Chattisgarh State Electricity Board vs. ITO (ITAT Mumbai)
December, 23rd 2011
S. 194-I TDS: To be Rent, payee must have control over asset
The assessee, a SEB, entered into an agreement with NTPC for purchase of power and another with Power Grid Corporation for transmission of the power from NTPCs bus bars to the delivery point. The AO & CIT (A) took the view that the transmission charges paid by the assessee to Power Grid was rent for use of plant and tax ought to have been deducted u/s 194-I. The argument that as the payee had been assessed, no recovery could be made from the payer was also rejected. The assessee was held liable for failure to deduct TDS. On appeal by the assessee, HELD allowing the appeal:
(i) S. 194-I defines rent to include any payment, by whatever name called, under any lease, agreement or arrangement for the use of any machinery or plant. For a payment to be construed as rent, it is a condition precedent that the payer should have some control over the asset. There is a distinction between the use of an asset and the benefit derived from an asset. In a transaction of hire/ leasing, the possession of the goods and its effective control is given to the customer and the customer has the freedom and choice of how to use the asset. On the other hand, if the customer entrusts to the assessee the work of achieving a certain desired result and that involves the use of goods belonging to the owner, the control of the asset remains with the owner and there is no use by the customer (Asia Satellite 332 ITR 340 (Del) followed, Japan Airlines 325 ITR 298 (Del) & Krishna Oberoi 257 ITR 105 (AP) distinguished;
(ii) On facts, the transmission lines were under the possession & control of Power Grid. The assessee was merely enabled to use the services of transmission of electricity and not the use of transmission wires per se. The assessee was not involved in the in the actual operations of the transmission lines. The transmission wires were also used by other customers of Power Grid. Consequently, the payments were not rent u/s 194-I;
(iii) Under the Explanation to s. 191, a person can be treated as an assessee in default u/s 201(1) only when, apart from the lapse in deduction of tax at source, the recipient of income has failed to pay such tax directly. S. 201(1) imposes vicarious (and not penal) liability on the payer to make good the shortfall in tax collection. If the tax liability is discharged by the recipient of income, the vicarious liability cannot be invoked.