Essel Shyam Communication Ltd, New Delhi V. ACIT CC-2, New Delhi

ITA 3265/DEL/2008

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6490 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-02-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 03-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL CHANDER SHARMA
• Keywords: Business income; Earning of tax free income; Question of law; Cost of acquisition
• Section: 80HHC; 234B; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO.3176/DEL./2008 (ASSESSMENT YEAR : 2005-06) ACIT, CENTRAL CIRCLE 2, VS. M/S. ESSEL SHYAM COMMU NICATION LTD., NEW DELHI. C 138, NARAINA INDUSTRIAL AREA, PHASE 1, NEW DELHI. (PAN : AAACE2299Q) ITA NO.3265/DEL./2008 (ASSESSMENT YEAR : 2005-06) M/S. ESSEL SHYAM COMMUNICATION LTD., VS. ACIT, CENT RAL CIRCLE 2, C 138, NARAINA INDUSTRIAL AREA, NEW DELHI. PHASE 1, NEW DELHI. (PAN : AAACE2299Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN, ADVOCATE REVENUE BY : SHRI SUNIL CHANDER SHARMA, CIT DR O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THESE CROSS APPEALS FILED BY THE ASSESSEE AND REVEN UE ARE AGAINST THE ORDER OF THE CIT (APPEALS)-III, NEW DELHI DATED 28. 08.2008 FOR THE ASSESSMENT YEAR 2005-06. ITA NOS.3176 & 3265/DEL./2008 2 ASSESSEES APPEAL (ITA NO.3265/DEL/2008) 2. GROUND NO.1 IS AGAINST THE ORDER OF THE CIT (A) CONFIRMING THE EXCLUSION OF RS.50,42,717/- BEING PROFIT FROM SALE OF VSAT EQUIPMENT U/S 80IA OF THE INCOME-TAX ACT, 1961 ON THE GROUND THAT SUCH PROFITS ARE NOT DERIVED FROM ELIGIBLE BUSINESS OR PROVIDING TELECOM MUNICATIONS SERVICES. 3. AT THE OUTSET ITSELF, THE LD. AR POINTED OUT THA T THIS ISSUE HAS BEEN REMITTED BACK BY THE HONBLE DELHI HIGH COURT IN AS SESSEES OWN CASE VIDE ORDER DATED 17 TH MAY, 2012 IN ITA 284/2011 AND TOOK OUR ATTENTION T O THE QUESTION OF LAW FRAMED BY THE HONBLE HIGH COURT AS UNDER :- WHETHER LEARNED ITAT ERRED IN LAW IN HOLDING THAT INCOME OF RS.50,42,764/- FROM TRADING ACTIVITIES IS DERIVED F ROM INDUSTRIAL UNDERTAKING WITHIN THE MEANING OF SECTION 80-IA OF THE INCOME TAX ACT, 1961? THE HONBLE HIGH COURT DEALT WITH THE ISSUE AS UNDE R IN PARAS 10, 11 & 12 OF THE SAID ORDER WHEREIN IT WAS HELD AS UNDER :- 10. THE QUESTION RAISED IN ITA 284/2011 AGAIN REQU IRES AN ORDER OR REMIT. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD SHOWN SALES OF RS.2,12,28,512/-. ON SCRUTINY OF DETAILS, IT WAS NO TICED THAT MAJOR SALES WERE IN RESPECT OF ANTENNA, RFT AND OTHER MISCELLANEOUS ITE MS, WHICH INCLUDED COMPUTER PRINTER, UPS, CTV, AIR CONDITIONER, HAND C AMERA, GENERATOR SETS, TELEPHONE INSTRUMENTS, VIDEO CONFERENCING SYSTEMS, MONITOR ETC. HE HELD THAT THE SAID EQUIPMENTS COULD BE BOUGHT AND PROCURED FROM T HE ORIGINAL EQUIPMENT MANUFACTURERS (OEMS, FOR SHORT) INCLUDING THE FOREI GN VENDORS. ACCORDINGLY, RS.50,42,717/- WAS EXCLUDED FROM THE DEDUCTION CLAI MED UNDER SECTION 80IA OF THE ACT AS INCOME NOT DERIVED FROM SPECIFIED SERVIC ES, AFTER NOTICING THAT THE COST OF MATERIAL WAS RS.1,61,85,795/-. THE CIT (APPEALS) UPHELD THE SAID ADDITION HOLDING THAT THIS WAS INCOME DERIVED FROM TRADING I N GOODS. THE TRIBUNAL HAS DELETED THE SAID ADDITION, INTER ALIA, HOLDING :- 11. LET US HAVE A LOOK ON THE NATURE OF EQUIPMENTS . WE HAVE PERUSED PAGES NUMBER 29-40 OF THE PAPER BOOK. ON PAGE 29-31 THE COPY OF THE IMPORT LICENSE FOR IMPORT OF C BAND REDUNDANT 1:1 U P CONVERTER AND DOWN CONVERTER HAVE BEEN PLACED ON RECORD. THESE AR E THE TECHNICAL DEVICE. SIMILARLY ON PAGE 32-33 ARE THE IMPORT LICE NSE ON PAGE 34 IS THE DESCRIPTION OF THE ITEMS WHICH ARE TO BE IMPORTED. AT PAGE 34 THE ITA NOS.3176 & 3265/DEL./2008 3 DESCRIPTION OF THE ITEMS IS CODAN 40 WKU BAND BUC. ACCORDING TO THE ASSESSEE THESE EQUIPMENTS ARE ESSENTIAL EQUIPMENTS FOR ENABLING, ASSESSEE TO THE TELECOMMUNICATION SERVICES. THE GOV T. HAS PUT UP VARIOUS RESTRICTIONS ON IMPORT OF SUCH ITEMS BECAUSE OF SEC URITY REASONS. IF THE ASSESSEE IS UNABLE TO PROVIDE THESE ITEMS TO ITS CU STOMER THEN IT MIGHT NOT BE POSSIBLE FOR IT TO PROVIDE TELECOMMUNICATION SER VICES. IT WAS POINTED OUT AT THE TIME OF HEARING THAT THESE EQUIPMENTS CA NNOT BE USED FOR AVAILING THE SERVICES FROM ANY OTHER SERVICE PROVID ER. THE CUSTOMER HAS TO AVAIL THE TELECOMMUNICATION SERVICES THROUGH THE SE ITEMS NECESSARILY FROM THE ASSESSEE ONLY. CONSIDERING THE NATURE OF E QUIPMENTS AND THEIR RELATION TO THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE, IN OUR OPINION THE RECEIPT RECEIVED BY THE ASSESSEE FOR SUPPLY OF THESE ITEMS IS INEXTRICABLY LINKS TO THE BUSINESS OF ITS TELECOMMU NICATION SERVICES. THE AO IS NOT JUSTIFIED IN EXCLUDING THESE RECEIPTS. TH EREFORE WE DIRECT THE AO TO INCLUDE THE RECEIPT OF RS.5042717/- REPRESENT ING INCOME FROM SALE OF EQUIPMENT IN THE ELIGIBLE RECEIPT FOR GRANT OF D EDUCTION U/S 80IA. 11. LEARNED COUNSEL FOR THE REVENUE, DURING THE COU RSE OF HEARING BEFORE US, HAS DRAWN OUR ATTENTION TO THE ASSESSMENT ORDER AND THE STAND TAKEN BY THE ASSESSEE. IT WAS SUBMITTED THAT THE ASSESSEE HAD ST ATED AND ACCEPTED THAT THE CUSTOMERS COULD BUY THE EQUIPMENT FROM THEM OR FROM THIRD PARTIES AND HAD PLEADED THAT ENTIRE INCOME, WHICH WAS INEXTRICABLY RELATED TO BUSINESS OF TELECOMMUNICATION AND WAS EXEMPT. SALE OF EQUIPMENT ETC., HAD CLOSE AND DIRECT NEXUS WITH PROFIT AND GAINS OF THE STIPULATED INDUS TRIAL UNDERTAKING. 12. THE LEGAL CONTENTION OF ASSESSEE IS SUBSTANTIAL LY CORRECT. HOWEVER, WHAT WAS RELEVANT AND REQUIRED EXAMINATION WAS THE CONTR ACTS UNDER WHICH THE SALES WERE MADE. SALE OF TV CAMERA, AIR CONDITIONER, GENE RATOR SETS PER SE OR ON STANDALONE BASIS WOULD NOT QUALIFY FOR DEDUCTION 80 IA READ WITH SUB-SECTION (4) CLAUSE (II). ON THE OTHER HAND, IN CASE THE ASSESSE E HAS BEEN AWARDED A CONTRACT FOR PROVIDING TELECOMMUNICATION SERVICE, NETWORK OF TRUNKING AND BROADBAND/INTERNET SERVICES AND WHILE AND FOR EXECU TING THE SAID CONTRACT, GENERATOR SETS, AIR CONDITIONER ETC. WERE SOLD AS A PART OF A COMPLETE PACKAGE, THEN THE INCOME EARNED MAY QUALIFY FOR DEDUCTION UNDER S ECTION 80IA. THEREFORE, EACH CONTRACT AND NATURE THEREOF HAS TO BE EXAMINED . IT HAS TO BE ASCERTAINED WHETHER IT WAS A CASE OF SUPPLY OF GOODS OR IT WAS A CASE WHERE THE ASSESSEE WAS PROVIDING QUALIFYING SERVICES WHICH MANDATED AND RE QUIRED INEXTRICABLY OR AS AN NECESSARY REQUIREMENT, (UNDER THE SAME CONTRACT OR UNDER A DIFFERENT CONTRACT), SALE/SUPPLY GOODS TO OPERATIONALIZE AND USE/PROVIDE THE TELECOMMUNICATION SERVICES. IN CASE, THE SALE OF GOODS WAS INEXTRICAB LY LINKED, HAD NEXUS AND WAS CONNECTED WITH THE PRIMARY PURPOSE OF PROVIDING OR STARTING TELECOMMUNICATION SERVICES, THE ASSESSEE WILL BE ENTITLED TO BENEFIT UNDER SECTION 80IA. OTHERWISE, THE ASSESSEE WILL NOT BE ENTITLED TO EXEMPTION UNDE R SECTION 80IA ON THE TRANSACTION. WHETHER THE COMMODITIES/GOODS COULD H AVE BEEN ALSO PURCHASED FROM A THIRD PARTY MAY NOT RELEVANT AND THE DETERMI NATIVE FACTOR IN MANY A CASE. IT IS THE PREDOMINANT OR PRIMARY REASON OR PURPOSE WHY THE CONTRACT WAS ENTERED INTO, AND WHETHER IT HAS DIRECT NEXUS AND IS INEXTR ICABLY LINKED WITH PROVIDING THE QUALIFYING ACTIVITIES, IS AND WOULD BE THE DETERMIN ATIVE FACTOR. THE SUBSTANTIAL QUESTION OF LAW IS ACCORDINGLY ANSWERED. AN ORDER OF REMIT IS PASSED, WITH A DIRECTION TO THE TRIBUNAL TO DECIDE THE ISSUE/QUEST ION AFRESH IN THE LIGHT OF THE ABOVE OBSERVATION/RATIO. ITA NOS.3176 & 3265/DEL./2008 4 THE LD. AR SUBMITTED THAT THE ISSUE MAY BE REMITTED BACK TO THE FILE OF AO TO BE ADJUDICATED AS DIRECTED BY HONBLE HIGH COURT IN PARA 12 (SUPRA). 4. LD. DR HAS NO OBJECTION TO REMIT THE MATTER BEFO RE AO TO ADJUDICATE THE ISSUE. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS AND HAVE CAREFULLY GONE THROUGH THE ORDER OF THE HONBLE HIG H COURT IN ASSESSEES OWN CASE FOR AY 2005-06 WHICH IS THE RELEVANT ASSESSMEN T YEAR BEFORE US. IN THE INTEREST OF JUSTICE, WE REMIT THIS ISSUE BACK TO TH E FILE OF AO TO BE DECIDED AS DIRECTED BY THE HONBLE HIGH COURT IN PARA 12 (SUPR A), AFTER GIVING OPPORTUNITY TO THE ASSESSEE. 6. GROUNDS NO.2 & 3 IS REGARDING CONFIRMATION OF TH E EXCLUSION OF RS.57,58,000/- BEING INCOME FROM SOFTWARE DIVISION FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE U/S 80IA OF THE ACT. 7. AT THE OUTSET ITSELF, THE LD. AR TOOK OUR ATTENT ION TO THE ORDER OF THE HONBLE HIGH COURT IN ASSESSEES OWN CASE FOR AY 20 05-06 IN ITA 130/2011 DATED 17 TH MAY, 2012, WHEREIN THE QUESTION OF LAW WAS FRAMED AS UNDER :- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE TRIBUNAL ERRED IN LAW IN HOLDING THAT INCOME EARNED BY THE APPELLANT FROM DEVELOPMENT OF SOFTWARE UPGRADES FOR NETWORK MANAGE MENT SYSTEMS FOR SMOOTH AND TROUBLE FREE WORKING OF VSAT SERVICE PRO VIDED BY THE APPELLANT, AS PART OF BUSINESS OF TELECOMMUNICATION SERVICES, WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA(4(II) OF THE INCOME TAX ACT? ITA NOS.3176 & 3265/DEL./2008 5 THE HONBLE HIGH COURT DEALT WITH THE AFORESAID ISS UE IN PARA 13 TO PARA 16 WHEREIN IT HAS BEEN HELD AS UNDER :- 13. THE QUESTION NO.1 RAISED IN THE APPEAL OF ASSES SEE I.E. ITA 130/2011 RELATES TO INCOME EARNED FROM DEVELOPMENT AND SALE OF SOFTWARE AND WHETHER THE SAID AMOUNT QUALIFIES FOR DEDUCTION UNDER SECTION 80IA. THE TRIBUNAL HAS NOT TREATED THE PROCEEDS FROM SALE OF SOFTWARE DECLARED BY THE ASSESSEE AS ELIGIBLE FOR DEDUCTION UNDER SECTIO N 80IA ON THE GROUND THAT THE INCOME DERIVED FROM THE SALE OF SOFTWARE W AS NOT DERIVED FROM QUALIFYING BUSINESS I.E. TELECOMMUNICATION SERVICES . IT HAS BEEN OBSERVED THAT DEVELOPMENT OF SOFTWARE WAS A SEPARATE SOURCE OF BUSINESS INCOME. ACCORDINGLY, THE TOTAL RECEIPT OF RS.61,58,000/- FR OM THE SALE OF SOFTWARE SHOULD BE EXCLUDED FROM THE DEDUCTION CLAIMED UNDER SECTION 80IA OF THE ACT. 14. THE CONTENTION OF THE ASSESSEE, WHICH IS RECORD ED IN THE ORDER PASSED BY THE TRIBUNAL, IS THAT THE SOFTWARE DEVELO PED WAS FOR UPGRADING THE NETWORK MANAGEMENT SYSTEM (NMS, FOR SHORT), TO ENABLE SMOOTH WORKING OF VSAT SERVICE UNDER THE TECHNOLOGY FROM V IA SAT AND HSN AT THE REQUEST AND ON CONFIRMED PURCHASE ORDERS FROM T VC INDIA PVT. LTD. THE JUSTIFICATION GIVEN BY THE ASSESSEE TO TREAT AN D REGARD THE SAID INCOME AS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA, READS AS UNDER:- ............THE HUB CONTROLS THE ENTIRE OPERATIONS OF THE COMMUNICATION NETWORK THROUGH A NMS, WHICH CONTINUO USLY ACCUMULATES DATA ON THE SYSTEM SO AS TO PROVIDE REG ULAR HEALTH CHECKS FOR THE REMOTES AND DETERMINE THE LEVEL OF ACTIVIT Y FOR BILLING PURPOSE. THE NMS, WHICH IS PRINCIPALLY A SO FTWARE, IS AN INTEGRAL PART OF HUB STATION FOR RUNNING VSAT SERVI CES AT VARIOUS REMOTES. THE NMS NEEDS TO BE REGULARLY UPDATED AND MAINTAINED FOR A SMOOTH AND TROUBLE FREE SERVICE. SINCE TVC CO ULD NOT HAVE THE UPGRADES OF THESE NMS S THROUGH THE OEMS, THE APPELLANT PROVIDED THE UPGRADES SO THAT A SMOOTH AND UNINTERR UPTED SERVICE ON THE VSATS LOCATED AT VARIOUS REMOTES COULD BE PR OVIDED, IT WAS ARGUED THAT THE SOFTWARE DEVELOPED BY THE APPELLANT IS A PART OF THE SATELLITE BASED TELECOMMUNICATION SERVICES RENDERED BY IT. THE APPELLANT HAD THE REQUISITE EXPERTISE FOR THE SOFTW ARE DEVELOPMENT. THE APPELLANT UNDER THE IMPUGNED SOFTWARE DEVELOPED FOUR MODULES FOR TVC. EACH MODULE WAS DEVELOPED TO PROVI DE WIDE TIME WINDOW FOR PACKET TRANSFERS BETWEEN TVC AND BA NK OF TOKYO & MITSUBISHI, LUDHIANA STOCK EXCHANGE, EIH AN D BNP RESPECTIVELY. WITHOUT THIS SOFTWARE, THE CLIENT OF THE APPELLANT (TVC) COULD NOT HAVE SATELLITE CONNECTION WITH THE ABOVEMENTIONED COMPANIES AND THE SIGNAL COULD NOT B E TRANSMITTED THERETO. THE SOLE MOTIVE OF DEVELOPING THE SOFTWARE WAS TO FURTHER ITS TELECOMMUNICATION OPERATIONS AND WAS THUS, INEX TRICABLY LINKED ITA NOS.3176 & 3265/DEL./2008 6 TO THE BUSINESS OF THE APPELLANT OF PROVIDING TELEC OMMUNICATION SERVICES. 15. WE FIND THAT THE TRIBUNAL HAS NOT EXAMINED THE SAID ASPECT AND QUESTION WITH REFERENCE TO THE CONTENTION RAISED BY THE ASSESSEE, ON THE NATURE AND CHARACTER OF THE SOFTWARE, WHICH WAS DEV ELOPED AND SOLD. THE EXACT REASONING GIVEN BY THE TRIBUNAL READS AS UNDE R:- 4.8 IN REGARD TO INCOME FROM SOFTWARE, THE DEVELOP MENT OF SOFTWARE IS CERTAINLY A SEPARATE SOURCE OF BUSINESS INCOME OF THE APPELLANT DIFFERENT FROM PROVIDING TELECOMMUNICATIO N SERVICES. THUS, THIS INCOME CANNOT BE SAID TO THE INCOME DERI VED FROM THE ELIGIBLE BUSINESS OF PROVIDING TELECOMMUNICATION SE RVICE. THE APPELLANT HAS SHOWN TOTAL RECEIPTS OF RS.61,58,000/ - FROM DEVELOPMENT AND SELLING OF SOFTWARE. THE A.O. HAS A LLOWED EXPENSES ON ACCOUNT OF SALARY PAID TO EMPLOYEES AND OTHER ADMINISTRATIVE EXPENSES OF RS.4,00,000/- AND CALCUL ATED THE NET PROFIT FROM SOFTWARE DEVELOPMENT AT RS.57,58,000/-. THE A.R. OF THE APPELLANT SUBMITTED THAT THE APPELLANT HAD INCU RRED HIGHER AMOUNT OF EXPENSES THAN RS.4,00,000/- ON THE DEVELO PMENT OF SOFTWARE BECAUSE APART FROM PERSONNEL/STAFF, THE AP PELLANT HAD INCURRED VARIOUS OTHER OVERHEAD CHARGES ALSO. BUT T HE APPELLANT HAD NOT FURNISHED ANY DETAILS OF EXPENSES IN EXCESS OF 4,00,000 INCURRED FOR THE DEVELOPMENT OF SOFTWARE. IN THESE CIRCUMSTANCES, THE CALCULATION MADE BY THE A.O. DOES NOT WARRANT A NY INTERFERENCE. SINCE THE INCOME EARNED FROM DEVELOPM ENT OF SOFTWARE WAS NOT PROFIT AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS OF PROVIDING TELECOMMUNICATION SERVICE, TH E A.O. WAS JUSTIFIED IN EXCLUDING THE INCOME FROM SOFTWARE DEV ELOPMENT FOR COMPUTING DEDUCTION U/S 80IA. 16. WE FIND THAT THE ASSESSING OFFICER AS WELL AS T HE APPELLATE AUTHORITIES HAVE NOT EXAMINED THE ISSUE/QUESTION KE EPING IN MIND THE MANDATE OF THE SECTION AND CONTENTION OF THE ASSESS EE. NATURE, CHARACTER AND TYPE OF THE SOFTWARE AND WHETHER OR NOT IT COUL D BE TREATED AND REGARDED AS INCOME EARNED FROM THE BUSINESS REFERRE D TO IN SUB-SECTION (4) CLAUSE (II) TO SECTION 80IA HAS NOT BEEN EXAMINED A ND CONSIDERED. WITHOUT EXAMINING THE SAID ASPECT AND THE FACTUAL POSITION REGARDING NATURE AND TYPE OF SOFTWARE, THE ASSESSING OFFICER AND THE APP ELLATE AUTHORITIES WERE NOT JUSTIFIED IN EXCLUDING THE SALE PROCEEDS FROM C OMPUTATION OF DEDUCTION UNDER SECTION 80IA. THE ASSESSING OFFICER HAS MEREL Y RECORDED THAT THE ASSESSEE HAD FURNISHED COPY OF THE WORK ORDERS AS W ELL AS THE BILL RAISED AND IN VIEW OF THE JUDICIAL PRONOUNCEMENTS, INCOME FROM SELLING OF SOFTWARE CANNOT BE CONSIDERED AS INCOME EARNED OR D ERIVED FROM THE ACTIVITIES SPECIFIED IN SECTION 80IA(4)(II) OF THE ACT. THIS ISSUE IS ACCORDINGLY REMITTED TO THE TRIBUNAL FOR A FRESH DE CISION. THE TRIBUNAL WILL EXAMINE THE NATURE, TYPE AND CHARACTER OF THE SOFTW ARE OR WHETHER IT WAS INEXTRICABLY AND DIRECTLY CONNECTED WITH THE ACTIVI TIES/SERVICES STIPULATED IN CLAUSE (II) TO SUB-SECTION (4) OF SECTION 80IA. THIS IS A TECHNICAL ASPECT ITA NOS.3176 & 3265/DEL./2008 7 AND IF REQUIRED, THE TRIBUNAL CAN TAKE HELP AND/OR OPINION OF EXPERTS. THE ASSESSEE WILL BE ALSO AT LIBERTY TO JUSTIFY AND EST ABLISH THEIR CLAIM BY FILING OPINION FROM THE EXPERTS. QUESTION NO.1 IS ACCORDIN GLY ANSWERED WITH AN ORDER OF REMIT. THE LD. AR OPINED THAT THIS ISSUE ALSO MAY BE REMIT TED BACK TO THE FILE OF AO FOR ADJUDICATION. THE LD. DR DID NOT OBJECT TO THE SAID SUGGESTION OF THE LD. AR. 8. WE HAVE HEARD BOTH THE PARTIES AND REMIT THE ISS UE BACK TO THE FILE OF THE AO TO BE DECIDED AS DIRECTED BY THE HONBLE HIG H COURT IN PARA 13 (SUPRA) AFTER GIVING OPPORTUNITY TO THE ASSESSEE OF BEING HEARD AND SINCE IT IS TECHNICAL ASPECT THE AO CAN TAKE HELP OR OPINION OF EXPERTS AND ASSESSEE HAS BEEN ALSO GIVEN LIBERTY TO BRING EXPERT OPINION TO ESTABLISH ITS CLAIM. IT IS ORDERED ACCORDINGLY. 9. GROUNDS NO.4 & 5 ARE REGARDING THE INTEREST INCO ME. 10. THIS ISSUE HAS BEEN FRAMED BY HONBLE HIGH COUR T IN ASSESSEES OWN CASE IN ITA 130/2011 AS UNDER :- 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE TRIBUNAL ERRED IN LAW IN NOT DIRECTING EXCLUSION OF ONLY NET INTEREST INCOME, I.E., GROSS INTEREST INCOME LESS EXPENDITUR E INCURRED FOR EARNING SUCH INTEREST INCOME, WHILE COMPUTING DEDUCTION UND ER SECTION 80-IA OF THE INCOME TAX ACT? THE HONBLE HIGH COURT HAS DEALT WITH THIS ISSUE FR OM PARAS 17 TO 23 AS UNDER:- 17. THE LAST QUESTION IS QUESTION NO.2 IN ITA NO.1 30/2011. THE FINDINGS RECORDED BY THE TRIBUNAL IN THIS REGARD AR E THAT THE ASSESSEE HAD EARNED INTEREST INCOME ON FDRS OF RS.7,61,584/- AND OTHER INTEREST OF RS.77,042/-. IT HAS BEEN OBSERVED BY THE TRIBUNAL T HAT THE AFORESAID RECEIPTS CANNOT BE INCLUDED IN THE INCOME DERIVED FROM THE S PECIFIED ACTIVITIES IN ITA NOS.3176 & 3265/DEL./2008 8 VIEW OF THE DECISION OF THIS COURT IN CIT VS. SHRI RAM HONDA POWER EQUIP (2007) 289 ITR 475. 18. THE ASSESSEE HAS SUBMITTED THAT THEY HAD EARNED THIS INTEREST OF RS.8,38,626/- ON FDRS PLEDGED WITH THE BANKS FOR AV AILING NON-FUND BASED CREDIT LIMITS BUT THEY HAD PAID INTEREST OF R S.1,70,99,277/- AND, EFFECTIVELY THE NET INTEREST PAID WAS THE EXPENSE. INTEREST EARNED WAS BUSINESS INCOME DIRECTLY CONNECTED WITH THE QUALIFY ING SERVICE AND THEREFORE SHOULD BE SET OFF FROM THE INTEREST PAID. IT WAS STATED THAT THE INTEREST EARNED HAD DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE SINCE THE FDRS WERE PLEDGED AS MARGIN MONEY FOR AVAILING CRED IT LIMITS. THE ASSESSING OFFICER, HOWEVER, DID NOT AGREE WITH THE SAID CONTENTION. THE CIT (APPEALS) AGREED WITH ASSESSEE AND HELD THAT TH E INTEREST ON DEPOSIT WAS TAXABLE AS BUSINESS INCOME AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES AND THEREFORE THE ASSESSEE WAS ENTIT LED TO DEDUCTION UNDER SECTION 80IA(4)(II). AS NOTICED ABOVE, THE TRIBUNAL HAS REVERSED THE FINDINGS OF THE CIT(APPEALS) AND AGREED WITH THE AS SESSING OFFICER. 19. DECISION OF THIS COURT IN SHRI RAM HONDA (SUPRA ) CONSISTS OF TWO PARTS. IN THE FIRST PART IT HAS BEEN HELD THAT INTE REST INCOME IS NOT INCOME DERIVED FROM EXPORTS AS IT IS NOT A PART OF EXPORT PROCEEDS AND IS NOT A DIRECT AND PROXIMATE RESULT OF EXPORTS EARNING BUT EARNING MADE FROM DEPOSIT OF MONEY AND PAYMENT BY THE BANK. THE SECON D PART OF THE SAID JUDGMENT DEALS WITH COMPUTATION UNDER EXPLANATION ( BBA) TO SECTION 80HHC. FOR THE PURPOSE OF THE SAID EXPLANATION, IT HAS BEEN HELD THAT INTEREST REFERS TO AND MEANS NET INTEREST AND NOT G ROSS INTEREST, PROVIDED THE INTEREST EARNED IS TAXABLE UNDER THE HEAD INCOME F ROM BUSINESS AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES. THIS VI EW HAS BEEN UPHELD BY THE SUPREME COURT IN ITS RECENT DECISION IN ACG ASSOCIATED CAPSULES PRIVATE LIMITED. VS. COMMISSIONER OF INCOME TAX (20 12) 3 SCC 321. THE SUPREME COURT APPROVING THE SAID JUDGMENT HAS REFER RED TO THEIR EARLIER CONSTITUTION BENCHS DECISION IN DISTRIBUTORS (BARO DA) (P) LTD. VS. UNION OF INDIA (1986) 1 SCC 43 AND OBSERVED AS UNDER:- 11. BEFORE WE DEAL WITH THE CONTENTIONS OF LEARNED COUNSEL FOR THE PARTIES, WE MAY EXTRACT EXPLANATION (BAA) TO SE CTION 80HHC OF THE ACT. EXPLANATION: FOR THE PURPOSES OF THIS SECTION,- * * * (BAA) PROFITS OF THE BUSINESS MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BU SINESS OR PROFESSION AS REDUCED BY- 1300 NINETY PER CENT OF ANY SUM REFERRED TO IN CLAU SES (IIIA), (IIIB), (IIIC), (IIID) AND (IIIE) OF SECTION 28OR O F ANY RECEIPTS BY WAY ITA NOS.3176 & 3265/DEL./2008 9 OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES O R ANY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFIT S; AND (2) THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE O R ANY OTHER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA . 12. EXPLANATION (BAA) EXTRACTED ABOVE STATES THAT PROFITS OF THE BUSINESS MEANS THE PROFITS OF THE BUSINESS AS COMP UTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AS REDUCED BY THE RECEIPTS OF THE NATURE MENTIONED IN CLAUSES (1) AND (2) OF THE EXPLANATION (BAA). THUS, PROFITS OF THE BUSINESS OF AN ASSESSEE WILL HAVE TO BE FIRST COMPUTED UNDER THE HEAD PROFITS A ND GAINS OF BUSINESS OR PROFESSION IN ACCORDANCE WITH PROVISIO NS OF SECTIONS 28 TO 44D OF THE ACT. IN THE COMPUTATION OF SUCH PR OFITS OF BUSINESS, ALL RECEIPTS OF INCOME WHICH ARE CHARGEAB LE AS PROFITS AND GAINS OF BUSINESS UNDER SECTION 28 OF THE ACT WILL HAVE TO BE INCLUDED. SIMILARLY, IN COMPUTATION OF SUCH PROFITS OF BUSINESS, DIFFERENT EXPENSES WHICH ARE ALLOWABLE UNDER SECTIO NS 30 TO 44D HAVE TO BE ALLOWED AS EXPENSES. AFTER INCLUDING SUC H RECEIPTS OF INCOME AND AFTER DEDUCTING SUCH EXPENSES, THE TOTAL OF THE NET RECEIPTS ARE PROFITS OF THE BUSINESS OF THE ASSESSE E COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON FROM WHICH DEDUCTIONS ARE TO MADE UNDER CLAUSES (1) AND (2) OF EXPLANATION (BAA). 13. X X X X X X X 14. X X X X X X X 15. SECTION 80M OF THE ACT PROVIDED FOR DEDUCTION I N RESPECT OF CERTAIN INTERCORPORATE DIVIDENDS AND IT PROVIDED IN SUB-SECTION (1) OF SECTION 80M THAT WHERE THE GROSS TOTAL INCOME O F AN ASSESSEE BEING A COMPANY INCLUDES ANY INCOME BY WAY OF DIVID ENDS RECEIVED BY IT FROM A DOMESTIC COMPANY, THERE SHALL , IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUC TION FROM SUCH INCOME BY WAY OF DIVIDENDS AN AMOUNT EQUAL TO A CE RTAIN PERCENTAGE OF THE INCOME MENTIONED IN THIS SECTION. THE CONSTITUTION BENCH HELD THAT THE COURT MUST CONSTRU E SECTION 80M ON ITS OWN LANGUAGE AND ARRIVE AT ITS TRUE INTERPRE TATION ACCORDING TO THE PLAIN NATURAL MEANING OF THE WORDS USED BY T HE LEGISLATURE AND SO CONSTRUED THE WORDS SUCH INCOME BY WAY OF D IVIDENDS IN SUB-SECTION (1) OF SECTION 80M MUST BE REFERABLE NO T ONLY TO THE CATEGORY OF INCOME INCLUDED IN THE GROSS TOTAL INCO ME BUT ALSO TO THE QUANTUM OF THE INCOME SO INCLUDED. 16. SIMILARLY, EXPLANATION (BAA) HAS TO BE CONSTRUE D ON ITS OWN LANGUAGE AND AS PER THE PLAIN NATURAL MEANING OF TH E WORDS USED IN EXPLANATION (BAA), THE WORDS RECEIPTS BY WAY OF BR OKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RE CEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS WILL NOT ONLY REFE R TO THE NATURE OF ITA NOS.3176 & 3265/DEL./2008 10 RECEIPTS BUT ALSO TO THE QUANTUM OF RECEIPTS INCLUD ED IN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION REFERRED TO IN THE FIRST PA RT OF THE EXPLANATION (BAA). ACCORDINGLY, IF ANY QUANTUM OF A NY RECEIPT OF THE NATURE MENTIONED IN CLAUSE (1) OF EXPLANATION ( BAA) HAS NOT BEEN INCLUDED IN THE PROFITS OF BUSINESS OF AN ASSE SSEE AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION, NINETY PER CENT OF SUCH QUANTUM OF THE RECEIPT CANNOT BE DEDUCTED UNDER EXPLANATION (BAA) TO SECTION 80HH C. 20. THE SUPREME COURT IN ACG ASSOCIATED CAPSULES (S UPRA), DID NOT APPROVE THE VIEW OF THE BOMBAY HIGH COURT IN CIT VS . ASIAN STAR COMPANY LTD. (2010) 326 ITR 56 (BOM.). 21. WE HAVE QUOTED SECTION 80IA (1) AND (2A) ABOVE. FOR DETERMINING THE INCOME DERIVED BY AN UNDERTAKING OR ENTERPRISE, WE HAVE TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE FROM THE BUSINESS REFERRED IN SUB-SECTION (4) TO SECTION 80IA. THE WORDS USED IN SECTION 80IA (1) AND (2A) ARE PROFIT AND GAINS OF ELIGIBLE BUSINESS. ON THE BAS IS OF SAME LOGIC AND REASONING, WE HAVE TO FIRST FIND OUT THE PROFIT AND GAINS OF BUSINESS FROM THE SPECIFIED ACTIVITIES. SECTION 80IA WAS INTERPRE TED AND ELUCIDATED IN LIBERTY INDIA V. COMMISSIONER OF INCOME TAX, (2009) 9 SCC 328. IT WAS HIGHLIGHTED SECTION 80IA IS A PROFIT LINKED INCENTI VE AND ONLY PROFITS DERIVED FROM ELIGIBLE BUSINESS ARE ENTITLED TO DE DUCTION. THE EXPRESSION DERIVED FROM COVERS SOURCES NOT BEYOND THE FIRST DEGREE. DEVICES TO INFLATE OR REDUCE PROFITS FROM ELIGIBLE BUSINESS SH OULD BE REJECTED. ON DEPB UTILIZATION AND DUTY DRAWBACK IT WAS HELD:- 39. ANALYSING THE CONCEPT OF REMISSION OF DUTY DRA WBACK AND DEPB, WE ARE SATISFIED THAT THE REMISSION OF DUTY I S ON ACCOUNT OF THE STATUTORY/POLICY PROVISIONS IN THE CUSTOMS ACT/ SCHEME(S) FRAMED BY THE GOVERNMENT OF INDIA. IN THE CIRCUMSTA NCES, WE HOLD THAT PROFITS DERIVED BY WAY OF SUCH INCENTIVES DO N OT FALL WITHIN THE EXPRESSION PROFITS DERIVED FROM INDUSTRIAL UNDERTA KING IN SECTION 80-IB. 22. RELIANCE WAS PLACED BY THE ASSESSEE ON AS 2 AND EXPLAINING THE SAME IN LIBERTY INDIA (SUPRA), IT WAS HELD:- 40. SINCE RELIANCE WAS PLACED ON BEHALF OF THE ASS ESSEE(S) ON AS-2 WE NEED TO ANALYSE THE SAID STANDARD. AS-2 DEA LS WITH VALUATION OF INVENTORIES. INVENTORIES ARE ASSETS HE LD FOR SALE IN THE COURSE OF BUSINESS; IN THE PRODUCTION FOR SUCH SALE OR IN THE FORM OF MATERIALS OR SUPPLIES TO BE CONSUMED IN THE PRODUCT ION. INVENTORY SHOULD BE VALUED AT THE LOWER OF COST A ND NET REALISABLE VALUE (NRV). THE COST OF INVENTORY SHOULD COMPRIS E ALL COSTS OF PURCHASE, COSTS OF CONVERSION AND OTHER COSTS INCLU DING COSTS INCURRED IN BRINGING THE INVENTORY TO THEIR PRESE NT LOCATION AND CONDITION. ITA NOS.3176 & 3265/DEL./2008 11 41. THE COST OF PURCHASE INCLUDES DUTIES AND TAXES (OTHER THAN THOSE SUBSEQUENTLY RECOVERABLE BY THE ENTERPRISE FR OM TAXING AUTHORITIES), FREIGHT INWARDS AND OTHER EXPENDITURE DIRECTLY ATTRIBUTABLE TO THE ACQUISITION. HENCE TRADE DISCOU NTS, REBATE, DUTY DRAWBACK, AND SUCH SIMILAR ITEMS ARE DEDUCTED IN DE TERMINING THE COSTS OF PURCHASE. THEREFORE, DUTY DRAWBACK, REBATE , ETC. SHOULD NOT BE TREATED AS ADJUSTMENT (CREDITED) TO COST OF PURCHASE OR MANUFACTURE OF GOODS. THEY SHOULD BE TREATED AS SEP ARATE ITEMS OF REVENUE OR INCOME AND ACCOUNTED FOR ACCORDINGLY (SE E P. 44 OF INDIAN ACCOUNTING STANDARDS & GAAP BY DOLPHY D SOUZA). 42. THEREFORE, FOR THE PURPOSES OF AS-2, CENVAT CRE DITS SHOULD NOT BE INCLUDED IN THE COST OF PURCHASE OF I NVENTORIES. EVEN THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (IC AI) HAS ISSUED GUIDANCE NOTE ON ACCOUNTING TREATMENT FOR CENVAT/MO DVAT UNDER WHICH THE INPUTS CONSUMED AND THE INVENTORY O F INPUTS SHOULD BE VALUED ON THE BASIS OF PURCHASE COST NET OF SPECIFIED DUTY ON INPUTS (I.E. DUTY RECOVERABLE FROM THE DEPARTMEN T AT A LATER STAGE) ARISING ON ACCOUNT OF REBATES, DUTY DRAWBACK , DEPB BENEFIT, ETC. PROFIT GENERATION COULD BE ON ACCOUNT OF COST CUTTING, COST RATIONALISATION, BUSINESS RESTRUCTURING, TAX PLANNI NG ON SUNDRY BALANCES BEING WRITTEN BACK, LIQUIDATION OF CURRENT ASSETS, ETC. 43. THEREFORE, WE ARE OF THE VIEW THAT DUTY DRAWBAC K, DEPB BENEFITS, REBATES, ETC. CANNOT BE CREDITED AGAINST THE COST OF MANUFACTURE OF GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT FOR PURPOSES OF SECTIONS 80-IA/80-IB AS SUCH REMISSIONS (CREDITS) WOULD CONSTITUTE INDEPENDENT SOURCE OF INCOME BEYON D THE FIRST DEGREE NEXUS BETWEEN PROFITS AND THE INDUSTRIAL UND ERTAKING. 44. WE ARE OF THE VIEW THAT THE DEPARTMENT HAS CORR ECTLY APPLIED AS-2 AS COULD BE SEEN FROM THE FOLLOWING IL LUSTRATION: EXPENDITURE AMOUNT(RS) INCOME AMOUNT(RS) OPENING STOCK 100 SALES 1000 PURCHASES (INCLUDING CUSTOMS DUTY PAID)500 DUTY DRAWBACK RECEIVED 100 MANUFACTURING OVERHEADS 300 CLOSING STOCK 200 ADMINISTRATIVE, SELLING AND DISTRIBUTION EXPENSES 200 NET PROFIT 200 ____ ____ 1300 1300 ITA NOS.3176 & 3265/DEL./2008 12 NOTE : IN THE ABOVE EXAMPLE, THE DEPARTMENT IS ALLO WING DEDUCTION ON PROFIT OF RS.100 UNDER SECTION 80-IB OF THE 1961 AC T. (EMPHASIS SUPPLIED) 23. IN VIEW OF THE AFORESAID OBSERVATIONS IN THE CA SE OF LIBERTY INDIA (SUPRA), THE AFORESAID SECOND QUESTION OF LAW IN IT A NO.130/2011 IS ANSWERED IN NEGATIVE WITH AN ORDER OF REMAND TO THE TRIBUNAL. IN THE ABSENCE OF DETAILS, IT IS DIRECTED THAT THE TRIBUNA L WILL EXAMINE THE FACTUAL MATRIX OF THE PRESENT CASE INCLUDING THE BALANCE-SH EET AND ACCOUNTS OF THE ASSESSEE, TO DECIDE THE QUESTION. IT WILL BE OPEN T O THE TRIBUNAL TO EXAMINE AND CONSIDER THE CONTENTION OF THE ASSESSEE, IF RAI SED AND SUPPORTED BY FACTS, THE QUANTUM OF EXPENDITURE INCURRED/ATTRIBUT ED TO EARNING OF EXEMPT INCOME UNDER SECTION 80IA OF THE ACT. THIS ISSUE ALSO, BOTH SIDES AGREE, SHOULD BE REMITT ED BACK TO THE FILE OF AO AS DIRECTED BY HONBLE HIGH COURT. SO, WE REMIT THE M ATTER BACK TO THE FILE OF THE AO TO BE DECIDED AFRESH AS PER THE DIRECTION OF THE HONBLE HIGH COURT GIVEN TO PARA 23 (SUPRA). 11. GROUND NO.6 IS AGAINST CONFIRMING THE LEVY OF I NTEREST U/S 234B OF THE ACT. THE CHARGING OF INTEREST U/S 234B IS CONSEQUE NTIAL. THE AO SHALL RECALCULATE THE INTEREST UNDER THE AFORESAID SECTIO N, IF ANY, WHILE GIVING EFFECT TO APPELLATE ORDER. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SPOSED OFF AS ABOVE FOR STATISTICAL PURPOSES. REVENUES APPEAL (ITA NO.3176/DEL/2008) 13. GROUNDS NO.1 TO 4 ARE REGARDING THE DELETION OF ADDITION OF RS.25,94,935/- MADE BY THE AO ON ACCOUNT OF DISALL OWANCE OF DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IA(4)(II) OF THE ACT AND THAT THE ASSESSEE DID NOT FULFILL THE CONDITIONS PRESCRIBED U/S 80IA TO Q UALIFY FOR DEDUCTION. ITA NOS.3176 & 3265/DEL./2008 13 14. THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESS EES OWN CASE IN ITA 279/20111 HAS DEALT WITH THE ISSUE BY FRAMING THE QUESTION OF LAW AS UNDER :- WHETHER LEARNED ITAT ERRED IN LAW IN HOLDING THAT INSAT 2E IS A DOMESTIC SATELLITE WITHIN THE MEANING OF SUB-CLAUSE (II) OF CLAUSE (4) OF SECTION 80-IA OF THE INCOME TAX ACT, 1961, DESPITE THE FACT THAT BRITISH TELECOM HAS LEASED IT TO THE ASSESSEE? AND THE HONBLE HIGH COURT HAS DEALT WITH THE ISSUE IN PARAS 7 TO 9 WHICH ARE REPRODUCED BELOW :- 7. QUESTION RAISED IN ITA 279/2011 ARISES AS THE A SSESSING OFFICER HAD TREATED RS.1,42,34,278/- AS INCOME EARNED BY TH E ASSESSEE FROM DOMESTIC SATELLITE SERVICE. THE REASONING GIVEN BY THE ASSESSING OFFICER IS DIFFICULT TO UNDERSTAND AND SOMEWHAT INGENIOUS. THE ASSESSING OFFICER REFERRED TO NOTES ON ACCOUNTS IN WHICH THE ASSESSEE HAD DISCLOSED THAT PAYMENT OF RS.13,42,288/- WAS MADE FOR SPACE SEGMEN T CHARGES IN FOREIGN CURRENCY. THIS PAYMENT WAS MADE TO BRITISH TELECOM (WORLDWIDE) FOR USE OF SATELLITE SERVICE IN THE INDIAN SATELLITE INSAT 2E. THE ASSESSING OFFICER HELD THAT THE SAID SATELLITE WAS NOT A DOM ESTIC SATELLITE AS IT WAS OWNED BY DEPARTMENT OF SPACE, GOVERNMENT OF INDIA, WHICH WAS NOT AN INDIAN COMPANY AND WAS BEING OPERATED BY BRITISH TE LECOM (WORLDWIDE), A FOREIGN COMPANY. THE SAID VIEW, HOWEVER, WAS NOT ACCEPTED BY THE CIT (APPEALS), WHO HELD THAT BRITISH TELECOM (WORLDWIDE ) OR INTELSAT DID NOT HAVE OWNERSHIP RIGHT OVER THE SATELLITE. RELYIN G UPON THE LETTER DATED 21 ST NOVEMBER, 2007, WRITTEN BY THE DIRECTOR, ISRO, IT WAS HELD THAT THE SATELLITE WAS OWNED BY THE DEPARTMENT OF SPACE, GOV ERNMENT OF INDIA AND, THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTI FIED IN EXCLUDING THE INCOME EARNED FROM THE DOMESTIC SATELLITE SERVICES. THE VIEW OF THE CIT (APPEALS) HAS BEEN AFFIRMED BY THE TRIBUNAL. 8. THE ASSESSING OFFICER TO COMPUTE AND MAKE THE AF ORESAID ADDITION OF RS.1,42,34,278/- OBSERVED THAT THE ASSESSEE HAD MADE PAYMENT OF RS.13,42,288/- TO BRITISH TELECOM (WORLDWIDE) AND H AD NOT SHOWN ANY INCOME OR RECEIPTS EARNED FROM ANY THIRD PARTY. THE ADDITION WAS MADE HOLDING THAT THE INCOME INCLUDED INCOME FROM SATELL ITE SERVICES NOT IN THE NATURE OF DOMESTIC SATELLITE SERVICE AS DEFINED FOR PURPOSE OF THE SECTION 80IA. THE PROFIT/INCOME DISCLOSED BY THE ASSESSEE W AS NOTIONALLY ON PROPORTIONATE BASIS TREATED AS PROFIT/INCOME EARNED FROM SATELLITE SERVICES, NOT BEING DOMESTIC SATELLITE SERVICES. 9. THE ASSESSEE HOLDS A VSA LICENSE TO ESTABLISH, M AINTAIN AND OPERATE CLOSED USERS GROUP, AN INTERNET LICENSE TO ESTABLISH, MAINTAIN AND OPERATE INTERNET SERVICES AND A LICENSE/PERMISSION FROM THE MINISTRY OF INFORMATION AND BROADCASTING FOR PROVIDING UPLINKIN G SERVICES. THE CASE OF THE ASSESSEE IS THAT THEY HAVE INCURRED AN EXPEN DITURE FOR UTILIZATION OF ITA NOS.3176 & 3265/DEL./2008 14 SPACE SEGMENT ON A SATELLITE TO PROVIDE THE SAID SE RVICES. IT IS NOT THEIR CASE THAT THEY ARE IN THE BUSINESS OF PROVIDING LEASE/ S ALE OF SPACE SEGMENT OR SATELLITE SERVICES OR THAT THEY WERE PROVIDING DOME STIC SATELLITE SERVICES. CONTENTION OF THE ASSESSEE WAS/IS THAT AS A BROADBA ND/INTERNET SERVICE PROVIDER ETC. IT HAD PROCURED SPACE SEGMENT IN THE SATELLITE AND PAID CHARGES IN FOREIGN CURRENCY FOR UTILIZING SPACE SEG MENT. IT WAS AN EXPENSE, WHICH WAS INCURRED AND NOT THAT ANY INCOME WAS EARN ED. THE QUESTION IS NOT WHETHER ANY EXPENSE WAS INCURRED IN RESPECT OF THE SERVICES STIPULATED IN CLAUSE (II) OF SECTION 80IA (4), BUT WHETHER THE ASSESSEE HAS EARNED INCOME DERIVED FROM THE SPECIFIED SERVICES. IT IS N OT THE CASE OF THE ASSESSEE THAT IT WAS PROVIDING DOMESTIC SATELLITE S ERVICES AND EARNING INCOME FROM THE SAID ACTIVITY. THE TERM DOMESTIC S ATELLITE AS DEFINED IN THE EXPLANATION MEANS THE SATELLITE OWNED AND OPERA TED BY AN INDIAN COMPANY FOR PROVIDING TELECOMMUNICATION SERVICES. T HE ASSESSEE IS NOT AN OWNER OF THE DOMESTIC SATELLITE AND NOR IS IT OPERA TING THE SATELLITE. ON THE OTHER HAND, IT IS APPARENT THAT THE ASSESSEE IS CLA IMING BENEFIT/COVERAGE UNDER THE SAID SECTION ON THE BASIS THAT IT IS PROV IDING BROADBAND/INTERNET SERVICES ETC. AS LONG AS IT WAS PROVIDING THE STIPU LATED SERVICES AND HAD RECEIVED PAYMENTS FOR THE SPECIFIED SERVICES, THE I NCOME EARNED WOULD QUALIFY FOR DEDUCTION UNDER SECTION 80IA(4)(II). IN CASE THE ASSESSEE INCURS EXPENDITURE TO BUY AND UTILIZE SPACE SEGMENT ON A S ATELLITE FOR PROVIDING THE QUALIFYING SERVICES, THE EXPENDITURE INCURRED C ANNOT BE DISALLOWED AND NO NOTIONAL INCOME CAN BE COMPUTED OR REDUCED FROM THE INCOME EARNED/DERIVED FROM THE QUALIFYING SERVICE. IN VIEW OF THE SAID POSITION AND IN THE ABSENCE OF DETAILS, WE HAVE NO OPTION, B UT TO REMIT THE MATTER TO THE TRIBUNAL TO EXAMINE THE SAID ASPECT AFRESH. THE TRIBUNAL HAS TO EXAMINE AND CLEARLY DECIDE NATURE AND CHARACTER OF SERVICE RENDERED BY THE ASSESSEE TO THIRD PARTIES AND WHETHER THE SAME QUALIFIES AND IS A PRESCRIBED/STIPULATED SERVICE UNDER SECTION 80IA. T HE ORDER OF REMIT IS ALSO NECESSARY IN VIEW OF THE AMBIGUOUS STAND OF THE ASS ESSEE BEFORE THE ASSESSING OFFICER AND THE APPELLATE AUTHORITIES WHI CH HAS CONTRIBUTED TO THE CONFUSION. THE LETTER WRITTEN BY THE ASSESSEE T O THE ASSESSING OFFICER READS:- FROM THE ABOVE, IT IS CLEAR THAT THOUGH THE PAYMEN T TO BT IS MADE IN USD, YET THE SAME WAS PAID FOR USE OF DOMESTIC S ATELLITE WHICH IS OWNED AND OPERATED BY DEPARTMENT OF SPACE, GOVER NMENT OF INDIA BUT LEASED OUT BY DEPARTMENT OF SPACE (DOS) T O INTELSAT, WHO IN-TURN HAVE SUBLEASED PART OF IT TO BT AND SOME OF WHICH IS USED BY THE ASSESSEE COMPANY. HENCE, TH IS IS NO QUESTION OF DISALLOWANCE UNDER SECTION 80IA IN THIS REGARD. BOTH SIDES AGREE THAT THIS ISSUE ALSO SHOULD BE REM ITTED BACK TO THE FILE OF THE AO AND SO, WE ARE INCLINED TO REMIT BACK THE MATTER TO THE FILE OF THE AO TO BE ITA NOS.3176 & 3265/DEL./2008 15 DECIDED AFRESH AS DIRECTED BY THE HONBLE HIGH COUR T IN PARA 9 (SUPRA), AFTER GIVING OPPORTUNITY TO THE ASSESSEE. 15. GROUNDS NO.5 & 6 ARE GENERAL IN NATURE AND DO N OT REQUIRE ANY ADJUDICATION. 16. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS POSED OFF AS ABOVE FOR STATISTICAL PURPOSES. 17. TO SUM UP : THE APPEALS OF THE ASSESSEE AND REV ENUE ARE ACCORDINGLY DISPOSED OFF AS ABOVE FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 17 TH DAY OF MARCH, 2016. SD/- SD/- (R.S. SYAL) (A.T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 17 TH DAY OF MARCH, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-III, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.