Income Tax Appellate Tribunal - Ahmedabad
Vodafone Essar(Gujarat) Limited, ... vs Department Of Income Tax on 30 March, 2009
The AYIN THE INCOME_TAX APPELLATE TRIBUNAL "A" BENCH,
AHMEDABAD
BEFORE SHRI H.L.KARWA,JM AND SHRI A.N.PAHUJA,AM
ITA No.1878/Ahd/2009
(Assessment Year : 2006-07)
A.C.I.T. Circle - 8, Vs. Vodafone Essar Gujarat Ltd.
Vodafone House, Corporate Road,
4th Floor, Ajanta Coomercial Prahladnagar, off. S.G.Road,
Centr,'A' Wing,Ashram Road, Ahmedabad.
Ahmedabad. [PAN:AAACF1190P]
(Appellant) (Respondent)
ITA No.1361/Ahd/2009
(Assessment Year : 2006-07)
Vodafone Essar Gujarat Ltd. Vs. The A.C.I.T. Circle - 8, Ahmedabad
Vodafone House, Corporate
Road,Prahladnagar, off.
S.G.Road,Ahmedabad.
(Appellant) (Respondent)
Assessee by : Shri S.E.Dastur, with Shri S.N.Soparkar & Dhinal
Shah, ARs.
Revenue by : Shri Rajeev Agarwal, DR
आदे श)/ORDER
(आदे A.N.PAHUJA: These cross appeals by the Revenue and the assessee directed against an order dated 30.3.2009 of the ld. CIT (A)-XIV, Ahmedabad, raise the following grounds:
ITA No.1878/Ahd/2009[Revenue]"1. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance on account of sales promotion expenses amounting to Rs. 48,935/-.
2. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of claim for deduction u/s 80IA from revenue of sharing of cell site of Rs.2,75,30,602/-.
3. The Ld.CIT(A) has erred in law and on facts in deleting the addition to the book profit of Rs.9,52,20,000/- on a/c of provision for municipal taxes for the computation of MAT liability.
4. On the facts and in the circumstances of the case, the ld Commissioner of Income-tax (A)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer.2 ITA No.1878& 1361/Ahd/2009
5. It is therefore, prayed that the order of the learned Ld. Commissioner of Income Tax(A)-XIV, Ahmedabad may be set-aside and that of the Assessing Officer be restored."ITA No.1361/Ahd/2009[Assessee] .:
"1. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the finding of the Assistant Commissioner of Income Tax, Circle 8, Ahmedabad (hereinafter referred to as the 'AO') holding that the Appellant has started providing telecommunication services during the previous year relevant to the assessment year 1996-97.
1.1 The CIT(A) erred in stating that:
i. The appellant has started providing communications services as soon as it undertook the first activity of installation of sites and towers ii. The Director's report for the year ending March 31, 1996 shows that site preparation was near completion by March 31, 1996 iii. The Appellant has completed 25 per cent of the activity which was required to launch commercial operations by March 31,1996.
1.2 On the facts and in the circumstances of the case, the CIT(A) erred in not appreciating that whether the business has commenced in A.Y. 1996-97 has been decided by the AO in that year and the AO in A.Y. 2006-07 cannot take a view contrary to the view taken in A.Y. 1996-97.
1.3 Without prejudice even it is presumed that the business is set up in A.Y. 1996-97, the CIT(A) erred in not appreciating that deduction under Section 80IA(4) is available only after the assessee starts providing telecommunication service which happened in January, 1997 relevant to the assessment year 1997-98
2. On the facts and in the circumstances of the case, the CIT(A) erred in confirming the action of he AO in holding that the Appellant's claim for deduction in AY 2006-07 would be governed by the provisions of section 80IA of the Act as it stood in AY 1996-97 and not the relevant AY i.e.AY 2006-07.
2.1. On the facts and in the circumstances of the case, the CIT(A) erred in holding the Appellant has exercised its option of making a claim for deduction u/s 80IA the AY 1997-98 and hence the provisions of section 80IA as substituted from the AY 2002-03 would not apply. 2.2 The CIT(A) erred in holding that the option to claim deduction for ten out of fifteen years under the substituted section 80IA was available only to concerns which were granted a license after 1.4.1995 but could not start operations till 1.4.2002.
2 3 ITA No.1878& 1361/Ahd/20093. On the facts and in the circumstances of the case, the CIT(A) erred in confirming the action of the AO in setting off losses of earlier assessment years 1997-98 to 2000-01 amounting to Rs.
75,98,22,036/- without giving effect to the provisions of section 79 of the Act while computing deduction u/s 80IA of the Act
4. On the facts and in the circumstances of the case, the CIT(A) erred in confirming the action of the AO in holding that the license fees paid by the Appellant of Rs. 67.51 crores on a revenue sharing basis, is a capital expenditure incurred for the purpose of acquiring the license and not eligible for deduction as revenue expenditure.
5. On the facts and in the circumstances of the case, the CIT(A) erred in holding that the miscellaneous income of Rs.16,60,841 and scrap sales of Rs.4,99,681 are not income derived from business of the Appellant's industrial undertaking and hence not eligible for deduction u/s 80IA of the Act.
6. On the facts and in the circumstances of the case, the CIT(A) erred in confirming the action of the AO in levy of interest under section 234B & 234C where the total income was computed under the provisions of section 115JB of the Act The Appellant craves leave to add, to amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal."
2. Adverting first to ground no.1 to 1.3 in the appeal of the assessee, facts, in brief, as per relevant orders are that the e-return declaring income of Rs. 2,27,38,451/- filed on 28.12.2006 by the assessee, a cellular service provider in the State of Gujarat, after being processed u/s143(1) of the Income-tax Act, 1961 (hereinafter to be referred to as 'the Act'), was selected for scrutiny with the issue of notice u/s 143(2) of the Act on 26-10-2007. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the assessee claimed deduction for an amount of Rs. 3,53,51,55,037/- u/s 80IA(4)(ii) of the Act. The assessee company was incorporated on 14-03- 1995 in the name of M/s. Fascel Limited . Since certificate of commencement of business was issued to the company on 04-04-1995, the AO asked the assessee to explain as to why initial year for claiming deduction u/s 80IA(4) of the Act may not taken as assessment year 1996-1997 instead of 1997-1998 claimed by it. In response, the assessee submitted vide letter dated 19-12- 2008 that after obtaining a certificate of commencement of business on 04-04- 1995, the assessee entered into a license agreement with telecom authority in the month of January 1996 to establish, maintain and operate cellular mobile telephone service in the State of Gujarat. Thereafter, the assessee started 3 4 ITA No.1878& 1361/Ahd/2009 implementing the project and launched its commercial operations only on 24- 01-1997 as is evident from the audited accounts for the year ending 31-03- 1997. Since telecom business was capital intensive involving considerable gestation period, after identification, it took time in installing the equipment at various sites. Thereafter, the telecom authority undertook necessary performance tests to ascertain the quality of service before launching commercial operations. While referring to the assessment order for the AY 1996-97 u/s 143(3) of the Act , the assessee pointed out the following relevant extracts from the said order :
"Since this is the first year of operation of the assessee company and no business activities are carried out, the income is assessed as declared in the return at Nil."
2.1 The assessee further pointed out that since the AO himself computed business loss in the assessment order for the AY 1997-1998, apparently initial year for staring telecommunication activity was AY 1997-1998 and not the AY 1996-1997. However, the Assessing Officer rejected these contentions of the assessee on the ground that certificate of commencement of business was issued in the period relevant to the AY 1996-1997 and license agreement with telecom authority was also executed on 11.1.1996. Referring to note no. B-9 of schedule 7 to the audited accounts for the financial year 1995-1996 as also decisions in the case of CIT Vs. ESPN software India Private Limited, 301 ITR 368(Delhi) CIT Vs. Saurashtra Cement and Chemical Industries Limited, 91 ITR 170(Gujarat), the AO concluded that date of license should be taken as date of commencement of business. Accordingly, it was held that the first year of providing telecommunication services was AY 1996-97 & not the AY 1997-1998, as claimed by the assessee.
3. On appeal, it was contended on behalf of the assessee that mere signing the license agreement without having any infrastructure for rendering telecom services does not lead to the conclusion that the assessee had started providing the telecom services. In fact, the assessee launched its commercial services in Ahmedabad & Gandhinagar on 24.1.1997. While referring to the decisions in the case of JCIT Vs. Sardar Sarovar Narmada Nigam Limited, 93 TTJ 965(Ahmedabad), Western India Vegetable Products Limited Vs. CIT, 26 ITR 151(Bombay) and Sponge Iron India Limited, 201 ITR 770 (AP), the 4 5 ITA No.1878& 1361/Ahd/2009 assessee contended that the receipt of certificate of commencement business is not a conclusive test for commencement of activities by the assessee. The assessee further invited the attention of the ld. CIT(Appeals) to list of cellular mobile services licenses published by the Department of Telecommunications, reflecting the date of start of telecom service on 21-01- 1997. Relying on the principles of consistency, it was contended that the Department having accepted the position of the assessee for every assessment year since the AY 1996-1997, cannot now adopt a contrary position to contradict its own findings. in this connection, the assessee relied upon the decisions in the case of Radhaswami Satsang Vs. CIT 193 ITR 321 (SC),CIT Vs. Lagankala Upvan,259 ITR 489(Del.),CIT Vs. N.P Mathew,280IT 44,CIT Vs. Kochin Goods Transport Association,236 ITR 996(Ker),Lovely Balshiksha Parishad,266 ITR 349(Del.),CIT Vs. Nirmal Commercial Ltd.,213 ITR 361(Bom.),ITO Vs. Tejmalbhai & Company,100TTJ 898(Rajkot) and. CIT v. Bhartesh Jain (310 ITR 82) (Delhi). While relying upon their submissions before the AO, the assessee added that the AO can not change the initial year in the assessment proceedings for the year under consideration.
4. After considering the aforesaid submissions, the ld.. CIT(A) upheld the findings of the AO mentioning that notes to the accounts of the assessee for the FY 1995-96 revealed that the assessee started construction work of installation of sites and towers by 31-3-96. Referring to the decisions in the case of Saurashtra Cement & Chemical Industries and ESPN Software India P. Ltd., relied upon by the A.O. and note B-9 to schedule 7 of the Annual accounts for the F.Y. 1995-96 as also the Director's report for the year ending 31.03.1996, the ld. CIT(A) concluded that commencement of business operation of the appellant has taken place by 31.03.1996 as soon as it has undertaken the first activity of construction and therefore , the first year of commencement of business in the case of the assessee is held as A.Y. 1996-
97.While rejecting the contentions on behalf of the assessee for following the rule of consistency and relying upon various decisions , the ld. CIT(A) further concluded that decision taken in regard to an earlier assessment year does not operate as res judicata in the subsequent year.
5 6 ITA No.1878& 1361/Ahd/20095. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(Appeals).The learned AR on behalf of the assessee while carrying us through the impugned orders and the relevant documents in the paper book submitted that the company was incorporated on 14-03-1995 while certificate of commencement of business was granted on 04-04-1995. The company entered into an agreement with the Government for providing telecommunication services in the State of Gujarat vide agreement dated 11- 01-1996 while the commercial services were launched only on 24-01-1997. While inviting our attention to the provisions of section 80IA(4)(ii) of the Act, the ld. AR submitted that the words used in the section are "starts providing telecommunication services". In view of these specific words, it cannot be said that the company started providing telecommunication services when certificate of commencement of business was granted since for providing telecommunication services huge infrastructure is necessary. While referring to page 51 and 52 of the paper book, the ld. AR pointed out that as on 31-03- 1996 only capital advance of Rs. 1,06,50,000/- shown under the head 'Fixed Assets' was given besides payment of license fee of Rs. 46,34,54,000/-. Referring to page 59 of the paper book, the ld. AR pointed out that company started commercial operation in Ahmedabad only on 24-01-1997 and accordingly sales and service Revenue was reflected for the first time in the balance sheet as on 31-03-1997 to the extent of Rs. 4,32,28,337/- The list of cellular providers as on 31-03-2006 ( copy placed at page 4 of the paper book), also mentions the date of start of initial services as 21-01-1997 while even the assessment order dated 29-01-1999 in the assessee's own case for the assessment year 1996-97 concluded that no business activities were carried out. While referring to the impugned assessment order, the ld. AR pointed out that while passing the order, the AO is recording findings relevant for the Assessment Year 1996-97 and 1997-98. According to the ld. AR first year when deduction was claimed by the assessee is AY 2005-06; however, the AO did not allow the deduction u/s 80IA of the Act. While referring to page 94 of the paper book, the learned AR added that though the assessee earned profits in the Assessment Year 2004-2005, it did not claim deduction u/s 80IA of the Act. While carrying us through page 46, 54, 55 of the paper book, the learned AR further submitted that terms and conditions in the license 6 7 ITA No.1878& 1361/Ahd/2009 agreement were not relevant. The issue in this case was whether there was any material that telecom services were rendered in the assessment year 1996-1997 which has been treated as first year of providing telecommunication services by the Assessing Officer. The ld. AR submitted that the decisions relied upon by the AO in CIT Vs. ESPN software India Private Limited, 301 ITR 368(Delhi) CIT Vs. Saurashtra Cement and Chemical Industries Limited, 91 ITR 170(Gujarat) were not rendered in the context of provisions 80IA of the Act. While relying upon the decisions reported in Radha Soami Satsang Vs. CIT,193 ITR 321 (SC) and CIT Vs. India Forge & drop Stampings,240 ITR 208 (Madras), the ld. AR submitted that in the light of the principles of consistency, the AO & the ld. CIT(A) were not justified in holding that the AY 1996-97 was the first year when the assessee started providing telecommunication services. On the other hand, the learned DR supported the findings of the ld. CIT(A).
6. We have heard both the parties and gone through the facts of the case as also the decisions referred to before us. The issue before us is as to when the assessee started providing telecom services in terms of provisions of section 80IA(4)(ii) of the Act. The issue is not as to when the assessee set up or commenced business as has been considered by the ld. CIT(A). Undisputedly, after signing the license agreement on January 11, 1996, the assessee started the process of installation of various infrastructural facilities like telecom towers, leased lines, data circuits and other communication equipments etc. at various sites. Mere receipt of license to provide telecommunication services without any infrastructure or resources would not result in providing telecommunication services. In this connection ,it would be relevant to read the following note B-1 to the annual accounts for F.Y. 1995- 96, which reveals as under;
"As the company has not commenced its commercial services during the year under review, no separate profit and loss account has been prepared. Instead the statement on incidental Expenditure during construction period pending allocation has been prepared."
Further the note B-6 reads as under:
"As the company has not started commercial services during the year under review, informations stated in paragraph 3 and 4A of 7 8 ITA No.1878& 1361/Ahd/2009 Part II of Schedule VI to the Companies Act, 1956 are not applicable."
6.1 As pointed out by the ld. AR, we find that as on 31-03-1996 only capital advance of Rs. 1,06,50,000/- shown under the head 'Fixed Assets' was given besides payment of license fee of Rs. 46,34,54,000/-. The company started their commercial operations in Ahmedabad/Gandhinagar only on 24-01-1997 and accordingly, sales and service Revenue was reflected for the first time in the balance sheet as on 31-03-1997 to the extent of Rs. 4,32,28,337/- The list of cellular providers as on 31-03-2006 ( copy placed on page 4 of the paper book) also mentions the date of start of initial services as 21-01-1997 .Even the assessment order dated 29-01-1999 in the assessee's own case for the assessment year 1996-97 concluded that no business activities were carried out. These evidences lead only to one conclusion that the assessee did not start providing telecommunication services in the period relevant to the AY 1996-97.We are further of the opinion that whether or not the assessee started providing telecommunication services in any year , has to be decided in the assessment proceedings for that year in the light of the relevant facts and circumstances obtaining in that assessment year alone. Here we may refer to the following passage occurring in New Jehangir Vakil Mills Co. Ltd. v. CIT [1963] 49 ITR 137 (SC), 142:
" The extent to which a decision given by an Income-tax Officer for one assessment year affects or binds a decision for another year has been considered by courts several times and speaking generally it may be stated that the doctrine of res judicata or estoppel by record does not apply to such decisions; in some cases it has been held that though the Income-tax Officer is not bound by the rule of res judicata or estoppel by record, he can reopen a question previously decided only if fresh facts come to light or if the earlier decision was rendered without taking into consideration material evidence, etc."
6.2 In the case under consideration, the AO has not reopened the assessment proceedings for the AY 1996-97 . Instead, the findings recorded in the AY 1996-97 are being reconsidered in the year under consideration. This approach of the AO is against the settled position in law. As observed by the Hon'ble Apex Court in their aforesaid decision, AO can reopen a question previously decided only if fresh facts come to light or if the earlier decision was rendered without taking into consideration material evidence, etc. No 8 9 ITA No.1878& 1361/Ahd/2009 such material has been placed before us on behalf of the Revenue that certain fresh facts came to light or that relevant material evidence was ignored at that time in the proceedings for the AY 1996-97. In these circumstances , we find merit in the undisputed contentions of the ld. AR that principles of consistency should have been adhered to. In this connection, Hon'ble jurisdictional High Court in their decision in the case of Taraben Ramanbhai Patel & Another (supra) in the context of levy of penalty u/s 271(1)(a) observed as under:
" It is no doubt true that the strict rule of the doctrine of res judicata does not apply to proceedings under the Income-tax Act. At the same time, it is equally true that unless there is a change of circumstances, the authorities will not depart from previous decisions at their sweet will in the absence of material circumstances or reasons for such departure : Joint Family of Udaya Chinubhai v. CIT [1967] 63 ITR 416 (SC), AIR 1967 SC 762 ; Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) ; AIR 1992 SC 377 ; H. A. Shah and Co. v. CIT/EPT [1956] 30 ITR 618 (Bom).
In the last mentioned case, it was observed that if the question was not considered in detail in earlier proceedings, it is open to the authorities to consider those documents and to come to a different conclusion. But if the question is already decided on the basis of the facts and there is no change in that factual position, it cannot be reopened. In the instant case, as observed by us hereinabove, the fact was brought to the notice of the respondent authority by the petitioners that litigation was going on between the parties and the receiver was appointed by the High Court of Bombay. That fact was also accepted by the Department for the assessment year 1978-79 and even for the year 1982-83 in respect of a number of appeals filed by other co- owners as also by some of the petitioners. In our opinion, there was no good and justifiable cause to take a different view when some appeals came before a different officer without there being any change in the factual position and when the earlier decision was not challenged by the Department."
6.3 The aforesaid decision has been followed by the Hon'ble jurisdictional High Court in their subsequent decision in Lalludas Children Trust Vs, CIT,251 ITR 50(Guj) .Similar view has been taken in the several cases including in DIT Vs. Lovely Bal Shikha Parishad,266 ITR 349(Del.),DIT Vs. Guru Nanak Vidhya Bhandar Trust, 272 ITR 379(Del.), CIT Vs. Leader Valves Ltd.,295 ITR 273(P&H) and CIT Vs. DS Promoters & Developers Pvt. Ltd., 25 DTR (Del) 8,Arihant Builders Developers & Investors (P.) Ltd v. ITAT [2005] 277 ITR 239 (MP), Asstt. CIT v. Gendalal Hazarilal & Co. [2003] 263 ITR 679 (MP), CIT v. Neo Poly Pack (P.) Ltd [2000] 245 ITR 492 (Delhi),. Dhansiram Agarwalla v. CIT [1996] 217 ITR 4 (Gauhati), CIT v. Shiv Sagar Estate [2002] 9 10 ITA No.1878& 1361/Ahd/2009 257 ITR 59 (SC) and Union of India v. Satish Pannalal Shah [2001] 249 ITR 221 (SC).In our opinion, there was no good and justifiable cause to take a different view and conclude in the assessment proceedings for the year under consideration that the AY 1996-97 was the first year when the assessee started providing telecommunication services, without there being any change in the factual position and when the earlier decision was not challenged by the Department. As pointed out in the Director's report for the AY 1997-98 and the relevant accounts for that year, the assessee started providing telecommunication services only in the period relevant to the AY 1997-98. The evidence brought to our notice by the ld. AR on behalf of the assessee and uncontroverted by the Revenue unmistakeablly points out that the assessee started providing telecommunication services in the period relevant to the AY 1997-98 and this has already been concluded in the assessment proceedings for the relevant AY 1997-98. In view thereof, we have no hesitation in vacating the findings of the lower authorities on this issue and. therefore, allow ground nos. 1 to 1.3 in the appeal of the assessee.
7. Next ground nos. 2,2.1 & 2.2 relate to claim for deduction u/s 80IA of the Act in terms of provisions relevant for the AY 1996-97. Since the AO concluded that the assessee started providing telecommunication services in the period relevant to the AY 1996-97, accordingly, he was of the opinion that the assessee was entitled to deduction under Section 80IA only upto the AY 2005-2006. In response to a show cause notice, proposing to apply the provisions of Section 80IA of the Act as these stood before the amendment brought about by Finance Act, 1999 with effect from 01-04-2000, the assessee explained vide letter dated 17-11-2008 that they had started providing telecommunication services in the period relevant to the AY 1997- 1998. Since the amended provisions alone would be applicable in the year under consideration, they were entitled to deduction @ 100% of the profits and gains of the undertaking. According to the AO, the assessee had no option to choose initial assessment year in terms of provisions of section 80IA of the Act as existed in the AY 1996-1997. Since there was no option for the assessee, it had to claim deduction in the AY 1996-1997 itself and for subsequent nine years and not from any other year. However, the assessee pleaded before the AO that in April 2002, section 80IA was amended and the 10 11 ITA No.1878& 1361/Ahd/2009 period for which deduction was available, become 10 consecutive years out of 15, beginning from the year in which undertaking started providing telecommunication services. In both pre-amended and post amended sections, 100% deduction of eligible profits was available for the first 5 years and the 30% in next 5 years. Before the Assessing Officer, the assessee claimed that they started availing deduction u/s 80IA of the Act only from the Assessment Year 2005-06 i.e. after the period from which the amendment had been inserted. However, the AO did not accept these contentions of the assessee on the ground that once the assessee started providing telecommunication services with effect from the AY 1996-97, deduction under Section 80IA would be available to it from the assessment year 1996-97 onwards for 10 consecutive years as per the extant provisions.
7.1 The AO further noticed found that the assessee exercised its option of not claiming deduction under Section 80IA from the first year of operation in the Assessment Year 1997-1998 in view of loss in that year, as was evident from the note attached to the computation of the income for the AYs 1997-98. Similar was the position in the AY 1998-99 & 1999-2000. However, in the return for the AY 2000-2001, the assessee recorded a following note in the computation of income.
"In view of the provisions of subsection (2) of section 80IA of the Income Tax(sic.) Act, 1961, the company exercises its option not to claim relief for tax holiday in the present year in view of the losses and would claim the same from the year in which it has gross total income."
This note was recorded in view of the amendment in the provisions of section 80IA of the Act by Finance Act, 1999 with effect from 01-04-2000 . The AO observed that the assessee having exercised the option in the Assessment Year 1997-1998, 1998-1999, 1999-2000, could not change its stand to take shelter behind a new and more beneficial provisions. The AO also concluded that amendment made in April 2002 was not a retrospective amendment and that the option available post April 2002 was only for those concerns which could not avail deduction under Section 80IA of the Act upto April 2002 for want of license. Since the assessee had got license to provide telecommunication services in the previous year relevant to the AY1996-1997, 11 12 ITA No.1878& 1361/Ahd/2009 the assessee was not entitled to any deduction in the year under consideration.
7.2 Without prejudice to his aforesaid findings, the AO also observed that even if initial year is taken as AY 1997-98, the assessee would be entitled to deduction @30% of the eligible profits and not @100% and that too after set off of the losses of earlier years.
8. On appeal, the assessee contended since the assessee company started providing telecommunication services in the period relevant to the AY 1997-98, it was entitled to deduction in terms of provisions of sec. 80IA of the Act . In accordance with the provisions of section 80IA(2) of the Act, the assessee can claim deduction @ 100% of the eligible profits for the first five years and 30% for the next 5 years so long as option to claim deduction under Section 80 IA is exercised at any time during the 15 years, beginning from the year in which the undertaking starts providing telecommunication services. While explaining the provisions of Section 80IA of the Act amended by the Finance Act 1999 with effect from 01-04-2000, the assessee contended that wherever legislature intended to bring such an amendment into effect, it had been clearly specified therein; for example in the new section 10A of the Act, replacing the old section 10A with effect from 01-04-2001, it was clearly provided that the undertakings which claimed deduction under the old section, shall be entitled for deduction under new section only for the unexpired period. Since the amended provisions of section 80IA used the words 'which has started or starts providing telecommunication service' as against the mere use of words which 'starts providing telecommunication service in the old section 80IA', the intention for specifically inserting the words 'has started' prior to the words 'or starts' was to provide the tax holiday to undertaking which had already started providing telecommunication services prior to the insertion of amended provisions. While referring to circular No. 779 dated 14- 09-1999 and circular No. 14 of 2001 and relying upon the decisions in case of Union Of India v. Azadi Bachao Andolan 263 ITR 706 (SC) ,Navnit Lal C. Javeri v. K.K. Sen 56 ITR 198 (SC),CWT v. Vasudeo V. Dempo 196 ITR 216 (SC) ,. Ellerman Lines Ltd 82 ITR 913 (SC),K.P. Varghese v. ITO 131 ITR 597 (SC),Commissioner of Customs v. Indian Oil Corporation Ltd.,267 ITR 12 13 ITA No.1878& 1361/Ahd/2009 272(SC), Ratan Melting,2008-TIOL-194-SC-CX-CB, the assessee contended that the aforesaid circulars were binding on the AO. Relying upon the decisions in the case of Reliance Jute & Industries Vs. CIT,120 ITR 921(SC),Maharajah of Pithapuram vs. CIT Madras (13 ITR 221) (PC), Karimtharuvi Tea Estate Ltd. vs. State of Kerala (60 ITR 262) (SC) and CIT vs. Goslino Mario and Others (241 ITR 314) (SC), the assessee further argued that substantive law has to be applied for any assessment year as it stands on the first day of the assessment year. While pointing out that the assessee exercised its option and started claiming deduction only from the AY 2005-06 onwards, it was contended that the AO accepted the position in the AY 2005-06 that the amended provisions of the Act were applicable.Their claim for deduction for Assessment Year 2006-2007 has to be considered on the basis of provisions of the Act as on 01-04-2006 and accordingly, the assessee opted for claiming deduction from the AY 2005-2006 for a period of 10 years. Relying upon the decision of Chennai Bench of the ITAT in the case of Mohan Breweries & Distilleries Ltd. (114 TTJ 532) (Mad) and Bank of Baroda Vs. S.C. Shrivastava,12 Taxman 330(Bom.),ACIT Vs Aurangabad Holiday Resorts (P) Limited, 111 TTJ 741(Pune) , Siemens India Limited,143 ITR 120, Bajaj Tempo Ltd.,|196 ITR 188(Bom.), CIT Madras vs. South Arcot District Cooperative Marketing Society Ltd (176 ITR 117) (SC), CIT Lucknow vs. U.P. Co-operative Federation Ltd. (176 ITR 435, 441) (SC) and Broach Distt. Co-operative Cotton Sales, Ginning and Pressing Society Limited, Appellant vs. Commissioner of Income Tax, Ahmedabad (117 ITR 418) (SC), the asseessee contended that the assessee is entitled to deduction @100% of the profits and gains of the industrial undertaking. The assessee further pointed out while referring to the provisions of sec. 80IA(2) of he Act the word 'claimed' used in the said section means actually claimed. If the assessee has not claimed the deduction, it can not be said to be allowed to him.
9. In the light of the aforesaid submissions, the ld. CIT(Appeals) concluded as under:
"3.5 I have considered the facts of the case and the submissions as advanced by the A.R. carefully alongwith case laws relied upon. The AO held in the assessment order that the provisions of Sec. 80IA as it existed during the A.Y. 96-97 are applicable to the appellant, whereas the A.R. has argued that the provisions of amended section 80IA are 13 14 ITA No.1878& 1361/Ahd/2009 applicable as the same existed for A.Y. 2006-07 . The A.O. has considered that the first year of claim of deduction u/s. 80IA is A.Y. 96- 97 and, therefore, the 10th year of claim is A.Y. 2005-06 and therefore, the appellant is not entitled to deduction u/s. 801A for this year. The appellant has taken a stand that provisions of sec. 80IA were amended and as per amended provisions, the appellant can claim for deduction u/s. 80IA in any of 10 years within a period of 15 years at the option of the appellant. According to the A.R. the appellant started claiming for the first time deduction u/s.80IA in A.Y. 2005-06, as against this, the AO has stated that under the old provisions, there was no question of exercising option and the first year of claim of the appellant was A.Y. 1996-97. Therefore, the issue is which is the first year for claiming deduction u/s. 80IA. The A.R. has strongly argued that first year of claim is A.Y. 2005-06 when the appellant has started exercising option for claiming deduction u/s. 801A and even though it had profits in A.Y. 2004-05 it had not claimed deduction u/s. 80IA in A.Y. 2004-05 and the A.R. has also contended that deduction cannot be thrust upon the appellant for A.Y. 97-98, as the appellant had not claimed deduction in A.Y. 1997-98 .I do not agree with the contention of the A.R. and considering the totality of facts in this case I am inclined to agree with the observation of the A.O. that the first year of claiming of deduction u/s. 801A in the case of the appellant is A.Y. 1996-97 and the appellant is entitled to deduction for 10 years from the year including the initial assessment year, as the provisions existed before the amendment in section 80IA . As no option was provided in the old provisions of section 80IA, the appellant did not have any option but to claim the deduction u/s.80IA for 10 years starting from A.Y. 1996-97. The provisions were amended to extend and provide incentive benefit to the assessees who were granted license from 1-4-1995 but could not start the commercial operations till 1-4-2002 by extending the scheme to 15 years. Therefore, the period of 10 years for claiming deduction expires in A.Y. 2005-06 and, therefore, the A.O. has rightly concluded that the appellant is not entitled for any deduction u/s. 80IA for this year. The A.O. has discussed the notes attached by the appellant to the computation of income for A.Y. 97-98, 98-99 & 1999-2000, wherein it was mentioned that "deduction u/s. 80IA has not been claimed in view of loss claimed by the company". Therefore, it is clear that the appellant had started exercising its option to claim deduction u/s. 80IA from A.Y. 1997-98 and as there was no positive profit, the appellant was not entitled to any deduction. It is seen that the appellant has changed the notes from A.Y. 2000-01 after the amendment was made in section 80IA to suit its convenience. Further, the amendment made in April, 2002 is not a retrospective amendment and, therefore, it has not annulled the provisions of section 80IA which existed between A.Y. 1997-98 and A.Y. 2002-03. Therefore, the appellant is entitled to deduction u/s. 80IA from A.Y. 97-98 for 10 years. The provisions were extended to 15 years, but the claim was limited to any 10 years out of 15 years at the option of the appellant, because those assessees who obtained license, but could not start operation till 2002, they were given the benefit of incentive provisions by such extension. The A.R. has claimed that deduction u/s.80IA can not be thrust on the appellant in A.Y. 1997-98 as the appellant has not claimed the same and that 14 15 ITA No.1878& 1361/Ahd/2009 claimed means actually allowed. For this the A.R. has relied upon the decision of Mahendra Mills Ltd.243 ITR 56(SC). However I do not agree with the contention of the A.R. as deduction of depreciation was the issue in Mahendra Mills Ltd and in my view depreciation and deduction u/s.80IA stand on different footings as section 80IA is an incentive provision and depreciation is allowed on account of wear and tear of assets and secondly incentive u/s.80IA is allowed only in case the appellant has profits whereas the depreciation is a statutory deduction allowed even if the assessee has loss. The reliance has been made by the A.R. on the decision of Mohan Breweries and Distilleries Ltd. (114 TTJ 532)(Chennai). But what that decision says is that section 80IA as amended by Finance Act 1999 gives an option to the assessee with effect from 1-4-2000 to claim relief for any 10 consecutive assessment years and before the amendment , the initial assessment year was defined in the Act which means there was no option to the assessees .The decision cited by the A.R. of Reliance Jute and Industries Ltd. 120 ITR 921 is on different facts and the said decision is applicable in the particular facts of the individual case as held in the case of Sun Engineering Works reported in 198 ITR 297(SC) "Such an interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete " law "
declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this court, to support their reasoning." The A.R. has referred to Circular No.717 of 1995 and clause 34.5 thereof saying the assessee have option to choose initial assessment year, out of 12 years, but 12 years period was provided for co-operative societies and option was given to choose any 10 years out of 12 years and for companies the period was 10 years and there was no option. In view of the above facts and the detailed reasoning given by the A.O., I confirm the finding of the A.O. and hold that no deduction u/s. 80IA is available to the appellant for the year under consideration. This ground of the appellant is thus dismissed."
10. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A) .The ld. AR on behalf of the assessee while reiterating their submissions before the ld. CIT(A) submitted that the assessee is entitled to deduction at the rate of 100% of the profits of the Industrial Undertaking in the year under consideration in terms of provisions of sec. 80IA of the Act and not @ 30%. In the period relevant to the assessment 15 16 ITA No.1878& 1361/Ahd/2009 year 1997-98, when the assessee started providing telecommunication services, it was entitled to deduction @100% of the profits for the first five years & @30% in the subsequent five years. The assessee did not actually claim any such deduction in the period relevant to the AY 1997-98 until the AY 2003-04 in view of losses. Meanwhile, provisions of sec. 80IA were amended by the Finance Act, 1999 with effect from 01-04-2000 and the assessee exercised its option and consecutively became entitled to deduction @ of 100% of the profits, the first year being assessment year 2005-2006. Before this , the assessee did not make any claim for deduction u/s 80IA of the Act. While submitting that the words used in Section 80IA(4)(ii) are 'has started or starts...' and referring to para 48.2 of circular issued by the CBDT, explaining the provisions relating to Direct Taxes stipulated in the Finance Act, 2001 and relying upon the decision in the case of Bajaj Tempo Limited, 196 ITR 188(SC), learned AR submitted that ordinarily a provision in a taxing statute granting incentives has to be construed liberally and simultaneously the restriction on it too has t be construed so as to advance the objects of the provisions.
10.1. Continuing, the ld. AR while relying upon the decision in the case of Reliance Jute & Industries Ltd Vs. CIT,120 ITR 921 (SC), the ld. AR on behalf of the assessee argued that law as on first day of April 2006 has to be applied for examining entitlement to deduction u/s 80IA of the Act and the sub- section (2A) has to be given full import. He added that the issue is no longer res-integra in view of the decision dated 17.6.2008 of ITAT in Mastak Limited in ITA No. 1688 & 4352/Ahd/2003 where in it was held that once the conditions stipulated in section 10A of the Act were fulfilled in terms of amended provisions, providing deduction for 10 consecutive assessment years instead of five earlier, the assessee can not be denied the claim for deduction.
10.2 . The ld. AR on behalf of the assessee further relied upon the decision of the Chennai Bench of the ITAT in the case of Mohan Breweries and Distilleries Ltd. v. Assistant Commissioner of Income-Tax, 116 ITD 241 [Chennai]. Referring to circular No.717 of 85 issued by the CBDT, the ld. AR pleaded that , the assessee argued that they are entitled to deduction @100% 16 17 ITA No.1878& 1361/Ahd/2009 of the profits, first year being the AY 2005-06. In the period relevant to the AY 1997-98, there was no such provisions of exercising option and therefore findings of the ld. CIT(A) that the assessee exercised the option in the AY 1997-98 is not correct. While referring to the provisions of sec. 10A(8) and 115I of the Act, the ld. A contended that wherever there is provision for option for non-applicability, it has been specifically provided in the statute.
11. On the other hand, the learned DR pointed out that provisions relating to relief are not to be construed liberally as has been held in the case of IPCA Laboratory Limited, 266 ITR 591(SC) He added that prior to 01-04-1999 there was no provision for opting initial year for claiming deduction u/s 80IA of the Act. Since the assessee started providing telecommunication services in the period relevant to Assessment Year 1997-98,apparently, it had no option to choose the initial Assessment Year, because initial Assessment Year was fixed under the statute and the assessee could not suo-motu change. He added that provision for option was available to those undertaking who had after the insertion of the relevant provisions started providing telecommunication services and even thereunder option is for selection of 10 years and not lesser number of years. The ld. DR further submitted that once the asessee started providing telecommunication services, he had no option in terms of the extant provisions applicable for the AYs 1997-98. He added that claim for deduction u/s 80IA of the Act has been examined only in the year under consideration and not in the preceding assessment years.
12. We have heard both the parties and gone through the facts of the case and the decisions cited before us. The issue before us as to whether or not the assessee is entitled to claim deduction u/s 80IA in terms of the provisions amended w.e.f 1.4.2000 even when the assessee had already started providing telecommunication services in the period relevant to the AY 1997-98. Before proceeding further, we may have a look at the provisions relevant to the AY 1997-98 and subsequent amended provisions. The relevant provisions of sec. 80IA so far as applicable in the case of the assessee read as under:
17 18 ITA No.1878& 1361/Ahd/200980-IA.Deduction in respect of profits and gains from industrial undertakings, etc., in certain cases.
(1) Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a ship or developing, maintaining and operating any infrastructure facility or scientific and industrial research and development or providing telecommunication services whether basic or cellular (such business being hereinafter referred to as the eligible business), to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the percentage specified in sub-section (5) and for such number of assessment years as is specified in sub-section (6).
.................................................................................... ........................................
(4C) This section applies to any undertaking which starts providing telecommunication services whether basic or cellular at any time on or after the 1st day of April, 1995 but before the 31st day of March, 2000.
(5) The amount referred to in sub-section (1) shall be -
(ic) in the case of an undertaking referred in sub-section (4C), hundred per cent. of the profits and gains derived from such business for the initial five assessment years and thereafter, twenty-five per cent. of the profits and gains derived from such business:
Provided that, where the assessee is a company, the provisions of this clause shall have effect as if for the words "twenty-five per cent.", the words "thirty per cent." had been substituted;
(6) The number of assessment years referred to in sub-section (1) shall, including the initial assessment year, be -
(vi) ten in the case of an assessee, being an undertaking referred to in sub-section (4C), deriving profits and gains from telecommunication services whether basic or cellular;
(12) For the purposes of this section,-
(c) "initial assessment year",-
(4) in the case of an undertaking referred to in sub-
section (4C) means the assessment year relevant to the 18 19 ITA No.1878& 1361/Ahd/2009 previous year in which the undertaking starts to provide the telecommunication services whether basic or cellular ;
12.1 The relevant provisions of sec. 80IA amended by the Finance Act,1999 w.e.f 1.4.2000 read as under:
'80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. -
(1) Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or an enterprise referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to hundred per cent. of profits and gains derived from such business for the first five assessment years commencing at any time during the periods as specified in sub-section (2) and thereafter, twenty-
five per cent. of the profits and gains for further five assessment years:
Provided that where the assessee is a company, the provisions of this sub- section shall have effect as if for the words "twenty-five per cent", the words "thirty per cent." had been substituted.
(2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park or generates power or commences transmission or distribution of power:
...................................................................................................... .................................
(4) This section applies to---
........................................................................................
(ii) any undertaking which has started or starts providing telecommunication services whether basic or cellular, including radio paging, domestic satellite service or network of trunking and electronic data interchange services at any time on or after the 1st day of April, 1995 but before the 31st day of March, 2000."
...............................................................................
12.2 Following clause (2A) was inserted in sec. 80IA w.e.1.4.2001:
(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), the deduction in computing the total income of an undertaking providing 19 20 ITA No.1878& 1361/Ahd/2009 telecommunication services, specified in clause (ii) of sub-section (4), shall be hundred per cent. of the profits and gains of the eligible business for the first five assessment years commencing at any time during the periods as specified in sub-section (2) and thereafter, thirty per cent. of such profits and gains for further five assessment years.
12.3 The relevant provisions as existing in the year under consideration and the preceding assessment year 2005-06 read as under:
80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent. of profits and gains derived from such business for ten consecutive assessment years.
(2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park or develops a special economic zone referred to in clause (iii) of sub-
section (4) or generates power or commences transmission or distribution of power or undertakes substantial renovation and modernization of the existing transmission or distribution lines :
Provided that where the assessee develops or operates and maintains or develops, operates and maintains any infrastructure facility referred to in clause (a) or clause (b) or clause (c) of the Explanation to clause (i) of sub-section (4), the provisions of this sub-section shall have effect as if for the words "fifteen years", the words "twenty years" had been substituted.
(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), the deduction in computing the total income of an undertaking providing telecommunication services, specified in clause (ii) of sub-
section (4), shall be hundred per cent. of the profits and gains of the eligible business for the first five assessment years commencing at any time during the periods as specified in sub-section (2) and thereafter, thirty per cent. of such profits and gains for further five assessment years (4) This section applies to---
.......................................................................................
(ii) any undertaking which has started or starts providing telecommunication services whether basic or cellular, including radio paging, domestic satellite service, network of trunking, 20 21 ITA No.1878& 1361/Ahd/2009 broadband network and internet services on or after the 1st day of April, 1995, but on or before the 31st day of March, 2005. "
12.4 The legislative history of provisions of sec. 80-IA reveals that the said section was originally inserted by Finance (No.2) Act, 1991 with effect from April 1, 1991. The said section was later divided into section 80IA and 80IB by Finance Act, 1999 with effect from April 1, 2000. The section, as it existed in the period relevant to the AY 1997-98 stipulated that deduction is admissible, including the initial assessment year @ 100% of the profits and gains of the undertaking for the initial five assessment years and 30% for the balance five assessment years, beginning with the assessment year relevant to the previous year in which the undertaking starts providing telecommunications services, whether basic or cellular at any time on or after April 1, 1995 but before March 31, 2000. Section 80IA, as it stands today after the amendment provides for an option to the assessee to claim deduction for any ten consecutive assessment years out of fifteen years beginning with the year in which the undertaking starts providing telecommunication services. It is not disputed before us that the assessee started providing telecommunication services in the State of Gujrat in the period relevant to the AY 1997-98. Since the assessee incurred loss in the AYs 1997-98,1998-99 & 1999-2000, the assessee did not claim any deduction in terms of provisions of section 80IA of the Act. Thereafter, provisions of sec. 80iA of the Act were amended and clause (2) of the amended provisions allowed an option to the assessee to claim benefit for any 10 consecutive years out 15 years commencing from the year in which the assessee starts providing telecommunication services. Clause (4)(ii) of the said section stipulated that this section (80IA) applied to any undertaking which has started or starts providing telecommunication services. Simultaneously definition of initial year in terms of the old provisions was removed. Consequently, the assessee exercised its option of claiming the deduction u/s 80IA from the AY 2005-06. The AO and the ld. CIT(A) are of the opinion that the relevant provisions as these stood in the period relevant to AY 1996-97 would determine the deduction u/s 80IA of the Act in the year under consideration. Since the assessee did not have any option in choosing the initial year as defined in the provisions relevant for the AY 1997-98 nor the assessee could have claimed any deduction u/s 80IA of the Act in the AY 1996-97 to 1999-2000 or even 21 22 ITA No.1878& 1361/Ahd/2009 after until the AY 2003-04 due to losses while the amended provisions provided option to the undertaking which had started providing telecommunication services on or after 1.4.1995 and the assessee fulfilled all other conditions stipulated u/s 80IA of the Act, we are of the opinion that the ld. CIT(A) was not justified in holding that the assessee having exercised option in the AY 1997-98[even when there was no such provision providing an option to the assessee] was not entitled to exercise option in terms of the amended provisions applicable in the AY 2000-01 onwards. Undisputedly, no deduction was claimed by the assessee in the period relevant to the AY 1997- 98 to 1999-2000, The amended provisions applicable w.e.f. 1.4.2000 allowed option to even those undertakings which had already started providing telecommunication services on or after 1.4.1995. We are of the opinion that that the assessee could not be denied benefit of the amended provisions, once it fulfilled the conditions stipulated in the relevant provisions . While construing beneficial provisions, it becomes necessary to resort to a construction which is reasonable and purposive to make the provision meaningful. In CIT v. Strawboard Manufacturing Co. Ltd. [1989] 177 ITR 431 (SC), it was held that the law providing for concession for tax purposes to encourage industrial activity should be liberally construed. If the interpretation adopted by the Revenue authorities is accepted , the words used in sec.
80IA(4)(ii) 'has started' become redundant. Such can not be the intention of the legislature. Hon'ble Apex Court in Bajaj Tempo Ltd. (supra) referred to by the ld. AR observed that ordinarily a provisions in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since a provision intended for promoting economic growth has to be interpreted liberally, the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it. Hon'ble Apex Court in another decision in the case of CIT Vs. Cellulose Products of India Ltd.,192 ITR 155(SC) observed that when there is a genuine doubt about the interpretation of a fiscal statute or two options are capable of being formed that a rule of interpretation that a provision granting relief should be construed so as to effectuate the object of thereof may be taken recourse to. Moreover circular no. 14 of 2001 issued by the CBDT in terms consequence of Finance Act,2001 while explaining the purpose of amendments to sec. 80IA of the Act mentioned as under:
22 23 ITA No.1878& 1361/Ahd/200948.2 The country's telecommunication services are modernizing rapidly and are critically poised. With a view to promoting communication capacity and convergence by encouraging investment levels in these segments, the two tier benefit is being extended to include internet service providers and broadband networks. The benefit is being similarly liberalized and shall uniformly cover all undertakings, set up after 1st April, 1995, but on or before 31st March, 2000, and will also include undertakings set up after 31st March, 2000."
12.41 In the light of aforesaid decisions and the circular issued by the CBDT, at the cost of repetition, we may reiterate that the assessee could not be denied the benefit of the amended provisions, once it fulfilled the conditions stipulated in the relevant provisions of sec. 80IA of the Act . These provisions have to be construed in consonance with the avowed aim and object of the legislature in enacting these provisions and to further these and not to defeat these. The provisions of sec. 80IA have to be construed reasonably in the context of the purpose for which these provisions have been amended. As explained in the aforesaid circular no. 14 of 2001, the provisions have been liberalized in order to promote communication capacity and modernize and therefore tax benefit has been provided uniformly to all undertakings which started providing telecommunication services on or after 1.4.1995 but on or before 31st March,2005.
12.5 It has been brought to our notice on behalf of the assessee that while adjudicating a claim for deduction u/s 10A of the Act in the light of amended provisions in the case of Mastek Ltd.(supra), the ITAT allowed the claim for deduction. In that case the assessee had three units. In respect of one of the units viz. 106, the assessee claimed exemption under section 10A of the Act for the assessment years 1991-92 to 1995-96. Thereafter, for the assessment years 1996-97 to 98-99, the assessee claimed deduction under section 80HHE of the Act. The said claim for deduction u/s 80HHE is stated to have been rejected in the AY 1996-97 on the ground that the details of export realizations were not available and receipts included amounts on account of recruitment and training charges and interest income and foreign exchange fluctuation. Thereafter, section 10A of the Act was amended with effect from 01.04.1999, wherefrom the deduction under section 10A of the Act was made available for a period of ten consecutive assessment years instead of five 23 24 ITA No.1878& 1361/Ahd/2009 consecutive assessment years out of eight years. Since the assessee in that case had already availed deduction under section 10A for a period of five consecutive assessment years out of eight years and in between claimed deduction under section 80HHE of the Act for the three assessment years, the AO disallowed the claim for deduction under section 10A of the Act for the assessment years 1999-2000 & 2000-01.On appeal , the ld. CIT(A) upheld the findings of the AO. On further appeal, the ITAT held that "7.3. In the light of aforesaid decisions and after considering the relevant provisions of law as also facts of the case, especially when the Revenue has not disputed that the taxpayer fulfilled the conditions stipulated under the section 10A of the Act in the years under consideration, we are of the opinion that the ld. CIT(A) was not justified in denying the claim for exemption u/s 10A of the Act. The relevant portion of the memorandum explaining the provisions of Income-tax(Second Amendment)Bill 1998 read as under;
"Clause 3 seeks to amend section 10A of the Income-tax Act. Under the existing provisions, tax holiday is available to newly established industrial undertakings set up in free trade zones and ,to units set up in software technology parks for five years out of block of initial eight years, subject to fulfillment of certain conditions. The proposed amendment seeks to extend the period of holiday from five years to ten years in order to give added thrust to exports. Clause 4 seeks to similarly extend the five year tax holiday period to 10 years to the export oriented units under section 10B of the Income-tax Act."
7.4 As is evident from the aforesaid memorandum, the period of tax holiday is extended for and from the AY 1999-2000 from five years to ten years in order to give added thrust to exports. The condition about the block of initial years has altogether been removed. The case of the taxpayer for the assessment years under consideration falls within the amended provisions. The finding of the ld. CIT(A) about the identity of the unit in the intervening years, when taxpayer claimed deduction u/s 80HHE of the Act, is in our opinion, irrelevant, especially when claim for exemption has to be examined in each year in accordance with the relevant provisions of law. There is nothing in the amended provisions of section 10A of the Act, debarring the taxpayer for claiming exemption under section 10A in the extended period even when it had already availed the exemption for a period of five years out of eight years, beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things. In the light of decision of the ITAT Bangalore Bench 'B' in ITA No. 602/Bang/05 (supra) we have no alternative but to reverse the order of the lower authorities on this issue and the AO is directed to allow the claim for exemption under section 10A of the Act in respect of profits and gains derived by the taxpayer in its industrial undertaking i.e. unit 106, in accordance with law..............."
24 25 ITA No.1878& 1361/Ahd/200912.6 Our attention was also drawn to a decision in the case of Mohan Breweries and Distilleries Ltd.(supra), wherein while adjudicating a claim for deduction u/s 80IA of the Act ,Chennai Bench of the ITAT held as under:
"Section 80-IA as enacted by Finance Act, 1999 with effect from 1-4- 2000 as stated earlier gives an option to the assessee with effect from 1-4- 2000 to claim relief under this section for any 10 consecutive assessment years out of 15 years beginning from the year ending in which the undertaking or enterprise develops or begins to operate any infrastructure facility etc. It is left to the assessee at its will to claim this relief from the first assessment year, or from the second or from the third or so as it might think fit. Once the assessee has opted the first year of relief then it continues for further 9 consecutive years. To claim this relief the undertaking is to be set up during the period 1-4-1993 to 31-3-2006. This is as per section 80-IA(4)(iv). Section 80-IA(2) clearly states that assessee can opt for year of deduction for any 10 consecutive years out of 15 years taken from the first year in which the undertaking or enterprise develops and begins to operate any infrastructure activity. It can be seen that section 80-IA(2) does not mandate that first year of 10 consecutive assessment years should be always the first year of set up of enterprise. If the intention of the Legislature is that the first year of set up is the initial assessment year to claim deduction under section 80-IA, then there is no meaning giving option to the assessee to claim deduction for 10 consecutive assessment years out of 15th years. The meaning of the section 80-IA(2) is that the assessee can- exercise the option in any 10 consecutive years starting from the first year in which the undertaking begins to operate any infrastructure facility. If the assessee opts to exercise the claim for first year, it should continue to claim the deduction for another 9 years. If it opted the second year to claim deduction, it should continue for another 9 years till the 11th year; similarly if it opted to claim relief from the 3rd year, it will end in the 12th year; if it opted to claim from the 4th year then it will end in the 13th year; if it opted to claim from the 5th year it will end in the 14th year and if it opted to claim from the 6th year it will end in the 15th year. ..............
6. Adverting to the facts of the case the initial assessment year in this case starts from 2004-05. Since the assessee has opted to claim this deduction only in this assessment year, the initial assessment year cannot be the year in which the undertaking commenced its operations and in this case the initial assessment year is the assessment year in which assessee has chosen to claim deduction under section 80-IA............".
12.61 As observed by the ITAT in the aforecited decisions, we are of the opinion that section 80-IA(2) of the Act nowhere provides that first year of 10 consecutive assessment years should be always the first year when the assessee starts providing telecommunication services. If that were so, then the words used in sec. 80IA(4)(ii) 'has started" become otiose. We may point out that the provisions of sec. 80IA of the Act are beneficial provisions and these have to be construed in such a manner so as to advance the objects of 25 26 ITA No.1878& 1361/Ahd/2009 the provisions and not to frustrate it. If the intention of the Legislature was that the first year of start of telecommunication services is the initial assessment year to claim deduction under section 80-IA of the Act, then the provision of option to the undertakings which had already started providing telecommunication services, would be meaningless.
12.7 Even otherwise while ascertaining the admissibility of any deduction law as on 1st April of the relevant year is to be applied. It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication : CIT v. Isthmian Steamship Lines [1951] 20 ITR 572 (SC) and Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 (SC), followed in Reliance Jute & Industries Ltd Vs. CIT,120 ITR 921(SC). In CIT Vs. Goslino Mario [2000] 241 ITR 314(Gauhati), it was also held that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication.
12.8 In view of the foregoing , we are of the opinion that the assessee was justified in exercising option in terms of the amended provisions, especially when the provisions of sec. 80IA(4)(ii) clearly stipulate that the option is available even to those undertakings which had started providing telecommunication services on or after 1.4.1995. Therefore, when the assessee fulfilled all other stipulated conditions in terms of the relevant provisions of sec. 80IA of the Act, the ld. CIT(A) was not justified in holding that the benefit of substituted provisions was available only to those undertakings which were granted a license after 1.4.1995 and could not start operations until 1.4.2002. We are of the opinion that such an restrictive interpretation does not emerge from the amended provisions. The ld. CIT(A) was also not justified in concluding that the assessee having exercised option in the period relevant to the AY 1997-98[even though there was no such provision of exercising option and the assessee could not claim any such deduction in view of loss], provisions of sec. 80IA of the Act substituted from the AY 2002-03 would not apply.
26 27 ITA No.1878& 1361/Ahd/200912.9 In view of the forgoing, ground nos. 2,2.1 & 2.2 in the appeal of the assessee are allowed.
13. Next ground no.3 in the appeal of the assessee relates to confirmation of the action of the AO in setting of losses of earlier assessment years 1997- 98 to 2000-01 without giving effect to the provisions of section 79 of the Act while computing the deduction u/s 80IA of the Act. While referring to the provisions of sec. 80IA(5) of the Act and following the decision of the ld. CIT(A) for the AY 2005-06 as also relying upon the decisions in the case of Additional CIT Vs. Ashok Alco-Chem Limited, 96 ITD 160(Mum.), ACIT Vs. Gold Coin Shares and Finance Limited 302 ITR (AT)80,(SB)Ahmedabad and of the Hon'ble Supreme Court in the case of CIT Vs. Shirke Construction Equipment Limited , 291 ITR 380, the AO set off the brought forward losses of earlier years for the purpose of computing deduction under Section 80IA of the Act. .
14. On appeal, the assessee relied upon the decision of Chennai Bench of the Tribunal in the case of Mohan Breweries & Distilleries Ltd. Vs. DCIT,114 TTJ 532 and contended that the ITAT, Ahmedabad Bench in the assessee's own case in the Assessment Year 2005-06 had upheld the findings of the Assessing Officer without considering the said decision in the case of Mohan Breweries & Distilleries Ltd.. However, the learned Ld. Commissioner of Income Tax(Appeals) rejected the contentions of the assessee relying, inter- alia, on the decision of ITAT in assessee's own case in ITA No. 1369&2000/Ahd/2009 for the Assessment Year 2005-2006.
15. The Revenue is now in the appeal before us against the aforesaid findings of the ld. CIT(Appeals). Both the parties agreed before us that the issue is squarely covered by the decision dated 09-01-2009 by the ITAT in the assessee's own case for the Assessment Year 2005-2006.
16. We have heard both the parties and gone through the facts of the case. We find that while adjudicating a similar issue in ITA no. 1369 & 2000/Ahd /2008, a co-ordinate Bench of the ITAT in the assessee's own case for the AY 2005-2006 vide their order dated 9.1.2009 while rejecting the contentions 27 28 ITA No.1878& 1361/Ahd/2009 on behalf of the assessee that there being change in shareholding of the assessee-company during the previous year relevant to assessment year 2001-02, the accumulated losses for the AYs. 1997-98 to 2001-02 lapsed by virtue of the provisions of section 79 of the Act, observed that since the provisions of section 80IA(5) are overriding in nature, the unabsorbed losses, unabsorbed depreciation relating to earlier years and relating to the eligible undertaking are to be taken into account in determining the quantum of deduction u/s.80IA(1) even though these may actually have been set off against the profits of the assessee from other sources. Inter alia, the ITAT relied upon the decisions in Goldmine Shares and Finance Pvt. Ltd. (supra) , Ashok Alco Chem Ltd. (supra) . Accordingly, the ITAT concluded in the AY 2005-06 that the gross total income of the assessee-company has first got to be determined after adjusting losses etc. and if the gross total income of the assessee will remain, then the assessee will be entitled to be deduction u/s.80IA(1) of the Act on that gross total income. In case, the gross total income of the assessee is nil, the assessee would not be entitled deduction u/s.80I(1) of the Act.
17. In the light of view taken by a co-ordinate Bench in the assessee's own case in the preceding assessment year , we have no alternative but to dismiss ground no. 3 in the appeal of the assessee.
18. Ground no.4 in the appeal of the assessee relates to upholding the action of the AO in holding that licence fees of Rs. 67.51 crores paid by the assessee on a revenue sharing basis, is capital expenditure, incurred for the purpose of acquiring the license. During the course of assessment proceedings, the AO noticed that the assessee had claimed deduction of Rs. 23,82,42,552/- u/s 35ABB of the Act on account of fixed licence fees paid upto July 1999 as also for an amount of Rs. 67.51 crores for the year under consideration in pursuance to new telecom policy announced in 1999. It was explained on behalf of the assessee that prior to migration to new telecom policy, the assessee was required to pay on the fixed formula basis while under the new policy , fee was charged on revenue sharing basis. The AO was of the view that license fee was in the nature of capital expenditure ,having been incurred to keep in force the license to operate the telecom 28 29 ITA No.1878& 1361/Ahd/2009 services. Accordingly, relying upon the decisions of the Hon'ble Supreme Court in the case of Assam Bengal Cement Company Limited Vs. CIT, 57 ITR 492 and Ballimal Naval Kishor & Another Vs. CIT, 224 ITR 414, the AO restricted the claim u/s 35ABB of the Act and disallowed the remaining amount to 61.89 crores, treating the same as capital expenditure.
19. On appeal, the assessee contended that they entered into license agreement with Government of India on 11.1.1996 for operating and providing telecommunication services in the State of Gujarat . The license fee under the said agreement being for acquiring the telecom license, the amount was capitalized in the books and appropriate deduction was claimed in the return in accordance with the provisions of section 35ABB of the Act. Subsequently, in pursuance to a new telecommunication policy applicable with effect from 01-08-1999, the Government allowed option to migrate from fixed license fee to revenue sharing fee. In terms of migration package vide letter dated 22-07- 1999, the license fees were bifurcated into 2 components viz. a) One time entry fee which would be the license fee payable by the existing licensees upto 31-07-1999 and b) with effect from 01-08-1999, payable as percentage of the gross revenue on an annual recurring basis. Accordingly, the annual license fee payable for maintaining the license was claimed as revenue expenditure u/s 37(1) of the Act. Relying upon the decision of ITAT (Bombay) Bench in the case of Videsh Sanchar Nigam Limited, 81 ITD 456, the assessee contended that fees paid to DOT for use of license are in the nature of revenue expenses. However, the ld. CIT(Appeals) rejected these contentions of the assessee and upheld the disallowance made by the Assessing Officer, holding as under:
"6.3 I have considered the facts of the case and the submissions of the A.R. From the details furnished, it is seen that the license fee was in the nature of capital expenditure as it was paid to acquire and keep in force the license/right to operate the telecommunication services. Further, the fee paid to keep the license in force had an enduring benefit since the appellant had obtained a right to operate the telecommunication services for a period beginning January 1997 and ending in December 2016. I, therefore, hold that the disallowance made by the A.O. on this account is quite justified and this ground is dismissed."29 30 ITA No.1878& 1361/Ahd/2009
20. The assessee is now in appeal against the aforesaid findings of the ld. CIT(Appeals). While inviting our attention towards page 7 and 36 of the paper book, the learned AR on behalf of the assessee argued that upto 31-07-1999, the amount was capitalized. Subsequently in terms of new telecommunication policy (copy placed on page 87 to 89 of the paper book),the assessee started paying license fee at a percentage of Revenue collected by it. To a query by the Bench, the learned AR added that the AO allowed the claim for deduction in the AY 2001-2002 to 2005-06. However, when the Assessing Officer sought to reopen the assessment for the AY 2005-06, the assessee moved Hon'ble jurisdictional High Court and proceedings relating to reopening of the assessment were stayed. Relying upon the decision in the case of Comsat Max Ltd. Vs. DCT,29 SOT 436(Delhi) and Jyoti Electrical Limited, 255 ITR 345(Guj) , the ld. AR contended that their claim is admissible. On the other hand, the ld. DR while relying upon the decision in the case of Assam Bengal Cement Co. Limited(supra) supported the findings of the Assessing Officer. After the hearing. the ld. AR submitted a copy of order dated 29-05-2009 in the case of Bharti Cellular Limited in ITA No.5335/Delhi/2003 for the Assessment Year 2000-2001 wherein also claim for deduction of the license fee was allowed by the ITAT.
21. We have heard both the parties and gone through the facts of the case as also the decisions relied upon. . We have before us a company, entrusted with the object of providing telecommunication services by the Government of India. The very purpose of incorporation of the company is that. Obviously, the object of incorporating the company is to establish and run it as a commercial venture. In order to provide services to the general public, the company has been permitted to use the telecom network for payment of a price. We find on perusal of a copy of the license agreement executed on 11th January,1996-pg. 7 to 43 of the paper book] that license has been defined in clause (m) to mean a license granted or deemed to have been granted under section 4 of the Indian Telegraph Act,1885 & Indian Wireless Telegraphy Act,1993. A perusal of the relevant provisions of the Telegraph Act, 1885 and the aforesaid agreement reveals that the license has been granted to establish, maintain and operate Cellular Mobile Telephone Services up to subscriber's terminal connection in the Gujrat Circle initially for 30 31 ITA No.1878& 1361/Ahd/2009 a period of ten years, extendable by five years unless terminated under the terms and conditions of the agreement. The payment of "licence fee" as per condition no. 19,schedule B to the agreement is @ Rs. 163.10 crores for the first five years and @ Rs. 195.72 crores for the subsequent 5 years The license fees for the first year was required to paid in lump sum prior to the signing of the agreement while for the subsequent years in quarterly instalments in advance. Undisputedly, deduction for license fees has been allowed in the preceding assessment years until the Ay 2005-06 . However, when the Assessing Officer sought to reopen the assessment for the AY 2005-06, the assessee moved Hon'ble jurisdictional High Court and proceedings relating to reopening of the assessment were stayed. For the year under consideration, the ld. CIT(A) upheld the disallowance of claim , treating the amount as capital expenditure. .
21.1. In the light of aforesaid facts ,we now proceed to an independent consideration as to whether the license fee of Rs. 67.51 crores paid by the assessee on revenue sharing basis is allowable as business expenditure. In order to provide the telecom services, it is essential that the assessee makes use of the Telecom network owned by DOT. Under section 4 of the Indian Telegraph Act, 1885, the exclusive privilege of establishing, maintaining and working telegraphs remains with the Central Government which under the first proviso may be parted with by granting a license to any person on such conditions, and in consideration of such payments, as it thinks fit. It is only in accordance with this proviso that the assessee was given a non-exclusive license to make use of the Telecom network owned by DOT so as to establish, maintain and operate cellular mobile service . It is for acquiring the use of the network that the assessee has been required to pay consideration in the name of license fee. The license agreement dated 11-1-1996 expressly states that the license was grated in exercise of the powers conferred under section 4 of the Indian Telegraph Act. In Hari Shankar v. Dy. Excise and Taxation Commissioner AIR 1975 SC 1121, it was held that license fee is the price for the consideration which the Government charges to the licensees for parting with its privileges and granting them to the licensee and as the State can carry on a trade or business, such a charge is the normal incident of a trading or business transaction. The amount charged to the licensees is in the 31 32 ITA No.1878& 1361/Ahd/2009 nature of the price of the privilege which the purchaser has to pay in any trading or business transaction. Similar view was taken in Pannalal & Ors. v. State of Rajasthan (AIR 1975 SC 2000), State of Haryana v. Jage Rain AIR 1980 SC 2018, Government of Andhra Pradesh v. Anabeshahi Wine & Distilleries (P.) Ltd AIR 1988 SC 771. All these judgments were considered by the Hon'ble Calcutta High Court in CIT v. Varas International (P.) Ltd. [1997] 225 ITR 831 in the context of section 43B of the Act. After referring to the aforesaid four judgments of the Supreme Court, the Hon'ble Calcutta High Court held that the license fee which an assessee was required to pay to the West Bengal Government under the Bengal Excise Act, for getting the license for the manufacture of country liquor is not a tax or cess or fee and therefore, cannot be disallowed on the ground of non-payment, under section 43B of the Act. These authorities show that the amount paid by the assessee for the grant of the license under the first proviso to section 4 of the Indian Telegraph Act, is a price paid in consideration for the privilege granted to it and is therefore part of the business or trading expenditure. The payment of license fees undisputedly has been made for the use of the facilities provided by the DOT and derives its authority only from the statute. The payment is therefore inextricably bound up with the very business of the assessee and when it comes to the question of taxing the profits of that very business, it cannot be said that the claim to deduct the payment of the license fee will not be allowed. In our opinion, the amount can not be treated as capital in nature, the AO himself having allowed the claim in the preceding assessment years. The assessee has been carrying on the business of providing telecom services since the AY 1997-98 . There is no change in the nature of the services rendered by the assessee since then. The assessee is already in the business of providing telecom services to the public while the license fee is for granting the assessee permission to make use of the telecom network owned by the DOT. Further in the year under consideration, the license fee is not a flat or fixed fee, but is linked to the revenue generated. Thus, it is directly related to actual working of the assessee's business. In Bombay Steam Navigation's Co. 1953 Ltd's case, it was held that the question whether a particular expenditure is revenue expenditure incurred for the purpose of business must be viewed in the larger context of business necessity or expediency. It was held that if the outgoing or expenditure is so related to the 32 33 ITA No.1878& 1361/Ahd/2009 carrying on or the conduct of the business, that it may be regarded as an integral part of the profit earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition to the carrying on of the business, the expenditure may be regarded as revenue expenditure. The payment made by the assessee in the present case satisfies this test. The payment is related to the carrying on or of the conduct of the business. Unless the network is utilised by the assessee, the assessee in turn cannot provide the telecommunication services to the public at large. Thus, the utilisation of the network of the DOT is closely related to the actual carrying on or the conduct of the business. The payment does not secure for the assessee any asset or right of a permanent character. The license , in our opinion, does not confer any such enduring advantage because under condition no. 15 of the schedule B, the license granted under section 4 can be revoked on the breach of any of the conditions subject to which it was issued or any default of payment of any consideration payable for the license. Further, the license is a non-exclusive license and it is open to the Government of India to grant similar licenses to other persons as well by virtue of powers conferred upon it under section 4 of the Telegraph Act. Thus, there is no monopoly right conferred upon the assessee.
21.2 The aforesaid view which we have taken is supported by the decision of a co-ordinate Bench in the case of Comsat Max Ltd. Vs. DCIT,29 SOT36(Delhi). Following this decision as also the decision in the case of Mahanagar Telephone Nigam Ltd.,100 TTJ 1, The ITAT Delhi Bench in their order dated 29.5.2009 allowed a similar claim in the case of Bharti Cellular Ltd. Vs. DCIT in ITA no.5335/Del./2003 in the AY 2000-01 21.3 . In view of the foregoing especially when the AO himself allowed the claim in the preceding assessment years, we hold that the amount of Rs. 67.51 crores paid by the assessee to DOT as license fees is an allowable expenditure under section 37(1) of the Act in computing the profits of the assessee's business.
22. Next ground no. 5 relates to the deduction under Section 80IA of the Act on the miscellaneous income of Rs. 16,60,841/- and scrap sales of 33 34 ITA No.1878& 1361/Ahd/2009 Rs.499681/-. Since miscellaneous income and scrap sales were not derived from the activity of the industrial undertaking of the assessee, the AO denied the claim for deduction under Section 80IA of the Act relying, inter alia, on the decision of the Ld. Commissioner of Income Tax(Appeals) in the Assessment Year 2005-2006 and decisions of the Hon'ble Apex Court in CIT Vs. Pandian Chemicals Ltd.,262 ITR 278 (SC) and CIT Vs. Sterling Foods (SC).
23. On appeal, the assessee contended that misc income comprise the following amounts:
S.No. Particulars Amount (Rs.)
1. Recovery from call center 11,06,190
2. Cheque bouncing charges 1,88,383
3. Interest on Income Tax refund 2,20,510
4. Insurance claim 14,600
5. Inter user connect charges 67,060
6. Discount on credit cards 33,378
7. Miscellaneous credit entries in accounts 30,723
Total 16,60,841
The assessee argued that the aforesaid amounts are inextricably linked with telecommunication business and accordingly, eligible for deduction under sec. 80IA of the Act. As regards scrap, the assessee contended that occasionally or seasonally assessee launched various schemes and accordingly, printed out booklets and set up hoardings and Neon Sizes etc. Once the period of scheme got over, then this material was of no use. Relying upon the decisions in the case of ITO Vs. Jagraon Exports 124 Taxmann 220(Del.)(Mag), DCIT Vs. Mira Industries 87 ITD 475(Ahd.), P Industries 124 TM 76(HYd.)(Mag.) and Metro Tyres Limited 79 ITD 75(Del.), the assessee argued that the aforesaid income Is inextricably linked with the business of the industrial undertaking and therefore, the assessee is eligible for deduction u/s 80IA.. However, the ld. Commissioner of Income Tax(Appeals) rejected these contentions of the assessee on the ground that the aforesaid receipts on account of Misc. income and scrap sales were not 34 35 ITA No.1878& 1361/Ahd/2009 derived from the business of the industrial undertaking, relying on the decision in the case of Pandian Chemicals and Sterling Foods(supra).
24. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The learned AR on behalf of the assessee contended that assessee is not pressing the ground for deduction under Section 80IA on the income on account interest on refund while recovery from call center would go to reduce cost of the assessee. As regards scrap sales, the ld. AR relied on the decision in the case of Harjivandas Juthabhai Zaveri & Another,258 ITR 785(Guj). Since the ld. CIT(A) has not passed a speaking order nor considered the issue in proper perspective, the ld. AR argued that the matter may be restored to the file of the ld. CIT(A) for readjudication, On the other hand learned DR relied upon the decision in the case of Cambay Electrical Supply Co. Ltd. Vs. CIT, 113 ITR 84 (SC) and contended that scrap having not been generated out of production process, the assessee was not entitled to deduction under section 80IA of the Act. He further relied upon the decision in the case of Pandian Chemicals 262 ITR 278 (SC) and Alpine Solvex (MP) and contended that the miscellaneous income and scrap sales were not eligible for deduction u/s 80IA of the Act.
25. We have heard both the parties and gone through the facts of the case. A mere glance at the observations of the ld. CIT(A) in para 8.3 of his order reveals that the ld. CIT(A) have not passed a speaking order. We are of the opinion that the application of mind to the material facts and the arguments should manifest itself in the order. Section 250(6) of the Income Tax Act mandates that the order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. As is apparent from the impugned order, in our opinion, the order passed by the ld. CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues/points raised before it. The requirement of recording of reasons and communication thereof has been read as an integral part of the concept of fair procedure and safeguard to ensure observance of the rule of law. It introduces clarity, checks 35 36 ITA No.1878& 1361/Ahd/2009 the introduction of extraneous or irrelevant considerations and minimizes arbitrariness in the decision-making process. We may point out that a 'decision' does not merely mean the 'conclusion'. It embraces within its fold the reasons forming basis for the conclusion.[Mukhtiar Singh Vs. State of Punjab,(1995)1SCC 760(SC)]. In view of the foregoing, especially when the ld. CIT(A) has not passed a speaking order ,we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the issue raised in this ground to his file for deciding the matter afresh in accordance with law, after allowing sufficient opportunity to both the parties. Needless to say that while redeciding the appeal, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act. With these observations, ground no. 5 is disposed of.
26. Ground no. 6 relates to levy of interest u/s 234B and 234C of the Act while determining book profits in terms of Section 115JB of the Act. Since the income computed under normal provisions of the Act exceeded the book profits determined u/s 115JB of the Act ,there is discussion on this issue in the assessment order. On appeal, the ld. Commissioner of Income Tax(Appeals) while relying upon the decision of Hon'ble Madras High Court in the case of Gitaramakrishna Mills Private Limited, 288 ITR 489 and decision of ITAT, Ahmedabad Bench in the case of Additional CIT Vs. Ashima Syntex Ltd., 310 ITR (AT)1, upheld the levy of interest u/s 234B and 234C of the Act while determining book profits u/s 115JB of the Act.
27. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(Appeals). Both the parties agreed that issue is squarely covered by the decision of ITAT Special Bench in the case of Ashima Syntex Limited.(supra) as also decision of the 3rd Member in the case of M/s. Kanel Oil and Export Industries Limited Vs. JCIT, 2009-TIOL-646 ITAT- Ahd-TM.
28. We have heard both the parties and gone through the facts of the case as also the decisions relied upon .We find the Hon'ble TM in the case of Kanel Oil and Export Industries Limited(supra) while relying upon the decision in the case of Ashima Syntex Limited.(supra) concluded that interest under Section 234B and 234C of the Act is chargeable while determining book 36 37 ITA No.1878& 1361/Ahd/2009 profits in terms of provisions of the section 115JB of the Act. In light of the view taken in the aforesaid decisions by the ITAT,we have no alternative but to reject the ground raised by the assessee. Therefore, ground no. 6 in the appeal of the assessee is dismissed.
29. No additional ground having been raised in terms of the residuary ground, accordingly, this ground is dismissed.
ITA No.1878/Ahd/200930. Now adverting to the appeal of the Revenue, ground no.1 relates to deletion of disallowance of Rs. 48935/- on account of sale promotion expenses. The AO noticed that the assessee debited to the profit and loss account expenditure on account of gifts of Rs. 48,935/- to the staff on the occasions of marriage etc. and the gift vouchers to the employees of the company on various occasions such as Diwali. Relying upon his own findings in the preceding assessment year, the AO concluded that marriage gifts are personal obligation of the director of the Company while the gift vouchers to the employees of the company on various occasions could not be termed as business expenditure.. Accordingly, the AO disallowed the entire amount.
31. On appeal, the ld. CIT(Appeals)while relying upon an order dated 09-01- 2009 of the ITAT in the assessee's own case for the AY2005-2006, allowed the claim of the assessee.
32. The Revenue is now in the appeal before us against the aforesaid findings of the ld. CIT(Appeals). Both the parties agreed before us that the issue is squarely covered by the decision dated 09-01-2009 by the ITAT in the assessee's own case for the Assessment Year 2005-2006.
33. We have heard both the parties and gone through the facts of the case. We find that while adjudicating a similar issue in ITA no. 1369 & 2000/Ahd /2008, a co-ordinate Bench of the ITAT in the assessee's own case for the AY 2005-2006 vide their order dated 9.1.2009 concluded as under:
37 38 ITA No.1878& 1361/Ahd/2009"46. At the outset, the Ld. Counsel for the assessee filed a copy of Tribunal's order in ITA No.1930/Ahd/2007 dated 17-08-2007 in assessee's own case (for the A.Y. 2003-04) and stated that the issue is squarely covered in favour of the assessee, wherein the Tribunal has dealt with the issue vide para-21, which reads as under:-
"21. As regards ground No.1, the Assessing officer noted that the assessee had claimed a sum of Rs.46.39 million towards sales promotion which included entertainment expenses incurred while dealing with dealers & distributors, vendors, etc., expenses on sponsorship of events, festivals, musical nights, etc., expenses on corporate gifs, expenses on promotional schemes for distributors, dealers, salary and incentives given to temporary sales staff, commission to direct sales representatives, gifts given to staff, marriage gifts, gift vouchers and expenses for uniforms to staff, dresses for customer care staff and expenses directly related to franchise and retail shops. According to him, gifts given to staff as marriage gifts, gift vouchers and expenses for uniforms for staff are not for any business expediency of the assessee. These are in the nature of perquisites. Neither the assessee nor the employees had paid any tax. The assessee, even, had not furnished any details of the above expenses. He, therefore, disallowed an amount equal to 1/10th of the total expenses treating the same as not incurred wholly and exclusively for the purposes of business of the assessee."
Accordingly, the Tribunal confirmed the deletion of the addition vide para-24 as under"-
"24. Rival submissions of the parties have been considered carefully and the records gone through. Nothing has been brought before us on record to justify he disallowance by adopting 1/10th formula. The expenditure on the employees are covered by the decision of the Supreme Court in the case of Shahzada Nand and Sons, 108 ITR 358, wherein, it has been held that it is for the assessee to decide the commercial expediency as to what is to be given to the employees and the same cannot be disallowed. Similarly, out of general expenses no restrictions being there. In the current year, there seems o be no justification for disallowing which was incurred wholly for the purpose of business of the assessee. On the facts and in the circumstances of the case, we are of the opinion that the CIT(A) is right in deleting both the additions made by the Assessing officer. Accordingly, we uphold the order of the CIT(A) on these two grounds."
From the above decision of the Tribunal, it is clear that the issue is squarely covered in favour of the assessee as the CIT(A) has categorically held that the facts being similar to earlier year. The relevant finding of CIT(A) in para-2 reads as under:-
"2. The first ground of appeal is against disallowance of sales promotion expenses amounting to Rs.11,63,048/-. The AO has disallowed this amount out of sales promotion expenses on the ground that these relate to marriage gifts and gift vouchers to staff members on various occasions, such as Diwali 38 39 ITA No.1878& 1361/Ahd/2009 et. These expenses are not related to the business of the assessee and these are personal obligation of Directors of the company. The appellant has submitted that similar disallowance made in earlier year has been deleted by the CIT(Appeals) as well as the Hon'ble. ITAT in A.Y. 2003-04 vide ITA No.1930/Ahd/2007 dated:17th August, 2007. After considering the facts of the case and by following the appellate orders of CI(Appeals) as well as IAT in earlier year, as the facts are similar to the facts of earlier year, I direct the AO to delete the disallowance made on this count. This appellant gets relief on this point".
Respectfully following the Tribunal's order, we uphold the order of CIT(A) deleting the disallowance. This issue of the Revenue's appeal is dismissed."
34. In the light of view taken in the aforesaid decision of the ITAT in the assessee's own case for the AYs 2003-04 & 2005-06 , we have no alternative but to uphold the findings of ld. CIT(Appeals), deleting the disallowance. Therefore, ground no.1 in the appeal of the Revenue is dismissed.
35. Ground No. 2 in the appeal of the Revenue relates to deletion of disallowance of claim for deduction u/s 80IA of the Act on the Revenue of Rs.2,75,30,602/- on a/c of sharing of certain common facilities . The AO noticed that during the year under consideration, the assessee received Rs.2,75,30,602/- on account of share in passive infrastructure such as cell phone towers, air conditioners and D.G. Sets etc. with the other operators. Since the assessee was not in the business of leasing out of its assets, relying upon the decisions in the case of CIT Vs. Paras Oil Extraction Ltd.,230 ITR 266,Pandian Chemicals Limited, 262 ITR 278 (SC), CIT Vs. Sterling Foods and his own findings for the Assessment Year 2005-2006 as also on the order of the ld. CIT(A) for the AY 2005-06 , the AO concluded that the said income was not derived from the business of the industrial undertaking and accordingly, disallowed claim for deduction under section 80IA of the aforesaid amount.
36. On appeal, the ld. CIT(Appeals)while relying upon an order dated 09- 01-2009 of the ITAT in the assessee's own case for the AY2005-2006, allowed the claim of the assessee.
39 40 ITA No.1878& 1361/Ahd/200937. The Revenue is now in the appeal before us against the aforesaid findings of the ld. CIT(Appeals). Both the parties agreed before us that the issue is squarely covered by the decision dated 09-01-2009 by the ITAT in the assessee's own case for the Assessment Year 2005-2006.
38. We have heard both the parties and gone through the facts of the case. We find that while adjudicating a similar issue in ITA no. 1369 & 2000/Ahd /2008, a co-ordinate Bench of the ITAT in the assessee's own case for the AY 2005-2006 vide their order dated 9.1.2009 concluded as under:
"35We find from the above fact that the income generated on account of bandwidth capacity and site sharing, which has direct nexus with the business income of the Industrial Undertaking, it means that the income derived from business of Industrial Undertaking is eligible for deduction u/s. 80IA(1) of the Act. In Section 80IA, the expression used is, "profits and gains derived from any business of industrial undertaking" clearly shows the intention of the legislature while inserting the words "any business of' was to give benefit of deduction not only profits and gains derived from industrial undertaking but also to give benefit of deductions in respect of income having a clause and direct nexus with the profits and gains of the industrial undertaking. The word "business" is a word of wide amplitude so as to cover any trade, industry or any act of adventure in the nature of trade, whereas the word "industry" is a word of very limited meaning. Whenever the Legislature had intended to give benefit of deduction to the wider extent of income and not only to the income derived from industrial undertaking, it used the expression like "profit attributed to". Thus, to give more extended benefit the statute has used the expression "income derived from business of industrial undertaking." Thus, the Legislature certainly wanted to give benefit of deduction not only to the income derived from industrial undertaking but to income which is derived from business of industrial undertaking meaning thereby that all sort of income which is inextricably related to the carrying on the business of industrial undertaking is to be considered for computing deduction under section 80-IA. Thus, if an act is required to be undertaken essentially for carrying on of the business of industrial undertaking and if any income is generated out of such act, the same is to be considered for computing deduction under section 80IA. In the present case the income from sale of excess bandwidth capacity and revenue from site sharing are directly and inextricably linked to the business income of the industrial undertaking and thus deduction is allowable u/s. 80IA of the Act. Accordingly, these issues of the assessee's appeal are allowed.
39. In the light of the aforesaid decision of the ITAT in the assessee's own case for the preceding assessment year, we have no alternative but to upheld 40 41 ITA No.1878& 1361/Ahd/2009 the findings of the ld. CIT(A).Therefore, ground No.2 in the appeal of the Revenue is dismissed.
40. Next ground No.3 relates to deletion of addition of Rs. 9,52,20,000/- on account of provision for Municipal Tax while determining book profits in terms of provisions of section 115JB of the Act. The AO noticed that the assessee made a provision of Rs.9.52 crores for municipal taxes and claim deduction while computing book profits in terms of the provisions of Section 115JB of the Act. Since provision had been made on estimated basis and was not towards an ascertained liability, the AO disallowed the claim.
41. On appeal, the ld. CIT(Appeals)while relying upon an order dated 09-01- 2009 of the ITAT in the assessee's own case for the AY2005-2006, allowed the claim of the assessee.
42. The Revenue is now in the appeal before us against the aforesaid findings of the ld. CIT(Appeals). Both the parties agreed before us that the issue is squarely covered by the decision dated 09-01-2009 by the ITAT in the assessee's own case for the Assessment Year 2005-2006.
43. We have heard both the parties and gone through the facts of the case. We find that while adjudicating a similar issue in ITA no. 1369 & 2000/Ahd /2008, a co-ordinate Bench of the ITAT in the assessee's own case for the AY 2005-2006 vide their order dated 9.1.2009 concluded as under:
"40. After hearing the rival contentions and going through the provisions of Section 115JB of the Act, it is seen that there is no provision under which Municipal taxes can be added while computing book profit u/s. 115JB of the Act. Moreover, the assessee argued that it has taken sites on rent in various parts of Gujarat. In the areas covered by the Municipal Corporations, the Municipal tax bills are generally received regularly. However, in the rural/interior areas, where several sites are installed, the bills from the local authorities are not received in time. Accordingly, the assessee has made provision for municipal taxes in cases were the bills from the local authorities are not received in time either from the Municipal Corporation or from other local authority based on the tax liability that arose in the preceding years or on some other basis. The accounting standards notified under Section 145(2) para 4(i) of Accounting Standard-1 provide that provision should be made for known liabilities and losses even though 41 42 ITA No.1878& 1361/Ahd/2009 the amount can be determined with substantial accuracy and represents only a best estimate in the light of available information. It seems that the provisions made for Municipal tax liability on the basis of reasonable estimate made by the management on the basis of the relevant information, cannot be added and cannot be called unascertained liability. Accordingly, we delete the same and allow the claim of the assessee. This issue of the assessee's appeal is allowed.
44. In the light of the aforesaid decision of the ITAT in the assessee's own case for the preceding assessment year, we have no alternative but to uphold the findings of the ld. CIT(Appeals), deleting the disallowance. Therefore, ground no.3 in the appeal of the Revenue is dismissed.
45. Ground nos.4 and 5 in the appeal of the Revenue, being general in nature, do not require any separate adjudication and are, therefore, dismissed.
46. In the result, appeal of the Revenue is dismissed while that of the assessee is partly allowed for statistical purposes.
This order is pronounced in open Court on 29th January, 2010.
Sd/- Sd/-/-
(H.L. KARWA) (A.N. PAHUJA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad;
Dated: 29 /1/2010
Copy of the Order forwarded to:
1. The Assessee
2. A.C.I.T. Circle - 8, Ahmedabad
3. CIT(A)-XIV, Ahmedabad
4. The CIT concerned
5. The DR, Ahmedabad 'A' Bench
6. The Guard File.
BY ORDER,
ASSTT. REGISTRAR/ DEPUTY REGISTRAR
ITAT, Ahmedabad Benches,
AHMEDABAD.
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