); seek permission or approval from for a proposed action'. It is obvious that the service also necessarily entails human intervention. The consultant, who provides the consultancy service, has to be a human being. A machine cannot be regarded as a consultant.

15. From the above discussion, it is apparent that both the words 'managerial' and 'consultancy' involve a human element. And, both, managerial service and consultancy service, are provided by humans. Consequently, applying the rule of noscitur a sociis, the word 'technical' as appearing in Expln. 2 to section 9(1)(vii) would also have to be construed as involving a human element. But, the facility provided by MTNL/other companies for interconnection/port access is one which is provided automatically by machines. It is independently provided by the use of technology and that too, sophisticated technology, but that does not mean that MTNL/other companies which provide such facilities are rendering any technical services as contemplated in Expln. 2 to section 9(1)(vii) of the said Act. This is so because the expression 'technical services' takes colour from the expressions 'managerial services' and 'consultancy services' which necessarily involve a human element or, what is now a days fashionably called, human interface. In the facts of the present appeals, the services rendered qua interconnection/port access do not involve any human interface and, therefore, the same cannot be regarded as 'technical services' as contemplated under section 194J of the said Act.

20. Before concluding we would also like to point out that the interconnection/port access facility is only a facility to use the gateway and the network of MTNL/other companies. MTNL or other companies do not provide any assistance or aid or help to the respondents/assessee in managing, operating, setting up their infrastructure and networks. No doubt, the facility of interconnection and port access provided by MTNL/other companies is 'technical' in the sense that it involves sophisticated technology. The facility may even be construed as a 'service' in the broader sense such as a 'communication service'. But when we are required to interpret the expression 'technical service', the individual meaning of the words 'technical' and 'service' have to be shed. And, only one meaning of the whole expression 'technical services' has to be seen. Moreover, the expression 'technical service' is not to be construed in the abstract and general sense but in the narrower sense as circumscribed by the expressions 'managerial service' and 'consultancy service' as appearing in Expln. 2 to section 9(1)(vii) of the said Act. Considered in this light, the expression 'technical service' could have reference to only technical service rendered by a human. It would not include any service provided by machines or robots."

9.4. The Hon'ble Madras High Court in the case of Skycell Communications Ltd. (supra), has held as under :

"4. 'Fees for technical services' is not defined in section 194J. Explanation (b) in that section provides that expression shall have the same meaning as in Expln. 2 to clause (vii) of sub-s.(l) of section 9. That Expln. 2 in section 9(1)(vii) reads thus :

'For the purposes of this clause, 'fees for technical services' means any consideration (including any lump sum consideration) for rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salaries'.'

This definition shows that consideration paid for the rendering of any managerial, technical or consultancy service, as also the consideration paid for the provision of services of technical or other personnel, would be regarded as fees paid for 'technical services'. The definition excludes from its ambit consideration paid for construction, assembly, or mining or like project undertaken by the recipient, as also consideration which would constitute income of the recipient chargeable under the head 'Salaries'.

Thus while stating that 'technical service' would include managerial and consultancy service, the legislature has not set out with precision as to what would constitute technical' service to render it 'technical service'.

The meaning of the word 'technical' as given in the New Oxford Dictionary is adjective 1 of or relating to a particular subject, art or craft or its techniques; technical terms (especially of a book or article) requiring special knowledge to be understood; a technical report, 2 of involving, or concerned with applied and industrial sciences: an important technical achievement, 3. resulting from mechanical failure: a technical fault, 4. according to a strict application or interpretation of the law or the rules : the arrest was a technical violation of the treaty.

Having regard to the fact that the term is required to be understood in the context in which it is used, 'fee for technical services' could only be meant to cover such things technical as are capable of being provided by way of service for a fee. The popular meaning associated with 'technical' is 'involving or concerning applied and industrial science'.

5. In the modern day world, almost every facet of one's life is linked to science and technology inasmuch as numerous things used or relied upon in everyday life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service.

When a person hires a taxi to move from one place to another, he uses a product of science and technology, viz., an automobile. It cannot on that ground be said that the taxi driver who controls the vehicle, arid monitors its movement is rendering a technical service to the person who uses the automobile. Similarly, when a person travels by train or, in an aeroplane, it cannot be said that the railways or airlines is rendering a technical service to the passenger and, therefore, the passenger is under an obligation to deduct tax at source on the payments made to the railway or the airline for having used it for travelling from one destination to another. When a person travels by bus, it cannot be said that the undertaking which owns the bus service is rendering technical service to the passenger and, therefore, the passenger must deduct tax at source on the payment made to the bus service provider, for having used the bus. The electricity supplied to a consumer cannot, on the ground that generators are used to generate electricity, transmission lines to carry the power, transformers to regulate the flow of current, meters to measure that consumption, be regarded as amounting to provision of technical services to the consumer resulting in the consumer having to deduct tax at source on the payment made for the, power consumed and remit the same to the Revenue.

Satellite television has become ubiquitous, and is spreading its area and coverage, and covers millions of homes. When a person receives such transmission of television signals through the cable provided by the cable operator, it cannot be said that the home owner who has such a cable connection is receiving a technical service for which he is required to deduct tax at source on the payments made to the cable operator.

Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision to technical service to the customers for a fee.

6. When a person decides to subscribe to a cellular telephone service in order to have the facility of being able to communicate with others, he does not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. That fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber, does not on that score, make it provision of a technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange' or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telephone service. Neither service can be regarded as 'technical service' for the purpose of section 194J of the Act.

7. The use of the internet and the world wide web is increasing by leaps and bounds, and there are hundreds of thousands, if not millions, of subscribers to that facility. The internet is very much a product of technology, and without the sophisticated equipment installed by the internet service providers and the use of the telephone fixed or mobile through which the connection is established, the service cannot be provided. However, on that score, every subscriber of the internet service provider cannot be regarded as having entered into a contract for availing of technical services from the provider of the internet service, and such subscriber regarded as being obliged to deduct tax at source on the payment made to the internet service provider.

8. At the time the IT Act was enacted in the year 1961, as also at the time when Expln. 2 to section 9(1)(vii) was introduced by the Finance (No. 2) Act, w.e.f. 1st April, 1977, the products of technology had not been in such wide use as they are today. Any construction of the provisions of the Act must be in the background of the realities of day-to-day life in which the products of technology play an important role in making life smoother and more convenient. Sec. 194J, as also Expln. 2 in section 9(1)(vii) of the Act were not intended to cover the charges paid by the average householder or consumer for utilizing the products of modern technology, such as, use of the telephone fixed or mobile, the cable TV, the internet, the automobile, the railway, the aeroplane, consumption of electrical energy, etc., such facilities which when used by individuals are not capable of being regarded as technical service cannot become so when used by firms and companies. The facility remains the same whoever the subscriber may be individual, firm or company.

9. Technical service' referred in section 9(1)(vii) contemplates rendering of a 'service' to the payer of the fee. Mere collection of a 'fee' for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received from technical services."

Thus Hon'ble Court while dealing with the case of "transmission of voice" has equated the same with the "transmission of the electricity" and held that the same does not amount to providing the technical service.

9.5. In case of Parasrampuria Synthetics Ltd. (supra) it was held as under :

"There may be use of services of technically qualified person to render the services but that itself do not bring the amount paid as 'fees for technical services' within the meaning of Expln, 2 to section 9(1)(vii). The amount paid are towards annual maintenance contract of certain machinery or for converting partially oriented yard (POY) into texturised/twisted yarn. The technology or technical knowledge of persons is not made available to the assessee but only by using such technical knowledge services are rendered to the assessee. In such a case, it cannot be said that the amount is paid as 'fees for technical services'. Rendering services by using technical knowledge or skill is different than charging fees for technical services! In the later case the technical services are made available due to which assessee acquired certain right which can be further used. Accordingly where the persons rendering certain services has only maintained machinery or converted yarn but that knowledge is not vested with the assessee by which itself it can do research work, the amount paid cannot be considered as fees for technical services within the meaning of section 194J of the Act."

9.6. An analysis of above cases lays down the proposition that 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 than 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 acquired 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. Similar is the proposition laid down in other cases relied by the learned Authorised Representative supra.

9.7. The arguments of the learned Departmental Representative that human element is involved in providing such service making the payment of wheeling/SLDC charges liable for deduction of tax at source as technical service has no merit as the technical service is not provided to the personnel of the assessee. We are also unable to pursue (sic) ourself with the contention of the learned Departmental Representative that other persons are making deduction at source on such payment under section 194C/194J/194H. On going through the papers-filed at pp. 34 to 41 of the paper book filed by the Department we note that as per those papers only some report/letters has been issued by the TDS officer requiring the deduction of tax at source on such payment. Similarly M/s Hindustan Zinc Ltd. is deducting the tax at source under section 194C in respect of payment of transmission charges to RVPN cannot lay down the law. The CIT(A) has given a finding on p. 54 of his order that these payments are not covered under section 194C against which no appeal is filed by the Department though we are otherwise convinced with the argument of learned Authorised Representative that section 194C is not applicable on this payment in view of the detailed submission made in this regard at paper book pp. A-23 to A-27.

9.8. The decision relied by the AO in the case of Oberoi Hotels (India) (P.) Ltd. (supra), Circular No. 187, dt. 23rd Dec, 1975 and in the case of Continental Construction Ltd. (supra) though relates to section 80-O of the IT Act, supports the case of the assessee that 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 is made available/rendered by the RVPN to the assessee. The assessee itself has its own engineers and technicians who consistently monitor and supervise the flow of the electricity to its system and ultimately supplies 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 is statutory function which is also entrused to RVPN and therefore, RVPN by discharging such statutory function does not provide any technical service.

9.9. We have also considered the other decisions relied by the learned Departmental Representative which are clearly distinguishable on facts. In case of Singapore Airlines Ltd. ( supra) the navigation charges paid was for getting the technical service like weather report, instruction overflights to fly over technical territories and such other technical services which are needed to fly the aircraft on the Indian territory. By giving these, instructions and technical services to fly the aircraft the technical knowledge of a person was made available to the assessee and therefore it was held to be a payment for technical services which is not the facts of the present case. The case of Canara Bank (supra) in respect of payment of MICR charges to SBI which involved human skill and computerised machine and not simply making available the technical equipment working on its own and therefore held to be a payment towards managerial services. The case Dr. Hutarew & Partner (India) (P.) Ltd. (supra) is with reference to section 195 and not section 194J. In this case also the non-resident to whom payment was made was not maintaining any server for everybody that anyone can feed the data and get the solutions. The solutions were provided on the specific needs of the customers. The information supplied is specific which help the assessee in finalizing its design. The Information supplied to the assessee was a technical information which has been used in further generating the product of the assessee. Therefore, such specific client based information was held not equatable with the standard services provided by telecommunication company. Thus these decisions are quite distinguishable and not applicable on the facts of the present case. We therefore hold that there is no liability to deduct tax at source on payment of transmission/wheeling/SLDC charges under section 194J or for that matter under section 194C.

9.10. We also find force in alternate argument of the learned Authorised Representative that the payment of transmission/wheeling/SLDC charges is reimbursement of the cost. Therefore the provisions of Chapter XVII-B are not applicable since there is no payment of income/revenue by the assessee. We find that 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. From the tariff order (paper book 90-93) we find that tariff is fixed, by estimating the actual cost of operation of RVPN. In case, on the basis of such tariff, any surplus is left with the RVPN, they give credit of the same to the assessee as evident from the extract of the minutes of the board and the copy of the journal voucher by which such credit is given to the assessee (paper book 136-138). Thus when no income is paid by assessee to transmission company the question of deduction of tax at source do not otherwise arise even when under certain section of Chapter XVII-B liability of TDS is on payment of any sum and under certain sections it is on payment of income as ultimately the tax is on the income and deduction of tax at source is only one of the modes of collection and recovery of the tax. On actual reimbursement, provision of deduction of tax at source would not apply as held in case of Dr. Willmar Schwabe India (P.) Ltd. (supra) (paper book 124-125), headnote of which reads as under :

"As agreed by and between the assessee company and ITCL, a vehicle was to be provided by the assessee company to the said consultant for attending to its work and thus, the assessee company was to bear the vehicle expenses actually incurred by the said party. Bills for such expenses incurred by the said consultant were separately raised by them on the assessee company in addition to bills for fees payable on account of technical services and since the amount of bills so raised was towards the actual expenses incurred by them, there was no element of any profit involved in the said bills. It was thus a clear case of reimbursement of actual expenses incurred by the assessee and the same, therefore, was not of the nature of payment covered by s, 194J, requiring the assessee to deduct tax at source therefrom. The CBDT Circular No. 715, dt. 8th Aug., 1995 [(1995) 127 CTR (St) 13], relied upon by the AO in support of his case on this issue was applicable only in the cases where bills are raised for the gross amount inclusive of professional fees as well as reimbursement of actual expenses and the same, therefore, was not applicable to the facts of the present case where bills were raised separately by the consultants for reimbursement of actual expenses incurred by them. As such, considering all the facts of the case, the provisions of section 194J were not applicable to the reimbursement of actual expenses and the assessee company was not liable to deduct tax at source from such reimbursement."

Under these circumstances, we hold that the lower authorities were not justified in holding that the assessee is liable for deduction of tax at source on the payment of transmission/SLDC charges to RVPN.

9.11. We also find force in the argument of learned Authorised Representative that section 40(a)(ia) applies only when the amount is payable. Sec. 40(a)(ia) reads as under :

"40. Amounts not deductible : Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession',—

(a) in the case of any assessee—

(i) ………………….

(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid,—

(A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or

(B) in any other case, on or before the last day of the previous year."

9.12. The bare provision of section 40(a)(ia) provides for non-deduction of amount which remains payable to a resident in respect of fees for technical services etc. It is not applicable where expenditure is paid. It is applicable only in cases where the payments are due and outstanding. The word payable is not defined though the word paid is defined under section 43(2) to mean actually paid or incurred. Hence, by implication the word payable does not include paid. The difference in the word paid and payable is also there in the rules for depositing the TDS and also for levy of interest under section 234B where interest is worked out on the basis of tax actually deducted at source and not on the basis of tax deductable. Sec. 40(a)(ia) otherwise being a legal fiction needs to be construed strictly in view of the decision of Supreme Court in CIT v. Mother India Refrigeration Industries (P.) Ltd. [1985] 48 CTR (SC) 176 : [1985] 155 ITR 711 (SC) . The CBDT in Circular No. 5 of 2005, dt. 15th July, 2005 [(2005) 197 CTR (St) 1] has also clarified that the provision of the section 40(a)(ia) is to augment compliance of TDS provision in the case of residents and curb bogus payments to them to present case the payment is not in dispute and on the issue whether tax is to be deducted at source on such payment is not free from doubt. In any case since assessee has made actual payment of the wheeling/SLDC charges as per the evidence placed on paper book 94-101, we are of the view that provisions of section 40(a)(ia) are not applicable in the present facts of the case.

9.13. We thus set aside the order of the lower authorities and allow the ground of the assessee. The ground No. 2 is thus allowed.

Ground No. 3

10. The CIT (A) confirmed the levy of interest under section 234B, in view of the decision of Supreme Court in case of CIT v. Anjum M.H. Ghaswala [2001] 171 CTR (SC) 1 : [2001] 252 ITR 1 (SC) . decision of Special Bench of Tribunal in case of Motorola Inc. v. Dy. CIT [2005] 96 TTJ (Delhi)(SB) 1 : [2005] 95 ITD 269 (Delhi)(SB) and decision of this Bench in case of Kanahyalal Kalyanmal v. Asstt CIT by holding that AO has no choice but to charge interest under section 234B since the charging of interest is mandatory.

11. After hearing both the sides we are of the view that the interest under section 234B is leviable for non-payment/short-payment of advance tax. The condition for liability to pay advance tax arises under section 208 and its computation is under section 209. In case, there is no liability to pay advance tax in terms of section 208 r/w section 209, there cannot be a liability of interest under section 234B. The levy of interest under section 234B is mandatory but it is so only when the condition precedent for payment of advance tax exist. We note that assessee had no liability to pay advance tax under section 209 as he had a huge carried forward unabsorbed depreciation. AO has also not issued under section 210(3). The Hon'ble Allahabad High Court in the case of Buland Motor & Land Finance (P.) Ltd. v. Asstt. CIT [2001] 166 CTR (All) 524 : [2001] 247 ITR 701 (All) has held that since the amount assessed for asst. yr. 1989-90 was a loss, there was no liability on the assessee to pay advance tax on the basis of his estimate for the current income for asst. yr. 1990-91. Moreover, there was no order of the AO under section 210(3). Hence no interest was payable under section 234B. In the case of Datamatics Ltd. v. Asstt. CIT [2007] 111 TTJ (Mumbai) 55 : [2008] 110 ITD 24 (Mumbai) AO processed under section 143(l)(a) return of income filed by the assessee and granted huge refund to the assessee. Subsequently AO reopened said assessment and in reassessment proceedings increased tax liability of the assessee. Consequently AO also levied interest under section 234B. Tribunal after analyzing the scheme of the Act and various decisions from paras 43 to 55 of its order held that interest under section 234B is not always mandatory. Since assessee made no default in paying advance tax in regular assessment, interest under section 234B could not be levied in reassessment proceedings. Following these decisions we hold that levy of interest under section 234B is mandatory but only when the condition precedent for payment of advance tax exist. Since this aspect has remained to be considered by the AO, we set aside this issue to him with the direction to readjudicate the same after providing reasonable opportunity to the assessee.

12. In the result appeal in ITA No. 132/Jp/2009 is partly allowed.