S. 194-I Income Tax Act | TDS Can't Be Deducted In Absence Of Payment Of Rent: Orissa High Court

While dismissing an Income Tax Appeal, a Division Bench of Chief Justice Dr. S. Muralidhar and Justice R.K. Pattanaik observed,

"In absence of there being any payment of rent or even deemed rent by the Respondents to OPTCL there was no obligation under Section 194-I of the IT Act to deduct TDS from the wheeling charges paid to OPTCL."

Facts of the Case:

All the appeals by the Income Tax Department arise out of a common judgment dated 19th November, 2010 passed by the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack (ITAT).

The Respondent in each of these appeals is engaged in the distribution of power. Each of the companies purchases electricity from the Grid Corporation of Odisha Limited (GRIDCO). The electricity so purchased is distributed by utilizing the transmission network of the Orissa Power Transmission Corporation Limited (OPTCL). Both GRIDCO and OPTCL are regulated by the Orissa Electricity Regulatory Commission (OERC).

While admitting appeal against the decision of the ITAT, the Court framed certain issues, viz.

(i) Whether on the facts and circumstances of the case, the learned ITAT is justified in holding that the assessee-SOUTHCO is not liable to deduct tax at source against payment of transmission charges made to OPTCL as the equipment held by the OPTCL have not been given on rent, lease etc. to the assessee?

(ii) Whether on the facts and circumstances of the case, the learned ITAT is justified in holding that payment made by the assessee Company is only towards purchase price of electricity from the GRIDOC and not from OPTCL for which no TDS liability is attracted in terms of section 194-1 of the I.T. Act?

(iii) Whether the learned ITAT is justified in holding that the TDS liability is not attracted in case of the assessee-company for which there is no need to levy interest u/s. 201(1A) of the I.T. Act?

Question (i) and (ii) were concerned with the applicability of Section 194-I of the Act to the payments made by the Respondents to OPTCL towards its billing/transmission charges. Both the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT (A)] decided the issue against the Assessee by holding that Section 194-I of the Act was applicable and that the payments made were amenable to deduction of tax at source (TDS). It was further held that on account of failure of the Respondent to deduct TDS under 194-I of the Act, the penalty and interest under Sections 201(1) and 201(1A) of the IT Act stood attracted.

Observation of the Court:

At the outset, the Court took note that while allowing the appeals of the Respondents, the ITAT had in the impugned order come to the conclusion that Section 194-I of the Act is not attracted. The ITAT followed the decision of the Supreme Court in India Meters Limited v. State of Tamil Nadu (2010-VIL-I-SC) to arrive at such conclusion.

The ITAT held that the Respondent-Assessees have not used any of the equipments of OPTCL and, therefore, no rent can be deemed to have been paid by the Respondent to OPTCL. The Court reproduced the relevant portion of the said order which, inter alia, read,

"The assessees have not used anything belonging to OPTCL nor the assessees are a party in the petition filed by OPTCL to OERC for the fixation of the tariff. If the assessees were paying rent or were using any equipments of OPTCL, then assessee should have been a party before the OERC in respect of the fixation of the price in the case of OPTCL. This is because the assessee would be an affected party. The assessees are only a party in the fixation of the price between the Gridco and assessees and it in that order that a parallel identical direction is also available in para 37 and 294 and 295 of the order in the case of Gridco. Thus, it is evident that the raising of invoices by OPTCL on the assesse is for the purpose of raising for first change on the receipts of Gridco and for no other purposes. As mentioned above, the assessees have not used any of the equipments of OPTCL and in absence of use in any manner whatsoever, of the equipments of OPTCL by the assessee, no rent can be deemed to have been paid for the purpose of invoking of section 194(I) of the Act."

The Court ultimately affirmed the aforesaid finding of the ITAT and held that in absence of there being any payment of rent or even deemed rent by the Respondents to OPTCL there was no obligation under Section 194-I of the IT Act to deduct TDS from the wheeling charges paid to OPTCL. Accordingly, the appeals were dismissed.

Case Title: Commissioner of Income Tax, Bhubaneswar v. Western Electricity Supply Company of Odisha Limited (WESCO) & Other Connected Matters

Case No.: ITA No. 4 of 2011 & Other Connected Appeals

Judgment Dated: 23 March 2022

Coram: Chief Justice Dr. S. Muralidhar and Justice R.K. Pattanaik

Judgment Authored by: Chief Justice Dr. S. Muralidhar

Counsel for the Appellants: Mr. S.S. Mohapatra, Senior Standing Counsel

Counsel for the Respondents: Mr. Satyajit Mohanty and Mr. R.R. Swain, Advocates

Citation: 2022 LiveLaw (Ori) 33