Income Tax Appellate Tribunal - Kolkata
Vodafone East Ltd.(Formerly Known As ... vs Assessee on 15 September, 2015
I .T.A . N o. 18 64 / KOL ./ 20 1 2
A s se ssm e nt y e ar : 2009 - 20 1 0
&
I TA N o. 24 3/ KOL/ 2 01 4
As s e ssm en t Ye ar : 20 10 - 2 01 1
&
I TA N o. 34 3/ KOL/ 2 01 4
As s e ssm en t Ye ar : 20 10 - 2 01 1
Page 1 of 56
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'B' BENCH, KOLKATA
Before Shri Maha vir Singh, Judicial Member and
Shri M . Ba la ganesh, Accountant M ember
I.T .A. No . 186 4 /KOL/ 2 01 2
Assess ment year : 2009 -2 01 0
M/s. Vod a fone Ea st Limite d ,............ ............................................Ap p ella nt
(For me rly kn own a s Vod a fone E ssa r Ea st Limited ),
11, Dr. U.N. Brahmcha ri Roa d ,
Kol ka ta -700 017
[PA N : A AA CU 3796 J]
-Vs.-
A dd itiona l Com mi ssi one r of In come Ta x,..... ...........................Resp ond e nt
Ra ng e-7, Kolka ta
&-
I.T .A. No . 243 /KOL/ 2 0 14
Assess ment year : 2010 -2 01 1
M/s. Vod a fone Ea st Limite d ,........................................................Ap p ella nt
(For me rly kn own a s Vod a fone E ssa r Ea st Limited ),
11, Dr. U.N. Brahmcha ri Roa d ,
Kol ka ta -700 017
[PA N : A AA CU 3796 J]
-Vs.-
Joint Co mmissi oner of Income Ta x,.. ............... ........................Re sp ond en t
Ra ng e-7, Kolka ta
&
I.T .A. No . 343 /KOL/ 2 0 14
Assess ment year : 2010 -2 01 1
Dep u ty Com mis si one r of Income Ta x,... .....................................A pp e lla nt
Ra ng e-7, Kolka ta
-Vs.-
M/s. Vod a fone Ea st Limite d ,........................................................Resp on d ent
(For me rly kn own a s Vod a fone E ssa r Ea st Limited ),
11, Dr. U.N. Brahmcha ri Roa d ,
Kol ka ta -700 017
[PA N : A AA CU 3796 J]
I .T.A . N o. 18 64 / KOL ./ 20 1 2
A s se ssm e nt y e ar : 2009 - 20 1 0
&
I TA N o. 24 3/ KOL/ 2 01 4
As s e ssm en t Ye ar : 20 10 - 2 01 1
&
I TA N o. 34 3/ KOL/ 2 01 4
As s e ssm en t Ye ar : 20 10 - 2 01 1
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Appeara nces by :
Shri S. N. Sop arkar, Sen io r Advo cate, fo r the ass es see
Shri Sa chidanand Srivastava, CIT (D.R.) , f or the Depar tment
Dat e of concluding t he hearin g : August 31 s t , 2015
Dat e of pr onouncing th e order : S ept emb er 1 5 t h , 20 15
O R D E R
Per Shri M. Balaga nesh, A.M.:
The identical issues a re involved in the ass essee's app eal for the Asst Year 2009 -10 and 20 10-11 and cross app eal of the Revenue fo r the Asst Year 2010-11 and hence th ey are taken up to gether and di spo sed o ff by a common o rder fo r th e sake of conv enien ce.
ITA No. 1864/ 2012 (A.Y. 2009-2010)- Asse ssee 's appeal
1. This app eal a rise s out of the ord er o f t he Le arned Commissio n er of Incom e Tax (Appe als) in Appe al No. 337/CIT(A)-VII I/Kol-11-1 2 dated 31.10.2012 for the Asst Ye ar 2009-10 ari sin g out of the order of the Lea rn ed Assessin g Officer framed u/s 1 43(3 ) of the Inco me Tax Act, 1961 (herein aft er ref erred to as the 'Act').
2. Sh ri S.N. Soparkar, Sen io r Advo cat e, the Learned AR a rgu ed on beh alf of the assessee and Shri S ach id anand Srivastava, the Lea rn ed CIT (D. R. ) argu ed on behalf of th e R ev enue.
3. The first g round raised by the a ss essee is that the ass ess men t order i s b arred by limit ation. Durin g t he co urse of h earin g, the L earn ed AR inform ed the Bench that the s aid ground is not press ed and his state ment is taken as the Statemen t f ro m the Bar. The Learn ed AR al so I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 3 of 56 filed a ch art co mpri sin g of various i s sues at the time of h earin g wherein in resp ect o f G round No.1, he has speci fically sta ted again st thi s Ground as Not Pre ssed. Acco rdin gly , the Ground No . 1 raised b y the asse ss ee is dismi ssed as not p ress ed.
4. The first issue to be decided in this a ppeal is as to whether the roamin g charges of Rs.55,41,01,320/- paid b y the ass es see to o the r teleco m op erators is liable fo r d eduction of tax at so urc e und er the provision s of th e Ac t.
4.1. The brief fact s o f thi s is sue a re that the asse ssee i s a subsidi ary of Vodafo ne E ss ar Limited, en gag ed in prov iding Cellular Mobile Telephony Servic es (CMT S) in Kolkata Telecom Circle after receip t of app roval from the Dep art men t of Teleco m municatio n s (DOT). The assessee incu rred domestic ro ami ng ch arges of R s.5 5,41,01,32 0/- towards roa min g facility provided by other teleco m o perato rs t o the subscribers of th e asse ss ee. The asse ssee has ent ered into roamin g arran gements with oth er telecom operators which have been given licen ce to o perate a s telecom serv ice providers in other territo rie s. The Learn ed AO in itially pro ceeded to show c ause th e asses see fo r di sallowan ce o f roamin g cha rge s by inv oking the provisions of s ection 4 0(a )(ia) r. w.s. 19 4C of the Act but later gave up and proceed ed to section 1 94I /194J of the Act an d m ade di sallowan ce u/s 40( a)(ia) of the Act which wa s a lso u pheld by the L earn ed CITA. Aggri eved, the asse ss ee is in app eal bef ore u s on the following grounds :-
"2. 1. On the f acts and in t he cir cum s ta nces of the cas e and in l aw, the l earned CIT(A) has er r ed in uph ol ding the addition un der s ection 40(a)(ia) of th e Act on acc ount of non-d ed uction of taxes o n t he roam ing charges of INR 554, 101, 320 paid b y t he Appel l ant to ot her tel ecom oper at or s f or the f inancial ye ar r el evant to the subj ect AY.
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 4 of 56
2. 2. Without pr ej ud ice to the ab ove gr oun d 2. 1, on the f acts and in the cir cums tances of the case and in l aw, the l ear ned CIT(A) has er red in not r es tr icting the d isall owance und er s ection 40(a)(ia) of the Act to the am ount which remains payab l e at the end of the year .
2. 3. Without prej udice to t he ab ove gr ound s 2. 1 and 2. 2, on the f acts and in the circum stances of the case and in l aw, s ince the ins er tion of s econd provis o to section 40( a)(ia) of the Act vide Finance A ct, 2 012 is cur ati ve in nat ur e, the benef it of the s ame shoul d be e xtended t o the pas t year s and accord ingl y, the l ear ned CIT(A) oug ht to have dir ected t he Add itional Com mis s ioner of Incom e Tax, R ange 7, Kol kata ('l earned AO'):
2. 3. 1. to all ow ded uction in res pect of the addition ma de un der section 40(a)(ia) of the A ct for the s ub j ect AY in the s ubs eque nt year /s , basis the conditions prescrib ed in the s econd pr oviso to s ection 40(a)(ia) of the Act;
2. 3. 2. to al l ow d ed uction in t he s ubj ect AY (i. e. AY 2009-10) f or the sim il ar dis al l owance of roaming c har ges m ad e in pr ior year (i. e. in AY 2008-09) b as is the c ond itio ns pr es cribed in t he s econd pr oviso to s ection 40(a)(ia) of the Act".
4.2. The Lea rn ed AR a rgued th at ro ami ng mean s an arrang emen t whereby a subscribe r of a c ellular ph o ne u ses c ellular services outside the h ome n et work and will get services fro m the host o p erato r. The as se sse e has en tered into ro amin g a rran gement s with o the r tel ecom operators to make o r receive calls whe n the subscrib ers move o ut of the licensed t errito ry. F or example, suppose the Hom e Ope rator i s licen sed to prov id e telecom services o nly in Kolkata Telecom Ci rcl e and Vi sitin g Operator i s lic ens ed to p rovide s erv ices only in Delhi Teleco m Ci rcle. Further Home Op erato r and Vi sitin g Operato r h av e entered into a roamin g arran gem ent whereby a cu stomer o f Home Operator, t ravellin g to Delhi would b e able to use the net work of Visitin g Operato r to avail teleco m services. Pu rsuant to thi s ro amin g a rrangement, when a subsc riber of Ho me Op erato r t ravel s to Delhi, he will be ab le to I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 5 of 56 seamlessly latch on the n et work o f Vi siting Op erato r and co ntinu e to u se teleco m se rvices in Delhi. Dep endin g upon the usage of the subscribe r and the arran gem ent bet ween the Ho me Operato r and Vi sitin g Operato r, Visitin g Op erato r sh all raise an invoice on Home Op erato r fo r such u sa ge by th e subscrib er and Hom e Operator sh all subsequently recover such ch arg es fro m the subsc riber. For th e sak e of clarity, the proces s inv olved in provisio n of ro amin g service s i s given below:-
a) A Vodafone East Ltd (VEL) Subsc ri ber in Kolkata travelling to Delhi switches on hi s mobile devic e aft er rea ching Delhi (in cas e of ai r travel).
Where th e subscribe r t ravels by land he automatic ally receives a mes sa ge requestin g fo r sel ection of the roa mi ng net wo rk o n visiting an othe r teleco m ci rcle.
b) The subscriber has a choice of manu al network sel ection or auto mati c net work select ion.
c) Under automatic n et wo rk selection, the se rvices o f the most pref erred roamin g p artne r of subsc ribe r's home n et work will b e select ed ; and
d) Under th e manu al s electio n, the su bscriber can choose the ro aming part ner whose serv ices he would like to use out of the ones which are av ailable in that area (subsc ribe r can only cho ose the roa min g p artne r with whom VEL has a tie-up).
e) Vi sitin g net wo rk lo cates mo bile device and id entifi es th at it is no t regi stered with its sy stem i. e. Vi sito r Location R egiste r.
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 6 of 56
f) Vi sitin g netwo rk contact s ho me net wo rk of VEL's subsc riber i.e Home Location Regi ste r ( HLR) and request s servic e info rmation about ro amin g dev ice usin g Intern atio nal Mobile Sub sc ribe r Id entity (I MSI) Number - IMSI nu mber is a unique subscriber identity number granted to th e cu stomer at the ti me of subscription.
g) Vi sitin g n et work main tain s t emporary subscriber record for said mob ile device a nd p rovides an int ern al tempo ra ry phon e number to the mob ile device.
h) Home net wo rk also up dates its regi ste r to ind icat e that the mobile is on visitor netwo rk so that informatio n sent to that d evice is co rrectly routed.
A calle r fro m Kolkata makes a call to VEL's subscriber which is routed to the Ho me net wo rk of VEL subscriber. VEL's netwo rk then t ran sfers all inco min g call s to the te mporary ph one number which termin ates at the dev ice o f VEL's subscrib er, curren tly roaming in D elhi and using the net work of the Visitin g Operator (i.e. th e Vi sitin g N et wo rk).
4.3. Accordin gly, pursuant to the aforesaid roamin g arran gem ents, VEL's subscribers are ab le to make and receive calls while th ey are in the territo ry of such other t eleco m o perato r. In li eu of the services p ro vided to VEL's subsc ribers, VEL is un der an ob ligation to pay roamin g cha rges to the other telecom op erato r. The short point th at ari ses for ou r co nsideration is wh ether the payment mad e by the home operator (i.e. the ass essee herein) to the host operator fo r roamin g cha rges would co me und er the ambit of TD S p rovisio ns.
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 7 of 56 4.4. The Learn ed AR argu ed that an iden tical is sue was th e subject matter of litigation befo re the Hon'ble Sup reme Cou rt in the cas e of CIT - vs.- Bharti Cellular Ltd report ed in 330 ITR 239 (SC), wh erein the question rai sed before the Su p rem e Cou rt i s as belo w:-
"Whether tax was ded uctibl e b y Bharti Cel l ul ar Ltd when it paid interconnect char ges /access /p or t char g es to BSNL"?
The Sup rem e Court o bserved that th e p roblem which aro se in such c ase s was that there was no exp ert eviden ce f rom the side of the depa rt men t to show how human interven tion takes place, part icularly during the proce ss when c alls t ake place , let us say, from Delhi to Nain ital and v ice vers a. If , for example, M/ s Bharti Cellular Ltd has no net wo rk in Nainit al, whe rea s it had a netwo rk in Delhi, the int erconnec t agreemen t enabled M/s. Bharti Cellular Ltd to acces s the netwo rk o f BS NL in Nainit al; and th e s ame situ ation cou ld arise vice versa in a given cas e. Durin g th e t raffic o f such calls, whe the r there i s any manu al intervention, was one of the points which required e xpert eviden ce. Simil arly, o n what basis wa s th e 'capa city' of each serv ice p rovider fixed wh en interconnect ion agreements were arrived at? For example, as inform ed, each se rv ice p rovider i s allotted a c ert ain 'cap acity'. On wh at basi s such 'cap acity ' is allo tted and wh at happ e ns if a situation ari ses wh ere a serv ice p ro vider's 'allotted capaci ty' gets exhau st ed and it wants, on an urgent basis, 'addition al capa city'? Wh ether at wh at st age, any hu man intervention was involved was required to be examined, which again requi red technic al d ata. Acco rding to the Supreme Co urt, these type of matters co uld no t be decided without any technical assi stance available on record. The Sup reme Cou rt di re cted the A ss essin g Offic er (TD S) in each ca se to examine a technical expert from the side o f the Depa rt men t and to decide the matte r. Liberty was also given to the respondent s to examin e its expe rt and to adduce any oth er evidenc e.
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 8 of 56 4.5. Pursuant to the di rect ions of the Supreme Cou rt, st atements were record ed by ACIT, Circle 51(1), Ne w Delhi fro m Shri T anay Kri shn a in co nnection with the asse ss ment p ro ceedin gs of M/s Vodafon e Essa r Mo bile Service s Ltd ( formerly known as Hutchison E ss ar Telecom Ltd) for the Asst Year 2003-04 on 29.9.201 0 which was relied upon by the Lea rn ed CITA for decid in g th e i ssu e un der app eal befo re us. The L earn ed AR produced the statement reco rd ed from Shri Tan ay Krishn a on 29.9. 2010 before us. He also p roduced the copy of statement re cord ed fro m Sh ri Tanay Kri shn a duri ng c ros s examin ation p roceedin gs. H e took us to th e relevan t q uestions o f the said statement and argu ed that Sh ri Tanay Krishn a had cate go ric ally stated in both the statement s th at no human in tervention i s required in respect of roamin g charges. H e also argu ed that the reliance p la ced by the Learn ed CIT (Appe als) on the said state ment i s actually in favo ur o f the as ses se e for which purpo se h e speci fically took u s to the tabu latio n of questions to Sh ri Tan ay Krishn a record ed by Lea rned CIT(App eal s) in page 20 of his o rder.
4.6. The Learn ed AR a rgued that t hough initially the Learn ed AO proce eded to dis allow the roamin g ch arges u / s 40(a)( ia) of th e Act by app ly ing the provisions of section 194C of the Act , but later gave up and proce eded to apply section 194I / 194J of the Act. Ho wever, he assail ed the impug ned issue to prove that none of the provisio ns of se ction 194C, 194I and 194 J of the Act are applicable in the facts and ci rcu mst anc es of the case.
4.7. The Learn ed DR vehemently argued t hat no tech nology in world co uld survive without human inte rvention . He argued th at even nuclea r reacto r requ ires hum an inte rventio n an d he expl ained fu rther th at 100 I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 9 of 56 scientist s vie w the monito r in a cont rol room and though noth in g could be s een and everything is automated, b ut with out the int ervention of th e human bei ngs th e reacto r wo uld not fun ction without any def ect s. He argu ed that similar is the cas e with s pace t echnology. He a rgu ed th at teleco m technology could not b e differen t. The assessee pays roa min g ch arg es for serv ices p rovided by the other operator (Vi sitin g Operato r) for conn ectivity of two mobile hand sets while roamin g. This i s not wirel es s con n ectivity. Wirele ss co nn ection i s bet ween hand set and co nnectin g tower. Th ere aft er it i s only tran s mission lines throu gh which the elect ric al s ign als travel. It ha s to b e seen th at ho w the voice t rav els to the other mobile n etwork. It is pe rtin ent to note that the sound d oes not travel. It gets convert ed in to elect rical signal s and only tho se si gnal s travel to the other n etwork . He veh em ently a rgu ed that the ro amin g ch arg es a re pa id fo r both interconn ectivity as well as fo r usa ge of transmi ssion lines. He f ai rly conceded that for the in terco nnectivity ch arg es, no human in terventio n is required. But he argued that fo r usage of tran smis sion lines, human inte rve ntio n is definit ely required and hen ce TD S is applicable.
4.8. The Learned DR furth er argu ed the prov isions of Explanation 2 to sect ion 9(1)(vii) of th e Act. For the sake of convenience, it is rep roduced hereunde r:-
(vii) in come by wa y of fees for t echnical services payable by -
Exp lanation 2 - For th e purposes o f this clause, "f ees for technical services" mean s an y consid eratio n (including any lump sum consid eratio n) fo r the rendering o f any ma nagerial, techn ical or co nsu ltan cy services (in cluding the provision of services of t ech nical or oth er p ersonn el) but does not in clude consideration fo r any constru ction, assembly, mining o r like pro ject underta ken by th e r ecip ien t o r co nsideration which would be income o f the r ecip ien t cha rgeable u nder th e h ead "Salaries" .
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 10 of 56 He argued th at th e term 'man age ri al' o r 'consultan cy ' services def initely requi re s human intervention. Hen ce the term 'technical' which is sand wich ed bet we en th e term 'm anag erial' and 'co nsultan cy' should be given the sa me meanin g a s having human intervention. H e al so argued that these three wo rds are not inter conn ect ed. Rather th ey are indep end ent. He argu ed that this a spect was not considered by the Delhi High Cou rt in 319 ITR 139 (Del) which travelled lat er to Su preme Cou rt while rend e rin g the judgem ent in CIT v s Bharti Cellular Ltd in 330 ITR 239(SC) ca se.
4.9. He fu rther a rgu ed that indep endent examin ation need s to be ca rried out with technical e xpert s on th e imp u gn ed is sue and acco rdingly prayed for settin g asid e of the i s sue to the file of the L earn ed A ss essin g Officer.
4.10. We have heard th e rival submi ssion s and p erused the materi als av ailable on record. I t would be pertinent to not e he re th at roa min g serv ices a re provided by oth er teleco m operators by using thei r e xisti ng teleco m net work/ in frastructure and n o increment al inv est me nt is requi red to put up any additional net work /in f rast ructure fo r pro vision of su ch roamin g s ervice s. The a fores ai d fac t lend s furth e r support to the co ntentio n that roamin g se rvices a re standard auto mated services, which are provided by other telecom operato rs to subscribers of VE L u sing the same net wo rk/infrastructu re as is us ed by such operato rs fo r p rov ision of telecommu nication serv ices to its own subscribers. Therefo re, in es sen ce, ro amin g serv ices a re si mil ar i n nature to the telecom services provided b y a telecom op erato r to it s own subscribers an d h ence roa min g I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 11 of 56 ch arg es would partak e the same character as the no rmal teleco mmu nication ch arg es paid by a su bscriber to its se rv ic e provider.
4.11. We are not in a gre emen t with the argu men ts of the Lea rned DR that the wo rd 'techni cal' u sed in Expl an atio n 2 to Section 9(1)(vii) o f the Act should take the sa me character of 'm an ag erial' o r 'con sultancy' p ro vided in the said section wh erein huma n interv ention is required and acco rdingly ev en for t echnical se rvices, h uman intervention is d efinit ely requi red. In this regard, th e Hon'ble D elh i Hi gh Cou rt in the c ase of CIT vs Bharti Cellular Ltd i n 319 ITR 139 (Del) had held tha t sin ce th e entire proces s of makin g a call and s witchin g the call from on e network to the other i s do ne auto matically on the basis of ma chines and do es no t inv olve any human int erface, th e inte rconnect c harges cann ot be reg ard ed as F ee for Technical Service s (FT S) and hence wo uld not fall in the ambit of sect ion 194J of the Act. We find that o n further appeal by the rev enu e to the Hon'ble Supreme Court in CIT vs Bharti Cellular L td in 330 ITR 239 (SC) , the Hon'ble Apex Cou rt h ad stated that "ri ght f ro m 1979 various judgement s o f th e H igh Cou rt s an d Tribunal have t aken the view that the word s "technical serv ices" hav e got to be read in the narro wer sens e by app ly ing the rule of nosci tur a sociis, particul arly , becaus e the wo rds "technical se rvices" in section 9(1)(v ii) r.w. Explan atio n 2 comes in between the word s "man ag erial a nd consultancy se rvices". We find that the prin ciples laid do wn by the Delhi High Court h ave b een acc epted by the ape x court as such and th e Apex Co urt has merely directed the TD S office r to carry out factual verification to determin e the ext ent of hu man involv emen t. Ba sed on this di recti on, the CBDT had al so issued Inst ruction No . 5 of 2011 d ated 30.3. 2011 instru ctin g the revenue authorities to seek opinion of techni cal experts in cas e of complex technical m atte rs.
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 12 of 56 4.12. As per the direction s of the Sup reme Court in th e case of CIT vs Bharti Cellular Ltd in 3 30 ITR 23 9 (SC), the TDS o ffic er ha s been di re cted to o btain technical ev idence f rom th e expert s in the t eleco m field with regard to the fac t of exi st ence o f hu man int ervention for th e ro aming serv ices and accordin gly the A CIT, Ci rcle 51(1), Ne w D elhi had reco rded state ment from Sh ri.Tan ay Krish n a on 2 9.9.2010. The Learned AR h as also filed p rayer fo r receip t of ad dition al evidenc e in term s of Rule 29 of ITAT Rules o n 20.7. 2015 containing th e st atements reco rded f ro m Sh ri Tanay Krishna on 29.9.2010 in the case of Vodafone Essar Mo bile Service s Ltd & cro ss examin at io n by Vodafone Essar Mobile Service s Ltd on 29.9. 2010. This applicatio n under Rule 29 contains a p rayer with reasons that these docum ent s co uld n ot be filed before th e lower authoriti es and that th ese do cuments are very cruci al f or the dispo sal of the ca se unde r app eal as th e ex amination of the technical exp erts had t aken plac e post the proceedin gs b efore the As se ss in g Office r an d a s per the di re ctions of the Hon'ble Sup reme Cou rt, thes e sta te ment s were record ed in the case of the group comp any of the assess ee. Ho wever, it is s een th at the stat emen t of Shri Tan ay Krish n a on 29.9. 2010 have been relied upon by the L earned CIT(App eals ) vide page 2 9 of h is o rder bu t the c ro ss e xamin ation of Shri Tanay Kri shna i s not in reco rds of th e l ower authoriti es. W e find th at the state ment is ve ry much relev ant fo r th e disposal of the se app eal s and are hereby admitted as additional evidenc e (in re sp ect o f c ros s ex amination state ment o f Shri Tan ay Krishn a on 2 9. 9.2010) in terms of Rule 29 of ITAT Rules as they go into the root of th e is sue.
4.13. We find that this issue need not be set asid e to the file of the Lea rn ed A ssessin g Officer for s eek in g f resh t echnical evidenc es from experts a s the same had al ready been obtained in the cas e of the group I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 13 of 56 co mpany of th e assessee and CBDT ha d also issu ed Inst ruction s in this regard to seek evidences. Any technical evidence obtain ed in a case c an be used in th e cas e of another ass essee as long as the facts and circu mstanc es inv olved are identi cal. In the instant ca se, the fact s in the case o f Vod afone E ssar Mobile Services Ltd are identical with the fa cts of the assessee herein and also it happen s to be th e group co mpany o f th e as se sse e.
4.14. Sh ri Tan ay Kri shna's stat ement- questions and answers - 4, 5, 6 & 16 are rep roduced b elo w :-
Question 4: Can you enlighten us about the function in g of the networ k system of the cellular operators at th e time of r eceiving or providing in ter-conn ect services to ea ch other including installation, inter co nnectivity etc from the very beginning?
Ans. 4: As r egards to inter conn ect to Ga teway swit ches/ MSC of two differ ent operators are intercon n ected using an y transport technolo gy which invo lves wires as w ell as human interface for s etting up.
It involves differen t phases -
i) P la nning pha se- wh er e how mu ch cap acity r equir ed and how much t raffic hand lin g capacity is r equired on th ese basis hard ware a nd software is det ermin ed.
ii) Sel ection o f vendor - is done to determin e who will provide thes e s ervi ces along with his consultancy.
iii) Hardware and softwa re is supplied by the ven dor and it is customized to th e n eed of th e n etwo r k as per th e TEC specifications.
iv) Installation as per vend or guid elines - it involves insta lla tion of both ha rdware and so ftware.
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 14 of 56
v) Call configuration/p rovisionin g o f system - in this th e opera tor has to configu re and make provision in data base as to h ow th e calls will flo w. This has to b e d one by a technically co mpet ent p erson .
vi) Testing - it is exhaustive testing. Th e calls are t est ed o n va rious modes (t ermina ting , loading etc) on n et work portion.
(a) Soft war e by hardware t esting - Stand alon e tes tin g
(b) Int er con nect t esting - it is do ne to t est if it is compatible with oth er h ardware/soft wa re. This t estin g employs technically qualified pro fessiona ls and test ed as per the agreed p lan betw een servi ces pro vid er and vendor.
Question 5 : In your exp ert opinion, do es the syst em wor k automatically when n etwo rk sys t em o f o ne cellular opera tor gets connect ed with the n et wor k system of other cellular operator?
Ans. 5: Wh en a calls get conn ect ed by one operator to other, per se it is an automatic conn ect ion, bu t th er e ca n be instan ces wh en th er e is a problem in the call connect which may r equ ire resolution through human interven tion.
Question 6: Hen ce there is no 100% au to matic operation of this network. Can you expla in what kind of h uman interventio n is r equ ired ?
Ans. 6: Yes as I said earlier it ca n't be 100% fully automated. There a re s ev eral ci rcumsta nces und er which human intervention would be r equired . I would briefly tell you abo ut each of su ch ci rcumstances -
(a) Th ere could be a case wh er e th er e is fa ilu re in physical hardware.
(b) Ther e could be a problem due to so ftwar e bug .
(c) Th er e could be snapping of fibre optic cables.
In (a), (b), (c) abo ve you are r equir ed in terv ention o f teams o f technical exp er ts to r em edy the situation.
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 15 of 56 Question 16: Please t ell us the places o r points or areas wher e human intervention with each oth er?
Ans. 1 6: As ha s been detailed in s ev era l answers tha t I have given earlier, on e can broadly say th at when th ere is an interconn ectio n bet w een t wo service p roviders, human interventio n is constantly r equir ed fo r managemen t o f networ k/System, capacity enh ancemen t a nd mo nito ring of system/n et wo rk.
4.15. Cross e xamin ation proceedin gs o f Sh ri Tan ay Krishn a - questions and an swers - 3,4,5,7,11 & 1 2 are rep ro d uced below:-
Q.3. What is the process of carriage of calls originating on network of one operator and terminating on the network of the other operator?
The call from one network to the other network flows automatically, i.e. without any human intervention. Once a call originates, the call travels automatically. In establishment of a call, therein no human intervention i.e., once a subscriber dials and the call gets connected without any fault, then there is no human intervention. Intervention is required only ~hen the call is not successful, i.e., the call fails due to any reason.
Q. 4. Is any human intervention involved in the entire process of carriage of call from one operator to another?
No, as stated above, no human intervention is required in the process of carriage of calls. However, human intervention is required at the inter-connect set-up stage (including configuration, installation, testing, etc.) and capacity enhancement, monitoring (including network monitoring), maintenance, fault identification, repair and ensuring quality of service as per interconnect.
Q.5. From the perusal of your answer to Question 4 of your Statement, it appears that the phases described thereon are restricted to merely setting-up of the inter-connect between the networks of the two operators and not during actual carriage of the call by one operator for the other. Please confirm.
Yes.
Q.7. From perusal of your answers to various questions posed to you by the Tax Department, you have mentioned that services of a technical expert are required for inter-connect arrangements. Please confirm whether such services I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 16 of 56 are required for provision of inter-connect services, i.e., carriage of calls from one network to another, or are primarily for fault detection and removal.
Please refer to answer to Question 4 of this cross examination.
Q.11. What is the extent of human involvement in provision of interconnect services. i.e., carriage of calls originating on network of one operator and termination the network of the other operator?
We have answered in question no 5.
Q.I2. In answer to Question 21 of your Statement, you have stated that in cellular networks the level of human intervention is much higher and of sophisticated technical level. In this regard, do you agree that cellular networks are based on sophisticated technology and work on an automated mode? The human intervention as referred by you for network operations is limited to network monitoring and maintenance and fault repair, rectification, enhancement, configuration, and set-up?
We agree that the telecom networks are automated networks and do not require human intervention for carriage of calls. However, as stated in Question 4 of this cross examination, human intervention is required at the inter-connect set-up stage (including configuration, installation, testing, etc) and capacity enhancement, monitoring (including network monitoring), maintenance, fault identification, repair and ensuring quality of service as per interconnect.
4.16. The next argu ment of Learned D R that ro amin g cha rge s are p aid fo r both interconnectivity and also fo r usage of t ran smi ssion lines and human inte rvention is very much in volved with reg ard to usage of transmi ssion line s. We find th at the human involvement is involved only when so methin g go es wro n g in the main tenan ce of tran s mi ssion lin es and for connectiv ity per se, human int erven tion is not involved . This issue co uld also be look ed into f ro m th e an gl e of ap plic ability of TDS p rovisions on Transmi s sion Charges / wheelin g charg es p aid by power gen eratin g co mpani e s. This i ssu e h ad re ached the corrido rs of va rious judicial forums and no w has been put to rest by the followin g deci sion s:-
CIT(TDS)- vs Maha rashtra Sta te Elec tricity Distribution Co. L td reported in 375 ITR 23 (Bom) -
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 17 of 56 "By this appeal , the R evenue has pr op os ed the f ol l owing ques tions to b e subs tantial ques tions of l aw:-
"(a) W hether, on the f acts an d in t he circum s tances of t he cas e and i n l aw, the Income Tax Appel late Trib unal was j us tified in hol d ing that the payme nts of the wheel ing and trans mis s ion charges mad e b y the as ses see to the entities l ike Mahar as htr a State E l ectr icity Trans miss ion Co. L td. (MSE TCL) and Power Gr id Cor por ation of India Ltd . (P GCIL) f or the us e of trans mis sion l ines or other inf rastr ucture, i. e. , pl ant, m achinery a nd eq uipment coul d not be ter med as rent under the provis ions of s ection 194I of the Act and , cons eq ue ntl y, the pr ovis ions of s ection 201 and s ection 201(IA) co ul d not be appl ied ?
(b) Without prej ud ice to the above, whet her , on t he f acts and in the circum sta nces of the case and i n l aw, paym ent of wheel ing and trans mis s ion charges t o the entitl es l ike MSE TCL and P G CIL, shoul d hav e been tr eated as f ees f or technical s er vices and tax s houl d have been d educt ed at sour ce u nder s ection 194J of the A ct f r om the payments? "
He s ub mitted that in the case of Chhattis g arh Stat e E l ectr icity Boar d no appeal h ad b ee n f il ed by the R even ue and the R evenue accepted the decis ion of the Tr ibun al which was f ol l owed by the Tr ibunal in the case of the pr es ent ass es s ee as wel l . Mer el y dr awing power a nd carr ying power thr oug h trans mis s ion l ines and tran sm ission sys tem woul d not am ou nt to r enting up eq uipm ent or its charge or r ent".
The Hon'bl e Supreme Court has al so shown us s om e dir ection in this behal f . Whil e inter pr eting th e e xpress ion "r ent", the appl icabil ity of s ection 194-1 must b e g athered f r om whether the wheel ing and trans mis s ion char ges d raw its col our f rom the bas ic meani ng of t he expr ess ion "r ent". It is s een f r om the decision of the Supr em e Cour t in Singapore A irl ines (s upr a) that the m eaning of "r ent" must be un der s tood in the cont ext in which they ar e used. In the pr es ent set of f acts, it is not pos s ibl e to eq uate the w heel ing and tr ans mis s ion char ges payabl e MSE TCL with rent. On f acts it is s een that the ME R C or der dated June 27, 2006, deal s with MSE DCL's conte ntions, apropos the m ethod ol ogy propos ed by ME R C. The tr ans mis s ion char ges co ntem pl ated by ME R C incl udes t he cross -s ubs idis ation of trans mis s ion char ges acr os s licens ees when f ound to be uneconomical and u ncomp etitive. It is f ur ther ob ser ved that ME R C has cons idered pool ing of trans mis s ion char ges dur ing b ul k power trans mis s ion f r om one l icens ee to anot her l icens ee. It is af ter cons idering al l thes e as pects that a com posite char ge m ethod f or any s uc h tr ansm is sion was adopted. Thus , it is s een that the m ethodol ogy f or d eter mining of the tr ans mis sion tar if f coul d not be I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 18 of 56 deter mined in a m ec hanical manner as if th e char ge w as onl y f or us e of the State tr ansm is sion util ity. The MER C whil e pas s ing this or der on transm is sion char ges had r ec eived var ious obj ections s om e, inter al ia, s uppor ting the com posite tar iff, s om e against. However , we need not d ivert o ur attention to the detail s of pr icing f orm ul a fin al l y ad opted.
Ther e is not hing on r ecor d to suppor t the R eve nue's conte ntion that the wheel ing and trans mis s ion char ges ass um es the char acter of rent. We ar e in agr eeme nt with Mr . Mistr i that t he expr ess ion "r ent" m us t b e conceptual l y un der s tood . The concept of r ent under the Income-ta x Act d oes not enc om pas s , in our view, the wheel ing and trans mis s ion charges payab l e b y the as s es s ee especial l y when the as sess ee is dis char ging a publ ic f unction. The expr ess ion of "tr ans mis s ion char ges and /or "wheel ing charg es "
entail s dis tribution of el ectricity in the ar ea of the cor por ation and they ca nnot be subj ected to provis ions of section 194-1 of the Act. We, however , clarif y that this is r es tricted to the case of the as s es see in view of the publ ic f unction to b e und er t ake n by it, as a r esul t of the res tr uctur ing of the Mahar as htra State E l ectricity Boar d.
It is pertinent to m ention her e th at s ection 62 of the Act pr ovides that t he Comm iss ion m ay, in the case of s uppl y of el ectr icity f ix a maxim um ceil ing of the tar if f, in an attem pt to pr om ote com petition amongs t the d istr ibution l icensees . Thus , the ver y concept of the charge f or trans mis sion el ectr icity and wheel ing of el ectricity, as the case m ay b e, is s ubj ect to the tar if f that will be deter mined b y the ME R C in pub l ic interest. Hence, it is incom pr ehens ibl e that the tarif f pass es the tes t as f ees f or technical s er vices . Once again appl ying the pr incipl es of concept ual interpretation to t he tar if f to be f ixed f or the wheel ing and trans mis s ion charg es of el ectr icity, it canno t be inter pr eted to mean f ees f or the pr oviding technical s er vices. Under the ope n acces s s ys tem , it is the M SE DCL which wil l be avail ing of the s aid trans mis s ion f acil ity. No "s er vice" is being pr ovided b y the MSE TCL or the State tr ansm is sion util ity. No doubt, MSE DCL, as tr ans mis s ion l icens ee is requir ed to pr ovide s uperinte ndence, maintenance and r epairs to the s ys tem . However , no s uch se rvice is r end er ed b y t he MSE TCL to M SE DCL. MSE TCL is obl ig ed to m aintain the s ystem by val ue of oper ation of l aw und er t he E lectr icity Act. The MSE DCL acces ses the Stat e tra ns mis sion util ity an d d istr ibutes el ectr icity pass ing throug h the State tr ans m iss ion util ity. Our views s tand f or tif ied by the ver y f act that the R evenu e its elf is conf used and uns ure as to t he nat ur e of the c har ge. The f ocus of the R evenue is onl y the r eq uirement of d ed uction of tax wh ether u nder section 194- 1 or s ection 194J. This approac h is er rone ous . The R evenue co ntends that the wheel ing and tr ansm iss ion char ges coul d be rent or f ees f or I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 19 of 56 technical s er vices but, in our view it is neither . W heel ing char ges r epr esent th e charg e f or per mitting us e of the State tr ans mis sion util ity by per s ons oth er than th e d istr ibution l icence. The trans mis s ion char ges s impl y cons titute f ees f or avail ing of the s aid trans mis s ion util ity to be us ed b y open acces s co ncept f or dis trib ution of el ectr icity to the l icensees and cons umer s. In view of the ab ove d is cus sion, we ar e of the view that the wheel ing and trans mis s ion charg es ar e neither r ent nor f ees f or technical s er vices. Keeping t he said inter pr etation into ef f ect, we f ind t hat whil e interpreting the express ion "r ent" in the p resent s cenar io, we m us t bear in m ind that taking into account the f unctioni ng of MSE DCL which is a pub l ic util ity, it will not be appr opr iate to eq uate t he trans mis s ion char ges or wheel ing charg es to r ent or f ees f or technical s ervice.
In our view, the tr ans m ission c harg es and / or wheel ing c har ges ar e not am ounts paid u nder any arr ang em ent for us e of l and, buil ding , pl ant m ac hinery, eq uipment, f ur niture, f itting, etc. and, theref or e, not r e nt. E qual l y, the amounts ar e not f ees for technical s er vices . In the f acts and cir cums tances of this case, we answer the ques tion in f avour of the as s es s ee and against the R evenue. The appeal is dis pos ed of accor dingl y. There will be no or der as to cos ts.
b) Auro Mira Biopower India P Ltd vs ITO TDS reported in (2015) 55 taxmann.com 452 (Chennai-Tribunal) -
"Section 194 r ead with section 9 of t he I ncom e Tax Act, 1961- Ded uction of t ax at s our ce- Fees f or pr of ess ional or tech nical s er vices (Tr ans mis sion charges )- As s es s ment Y ear 2012-1 3- Whether, wher e as sess ee paid wheelin g, s ched ul ing and trans mis s ion char ges to State power ut il ity f or us ing its dis trib ution net wor k to s el l energ y gener ated b y as sess ee to end co ns um er s and same d id not invol ve any human el em ent, as s es s ee was not requir ed t o d educt TDS und er s ection 19 4J- Hel d , yes [ Par a 6] in f avour of as sess ee".
c) DC IT vs De lhi Trans co Ltd reporte d in (2014) 52 ta xmann.com 261 (Delhi -
"This finding has been followed by the ITAT in ITA No. 3965/ Del/2011 in the case of assessee for Assessment Year 2006-07. Apart from the finding of tribunal recorded in the assessee's own cases, we deem it pertinent to take note of the finding recorded by the tribunal in the case of Chhattisgarh State Electricity Board -vs.- ITO (supra) (2012) 50 SOT 33 (Mum.)- No further appeal to High Court by Department. The relevant finding read as under :
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 20 of 56 " 11. We find that the Power Purchase Agreement entered into by the assessee with NTPC, (copy placed before us at pages 15-27 of the paper-book), specifically provides that "power shall be made available by the NTPC at the busbars of the Station and it shall be obligation and responsibility of the CSEB to make the required arrangement for evacuation of power from such delivery points of NTPC". It is pursuant to these obligations that the assessee, along with other bulk power beneficiaries - namely M P State Electricity Board, Gujarat Electricity Board, Maharashtra State Electricity Board, Electricity Department - Government of Goa, Administration of Daman & Diu, and Electricity Department - Administration of Dadra and Nagar Haveli, has entered into a 'Bulk Power Transmission Agreement' with PGCIL. The preamble of this agreement, inter alia, notes that the PGCIL "is desirous to transmit energy from the Central Sector Power Station(s) to the Bulk Power Beneficiaries and that the said Bulk Power Beneficiaries are desirous of receiving the same through POWERGRID transmission system on mutually agreed terms and conditions". This agreement provides that "POWERGRID shall operate and maintain the transmission system belonging to it in the Western Region as per agreed guidelines and the directives of the Western Regional Electricity Board and the Regional Load Dispatch Centers, and cooperate with the Bulk Power Beneficiaries of the Region, so as to maintain the system parameters within acceptable/reasonable limits except where it is necessary to take measures to prevent imminent damage to any equipment". In respect of these services, the bulk power beneficiaries are to pay to PGCIL a monthly charges computed in the manner set out in clause 9 of the said agreement. This clause, in turn, refers to formula set out in A.4 of Annexure 1 which refers to the same ratio of agreed annual charges divided by 12 as is between power transmitted to each beneficiary to total sales from that particular point of delivery. In other words, while the annual charges are fixed, these are divided between the beneficiaries in the same ratio as is ratio of power evacuated by a beneficiary to the total sale of power from that delivery point. It is, however, not in dispute that the transmission lines are in the physical control of PGCIL, these are maintained and operated by the PGCIL and, so far as the assessee is concerned, its interest in the transmission lines is restricted to the fact that electrical power purchased by the assessee, simultaneously alongwith electrical power purchased by other bulk power beneficiaries, is transmitted through these transmission lines. The way it works is like this. The power available at the delivery points, collectively for all the bulk power beneficiaries, is loaded for transmission on these transmission lines or powergrid and each of the beneficiaries is allowed to utilize the power to the extent allocated to him. It is not the case that purchases by each of the bulk beneficiary can be physically identified and that particular beneficiary is only allowed to use that physically identified portion of power. Strictly speaking, therefore, it is not the transmission of power from one point to another but availability of power on the entire power grid or transmission lines enabling the beneficiary to utilize the power to the extent of his allocation. On these facts, the question that requires our adjudication is whether or not the payment for transmission charges can be termed as 'rent' for the purposes of Section 194-I of the Act.
12. Let us now take a look at the statutory provision with regard to tax withholding from rent payments, which is set out in Section 194-I of the Act, and analyze the same. Section 194-I provides as follows:
Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of - (a) two per cent. for the use I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 21 of 56 of any machinery or plant or equipment; and (b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings:
Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed [one hundred eighty thousand rupees] : Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section. Explanation : For the purposes of this section, [(i) "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement orarrangement for the use of (either separately or together) any, -,
(a) land; or
(b) building (including factory building); or
(c) land appurtenant to a building (including factory building); or
(d) machinery; or
(e) plant; or
(f) equipment; or
(g) furniture; or
(h) fittings, whether or not any or all of the above are owned by the payee;]
(ii) where any income is credited to any account, whether called "Suspense account"
or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
13. The case of the Assessing Officer, which has been sustained in the first appeal, is that since expression "rent", for the purpose of Section 194 I, includes "any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement" for the use of machinery, plant or equipment, and since the assessee has made the payments towards transmission charges for use of the machinery, plant and equipment collectively constituting mode of transmission of power, the provisions of Section 194-I come into play on the facts of this case.
14. The core issue that we must deal with is whether the present arrangement under the Bulk Power Transmission Agreement can be termed can be covered by the scope of expression any other agreement or arrangement 'for the use of' appearing in Explanation (i) to Section 194-I.
15. Explanation (i) to Section 194-I, as we have noted above, defines rent as any payment, by whatever name called, under any lease, sublease, or tenancy or any other agreement or arrangement "for the use of" land, building, plant, machinery or equipment etc. As evident from a plain reading of the agreements under which impugned payments have been made, the payments I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 22 of 56 have been made for the services of transmission of electricity and not the use of transmission wires per se. It is a significant fact that these transmission lines are not only being used for transmission of electricity to the assessee but also for transmission to electricity to various other entities. The transmission lines continue to be not only under control and possession of the PGCIL in legal terms, but, what is more important, these transmission lines are effectively in the control of PGCIL, without any involvement of the assessee in actual operations of the same. On these facts, in our humble understanding, the assessee has made the payments for transmission of electricity in which transmission lines have been used rather than for the use of transmission lines per se. The payments could be said to have been made for "the use of transmission lines" in a case in which the object of consideration for which payments are made was the use of transmission lines simplictor, and such a use by the assessee does not extend beyond the transmission of electricity through such lines in the sense that the same transmission lines continue to be in the control of PGCIL for transmission of electricity for other entities and for all practical purposes. Even as electricity purchased by the assessee is transmitted to the assessee from the NTPC busbar to its landing points, the same transmission lines continue to be engaged in similar transmission of electricity for other entities and the assessee has no say in the manner in which such transmission lines can be controlled and used by the PGCIL. Undoubtedly, for the purpose of an arrangement being termed as in the nature of rent for the purpose of Section 194-I, the 'control' and 'possession', in legal terms, of an asset may not not needed to be with the person benefiting from the asset in question, it is a condition precedent for invoking Section 194 I that the asset, for the use of which the payment in question is made, should have some element of its control by the assessee. Here is a case in which the assessee has no control over the operations of the transmission lines, and all that he gets from the arrangements is that he can draw the electrical power purchased from PGCIL's transmission lines in an agreed manner.
16. While on the issue of distinction between use of an asset and benefit from an asset, we may usefully refer to the following distinction brought out by the Karnataka High Court between leasing out of equipment and the use of equipment by its customer. This was done in the case of Lakshmi Audio Visual Inc. v. Asstt. Commr. of Commercial Taxes [2001] 124 STC 426 (Kar.), which has been followed by Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd. v. DIT [2011] 332 ITR 340 / 197 Taxman 263/ 9 taxmann.com 168, in the following terms :
"9. Thus if the transaction is one of leasing/hiring/letting simpliciter under which the possession of the goods, i.e., effective and general control of the goods is to be given to the customer and the customer has the freedom and choice of selecting the manner, time and nature of use and enjoyment, though within the framework of the agreement, then it would be a transfer of the right to use the goods and fall under the extended definition of "sale". On the other hand, if the customer entrusts to the assessee the work of achieving a certain desired result and that involves the use of goods belonging to the assessee and rendering of several other services and the goods used by the assessee to achieve the desired result continue to be in the effective and general control of the assessee, then, the transaction will not be a transfer of the right to use goods falling within the extended definition of "sale". Let me now clarify the position further, with an illustration which is a variation of the illustration used by the Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. v. CTO.[1990] 77 STC 182 (AP).
Illustration
(i) A customer engages a carrier (transport operator) to transport one consignment (a full lorry load) from place A to B, for an agreed consideration which is called freight charges or lorry hire.
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 23 of 56 The carrier sends its lorry to the customer's depot, picks up the consignment and proceeds to the destination for delivery of the consignment. The lorry is used exclusively for the customer's consignment from the time of loading, to the time of unloading at destination. Can it be said that right to use of the lorry has been transferred by the carrier to the customer ? The answer is obviously in the negative, as there is no transfer of the "use of the lorry" for the following reasons :
(i) The lorry is never in the control, let alone effective control of the customer; (ii) the carrier decides how, when and where the lorry moves to the destination, and continues to be in effective control of the lorry; (iii) the carrier can at any point (of time or place) transfer the consignment in the lorry to another lorry; or the carrier may unload the consignment en route in any of his godowns, to be picked up later by some other lorry assigned by the carrier for further transportation and delivery at destination.
(ii) On the other hand, let us consider the case of a customer (say a factory) entering into a contract with the transport operator, under which the transport operator has to provide a lorry to the customer, between the hours 8 a.m. to 8 p.m. at the customer's factory for its use, at a fixed hire per day or hire per km. subject to an assured minimum, for a period of one month or one week or even one day; and under the contract, the transport operator is responsible for making repairs apart from providing a driver to drive the lorry and filling the vehicle with diesel for running the lorry. The transaction involves an identified vehicle belonging to the transport operator being delivered to the customer and the customer is given the exclusive and effective control of the vehicle to be used in any manner as it deems fit; and during the period when the lorry is with the customer, the transport operator has no control over it. The transport operator renders no other service to the customer. ......."
17. It is thus clear that in a situation in which the payment in made for the use of an asset simpliciter, whether with control and possession in its legal sense or not, the payment could be said to be for the use of an asset. However, in a situation in which the payment is made only for the purpose a specific act, i.e. power transmission in this case, and even if an asset is used in the said process, the payment cannot be said to be for the use of an asset. When control of the asset (transmission lines in the present case) always remains with the PGCIL, any payment made to the PGCIL for transmission of power on the transmission lines and infrastructure owned controlled and in physical possession of PGCIL can be said to have been made for 'the use of ' these transmission lines or other related infrastructure. Viewed in this perspective, Section 194 I has no application so far as the impugned payments for transmission of electricity is concerned. For this short reason alone the impugned demands must be held to unsustainable in law."
9. On due consideration the order of the coordinate bench in the assessee's own case in assessment year 2005-06, and 2006-07 as well as in the case Chhattisgarh State Electricity Board, we are of the view hat Ld. Commissioner of Income Tax (appeals) has appreciated the controversy in right prospective and no interference is called for.
Therefore, ITA No. 3526,3528,3629,3530 are dismissed.
The various deci sions ci ted sup ra have held that there will be no TDS on transmi ssion charges and the sa me an a logy would apply with equal fo rce in the c as e of t ransmi s sion charges in telecom indu stry.
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 24 of 56 4.17. Fro m the afo resaid state ment record ed fro m technical expe rt s pursu ant to th e di rect ions of the Sup re me Cou rt in CIT v s Bharti Cellu la r Ltd ( 330 ITR 239) which has been heav ily relied upon by the Learned CITA, we find th at human interven tion is required only for in st allation / settin g up / rep ai rin g / servicin g / maintenan ce / capaci ty aug mentation of the net work. But after co mpletin g t his proces s, mere interco nn ection between th e op era to rs while roamin g, is done automatically and do es no t requi re any human interven tion and acco rdin gly cannot be co n st rued as technical s erv ices. It is co mmon k nowled ge that wh en one of th e subsc ribers in the assessee's circle travels to the juri sdiction o f an othe r circl e, th e call get s connect ed au tomatically without any human intervention an d it is fo r this, th e ro ami ng charges i s paid by the assessee to the Visitin g Operato r for p ro viding this se rvice. Hence we have no hesit ation to hold that the p rovision of roamin g services do not requ ire any human in tervention and ac cordin gly we hold that the p ay ment of roamin g charges does not fall under the ambit of TDS provisions u/ s 194J of the Act.
4.18. As far as the applicability of provisions of se ction 194C are co ncerned, we hold that th e pro visions of sectio n 1 94C of the Act would become applicable only where som e work ( wo rks cont ra ct) i s bein g ca rried out and there i s so me h uman int erven tion inv olved in the carriage of such work . The term 'wo rk' is defi n ed in section 194 C as fo llo ws:-
"Work shall includ e:
a) Advertising;
b) broadcasting and telecasting including productio n of programmes for su ch broadcasting or telecasting;
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 25 of 56
c) car riag e of go ods or passengers by any mode of transport other than by railways;
d) ca tering;
e) manufacturing o r supplying a pro duct a ccording to the r equirement or specification of th e customer by using ma terial purch ased from su ch cu stomer, bu t does not in clude manufactu ring or sup plying a produ ct according to th e requirement or specification of a customer by using material purch ased from a person, other than such custo mer ."
We hold that 194C i s applicable only where an y su m i s p aid for ca rrying out any work including supply of labour for carryin g o ut any wo rk. Thu s, 'carrying ou t an y wo rk' i s the subst anc e fo r makin g the payment relatin g to such wo rk, liable for deduction of t ax at sou rce u /s 194Cof the Act. For carrying out any wo rk , manpower i s sin e qua no n and without manpo wer, it cannot be said that wo rk h as b een c arried ou t. Und er sect ion 194C each and every work/ servic e i s n ot cove red, henc e the nature of wo rk done or service performed is requ ired to be se en. Mo reov er, the term 'work' is defined i n sectio n 194C of the Act. The word 'wo rk' in section 1 94C refe rred to and co mprehend s only the activ ities of wo rkm an. It is the physical fo rce which has co mp rehend ed in the wo rd ' wo rk'. We h av e al re ady held that the paym ent of roa min g ch arg es d oes not requ ire a ny human int erv ent ion. Henc e i n the absenc e of human int erv ention, the services re ndered in th e context of the i mpu gned issu e does not fall unde r the d efinitio n of 'wo rk' a s defin ed in section 194C an d h en ce the p rovisions of sect i on 194C are not applicable to th e impugn ed i ssu e.
4.19 . L et us now get into th e applicab ility o f provisions of section 194I of the Act to the fact s of the impu gn ed issu e. The term 'rent' i s defi ned in sect ion 194I a s below:-
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 26 of 56 "For the purposes o f this section , "rent " means any p ayment, by whatever name called, under any lea se, sublease, tenancy or an y other agreemen t or arrangemen t for th e use of (eith er separa tely or togeth er) any,-
(a) land; or
(b) building (inclu ding facto ry building); or
(c) land a ppurtenant to a bu ilding (including factory bu ild ing); or
(d) machin ery; or
(e) plant; or
(f) equipment; or
(g) fu rnitu r e; or
(h) fit tings whether or not any or all of the a bove are own ed by the payee."
The real te st to be conside red is wh ether it is possible to say that it is the as se sse e who has used the equipment and has p aid the roa min g cha rges to the other service p rovider with wh om it has ent ered into a nation al roamin g agreement. We hold that it i s no t po ssib le to say so b ecau se if at all anyone c an b e s aid to have u sed t he equipm ent it can o nly be the subsc riber of th e a ssess ee but not the asses see. If anything the assessee is p laced in a positio n of a me re f acilita to r between it s subscriber and the other serv ice p rovider, fa cilitatin g a roamin g c all to be mad e by the subsc riber. The a ss ess ee can no t be s aid to have used the equip men t which is inv olved in providing the roa ming f acility. The asses se e collects the roa min g ch arges f rom it s subsc rib er and pa sses it on to the o ther serv ice p rovider. It is relev ant at this ju ncture to g et in to the judg emen t of the apex court in the ca se of B SNL and Another vs Union of India and Others (2006 ) 282 ITR 273 (SC). One o f the questio ns which a ros e for co nsideration wa s wheth e r there was an y tran sfe r of a right to us e any I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 27 of 56 goo ds by prov iding acces s o r telepho ne connectio n by the telephone serv ice p rovider to a subsc ribe r. Ref errin g to section 4 of th e Telegraph Act, 1885, which gives exclusi ve priv ilege in respe ct of teleco mmu nication and the power to grant licenc es to the Cent ral Government, it was co ntend ed by the service p ro viders that they provided only a serv ice by the utili zat ion o f tel egrap h licensed to them for th e bene fit of the subscribers.
The Suprem e Court proc eed ed on th e assu mpt ion that inco rporeal rights may be goods fo r the pu rpose of levying sal es t ax and posed to itself the que stion wheth er th e elect ro magn etic waves throu gh which th e signal s a re tran s mitted can fu lfil the criteri a for bein g describ ed as "goods". The court held that the elect ro magn etic waves cannot be called goo ds. They were h eld to be me rely t he m edium of communication; th e waves are nei ther abstract ed nor co nsum ed, they are not d elivered, stored or po ssess ed, nor a re th ey ma rketable. Wh at was tran smitted i s not an ele ct rom agnetic wave but the si gnal th rough such mean s. The Sup reme Court th ereafte r gave a mo re basic reason to hold that the elect rom agne tic wav es c annot be consid ered as goods and it is this reason which i s relev ant fo r our pu rpose. It was held that a subs criber to a telephon e service co uld not rea sona bly b e tak en to have intended to purcha se o r obtain any right to u se elect ro magn etic waves or radio frequencies when a telephon e conne ction is given. Nor does the subsc riber intend to use any portion o f the wi rin g, the cable, the sat ellite, the tel ephone exchan ge, etc. As fa r as the subscriber i s co ncerned, no right to the use of any other goods, in corporeal or co rpo real, is given to him o r h e r with the telephone connectio n.
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 28 of 56 In view of the above, we hold that the payment of roa min g cha rges by the ase sssee to other s erv ice pro vider c annot b e considered a s ren t within the meanin g of section 194I of th e Act.
4.20. Acco rdin gly , we hold that the payment of roamin g ch a rge s of Rs. 55,41,01,3 20/- does no t fall under the amb it of TDS p rov isions eithe r u/s 194C / 1 94I or 19 4J of th e Act and hence we have no hesitatio n in directin g the L earned Asses sin g Officer to d elete the addition mad e u /s 40(a)(i a) on thi s account.
4.21. Without prejudice to the aforesai d main g roun d with reg ard to the non-app licability o f TDS p rovisions fo r roamin g charges, the n ext argu men t of th e L ea rn ed AR that the prov isions of sect ion 40(a) (ia) of th e Act wou ld apparently be applicable only for amounts payable at the end of the ye ar and not for amounts paid b efore the end of th e p revious yea r. We find that thi s i ssu e i s al ready covered again st th e as sesse e by the decision of th e Jurisdictional Hi gh Court in CIT vs Crescent Export Sy ndicat e (201 3) 3 3 taxmann.com 25 0 (Cal) wh erein it was held that provision s of 40(a)(i a) could be in voked o n amounts p aid before the end of the p revious ye ar. Acco rdin gly, this gro und no. 2.2 rai s ed b y the as se sse e is di s missed. Ho wever, this ground becomes inf ructuous in v iew of our deci sion rend e red fo r G round No. 2.1.
4.22. Without prejudice to the main Ground No. 2.1 and altern ative Gro und No. 2.2, the L earned AR argued that the s eco nd pro viso to section 40(a)(i a) ins erted with ef fect fro m 1 .4.2013 should be construed a s cu rat ive in natu re and henc e has to be given ret rospe ctive effect. This issu e has be en recently decid ed by the Hon'ble Delhi High Co urt in the I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 29 of 56 case o f CIT vs An sal L and Mark Town s hip (P) Ltd wh erein it was held as follows:-
"Whether the second proviso to Section 40(a)(ia) (inserted by the Finance Act, 2012), which states that TDS shall be deemed to be deducted and paid by a deductor if resident recipient has disclosed the amount in his return of income and paid tax thereon, is retrospective in nature or not?
The High Court held as under-
Section 40(a)(ia) was introduced by the Finance (No. 2) Act, 2004 to ensure that an expenditure should not be allowed as deduction in the hands of an assessee in a situation where income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee.
Hence, section 40(a)(ia) is not a penalty provision for tax withholding lapse but it is a provision introduced to compensate any loss to the revenue in cases where deductor hasn't deducted TDS on amount paid to deductee and, in turn, deductee also hasn't offered to tax income embedded in such amount.
The penalty for tax withholding lapse per se is separately provided under section 271C. and, therefore, section 40(a)(ia) isn't attracted to the same. Hence, an assessee could not be penalized under section 40(a)(ia) when there was no loss to revenue.
The Agra Tribunal in the case of Rajiv Kumar Agarwal-vs.- ACIT [2014] 45 taxmann.com 555 (Agra - Trib.) had held that the second proviso to Section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1st April, 2005, being the date from which sub-clause (ia) of section 40(8) was inserted by the Finance No. 2) Act, 2004, even though the Finance Act, 2012 had not specifically stated that proviso is retrospective in nature.
The High Court affirmed the ratio laid down by The Agra Tribunal and held that said proviso is declaratory and curative in nature and has retrospective effect from 1st April, 2005.
Resp ectfully followin g th e said deci sio n , the grou nd no. 2.2 is allo wed in favo ur of the a ssess ee. However, this gro und becomes in fructuous in view of ou r deci sion rende red fo r G roun d No. 2.1.
5. Disallowance of Interest on loans bor rowe d- Rs.17,57,91,780/-
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 30 of 56 The next ground of app eal rais ed by the as se ssee is as to wh ether the Lea rn ed CIT(App eal s) is co rrect in upho ld in g the disallowance of interest paid on bo rrowed funds in the su m of Rs.17,57,91,780/- in resp ect of interest f ree loa ns ad vanc ed by the ass essee to its sub sidi ary.
5.1. The b rief fact s of th is issu e is th at the a ssess ee advanced loan of Rs. 410 crores to its subsidia ry Vodafo ne Di gilink Ltd. It is also not in dispute that out of Rs.41 0 crores advanced by the asses see, a su m of Rs. 250 crores represent loan fund s of the as se ssee and balan ce Rs.160 cro res was advan ced ou t of internal accru als and own fu nd s of the as se sse e. The Learn ed Asse ssin g Offic er dis allowed th e interest p aymen t on a prop ortion ate basis as acco rdin g to him the borro wed fu nd s were diverted fo r grantin g interest free loan s to subsidiary which is fo r non- business pu rpo ses. Th is addition was also uph eld by the Learn ed CIT(App eals ) on th e ground that the as se ssee has not est ablished co mmerci al expediency o n funds advanced to its subsidiary The Learn ed CIT(App eals ) invok ed the provisions of sect ion 14A of the Act th ough the Lea rn ed Assessin g Of ficer invoked the prov isions o f s ection 36(1)(iii ) of the Act while mak in g the di sallowanc e. Aggrieved, the assessee is in app eal befo re u s on the fo llo wing g roun ds:-
Ground No. 3- Disallowance of inter est o n loans borrow ed 3.1. On the facts and circum stances of th e case and in law, the learn ed CIT(A) h as er red in uphold ing the disallowance of int erest of INR 175,791,780 on inter est free loa ns given by the Appellant to its subsidiary.
3.2. On the facts and circum stances of th e case and in law, the learn ed CIT(A) h as err ed in h olding that inter es t incurr ed by th e Appellant on inter est f r ee loa ns given by the App ellant to its su bsidiary is not allowable in view o f the p rovision s of section 14A o f the Act.
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 31 of 56 3.3. On the facts and circum stances of th e case and in law, the learn ed CIT (A) has err ed in upholding that ext en sion of loan s by the Appellant to its subsidiary is no t d riven by commercial exp edien cy.
5.2. The Learn ed AR argu ed that there i s significant interd epend ence between th e a ss ess ee and it s group compan ie s. Subsc ribe rs of one entity av ail roamin g s ervice s fro m other entities when they visit thei r circle s. Si mila rly, there a re int erco nnect arran gem ent s between the se entities fo r termin ation of calls ori gin atin g in one circl e and terminatin g in anothe r. Therefore, he argu ed that th e funds advanced by th e as ses se e to it s subsidiary were driven by comme rcial conside ration s, since such funds would n ot only assi st the o peratio n o f subsidiary but also equally assi st the ass essee in its ope rations. Fu rth er, it i s a matt er of fact th at any disruption in the busin ess of the sis te r concern of the assess ee would adv ersely imp act the busine ss of the assessee its elf. He fu rthe r argued that sinc e Vodafone g roup acquired teleco m circles across India, it resulted in acquisition o f tel ecom ci rcles un der v ariou s group entit ies, as ag ain st any s ingl e entity. Had all the c ircle s been under a sin gle en ti ty, funds from o n e tel ecom circl e to an other would have been liberally extended and used owin g to the in terd ependen ce bet we en various teleco m ci rcl es. This i s a co m mon p ractic e that i s adop ted by o ther teleco m operato rs who have mo st of t heir circle s under one op eratin g entity. Therefo re, in th e in stan t case, merely owin g to the fact th at the teleco m circle s are h eld by v ario us gro up entities, the ext ension of funds by entity to ano ther does not miti gat e the com mercial ration ale b ehind sharin g of such funds. Since the f unds were utilized fo r b usin es s purpose s, the interest expe nse thereon is deductible in th e hands o f the as se sse e. It is a judicially settled matt er that if funds are advanced by an enterp rise to a subsidia ry fo r co mmerci al expedi ency, and such fund s are I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 32 of 56 utilized by the su bsidiary fo r busin ess pu rpos es, then the int erest expen s es incu rred for availin g such fun ds n ece ssarily n eed to be allowed as d eduction in the hand s of the said en terp ri se.
In respon se to this, the Learned DR vehemently support ed the orders of th e lowe r autho rities and the ca se laws relied upo n in th e Lea rn ed CIT(Appe als) ord er fo r justifying the disallowa nce o f interes t.
5.3. We hav e hea rd the rival submi s sions and p erus ed the mat erials av ailable o n record. There i s n o disput e o n th e facts with re gard to usa ge of borro wed fund s to the tun e of Rs.250 cro res for advan cin g interest f ree loans to subsidi ary. Hen ce th e nexus betwe en borro wed funds and interest f ree loan s hav e be en clearly established b y the Learn ed Assessing Officer. Now th e short point that ari ses for ou r consid e ration wheth er the said inte rest f ree lo an s advanced is don e by the assessee durin g the cours e of its b usines s o f the asses see and don e as a me asu re of co mmerci al exp edien cy. We also ad mi t the additional evidence s filed by the Lea rn ed AR fil ed befo re us in the f orm of filin g the bal anc e sheet s of Sub sidi ary Comp any to prove that how the funds borrowed fro m the as se sse e we re utilized b y it in its business. On ve rification of the sa me and the cash flo w stat ement of subsidia ry company, we are sati sfi ed that the subsidi ary company had utilized the funds borro wed f rom the as se sse e fo r its busi ness pu rpos es only. Fro m the un disputed fact s stated hereinabov e and in vie w of the f act that the subsidia ry comp any is also in the s ame lin e of bu siness as th at o f th e as sessee and th e interdep endence b et ween the t wo entitles fo r obtain in g th e n et work and the requirement of funds, we hold that the funds were advanced by the as se sse e to its subsidi ary a s strategic advances mad e only durin g the co urs e of its busin e ss and the p rin ciples of co mmerci al exp edien cy I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 33 of 56 thereon is al so establish ed and pro ved beyond doub t. Th e case la w relied upon by the Learn ed AR is very well pla ced and directly applic able to the facts of the in sta nt cas e. It is also observ ed that the case l aws relied upon by the L earn ed DR h ave been rendered p rio r to the supreme cou rt judgement in 288 ITR 1 and hen ce a re n ot considered herein.
5.4. We al so hold that the action of the Learn ed CIT(Appeals ) in inv oking the provisions of s ection 1 4A of the Act is totally misplac ed as the inco me received f rom the subsidi ary , if any, would o nly be in the nature of interest which is taxable. Admitt edly, the provisions o f section 14A of the Act could be invoked only for the inv estments made by the asse ssee out of borro wed fu nd s whe re the resu ltant gain would be in the fo rm of dividend income which i s exempt from tax.
5.5. At this juncture, it would be pertin ent to g et into the fo llo win g decision s to understand th e p rin cipl es l aid down thereunder:-
S.A.Builde rs L td vs CIT reported in 28 8 ITR 1 (SC) "The assessee borrow ed th e fu nds from the bank and lent some of it to the sist er concern (a su bsidia ry company) on inter est fr ee loan. The test, in o ur o pinion, in such a case is really wheth er th is was done as a measure o f commercial exp ediency. In our opinion , th e decisions r elating to section 3 7 of th e Act will also be applicable to section 36(1 )(iii) o f th e Act becaus e in s ection 37 also the expression used is "for th e pu rpose of business".
It ha s been consi stently held in d ecis ions relatin g to section 37 that the exp re ssio n "for the pu rpose of busi ne ss" includes exp en ditu re vo lu nta rily incu rred fo r commerci al exp ediency, and it is imm aterial if a third party also ben efit s the reby. The exp re ssion "commerc ial exp edien cy" is an exp re ssio n of wide i mpo rt and i nclude s such exp enditure as a p ruden t I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 34 of 56 business man incu rs for the pu rpo se of bu sines s. The expenditu re may not hav e been incu rred und er any legal o bligation, but yet it is allowable as a busin es s exp enditure if it was in curred on grounds of commercial expedi ency.
It has be en repe at edly held by this court that the expression "fo r the purpose of busin ess" is wide r in sco pe than the exp re ssion "fo r th e purpose of earnin g p rofits" v id e CIT vs M alayalam Plant ations Ltd (196 4) 53 ITR 140 , CIT vs Bi rla Cotton Spinni ng & W eavin g Mills Ltd (1971 ) 82 ITR 166.
The Hi gh court and th e other authoriti es sho uld have examin ed the purpose fo r which the asse ss ee ad vanc ed the money to its siste r conce rn, and wha t the si ste r concern did with this money , in order to decid e wheth er it was fo r co mme rcial exp edi ency, but that has not been done. What is rel ev ant is wheth er th e ass essee adv anced such amou nt to its sist er conc ern as a mea sure of co mmercial exp ediency .
We wi sh to make it cl ear that it is n o t our opinion that in every case interest on bo rrowed loan ha s to be allowed if the a ss ess ee advances it to a si ste r concern. I t all d ep end s on the fact s and circumst ance s of th e resp ective case. For instan ce, if the Directors of the sister co ncern utilize the a mount advanc ed to it by the as ses see fo r thei r p erson al benefit, obvio usly it cannot b said that such mo ney was advanc ed as a measu re of co mmerci al exp ed ien cy. Howeve r, mon ey can be said to be advanc ed to a sist er co ncern fo r co mme rci al exp edie ncy in many oth er ci rcu m stan ces (which need not be enumerat ed he re). However, wh ere it is ob vious that a holding comp any has a deep int erest in its subsidiary, an d h ence if the holding comp any adv ances bo rro wed m oney to a subsidiary and the sa me I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 35 of 56 is u sed by the subsidiary for so me busi ness purpo se s, the ass essee would, in our opinion, ord in arily be entitled to deduction o f in terest on its borro wed loan s."
Dalmia Cement Bhara t Ltd reported in 2009-TIOL-467-HC-DEL-IT "The Del hi High C our t hel d that no por tion of i nter es t paid by the as s es s ee o n its borr owed f und s can be dis al l owed on the gr ound that t he portion t hereof has b een d iverted t o s ubs idiary com pany and that the ass es s ing of f icer was not j us tified in dis all owing the ass ess ee company in d ebiting the interest paid t o the b ank as a revenue expendit ur e merel y becaus e it had g iven f ur ther l oan to its s ub sid iar y com pany. "
5.6. Respectfully fo llo wing the aforesaid judicial p rec edents and in the facts and circu mst anc es of this c ase, we ho ld that the borrowed funds adv anced to subsidi ary b y th e asses see was on th e ground of co m merci al expedi ency and accordin gly the inte rest p aid would be allowed as ded uction in the hands of the ass essee. We direct the L earn ed Asses sin g Officer to delete the addition mad e towa rd s dis allowan ce of inte re st in the sum of Rs.17,57,91,780/-. Accordingly, the Ground Nos. 3.1 to 3.3 of the a sse ss ee a re allowed.
6. Non grant of MAT credit - Rs. 27,50,21,746/-; Charging of Interest u/s 234B and Le vy of Penalty u/s 271(1)(c ) of the Act These grounds are only consequenti al in natu re to the aforesaid gro unds and hence not adjudicat ed h erein. We also hold in resp ect of lev y of pen alty u /s 271(1)(c ) of th e Act that the a fores aid i ssu es had reach ed the corrido rs of several tribunals and c ourts and th at itself go es to prove that th e issues are highly debatable an d in volves substanti al question of law. H ence there cannot be any levy of penalty o n a l eg al i ssu e.
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 36 of 56 In the result, the appeal of the assessee in ITA No. 1864/Kol/2012 for the Asst Year 2009-10 is partly a llowed.
ITA No. 243 / Kol / 2014 - Asst Year 2010-11 - Assessee's Appea l
7. This appeal ari s es out of the order of the Learn ed CIT(App eal s) in Appeal No. 118/CIT (A)-VIII /Kol/13-1 4 dated 31.12 .2013 for the Asst Yea r 2010-11 arisin g out o f the o rd er of th e Learn ed A ssessin g Office r f ra med u/s 1 43(3) of the Incom e Tax Act, 1 96 1 (herein aft er referred to as the 'Act').
8. The first i ssu e to be d ecided in t his app eal i s as to wh ether the domestic ro amin g cha rge s of Rs.64,48,54, 654/- paid by the asses se e to other t eleco m op erato rs is liab le for de duction of tax at sourc e unde r the provision s of th e Ac t.
8.1. This issu e is elaborat ely discus sed above for th e Asst Year 2009-10 and the d ecision rend ered the reo n is ap p licable fo r this asst year al so.
9. The seco nd is sue to be decid ed in this ap peal is as to whether the Intern atio nal ro a min g cha rge s of Rs.10,6 4,45,346/- paid by the assessee to other tele com ope rators is li able for dedu ction of tax at source unde r the provision s of the Act.
9.1. The L earn ed AO held th at in resp ect of int ernation al roa min g ch arg es, the p rovisions of s ection 40( a)(i) r. w.s. 195 of the Act would become applicable an d acco rdin gly proceed ed to make th e disallowan ce of Rs.10, 64,45,346/-. On first app eal, the L earn ed CIT(App eal s) upheld the disallowan ce mad e by the L earn ed Assessing Offi cer. Ag gri eved, the as se sse e i s in appeal befo re u s.
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 37 of 56 9.2. Th e Learn ed AR argu ed that the obligation to deduct tax at so urce by the asses see on intern atio nal roamin g charges sh all be applicable only where such cha rge s a re chargeable to tax in the h ands of the non-re siden t teleco m ope rator in Indi a. He argued t hat sin ce th e pay ments on accoun t of internation al roamin g cha rges h ave been mad e to forei gn telecom operators for roa min g facility p rovided outside th e territo ri al jurisdiction of In dia, such charges would fall within the exception provided in s ection 9(1)(vii)(b) o f th e Act an d are not li able to tax i n India. The Lea rn ed AR fu rther argu ed that ev en u nder the ta x t reaty, sin ce the roa min g services do not make available any technical knowledge, skill, knowhow, etc., to the tel ecom operato rs which can be app lied by as sessee on its own and h en ce, the p aymen ts do not qualify as Fee fo r Tech nical S ervices u nd er th e tax treati es that cont ain 'make av ailable' clau se. He fu rthe r argu ed that it is an established p rinciple that where servic e charges, being in th e nature of Fee fo r Technical Servic es und er th e Act, are paid to a non-resid ent p erson and the app licable DTA A do es not contain a sp ecific a rticl e on Fe e fo r Technical Servic e, such charges sh all be co nstru e d as busin ess p rofit s of th e non- resid ent recipien t. H ence in the abs ence of a perman ent establish men t of the forei gn telecom op erato r in Indi a, the said ch arg es cannot be ta xed in India.
9.3. We have heard the riv al submi ssio n s an d we fi nd that th e en tire case of the revenue i s that ro amin g charges are in the natu re of F ee for Technical Services. We have already held that the roami ng ch arges do not fall in the ambit of Fee fo r Technical Services for det ailed reasonin g g iven hereinabove, the n ature bein g th e s ame in re spect o f int ernation al roamin g ch arges, it does n ot come u n der the ambit of withholding tax I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 38 of 56 provision s and as such the assessee is u nder no o bligation to d educt t ax at sou rce u /s 195 of the Act. The case l aw of GE Ind ia Techn ology Centre Pvt Ltd report ed in (2010) 327 ITR 456 (SC) relied upon by the assess ee in this rega rd i s well plac ed an d di rectly in favour of th e asses see on this principle.
9.4. We hold that the pay ment of roami ng ch arges doe s not f all unde r the ambit of Fe e fo r T echnical Services as no human i ntervention i s required for the sa me and h ence th e inco me of non-re siden t t eleco m operator i s not cha rg eable to t ax in Indi a u /s 195 of the A ct and hen ce we ref rain to give our opinion on the o th er b enefi cial prov isions prov ided in the DTAAs for th e as se sse e in th e f act s of the i mpugn ed i s sue. Acco rdin gly, the ground raised by the asse ss ee with regard to applic ability of TDS provision s for int ernational roamin g charges o f R s.10,64,45 ,346/- is allowed.
10. Disallowance of Pe nalty paid to De pa rtment of Telecommunications- Rs.5,05,000/-
The n ext issue to be d ecided in this appeal is a s to wheth er the su m paid a s pen alty to Department of Te leco mmunicat ions ( DOT) by the as se sse e would f all under th e Expl ana tion to s ection 37(1) o f th e Act tre atin g th e same as amount p aid fo r inf raction of a ny law.
10.1. The bri ef facts of this issue is that the as sesse e i s p rov id in g cellu la r mob ile telephonic serv ices in Kolkata Teleco m Ci rcl e based on the teleco m lice nse gran ted by Dep a rt men t of Teleco mmuni cation s ( DOT). As per the said licen se a rran gement, the teleco m operators a re obliged to abide by the t erms and conditio ns of the licen se a greement and al so ce rtain othe r regul ations issued by DOT f ro m tim e to ti me. In case of any I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 39 of 56 irregulariti es, th e teleco m ope ra tors are liab le to p ay p en alty as stipulated by DOT for such failu re. The L earn ed A ss es sin g Offi cer st at ed in his assessment order that du ring t he assessmen t yea r under ap peal, the asses see h as been levied with a p e nalty of Rs.5,05,000/- by DOT in resp ect of violation o f terms and conditions of licens e ag reement in resp ect of veri fication of th e subsc ribe rs. Acco rdingly, he t reat ed thi s as pen alty paid fo r inf raction of law an d applied Explan ation to S ection 37(1) o f the Act and disallowed a su m of Rs. 5,0 5,000/-. On first ap peal, the Lea rn ed CIT(App eal s) upheld the disallowance made by th e Learn ed Assessing Office r by st atin g that the busin ess of tele com munication i s regulat ed b y th e Indian Teleg raph Act, 1885 and DOT is the nodal agency under the Govt. of Ind ia which regu lates th e functionin g of the teleco mmu nication busin ess in I ndia. The Lea rn ed CIT( Appeals) furth e r stated that in o rde r to ensu re n ational secu rity and stability , th e DOT has mad e mandato ry for telecom municatio n companies to obtai n p ersonal data of the subsc ribe rs and fo r non-mai ntenan ce of personal information of the su bsc ribers, DOT had i mpos ed fine of R s.5,05,000 /- which i s in violation of statutory require ment s of l aw. Ag grieved, the as se ssee i s in app eal befo re u s.
10.2. The Le arned AR a rgued that the pen alty was p aid to DOT only for non-maintenan ce of certain pe rsonal informat io n o f the sub scribers which would en sure verific ation of the same. The assessee i s mandat ed to main tain tho se p ersonal in formation as pe r th e t erms and conditio ns of the licen se agreement ent ered in to with DOT. He argu ed that failu re to do so would invite him wi th a p enalty levied by DOT for violation of terms and conditions of licen se ag ree ment which would not f all unde r the catego ry of an of fenc e p rohibited by law o r any other statut e. The Lea rn ed AR placed on reco rd a judge ment copy of th e T eleco m Di sputes I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 40 of 56 Settlement & App ellate T ribunal (TDS A T) New Delhi in P etition No. 252 of 2011 (M.A. No. 160 of 2011 ) dated 12.4.2012 between Cellular Ope rators Association of Indi a & O rs (p etitioner) vs Depart ment of Telecommunication & An r. (Responden t), wherein it has been s tat ed as below:-
"Para 16: Section 20 o f In dian Telegraph Act provid es fo r penalties. Sectio n 20A provides fo r penalties for br ea ch of conditions of license in th e follo wing terms:-
"Breach of condition o f license - If th e holder o f a licens e g rant ed und er section 4 contraven es an y condition contained in his licen se, he shall be punished with fine which may ext end to one tho usa nd rupees, and with a furth er fin e wh ich may ext end to five hu ndred rup ees for ev ery week during which th e br each of the cond ition continues. "
Para 28. "Clause 41.1 4 provide that th e complete list of subscriber s shall be made a vailable by the LICENSEE o n their w ebsite (having password controlled access) so tha t a uth orized Int elligen ce Agen cies are able to o btain the subs criber list at any time, as per th eir conveni en ce with the h elp of the password. The list should be upd ated on regular basis. Ha rd copy as and when requir ed by security agencies sha ll also be furnished. The LICENSEE shall ensu re ad equate verification of ea ch and every custom er before enrolling him as a subscriber; instru ction s issu ed by th e licenso r in th is regard from time to time shall be scrupulou sly follo wed. The SI M Card used in the User termin al or hand-held subscrib er terminal (wh ere SI M card is not us ed ) shall be regist ered against each subs crib er for his bon afid e use. The LICENSEE shall make i t clear to th e subscriber that the SI M card us ed in the us er t erminal r egistered ag ainst him is non-tran sferable and that he a lo ne will be resp onsible for p rop er a nd bonafide personal use of the service. "
Para 3 4:- On the premis e tha t th e Respondent despite r epr es entations continued to impose penalties in terms of the I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 41 of 56 purported circular lett ers have filed t his petition, claiming inter alia for the following reliefs :-
(a) "Declar e th e penalty r egime int roduced by DOT thro ugh its lett er dated 22.11.2006 bearing ref er en ce No. 800-04/2 003-VAS (Vol.II) 110 4 as illeg al, arbitrary, un reasonable, irrationa l, dispro portionate and oppressiv e."
TDSAT decision Para 50:- Whether in view o f the provisions contained in section 7(2)(k) read with s ection 2 0 an d 20A of Indian Telegraph Act, 1885, the Respondent was precluded from levying a ny penalty on the alleged ground o f non-compliance of the cus to mer acquisition form, is the question.
Para 52:- Only wh en a statut e go ver ns the fi eld , co ntra ct betw een t wo parties sh all be g overned thereby. Absence o f a rule would not be a bar for two parties to agree to th e terms of a contra ct.
In Bharat Sa nchar Nigam Limited & A nr. Vs BPL Mobil e C ellula r Limited & Ors., (2008) 13 SCC 597 at page 620,- it is stat ed :
"In absen ce of any statutory rule governing the field, the parties would be a t liberty to ent er into any co ntract containing such term s and conditio ns as regards th e rat e or the period stipula ting su ch terms as th e case may be. Th e matt er mi ght have been differ ent if the parties had entered into an ag reement with their eyes wide open that the circular lett er shall form part of the contra ct. They migh t have also been h eld bound if they accept ed t he n ew ra tes or th e period s eith er expr es sly or sub silen tio."
Para 54. In any event, it wa s incumbent upon the petitioner to sho w that rules have been framed a nd quantum of penalty ha s been specified th ereby. In abs en ce of such a rule having been made, it is difficult for us to h old that th e parties to the con tract could not have arrived at an agreem ent th at in the ev ent of breach of performance of contract on th e pa rt of th e licen s ees, penalty to th e ext ent of Rs 50 cror es wo uld become payable.
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 42 of 56 Para 58 . Section 20 of the Act, to which our atten tion has been drawn , r efers to fine and , thus, can be imp osed only by a Criminal Cou rt. If only a Crimina l Court can impo se fine in t erms o f s ection 20 of the Act, th e same, evid ently canno t be imp osed by the licen sor.
Para 5 9. For similar r easons, th e p rovision of section 20A can be r esort ed to only by a Crimina l Court, if any case is made out ther efor.
10.3. The Learn ed AR argu ed that fro m the afo resaid citation o f TDSAT, it co uld be conclud ed that the DOT per se does not have any authority to levy p enalty as the s aid po wer i s ve sted only with a Cri min al Court. H e argu ed that th e p roceedin gs challen gin g the jurisd ictio n of DOT to levy pen alty are pendin g and however the as se ss ee had paid the penalty of Rs. 5,05, 000/- under pro te st and clai med t he same as deduction u/s 37(1) of the Act.
10.4. He argued that the lower authorit ies had no t po in ted out which law or statut e has been violated by the assessee to come u nder the ambit of Explanation to section 37(1) o f the Act. He further a rgued that there i s no law or statu te which governs th e license a greemen t en te red into with DOT by the ass essee and ac cordin gly plead ed that Explan ation to section 37(1) could not be invoked in the f acts of the case. In respo nse to thi s, the Learn ed DR vehemen tly su pported the ord e rs of the lowe r authorities.
10.5. We have heard th e rival submi ssion s and p erused the materi als av ailable on record. We find that the penalty is paid to DOT for non - main ten ance of personal info rm ation of the subsc ribers which would ensu re verifi cation of th e same in ti me of n eed. To this ext ent, the as se sse e had com mitted a breach of contractual o bligation of the t erms I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 43 of 56 and conditions o f the license agreement entered into with DOT. We find that the amo unt p aid is towa rds dama ges fo r breach of cont ractual obligatio n an d are p art and p arcel of the busine ss of th e a ssessee and hen ce shou ld be regard ed as an expenditu re l aid out wholly and exclusively for the pu rpose of busin ess o f the as ses se e. We find lot of force in th e argu men ts of the L earn ed A R that merely the f act th at p enalty has been p aid as a result o f breach of a contract with the Govern ment or any o f its d epart ment should not chan ge the ch a ract er of su ch paym ents fro m con tractu al liability to a statutory liability . The penalty is no t stipulated under any of the statuto ry Act s and acco rdi ngly th e sa me cannot be const rued a s a statuto ry liability. At best it could only be co nst ru ed as a cont ractual liability.
10.6. We find that th e pen alty paid to DOT is only for n on-compliance of terms and conditions of th e licen se ag ree men t and not p aid for inf raction of any o the r law so as to warrant the E xplanation to section 37(1 ) of th e Act.
10.7. In th is regard, it is relev ant to get into the followin g c ase l aws :-
a) ARCH Fina nce Ltd v s ACIT reported in (2007) 165 Ta xman 188 (Delhi ) - ITAT Delhi D Ben ch dat ed 10 .8.2007. The head note s are rep ro duced belo w:-
"Section 37(1) o f the Income Tax Act, 1961- Business expen ditu re -Allowability of - Assessmen t Y ear 2001-02 - Assess ee, which was a sto ck/sha re broker an d was a member of Delhi Stock Exchange pa id various amounts a s penalty on accou nt o f his late deliver y, short delivery, sho rt margin etc., to National Stock Ex chan ge and claimed deduction of same as r evenu e exp enditure - Whether sin ce impugn ed payments I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 44 of 56 ma de by assess ee w er e not for infra ction of la w, same w er e allowable as revenu e exp end iture - Held, Yes" .
(b) Gold crest Capital Markets Ltd vs ITO reported in (2010) 2 ITR (TR IB.) 355 (Mum) - ITAT Mu mbai B Bench dated 21.1.200 9. The h ead notes are rep ro duced below:-
"Section 37(1) o f th e In come Tax A ct, 196 1- Business exp enditur e
-Allowability of - Assessment Y ears 200 2-0 3 & 20 03-04 Fine paid by ass ess ee sto ck broker who was a member of NSE, o n account of unfair trade practi ce and un-bu siness like condu ct is no t for vio latio n of law and hence, cannot be disa llo wed.
The m embers of NSE Ltd are bound through the a rticl es of asso ciation to abide by th e rules, regulations and bye-laws of th e NSE Ltd. Nev erth eles s, su ch rules, regulations and bye-laws can be consider ed as regulations for controlling the int ernal in ter s e obliga tio ns and rights of the m embers o f NSE L td. Tho ugh ev ery member of NSE L td would be oblig ed to a bide by su ch rul es and r egulations, a violation thereo f canno t be t reated as viola tion of a sta tutory law or rule. Th e fines and penalties levi ed for violation on accou nt of "unfair trading practice" as specified in 4.6 of th e NSE regu la tions and "un-business like cond uct" as sp ecified in IV(4)(e) of the NSE rules can not be equated with viola tion of a sta tutory rul e or law. Thus, fin e paid by th e assess ee stock bro ker who was a NSE member, on account of unfair trade practice and un-business like conduct, is no t for violatio n of law and , hence, cannot be disallo wed".
c) Master Ca pital Services Ltd vs DCIT reported in (2008) 23 SOT 60 (CHD.) (U RO) - ITAT Chandigarh A Bench date d 26.2.2007- It was held that :
"The as esss ee incurr ed the exp ens e in t he sh ape of fines during normal course of business a nd ther e was no infractio n of an y sta tutory law. In the typ e of busin es s o f the ass ess ee, it is beyo nd the co ntrol of sha re broker to know in advance th at th e t ra ding vo lume wo uld increas e b eyo nd the fixed exposure limit because trad ing dep ends upon th e ma rket tr end a nd on certa in dates th er e can be extraordinary increase in t rading volume. On that increased trading vo lu me, the concerned member also earns I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 45 of 56 income in th e sha pe of co mmissio n, et c., which is taxable. So , th e fine by th e shar e broker which was co rr elated with the in crease in trad ing volume, which cross the fixed ex posure limit, could not be consid ered as an infraction o f law, a ltho ugh irregularities w er e ther e. In the instant cas e, for the said irreg ularities, th e asses see suffered and paid the fine but this p ayment co uld not be term ed as penal in na ture. Simila rly, late submission of margin certificat e due to computer softwa re pro blem co uld not be co nsidered as infraction of law and if any fine was paid fo r such late submissio n, due to unavo idable circu mstan ces in the regular cours e of busines s that co uld not a lso be termed as p enal in nature. Simila rly, fine paid for delay in making the deliveries of shares due to d eficien cies in the docu men t s like non -matching of signatures, et., could not be consider ed as p enal in nature. Irr egu larities of that typ e could not be ruled out in su ch type of busines s and any fine paid for those irr egu larities could not be consid ered as an infraction of any law. So, the payments made by the ass essee in th e r egula r cours e o f business co uld not be t ermed as pena l in n atu re, particularly when the assess ee did not co mmit those i rregularities inten tionally and r eg ularly. Th erefore, consid erin g the to tality of the facts of the ca se, it was to be held that , althoug h so me violations of the co nditions prescribed by th e NSE was there, bu t thos e vio latio ns o ccurr ed in the regular cours e of business ad same could no t be consider ed as in fractio n o f an y sta tutory law. So, th e expens es in cu rred by th e ass es see in r egular cours e of busin ess were a llo wable. Hen ce, th e impugned orders w er e to be s et aside. In th e result, the a ppeal was to be allowed."
10.8. We find that analogy could be drawn fro m the afores aid ca se laws to th e fact s of the inst an t issue before us and hold th at the penalty paid to DOT does not come unde r the a mbit o f Explanation to Section 37(1) of the Act and accordin gly, the ground s rai sed by the asse ssee in thi s rega rd are allo wed.
11. Disallowa nce of p rovision for Asset Restoration Obligation (ARO) written ba ck - Rs.6,52,00,000/-
I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 46 of 56 The next is sue to be decided in this ap peal is that whethe r the Learned CIT(App eals ) is correct in upholding the action of the L earn ed Assessin g Officer in not allo wi ng to reduc e the prov ision fo r A sset Resto ration Obligation written b ack to the tun e of Rs.6,52,00,000/- while computin g taxable income of th e asses see.
11.1. The brief fact s of this i ssu e is th at the a ssess ee reduced a sum of Rs. 6,5 2,00,000/- while comp uting taxable income towa rd s p rovision for Asset R esto ration Obligation written back in the revised retu rn of income filed belatedly. This was disallo wed by the Learned Assessin g Office r on the ground that revis ed retu rn was filed b eyond the time limit prescribed u/s 139(5) of the Act and hence cannot be considered fo r this ite m. This actio n of the Learn ed Ass es sin g Offi cer was upheld by the Learn ed CIT(App eals ) on th e ground that the assess ee has not pl aced o n record any documentary eviden ce to sh ow t hat th e pro vision fo r ARO was deb ited to f rom yea r to year th rough d epreci ation a cco unt and sufficien t document ary ev idences has not been placed on record by the ass essee to substanti at e that in all the p ast years th e prov ision for ARO was in f act includ ed in the b ook depreci atio n which sto od disallowed wh ile arriving at the taxable income. The Learn ed CIT(App eals ) also st at ed that the as se sse e ha s also not explain ed th at wheth er th e said p rovision was allowed dep recation or similar clai m in the ea rlier years. Ag gri eved, the as se sse e i s in appeal befo re u s.
11.2. The Learn ed AR argu ed that the assess ee h ad entered into lease ag ree ments with own ers of certain p remises fo r settin g up cell sites fo r rend erin g c ellular services. Such agreement s are usually ente red into for a long p eriod of time s ay in the ran ge of 15 -20 yea rs. He stated that furthe r such lease agreement s cast an obligation on the les se e (i.e. the I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 47 of 56 as se sse e herein) to restore th e leas ed pre mi se s to thei r o riginal form at the ti me of vac atin g such p re mi ses. Accord in gly fo r this obligation, a provision fo r such liability was c reated in acco rdan ce with the guid elin es issu ed by ICAI. The provision mad e th ereon was capitalized in the boo ks and income tax dep reciatio n clai med on th e same by treatin g the s ame a s co st of acquisition. He argued that while capit alizin g to the cost of acquisition, a correspondin g li ability is created in the boo ks of the as se sse e to ward s p rovision for ARO. Subsequen tly due to deme rger, the as se ts were transfe rred to Vod afone Inf ra st ru cture Ltd to gether with lea se agreement s and th erefo re the ob lig ation to resto re the p remi s es to their o ri gin al condition al so st and s t ran sf erred to Vod afone Inf ra st ructure Ltd with ef fect f rom As st Year 2 010-11. Accordin gly, the as se sse e in As st Year 2010-11 reversed the ARO p rovision amou nting to Rs. 6 ,52,00,000/- cre ated in it s books i n th e p as t years as the same is no longe r required as a result of dem erger. H e fu rther a rgued that at th e time of reversal, the A RO p rov ision ap p earin g i n the books o f acco unt of the ass es see wa s can celled again st the cost bas e of th e correspondin g writte n d own value o f the fixed assets o f ARO and the balance (i.e such portio n of ARO as h as b een alread y charged of f a s dep reci atio n in earlie r years), was credited to profi t and los s account. H e argued that since the provision for ARO in relation to asset s was included in the co st of ass ets under th e block of 'plant and machin ery', the a mount of A RO writ ten b ack to the profi t and lo ss accoun t in fact represents th e amount o f book dep reci ation th at was charged by the a ppellant on the p rovision fo r A RO obligatio n in th e p rio r ye ars p rio r to the de merger. Given that such writ e back of ARO provisio n is capital in nature, the same h as b een red uced in the comput ation o f in co me fo r the Asst year 2010-11 in the revised retu rn of income. Th e Learn ed AR a rgu ed that prov isions of section 41(1) of the Act would not become applicable in the inst ant ca se a s this I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 48 of 56 provision was not cha rged to th e p rofi t and los s ac count for an y earlie r period.
In resp onse to this, the L earn ed DR veh emen tly support ed the orders of the lo wer authoriti es.
11.3. We have heard th e rival submi ssion s and p erused the materi als av ailable on reco rd. Fro m the argu men ts of th e L earn ed AR , it could be seen that th e p rovisio n for ARO was capitali zed in the books an d tax dep reci ation wa s clai med o n the sa me by the ass essee. The correspondin g liability which rem ain ed in the b ooks and which we re not taken over pursu ant to demerge r, wa s writt en bac k and credited to profit an d loss accoun t. This inco me was sought to be reduced by the assessee in the revised return filed on 5.12.2011 while computin g it s taxable inco me on the ground that section 41(1) would not be ap plicable. W e find th at the revised return was fil ed within the ti me limit prescribed u/s 139(5) of the Act and hence th e action of the L ea rn ed AO i n not con sid erin g the claim of e xpenditu re alone du rin g th e course of assessment, while co nsiderin g the additional i ncome of fered in th e said rev ised retu rn, i s not app reci ated.
11.4. It i s p ertinent to no te that secti on 41(1 ) of the a ct uses the term 'deduction' in earli er years at the t i me o f c re ation of su ch liability. Wherea s in the in stan t case, th e ass essee had only claimed allowan ce of dep reci ation on the s aid p rovision for ARO and ad mitt edly, claim of dep reci ation is o nly an ' allowance' an d not a 'deductio n'. W e find th at the Lea rn ed CIT( App eals) h ad st ated i n his ord er th at the as se ssee had not filed an y docu mentary ev id ences be fo re th e Learn ed A sses sin g Offi ce r to enable hi m to ve ri fy the auth enticity of claim mad e by the asse ssee. In the fac ts and ci rcu mstances of th e case, we d eem it fit and ap p ropri ate, in I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 49 of 56 the int ere st of justice and f ai r play, to s et asid e thi s i s sue to th e file of the Le arn ed A ssessi ng O fficer to deci de the v eracity of the clai m in acco rdanc e with law. Needles s to mention that the a ssess ee b e given reasonable opportunity of being heard and ass esse is also direct ed to provide complet e detail s of dep reci atio n claimed o n ARO in earlier y ears and n ece ssary workin gs in thi s re gard. Accordin gly , this ground of app eal rai sed by the a ssessee i s allowed for statisti cal pu rpo ses.
12. Disallo wance of amortiza tion of pa yments made to IBM - Rs.51,16,245/-
The n ext ground to be d ecided in this appeal i s a s to wh ether the Learned CITA i s co rrect in confi rmi ng the d is allowance made by the Learned Assessing O fficer in re spect of amortization pay ment s mad e to IB M in the sum of Rs. 51,16,245/-.
12.1. The brief fac ts of this issue i s that the asses see had ent ered into a serv ice contract with IB M wh erein IB M is meant to prov ide end to end IT serv ices and solutio ns on rec eipt of con sideration f rom the ass es see. The sums paid by the assessee rep res ented amo rti zation of additional hard ware ch arges fo r the supp o rt se rvices. IBM continued to be the owner of the h ardwa re and accordin gly, the ass essee sou ght to amo rtise the total p ayments m ade to IBM ov er t he con tract p eriod in acco rdance with the deci sion of the Supre me Court in the case of Mad ras Indust ri al Invest men t Co rporatio n Ltd (225 ITR 8 02). The Learn ed A ssessin g Officer sought to di sallo w thi s amo rti za tion of exp en ses witho ut adducin g any reasons in th e as se ssm ent o rder. On fi rst app e al, the Learned CIT(App eals ) so u ght a re mand repo rt f rom the Learn ed Asse ssin g Offi ce r in this re gard who stat ed that it is n ot kno wn wheth er the as ses se e had I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 50 of 56 ded ucted tax at source on the payments made to IBM and ac cordin gly declined to offer extensive comm ent s on this issue fo r want of full facts. The Learn ed CIT(Appeals) p roceeded to confirm the dis allowan ce on th e fact th at the as se sse e had no t furni shed the agreemen t copy ente red into with IB M and it is not cle ar f rom th e m aterials on record as to what i s the tre at ment giv en for the impu gn ed issu e in the earli er years on amo rti za tion. Aggrieved, th e assessee i s in app eal befo re us.
12.2. The L earned A R filed a cop y of the mast er se rvice a gre emen t entered into with IB M by way of additional evidenc es and requested u s to co nsider the same and st at ed that both the Le arn ed A ssessi ng O fficer and Lea rn ed CIT( Ap peals) h ad n ot looked at th e issue in the p rope r persp ective and p rayed fo r s ettin g asi de of this issue to the fil e of the Lea rn ed A ss essin g Offic er. In respon se to this, th e L earned DR f airly co nced ed to thi s.
12.3. We have heard th e rival submi ssion s and p erused the materi als av ailable on re cord. We are admi ttin g the additional ev id ence filed by the Lea rned AR containin g the Master Service Ag ree men t en tered into by the as sesse e as it i s ve ry c rucial for determinin g the is sue und er ap peal. Sinc e th is agreement was not veri fied b y the Learn ed As sessin g Of fice r, we d eem it fit and app ro pri ate, in the facts and circum st ances of the case, in the interest of justi ce and f air pl ay, to set asid e this i ssue to the fil e of the Learn ed A ss es sin g Offi cer to d ecid e this i ssu e af resh in acco rdance with law. The Learned As ses sin g Offic er is al so direct ed to mentio n in his order rega rding the statu s of amo rti zat ion payment s mad e in the e arlie r years and the t ax t reat ment given in th e a ss ess men ts of e arlie r years for the sam e. Needl es s to men tion that t he ass es see be given re aso nable I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 51 of 56 opportunity of b eing hea rd. Accordin gly, the grounds rai sed by the as se sse e in thi s reg ard are allo wed fo r s tatistical pu rpos es.
13. Addition made towards repayment of principal on finance lease - Rs.4,85,642/-
13.1. The asse ssee ha s raised the followin g ground on this i ssu e:-
"Disa llowance of repayment of pri nci pal fina nce lease On the facts an d in the circumstan ces o f the case a nd in law, the ld. CIT(A) ha s er red in holding that repaymen t of principal amo unt of finan ce l ease, amou nting to INR 485,642, is not an allowa ble deductio n".
13.2. No argu ment s were advanc ed eit her by the L ea rn ed AR o r by the Lea rn ed DR in this re gard.
13.3. We have p erus ed the m ateri als available an d fro m the s ame we are not able to ascertain the real fact s of this issu e. It is also seen that no discussion has b een mad e by the Learn ed Assessing Officer in the as se ssm ent ord er with rega rd to this issue. Henc e in the intere st of justice and fair play , we d eem it fit and approp riate to s et asid e th is i ssu e to the file of the Learned A ssessin g Of f icer to decide th e issue af resh in acco rdanc e with law. Needles s to mention that the a ssess ee b e given reasonable oppo rtunity of being heard. Accordingly, the ground raised by the ass essee in this rega rd i s allowed for statisti cal pu rpos es.
In the re sult, the appeal of the assessee in ITA No. 243/KOL/2014 is partly a llowed for t he Asst Year 2010-11.
ITA No. 343/Kol/2014 - Department Appeal - Asst Year 2010-11I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 52 of 56
14. This appeal of th e revenue ari ses out of the ord er of the L earn ed CIT(App eals )-VI II, Ko lkata in Appeal No . 118/CIT(A)-VIII /Kol/13-14 dated 31.12.2013 fo r the A sst Year 2010 -11 ari sin g out of the o rd er of th e Lea rn ed Assessin g Officer framed u/s 1 43(3 ) of the Inco me Tax Act, 1961 (herein aft er ref erred to as the 'Act').
15. The first issue to b e decided in th is app eal is wh ethe r the L earn ed CIT(App eals) i s co rrect in allowin g the relie f o f Rs.2,55,01,032/- on accoun t o f u n realized fo reign exchan ge fluctuation gain.
15.1. The brief f act s of this issue are t hat the assessee credited a sum of Rs. 2,55,01,03 2/- on account o f un re ali zed fo rei gn exchan ge fluctu ation ga in o n capit al ac count and the same was acco rdin gly excluded from th e taxable income in the return of income filed. It was explain ed by the as se sse e th at the s aid amount pertain ed to notional fluctuatio n gai n which aro se on capit al account and hence not in cludible in the total inco me. The Lea rned A ssessi ng Offic er so u ght to add the sa me in th e as se ssm ent wi th out add ucin g any reaso ns. On fi rst app eal, the Learned CIT(App eals ) called fo r a remand rep ort f rom the L earn ed Ass es sin g Officer in this rega rd. The Le arn ed Assess ing Officer in hi s re mand repo rt had st at ed that notional exchan ge fluctuation gain was wo rked out in accord ance with s ection 43A of the Act but did not give any adv erse co mmen ts on the impu gn ed i ssu e. The Learn ed CIT(App eal s) accordin gly directed the L earn ed A ss essin g Of ficer to allow th e clai m o f the assessee by recordin g his satis faction that the exchan g e fluctuation p ert ain ed to acquisition of capital assets and hence section 43A was applicable. Aggri eved, the revenue i s in app eal befo re us on the followin g ground:-
"That und er th e fa cts and ci rcumstance of th e case whether th e ld. CIT(A)-VIII, Ko lkata, was justified in I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 53 of 56 allowing relief of Rs.2,55,0 1,032/- on accoun t of unrealiz ed foreign exchang e of fluctu atio n gain".
15.2. Th e L earn ed DR vehe mently su ppo rted the o rder o f the Learned Assessing O ffic er. In resp onse to this, the Le arn ed AR argued that the exchan ge fluctu ation to be co mpu ted as pe r the p rovision s of section 43A of the Act based on actual payment of f orei gn cu rrency loan o r purchase of fixed ass ets etc, wherei n the resu ltan t gain would be reduced fro m the co st of the fix ed as set pu rcha sed o ut of the forei gn cu rren cy loan. However, if the g ain is reco gni zed in the b ooks o nly based on the rest atem ent o f the s ame at the end of th e year, it only remain s notional and un realized an d h ence the sam e is n ot to be construed as real income of the as ses se e and hence the a ction of the as se ssee in this reg ard i s co rrect as p er law.
15.3. We have heard the rival submissio ns and p eru sed the mat erial s av ailable on reco rd. The facts s tat ed herein ab ove are undi sputed. There is no dispute that th e prov isions of s ec tion 43 A of the Act would become app licable fo r reco gni zin g the e xchange fluctuatio n if the loan was obtained fo r acquisition of fixed a ssets only at the time o f makin g pay ment and acco rdin gly the exchan ge gain , if any , would go to redu ce the cost of th e fi xed a sset. Since in the in st ant case, th e e xch an ge g ain i s derived only on a n otion al basi s an d is un realized, by applying the provision s of section 43A of the Act, the said gain need s to b e reduced fro m the taxable in com e. We also find that th e L earn ed As ses sin g Offi ce r hav ing accept ed to the f acts of the case an d the relevant p ro vision of th e Incom e Tax Act in his re mand repo rt, ought no t to have come on appeal before u s on th is is sue. We also find th at this issue i s cove red by the decision of the Supreme Cou rt in th e cas e of CIT v s Woodward Gov ernor of India P Ltd repo rted in 312 ITR 254 (SC) whe rei n the principles were I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 54 of 56 laid down for reco gnition of exchange gain /loss under variou s circu mstanc es.
Resp ectfully followin g th e p rov isions o f the act and the deci sion of the ap ex cou rt, we are not inclin ed to interfere with the d eci sio n o f the Lea rn ed CIT(Appeals). A ccordin gly , th e ground no. 1 raised by the reven u e i s dis mi ssed.
16. The next issue to be decided in this appeal of the rev enue is as to wheth er the Learned CIT(Appe als) i s co rrec t in gran tin g relief of Rs. 8,22,318/- o n account of realized fo reign exchan ge gain. 16.1. We find th at the Learned A ss essin g Off ice r having ac cept ed thi s issu e in th e remand proceedin gs which i s mention ed in p age 72 p ara 23 of the Le arned CIT(App eal s) ord er and h ad not giv en any adverse comm ents abo ut the impugned i ssu e, ought not to have come on ap peal befo re us on this issue. We also find th at this i ssu e is covered by the decision of the Sup reme Cou rt in the case o f CIT vs W oodward Gov ernor of In dia P Ltd repo rted in 312 ITR 254 (S C) wherein the p ri nciple s we re laid do wn for recognitio n of exchan ge gai n / los s un der various ci rcumst ances. Resp ectfully following the provision s o f the act and th e decision of the apex cou rt, we are not inclined to interfe re with the de cision of the Lea rn ed CIT(App eals). Acco rdin gly, the ground no. 2 raised by the reven u e i s dis mi ssed.
17. The next issue to be decided in this appeal of the rev enue is as to wheth er the Learned CIT( Ap peals) i s co rrec t in allowin g the d eduction of bad debts writt en off of Rs.3,63,35,7 89/-.
17.1. We find th at the Learned A ss essin g Off ice r having ac cept ed thi s issu e in the re mand p roceedin gs wh ic h is mention ed in pa ges 73 & 74 para 26 o f the L earn ed CIT( Appeals) order and had not given any adv erse I .T.A . N o. 18 64 / KOL ./ 20 1 2 A s se ssm e nt y e ar : 2009 - 20 1 0 & I TA N o. 24 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 & I TA N o. 34 3/ KOL/ 2 01 4 As s e ssm en t Ye ar : 20 10 - 2 01 1 Page 55 of 56 co mmen ts about the impugn ed issu e, ought no t to have come on appeal before us o n this is sue. Hence we a re not inclined to interfe re with the decision of the L earn ed CIT(Appe als). Accordin gly, the ground no. 3 rai sed by the revenue i s di smis sed.
18. The next issue to be decided in this appeal of the rev enue is as to wheth er the Learned CIT( Ap peals) i s co rrec t in allowin g the d eduction of as se ts writt en off of Rs.1,90, 000/-.
18.1. We find that th e Learned AO having accepted thi s is sue i n the remand p roceedin gs wh ich is mentio ned in p age 74 p ara 27 of the Lea rn ed CIT(App eals) o rder and had not giv en any ad verse comment s abo ut the impugned i ssu e, ought not to have come on ap peal befo re us on this i ssu e. Hence we are no t inclin ed to interf e re with the d ecision of the Lea rn ed CIT(Appeals). A ccordin gly , th e ground no. 4 raised by the reven u e i s dis mi ssed.
In the result, the appeal of the revenue in ITA No. 343 / Kol / 2014 for the Asst Ye ar 2010-11 is dismissed.
19. To sum up, the a ppe als of the a ssessee in ITA No. 1864/Kol/2012 for the Asst Year 2009-10 is allowed and ITA No. 243/Kol/2014 for the Asst Yea r 2 010-11 is partly allowed. The appeal of the Revenue in ITA No. 34 3 / Kol / 2014 for the Asst Year 2010-11 is dismissed.
Order pronounced in the o pe n Court on 15 t h September, 2015.
Sd/- S d/-
Mahav ir Singh M . Ba la ganesh
(Judi cial Member) (A ccounta nt M ember)
Kolkata, th e 15 t h day of September, 20 15
FIT FOR PUBL ICATION
Sd/- Sd/-
(M.S.) (M.B.)
I .T.A . N o. 18 64 / KOL ./ 20 1 2
A s se ssm e nt y e ar : 2009 - 20 1 0
&
I TA N o. 24 3/ KOL/ 2 01 4
As s e ssm en t Ye ar : 20 10 - 2 01 1
&
I TA N o. 34 3/ KOL/ 2 01 4
As s e ssm en t Ye ar : 20 10 - 2 01 1
Page 56 of 56
Co pies to : (1) M/s. Vod a fone Ea st Limite d ,.
(For me rly kn own a s Vod a fone E ssa r Ea st Limited ), 11, Dr. U.N. Brahmcha ri Roa d , Kol ka ta -700 017 (2) A dd itiona l Com mi ssi one r of In come Ta x, Ra ng e-7, Kolka ta (3) Joint Co mmissi oner of Income Ta x, Ra ng e-7, Kolka ta (4) Dep u ty Com mis si one r of Income Ta x, Ra ng e-7, Kolka ta (5) Comm iss ioner of Income-tax (Appeal s)-VIII, Kol kata (6) Com mis sioner of Incom e Tax, Kol kat a (7) The Depar tmental R epr es entative (8) Guard Fil e B y order Assistant Registrar Income Tax App ellate Tribunal Kolkata Ben ch es, Kolkata Laha/Sr. P.S.