CIT (TDS) vs. Maharashtra State Electricity Distribution Co Ltd (Bombay High Court)
May, 16th 2015
S. 194-I/ 194-J: Meaning of expression "rent" and "fees for technical services" explained in the context of transmission & wheeling charges paid by electricity company
(i) The argument of the revenue that Transmission charges and / or Wheeling charges amounts to “rent” for purposes of TDS u/s 194-I cannot be accepted. According to the 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 the widest possible definition of rent, in our view the WT charges cannot be considered as rent. It is well settled that the Court may in its discretion construe the legislative provisions so as giving effect to the intended use and applying the test of contextual interpretation. We are of the view that the expression ‘rent’ used in Section 194-I does not apply to WT charges or any other part thereof;
(ii) The expression rent would also entail an element of possession. In each of the instances contemplated by the explanation to Section 194-I, we see in them an element of possession, be it land, building (including factory building), land appertaining to a building, plant, equipment, furniture or fittings. The person using it has some degree of possessory control, at least momentarily, although it cannot entrust the user title to the subject matter of the charge. Even the mere right to “use” is vested with an element of possessory control over the subject matter. In the present case, WT charges are bereft of such possessory control and hence in our view, completely outside the purview of the Explanation to Section 194-I;
(iii) Though in the context of parking charges, the Delhi High Court has taken a view in favour of the revenue in United Airlines 287 ITR 281 (Delhi), the Madras High Court in C.I.T. V/s. Singapore Airlines (2013) 358 ITR 257 has taken a contrary view. We find ourselves in agreement with the view taken by the Madras High Court inasmuch as, the decision of United Airlines (supra) did not take into account the navigational services, etc. which go along with the landing of an aircraft and payment of charges for parking the aircraft thereof. Right from the moment a flight is permitted to land at a particular airport, a process is set into motion, to guide the aircraft to the runaway, for successful landing and after the aircraft had come to a halt it is led to a parking space allotted to it once again with the navigational help. It is only thereafter that the aircraft is said to be parked till it resumes its flight. An example is the use of a toll road (instead of highway). If use of a toll road could be characterised as use of land, it would be an extreme view if we held that toll to be paid for use of a 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 an extreme view will not be justified under any circumstances;
(iv) The Hon’ble Supreme Court has also shown us some direction in this behalf. While interpreting the expression ‘rent’, the applicability of Section 194-I must be gathered from whether the WT charge draws its colour from the basic meaning of the expression ‘rent’. It is seen that the meaning of ‘rent’ must be understood in the context in which they are used. In the present set of facts, it is not possible to equate WT charges payable MSETCL with rent;
(v) There is nothing on record to support the revenue’s contention that the WT charges assumes the character of rent. The expression ‘rent’ must be conceptually understood. The concept of rent under the Income Tax Act does not encompass, in our view, the WT charges payable by the assessee especially when the assessee is discharging a public function. The expression of ‘Transmission charges and / or “Wheeling charges’ entails distribution of electricity in the area of the Corporation and they cannot be subjected to provisions of Section 194-I of the Act. We, however, clarify that this is restricted to the case of the assessee in view of the public function to be undertaken by it, as a result of the restructuring of the Maharashtra State Electricity Board.
(vi) The revenue’s contention that if WT charges are not rent, it would amount to payment of fees for technical services is also not acceptable. The very concept of the charge for transmission of electricity and wheeling of electricity, as the case may be, is subject to the tariff that will be determined by the MERC in public interest. Hence it is incomprehensible that the tariff passes the test as fees for technical services. Once again applying the principles of conceptual interpretation to the tariff to be fixed for WT charges of electricity, it cannot be interpreted to mean fees for the providing technical services. Under the open access system, it is the MSEDCL which will be availing of the said transmission facility. No ‘service’ is being provided by the MSETCL or the STU. No doubt, MSEDCL as transmission licensee is required to provide superintendence, maintenance and repairs to the system. However, no such service is rendered by the MSETCL to MSEDCL. MSETCL is obliged to maintain the system by value of operation of law under the Electricity Act. MSEDCL accesses the STU and distributes electricity passing through the STU. Our views stand fortified by the very fact that the revenue itself is confused and unsure as to the nature of the charge. The focus of the revenue is only the requirement of deduction of tax whether under Section 194-I or Section 194-J. This approach is erroneous. The revenue contends that the WT charges could be rent or fees for technical services but in our view it is neither.