DCIT CIR. CIR. 1(3), MUMBAI V. M/s. VIDESH SANCHAR NIGAM LTD., MUMBAI

ITA 3438/MUM/2003

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9438 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 10-01-2013
• Assessment Year: 1998-1999
• Appeal Filed On: 01-05-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A P SINGH
• Assessee Lawyers: DINESH VYAS; RAJU VAKHARIA
• Keywords: Depreciation; Assessment record
• Section: 32; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F : MUMBAI BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER ITA.NO.3062/MUM/2003 ASSESSMENT YEAR 1998-1999 TATA COMMUNICATIONS LTD. (FORMERLY VIDESH SANCHAR NIGAM LIMITED) MUMBAI 400 001 PAN AAACV2808C VS. JCIT, S.R. 1 MUMBAI. (APPELLANT) (RESPONDENT) ITA.NO.3438/MUM/2003 ASSESSMENT YEAR 1998-1999 DCIT, CIRCLE 1 (3) MUMBAI 20. VS. TATA COMMUNICATIONS LTD. (FORMERLY VIDESH SANCHAR NIGAM LIMITED) MUMBAI 400 001 PAN AAACV2808C (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI DINESH VYAS & SHRI RAJUVAKHA RIA FOR REVENUE : SHRI A.P.SINGH (CIT/DR) DATE OF HEARING : 22-11-2012 DATE OF PRONOUNCEMENT : 05-12-2012 ORDER PER N.K.BILLAIYA, A.M. THESE CROSS-APPEALS BY THE REVENUE AND THE ASSESSE E ARE DIRECTED AGAINST THE VERY SAME ORDER OF THE CIT(A)-24, MUMBA I DATED 17-2-2003 PERTAINING TO THE ASSESSMENT YEAR 1998-99. AS BOTH THESE APPEALS WERE HEARD 2 TOGETHER, THEY ARE BEING DISPOSED OF WITH THIS COMM ON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. ITA.NO.3062/MUM/2003 :- ASSESSEE HAS RAISED 4 SUBSTANTIVE GROUNDS OF APPEAL. GROUND NO.1 RELATES TO THE CLAIM MADE UN DER SECTION 80IA OF THE ACT IN RESPECT OF NEW UNDERTAKINGS COMMISSIONED AFTER 1 -4-1995. COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THAT THE ISSUE INVOLVED IN THIS GROUND HAVE BEEN HELD AGAINST THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1996-97 AND 1997- 98. THAT BEING THE FACT OF THE MATTER, GROUND NO.1 IS DISMISSED. 3. GROUND NO.2 RELATES TO THE DISALLOWANCE OF DEDUC TION CLAIMED UNDER SECTION 35D OF THE ACT IN RESPECT OF AMORTIZATION O F PRELIMINARY EXPENSES. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE CLAIM OF THE ASSESSEE HAS BEEN ALLOWED BY THE REVENUE FROM ASSESSMENT YEAR 2000-20 01 BY WHICH THE REVENUE HAS TAKEN THE VIEW THAT ASSESSMENT YEAR 200 0-2001 IS THE FIRST YEAR OF ELIGIBILITY. ON THAT VIEW OF THE MATTER, THE ISSUE INVOLVED IN THIS GROUND OF APPEAL BECOME OTIOSE AND THE COUNSEL FAIRLY SUBMITT ED THAT HE IS NOT PRESSING THIS GROUND OF APPEAL. GROUND NO.2 IS ACCORDINGLY D ISMISSED. 3. GROUND NO.3 RELATES TO THE DISALLOWANCE OF DEDUC TION CLAIMED UNDER SECTION 37 (1) OF THE ACT IN RESPECT OF PROVISIONS OF SALARIES. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING O FFICER OBSERVED THAT THE ASSESSEE HAS DEBITED A PROVISION OF RS.40.71 LAKHS ON ACCOUNT OF ARREARS OF SALARY. IT WAS SUBMITTED BY THE ASSESSEE THAT SALAR IES OF THE EMPLOYEES ARE REVISED EVERY 5 YEARS. AS THE ASSESSEE IS THE PUBLI C SECTOR UNDERTAKING (PSU), THE REVISION OF SALARY DEPEND UPON THE DECISION OF THE GOVERNMENT. IT WAS FURTHER EXPLAINED THAT THE GOVERNMENT SET-UP A COMM ISSION FOR REVISION OF PAY SCALES OF PSUS AND THE SAID COMMISSION SUBMITTED IT S REPORT IN JUNE, 1999. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE A SSESSEE HAS CREATED A PROVISION IN THE BOOKS DURING THE PREVIOUS YEAR WHI CH PERTAINS TO ARREARS OF SALARY FROM JANUARY, 1997 TILL MARCH, 1999. THE ASS ESSING OFFICER FURTHER OBSERVED THAT THE LIABILITY WAS NOT DETERMINABLE DU RING THE PREVIOUS YEAR, IT 3 WAS DETERMINABLE AND ACTUALLY AROSE IN JUNE 1999. W HEN THE COMMISSION SUBMITTED ITS REPORT. AS ASSESSEES PREVIOUS YEAR E NDED ON 31.3.1998, THE ASSESSEE HAS NOWHERE OF KNOWING THE RECOMMENDATION OF THE COMMISSION. THE ASSESSING OFFICER FINALLY CONCLUDED THAT THE ASSESS EE IS ENTITLED TO CLAIM EXPENDITURE ON ACTUAL PAYMENT AND ACCORDINGLY, DISA LLOWED RS.40.71 LAKHS. THE ASSESSEE AGITATED THIS MATTER BEFORE THE CIT(A) AND REITERATED THAT ASSESSEE BEING A PSU THE SALARIES WERE BEING PAID TO THE EMP LOYEES AS PRESCRIBED BY THE DEPARTMENT OF PUBLIC ENTERPRISE (DPE). THE DPE REVI SED SALARIES OF THE EMPLOYEES ONCE IN 5 YEARS. ACCORDINGLY, EMPLOYEES O F THE ASSESSEE COMPANY WERE DUE FOR PAY REVISION W.E.F. 1 ST JANUARY, 1997. IT WAS FURTHER EXPLAINED THAT PENDING FINALIZATION OF PAY SCALES BY DPE, PROVISIO NS WERE MADE BY THE ASSESSEE BASED ON THE BEST ESTIMATE POSSIBLE. IT WA S FURTHER POINTED OUT THAT DPE HAD FINALLY PRESCRIBED THE REVISED PAY SCALES D URING JUNE, 1999. THE CIT(A), AFTER CONSIDERING THE FACTS AND THE SUBMISS IONS CAME TO THE CONCLUSION THAT THE LIABILITY TO PAY SALARY OF RS.40.71 LAKHS HAS NOT CRYSTALISED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE CIT(A) CONCURRED WITH THE VIEWS OF THE ASSESSING OFFICER A ND CONFIRMED THE DISALLOWANCE OF RS.40.71 LAKHS. 4. AGGRIEVED BY THIS FINDING OF THE CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE US. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE DECISION OF NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. VS. JCIT 98 IT D 278 (HYD.). REFERRING TO THIS CASE, THE COUNSEL SUBMITTED THAT IN THIS CASE ALSO THE ASSESSEE IS A PSU AND DRAWING OUR ATTENTION TO THE DECISION OF THE TR IBUNAL, THE COUNSEL SUBMITTED THAT THE TRIBUNAL HAS ALLOWED THE CLAIM O F PROVISION OF SALARY ON THE BASIS OF IMPENDING PAY REVISION. THE COUNSEL FURTHE R RELIED UPON THE DECISION OF THE CIT VS. KERALA STATE FINANCIAL ENTERPRISE LT D. 12 DTR 290 (KER.), WESTERN COAL FIELDS LTD. 124 TTJ 659 (NAGPUR) BENCH AND IBP COMPANY LTD. VS. ACIT 78 TTJ 158 (KOL.). THE LEARNED COUNSEL POI NTED OUT THAT ALL THESE CASES ARE OF THE ASSESSEES WHO ARE PSUS. 4 5. PER CONTRA, THE LEARNED D.R. RELIED UPON THE FIN DINGS OF THE LOWER AUTHORITIES. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE LOWER AUTHORITIES AND ALSO GONE THROUGH THE JUDICIA L DECISIONS CITED BY THE COUNSEL FOR THE ASSESSEE. IT IS NOT IN DISPUTE THAT SALARY AND WAGES ACCRUE DAILY, WEEKLY, FORTNIGHTLY OR MONTHLY AS PER THE CO NTRACT OF THE EMPLOYMENT. THIS IS SO AS SERVICES IS RENDERED IN PRAESENTI, TH E LIABILITY OF THE EMPLOYER TO COMPENSATE THE EMPLOYEES FOR THE SERVICES RENDERED ALSO ACCRUES IN PRAESENTI. A PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES SH OW THAT WHAT IS ACTUALLY IN DISPUTE IS THE QUANTIFICATION OF COMPENSATION. AS T HE ASSESSEE IS A PSU, THE PAY REVISION DEPENDS UPON THE DECISION OF THE GOVER NMENT. AS THE PERSONNEL DEPARTMENT OF THE ASSESSEE HAD KNOWLEDGE OF DEALING WITH SUCH PAY HIKES IN THE PAST, THE ASSESSEE CAN ESTIMATE THE QUANTUM OF SUCH ENHANCED LIABILITY. THE LIABILITY WAS CERTAIN AND IT WAS JUST A MATTER OF TIME WHEN IT WOULD ARISE. WHAT WAS NOT CERTAIN IS, OVER THE QUANTUM OF PAY HI GH. ASSESSEE TOOK THE MOST PRUDENT DECISION OF MAKING PROVISION OF SALARIES AT RS.40.71 LAKHS. IT IS ALSO SEEN THAT WHAT WAS PROVIDED BY THE ASSESSEE IS ONLY 40% OF THE ACTUAL PAY HIKE PROPOSED BY THE DPE. IT IS ALSO TO BE SEEN THAT THE CONTRACT WITH THE EMPLOYEES EXPIRED ON 31.12.1996 AND THE ASSESSEE HAS MADE A P ROVISION ONLY FOR THE PERIOD OF JANUARY TO MARCH, 1998. THE REVENUE AUTHO RITIES HAVE DISALLOWED THE CLAIM ONLY ON THE BASIS THAT THE COMMISSION SUBMITT ED ITS REPORT IN JUNE, 1999. IN OUR CONSIDERATE VIEW, WHAT IS IMPORTANT IS NOT THE DATE OF SIGNING THE AGREEMENT NOR THE DATE OF APPROVAL GRANTED BY THE D PE, WHAT IS IMPORTANT IS THE EFFECTIVE DATE OF COMMENCEMENT AND ON THAT NOTE WE FIND THAT THE LIABILITY IS ACCRUED DURING THE YEAR UNDER CONSIDERATION. IT IS ALSO TO BE NOTED THAT THE PROVISION FOR SALARY WAS NOT A CONTINGENT LIABILITY . IT WAS IN RESPECT OF THE OUTCOME OF THE DECISION OF THE DPE. FOR THIS PROPOS ITION, WE DRAW THE SUPPORT FROM THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF BHARAT EARTH MOVERS VS. CIT 245 ITR 428 WHEREIN THE HONBLE SUPR EME COURT HAS HELD THAT : 5 IF A BUSINESS LIABILITY HAS DEFINITE ORIGIN IN TH E ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTUR E DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIAB ILITY. IT SHOULD ALSO BE ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF T HESE REQUIREMENTS ARE SATISFIED, THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY IS IN PRAESENTI THOUGH IT WILL B E DISCHARGED AT A FUTURE DATE, IT DOES NOT MAKE ANY DIFFERENCE I F THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHA RGED IS NOT CERTAIN. AS FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE IDENTICAL WITH THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT, RESPECTFULLY FOL LOWING THE FINDINGS OF THE HONBLE SUPREME COURT AND ALSO THE DECISIONS RELIED UPON BY THE ASSESSEE, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF DEDUCTION OF PROVISION FOR SALARY OF RS.40.71 LAKHS AS THE SERVICES RENDERED A RE IN PRESENTEE. GROUND NO.3 IS ACCORDINGLY ALLOWED. 7. GROUND NO.4 RELATES TO THE DISALLOWANCE OF DEDUC TION CLAIMED IN RESPECT OF PROVISION OF OFC CHARGES OF RS.8,44,12,000/-. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBITED THE PROVISION AMOUNTING OF RS.9,32,12,000/- ON ACCOUNT OF PAYMENT TO DOT TOWARDS MAINTENANCE CHARGES OF THE MUMBAI-DELHI OPTICAL FIBRE LINK. THE PROVISIONS SO MADE, WERE AS FOLLOWS : F.Y. 1995-96 & 1996-97 RS.8,44,12,000/- F.Y. 1997-98 RS. 88,00,000/- 7.1. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE AMOUNT OF RS. 88 LAKHS ONLY PERTAIN TO THE YEAR UNDER CONSIDERATION AND AL LOWED THE SAME. FOR THE PROVISION RELATING TO THE ASSESSMENT YEAR 1995-96 A ND 1997-98, THE ASSESSING 6 OFFICER WAS OF THE VIEW THAT THESE PERTAIN TO THE P RIOR PERIOD EXPENSES AND THEREFORE, PROVISIONS FOR EARLIER YEARS, CANNOT BE ALLOWED EVEN AGAINST AN ASCERTAINED LIABILITY. 7.2. THE ASSESSEE AGITATED THIS MATTER BEFORE THE C IT(A), BUT WITHOUT ANY SUCCESS. IT WAS ARGUED BEFORE THE CIT(A) THAT THE B ILL FOR THE ABOVE PERIOD I.E., STARTING FROM FINANCIAL YEAR 1995-96 TO 1997-98 WAS RECEIVED DURING THE PREVIOUS YEAR. IT WAS ALSO EXPLAINED THAT THE BOARD OF DIRECTORS OF THE ASSESSEE- COMPANY WERE NOT IN FAVOUR OF MAKING THE ENTIRE PAY MENT AND SOME NEGOTIATIONS ARE UNDER WAY WITH DOT. THE CIT(A), AG REED WITH THE FINDINGS OF THE ASSESSING OFFICER AND CONFIRMED THE DISALLOWANC E. 8. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO PAGE 31 OF THE PAPER BOOK AND SUBMITTED THAT IT IS THE DEMAND NOTE RECEIVED FROM THE DEPARTMENT OF TELECOMMUNICATION (DOT). THE COUNSEL POINTED OUT THAT THE CHARGES FOR THE TWO BLOCK PERIOD 1995-96 I S RS. 2.88 CRORES AND THE CHARGES FOR SIX BLOCK PERIOD 1996-97 IS AT RS.8.64 CRORES AND THE TOTAL DEMAND RAISED BY THE DOT COMES TO RS.11.52 CORES. IT WAS F URTHER POINTED OUT BY THE COUNSEL THAT OUT OF THIS LIABILITY OF RS.11.52 CROR ES, THE BOARD OF DIRECTORS OF THE ASSESSEE-COMPANY HAVE OBJECTED AND THE NEGOTIAT IONS WERE ON WITH THE DOT AND ACCORDING TO THE PRUDENCE OF THE ASSESSEE, THE LIABILITY WOULD COME TO RS.8,44,12,000/-. DRAWING OUR ATTENTION TO THE DEC ISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1997-98 IN ITA.3061/MUM/2003, THE COUNSEL POINTED OUT THAT IN THAT DECISION THE TRIBU NAL FOLLOWED THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SOURASHTR A CEMENT AND CHEMICAL INDUSTRIES LTD. VS. CIT 213 ITR 523 WHEREIN THE HON BLE HIGH COURT HELD THAT MERELY BECAUSE EXPENSES RELATE TO A TRANSACTION OF AN EARLIER YEAR, IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLIER YEAR UNLE SS IT CAN BE SAID THAT THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YE AR IN QUESTION ON THE BASIS OF MAINTAINING ACCOUNTS ON MERCANTILE BASIS. AS THE FA CTS OF THE PRESENT CASE ARE IDENTICAL WITH THE RATIO LAID DOWN BY THE GUJARAT H IGH COURT, WE HAVE NO HESITATION IN FOLLOWING THE FINDINGS OF THE HONBLE GUJARAT HIGH COURT ON THE 7 FACTS OF THE PRESENT CASE. A SIMILAR ISSUE CAME UP FOR HEARING BEFORE THE HONBLE KOLKATA HIGH COURT IN THE CASE OF SATNA STO NE & LIME COMPANY VS. CIT 192 ITR 478 WHEREIN THE ASSESSEE RECEIVED A BIL L SENT BY THE RAILWAYS IN MAY, 1997 AND IN SUCH CIRCUMSTANCES, THE HONBLE HI GH COURT OF KOLKATA HELD THAT THOUGH CHARGES PERTAIN TO A PERIOD OF NOVEMBER , 1963 TO DECEMBER, 1973, DEDUCTION WAS ADMISSIBLE FOR ASSESSMENT YEAR 1996-9 7. APPLYING THE PROPOSITION LAID DOWN IN THE AFORE CITED TWO CASES TO THE FACTS OF THE PRESENT CASE, WE HOLD THAT THE BILL OF THE DOT WAS RECEIVED DURING THE CURRENT FINANCIAL YEAR WHICH MEANS THAT THE EXPENDITURE CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO ALLOW THE CLAIM OF DEDUCTION OF PROVISION OF OFT CHARGES WITH THE E XTENT OF RS.8,44,12,000/-. GROUND NO.4 IS ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 10. ITA.NO.3438/MUM/2003 : - REVENUE HAS RAISED TWO GROUNDS OF APPEAL. GROUND NO.1 RELATES TO THE DIRECTION OF THE CIT(A) TO ALLOW DEPRECIATION TO RS.5,32,73,618/- ON NEW EARTH STATIONS AT ERNAKULAM AND JALANDHAR. REVENUE ALLEGES THAT THE SAME HAVE NOT BEEN PUT TO USE FOR BUSINESS PURPOSE. THE ISSUE FINDS PLACE AT PAGE 2 PARA 2 OF THE ASSESSMENT ORDE R. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON TWO EARTH STATIONS AT ERNAK ULAM AND JALANDHAR. IT WAS THE CLAIM OF THE ASSESSEE THAT THESE EARTH STAT IONS COMMENCED OPERATION DURING THE MONTH OF MARCH, 1998 AND THEREFORE, ASSE SSEE CLAIMED 50% OF THE ELIGIBLE DEPRECIATION AS THE ASSETS WERE USED FOR L ESS THAN 180 DAYS. THE ASSESSING OFFICER SOUGHT DETAILS FROM THE ASSESSEE IN RESPECT OF THE CLAIM OF DEPRECIATION. THE ASSESSEE FILED COPIES OF THE MINU TES OF THE MEETINGS HELD WITH THE SUPPLIER, TEST AND ACCEPTANCE CERTIFICATES AND STATEMENT OF PAY MINUTES RECEIVED OR TRANSMITTED THROUGH THESE EARTH STATION S AS PROOF OF COMMISSION. IT WAS EXPLAINED TO THE ASSESSING OFFICER THAT EARTH S TATION AT ERNAKULAM WAS PROCURED UNDER CONTRACT DATED 28 TH JANUARY, 1997 FROM NEC CORPORATION, JAPAN. THE ASSESSEE RECEIVED THE EQUIPMENT IN THE L ATER PART OF THE YEAR 1997. 8 ON 27-3-1998 THERE WAS A MEETING WITH THE REPRESENT ATIVE OF THE ASSESSEE AND THE NEC CORPORATION REGARDING THE COMMISSION OF THE EARTH STATIONS. THE ASSESSING OFFICER OBSERVED THAT FROM THE MINUTES OF THE BOARD OF DIRECTORS THE EQUIPMENT HAD BEEN SET UP ON 27-3-1998 BUT THERE WE RE CERTAIN DEFECTS NOTICED WHICH THE SUPPLIER WAS ASKED TO RESOLVED. T HE MINUTES ON 27 TH MARCH, 1998 MENTIONED 5 DEFECTS OR OMISSIONS IN THE SYSTEM S WHICH HAD TO BE SET RIGHT. THE ASSESSING OFFICER FURTHER OBSERVED THAT ON 17 TH JUNE, 1998 AS PER THE ACCEPTANCE CERTIFICATE, TWO PARTS HELD TILL TO BE REPLACED. ANOTHER ACCEPTANCE CERTIFICATE FROM THE GENERAL MANAGER DAT ED 22 ND JULY, 1998 WAS FILED BY THE ASSESSEE TO SUBSTANTIATE ITS CLAIM THA T THE SWITCH WAS OPEN FOR COMMERCIAL TRAFFIC ON 31 ST MARCH, 1998. SIMILAR WAS THE SITUATION WITH THE EARTH STATION AT JALANDHAR FOR WHICH THE ASSESSING OFFICER OBSERVED THAT THOUGH THE CERTIFICATE STATING THE EQUIPMENT WAS IN STALLED ON 28-3-1998 , HAS BEEN SIGNED DATED 20-05-1998. THE ASSESSING OFFICER WAS OF THE OPINION THAT THESE EARTH STATIONS WERE NEVER BECAME FUNCTIONAL I N THE MONTH OF MARCH, 1998 BUT CAME INTO OPERATION ONLY SUBSEQUENTLY. THE REFORE, THE CLAIM OF THE DEPRECIATION BY THE ASSESSEE IS NOT ALLOWABLE. THE ASSESSEE ADMITTEDLY CLAIMED THE DEPRECIATION ONLY ON THE BASIS OF TRIAL RUNS. H OWEVER, THE ASSESSING OFFICER WAS OF THE OPINION THAT DURING THE TRIAL RUNS ALSO THE EQUIPMENT WAS STILL NOT COMPLETE AND THE SUPPLIER HAD BEEN TOLD TO ATTEND T HE DEFECTS POINTED OUT. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSE E THAT THE DEPRECIATION SHOULD BE ALLOWED ON THE TRIAL RUN OF THE EQUIPMENT . THE ASSESSING OFFICER WAS OF THE VIEW THAT THE EQUIPMENT WAS ONLY TESTED IN T HE MONTH OF MARCH, 1998 AND CAME TO THE CONCLUSION THAT THE ASSESSEE HAS NO T PUT THE ASSETS AT ERNAKULAM AND JALANDHAR STATIONS TO USE FOR THE PUR POSE OF ITS BUSINESS. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED THE CLAIM OF DEPRECIATION AGGREGATING TO RS.5,32,73,618/-. 11. WHEN THE MATTER WAS AGITATED BEFORE THE CIT(A), IT WAS ONCE AGAIN EXPLAINED BY THE ASSESSEE THAT DEPRECIATION HAS BEE N CLAIMED ONLY ON THE BASIS OF TRIAL RUN. THE ASSESSEE PLACED RELIANCE ON THE D ECISION OF THE HONBLE GUJARAT 9 HIGH COURT IN THE CASE OF ACIT VS. ASHIMA SYNTEX LT D. 231 ITR 133. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS OF THE AS SESSEE, THE CIT(A) WAS CONVINCED THAT THE ASSESSEE HAS SUCCESSFULLY TEST R UN THE EARTH STATION AT ERNAKULAM AND JALANDHAR ON 27-3-1998, DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION ON THESE ASSETS AS CLAIMED B Y THE ASSESSEE. 12. BEFORE US THE D.R. SUPPORTING THE FINDINGS OF T HE ASSESSING OFFICER PLACED RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT NAGPUR BENCH IN THE CASE OF DINESH KUMAR GULABCHAND AGRAWAL VS. CIT 267 ITR 768 AND POINTED OUT THAT IN THIS CASE THE HONBLE HIGH COUR T DECLINED TO ALLOW DEPRECIATION ON VEHICLE KEPT READY FOR USE BUT NOT ACTUALLY USED. THE LEARNED D.R. FURTHER RELIED UPON THE DECISION OF THE TRIBUN AL MUMBAI A BENCH IN THE CASE OF ACIT VS. RISHIROOP POLYMERS (P) LTD. 102 IT D 128. IN THAT CASE THERE WAS A LOCK-OUT IN THE FACTORY WHICH RESULTED IN TEM PORARY CLOSURE OF MANUFACTURING ACTIVITY BUT THE ASSESSEE-COMPANY WAS NOT CLOSED DOWN. ON THOSE FACTS, THE DEPRECIATION WAS NOT ALLOWED. 13. PER CONTRA, LEARNED COUNSEL FOR THE ASSESSEE SU BMITTED THE COPY OF THE COMMISSIONING OF ERNAKULAM GATE-WAY DATED 31 ST MARCH, 1998 AND POINTED OUT THAT IN THIS LETTER IT HAS BEEN SPECIFICALLY MENTIO NED THAT ERNAKULAM GATE-WAY HAS BEEN SUCCESSFULLY COMMISSIONED ON 31 ST MARCH, 1998. WITH THE FIRST TRAFFIC HAVING PUT THROUGH ABU DABI BOTH WAYS. IT IS THE SA Y OF THE COUNSEL THAT THE DEPRECIATION HAS BEEN CLAIMED BECAUSE THE ASSETS HA S BEEN PUT TO TRIAL RUN. PLACING RELIANCE ON THE DECISION OF THE HONBLE JUR ISDICTIONAL HIGH COURT OF BOMBAY IN INCOME TAX APPEAL NO. 70 OF 2003 IN THE C ASE OF CIT VS. WOCKHARDT LTD. WHEREIN THE QUESTION BEFORE THE HONBLE HIGH C OURT WAS WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE TRIBUNAL WA S RIGHT IN LAW IN UPHOLDING THE ORDER OF THE CIT(A) INTER ALIA, ALLOWING DEPREC IATION ON I.V.FLUID AT WALUJ IGNORING THE FACT THAT COMMERCIAL PRODUCTION HAS NO T STARTED DURING THE RELEVANT YEAR. THE HONBLE HIGH COURT ANSWERED THIS QUESTION IN FAVOUR OF THE ASSESSEE HOLDING THAT THERE IS A FINDING OF FACT TH AT DURING THE RELEVANT PERIOD, A TRIAL RUN HAS BEEN TAKEN AND THAT BEING SO, THE D EPRECIATION WOULD BE 10 ALLOWABLE. THE COUNSEL FURTHER PLACED RELIANCE ON T HE DECISION OF THE TRIBUNAL, MUMBAI F BENCH IN THE CASE OF ARLABS LTD. VS. DCI T 5 SOT 749 (MUM.) WHEREIN THE TRIBUNAL HAS HELD THAT WHERE TRIAL PROD UCTION OR TRIAL RUNNING OF PLANT AND MACHINERY ENTAILS ACTUAL USE OF PLANT AND MACHINERY FOR BUSINESS PURPOSES AND THEREFORE, DEPRECIATION IS ALLOWABLE A S PER PROVISIONS OF LAW. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE JUDICIAL DECISIONS RELIED UPON BY THE RIVAL PARTIES. A PERUSAL OF THE ASSESSMENT RECORD SHOW THAT THE ASSE SSEE HAS NEVER CLAIMED DEPRECIATION ON THESE TWO EARTH STATIONS ON THE GRO UND THAT THEY HAVE BEEN USED FOR COMMERCIAL PURPOSES. THE CLAIM OF THE ASSE SSEE IS BASED ON THE TRIAL RUN OF THE EQUIPMENTS BEFORE PUTTING THEM FOR COMME RCIAL USE. WE FIND THAT THE DOCUMENTS WHICH WERE SUBMITTED BEFORE THE LOWER AUTHORITIES CLEARLY SHOW THAT THE ASSETS WERE PUT TO TEST RUN BEFORE THE CLO SE OF THE FINANCIAL YEAR UNDER CONSIDERATION. IN THE CASE OF ACIT VS. ASHIMA SYNTE X LTD. (SUPRA), THE HONBLE HIGH COURT HAS CLEARLY LAID DOWN THE RATIO THAT ON TRIAL RUN OF MACHINERY ASSESSEE IS ENTITLED TO DEPRECIATION. A PERUSAL OF SECTION 32 SHOW THAT IN RESPECT OF DEPRECIATION OF ASSETS OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION DEPRECIATION SHALL BE ALLOWED. SECOND PROVISO PROVIDES THAT WHERE AN ASSE T REFERRED TO IN CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA) AS THE CASE MAY BE, IS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR IS PUT TO USE FOR THE PURPOSES OF BUSINESS OR PROFESSION FOR A PERIOD OF LESS THAN 180 DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UNDER THIS SUB-SECTION IN RESPECT OF SUCH ASSET SHALL BE RESTR ICTED TO 50% OF THE AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIBED FOR AN ASSE T. CONSIDERING THE ABOVE LEGAL POSITION AND FACTS OF THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSETS HAD BEEN ACQUIRED BY THE ASSESSEE DURING THE PREVIO US YEAR AND IS PUT TO USE FOR THE PURPOSES OF BUSINESS OR PROFESSION AND AS T HE ASSETS HAVE BEEN PUT TO USE FOR LESS THAN 180 DAYS, THE ASSESSEE HAS RIGHTL Y CLAIMED DEPRECIATION @ 50% OF THE ALLOWABLE RATE OF DEPRECIATION. THE CASE LAWS RELIED UPON BY THE LEARNED D.R. DO NOT FIT ON THE FACTS OF THE PRESENT CASE. IN THE CASE OF DINESH 11 KUMAR GULABCHAND AGRAWAL THE HONBLE JURISDICTIONAL HIGH COURT DECLINED TO ALLOW DEPRECIATION ON THE GROUND THAT THE WORD USE D IN SECTION 32 DENOTES ACTUAL USE FOR THE PURPOSES OF BUSINESS AND NOT MER ELY READY FOR USE. IN THE PRESENT CASE, THE ASSETS WERE ACTUALLY PUT TO USE E VEN THOUGH IT MAY BE ONLY FOR TRIAL RUN. IN THE SECOND DECISION RELIED UPON BY THE D.R. IN THE CASE OF ACIT VS. RISHIROOP POLYMERS (P.) LTD., IN THIS CASE THE ASSETS WERE NOT IN USE MEANING THEREBY, THAT THE ASSETS WERE IN A STATE OF NO USE. IN THE PRESENT CASE THE ASSETS WERE ACTUALLY PUT TO USE IN THE FOR M OF TRIAL RUN. 15. CONSIDERING ALL THESE FACTS IN TOTALITY , IN TH E LIGHT OF DECISION RELIED UPON BY THE ASSESSEE, WE HAVE NO HESITATION TO HOLD THAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION AND THE CIT(A) HAS RIGHTLY DIRECTED TH E ASSESSING OFFICER TO ALLOW DEPRECIATION. IN THAT VIEW OF THE MATTER, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE CIT(A). GROUND NO.1 OF REV ENUES APPEAL IS DISMISSED. 16. GROUND NO.2 RELATES TO THE DIRECTION OF THE CIT (A) TO ALLOW DEPRECIATION OF RS.9,92,18,603/- ON THE OWNERSHIP OF FLAG PROJECT, WHICH ACCORDING TO THE REVENUE, IS NOT ENTITLED TO DEPRECIATION AS PER THE PREVAILING PROVISIONS OF THE I.T. ACT. THE ISSUE HAS BEEN ELABORATELY DISCUSSED BY THE ASSESSING OFFICER AT PAGE 6, PARA 6 OF THE ASSESSMENT ORDER. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO S TATE WHETHER DEPRECIATION WAS CLAIMED ON THE RIGHTS OBTAINED IN THE FLAG PROJ ECT TO WHICH THE ASSESSEE RESPONDED VIDE LETTER DATED 15-1-2001 AND EXPLAINED THAT THE ENTIRE EXPENDITURE INCURRED FOR ACQUIRING CAPACITY IN THE FLAG UNDER SEA CABLE HAVE BEEN CAPITALIZED UNDER THE HEAD PLANT AND MACHINER Y AND DEPRECIATION HAS BEEN CLAIMED ON THE SAME. IT WAS EXPLAINED THAT FLA G LIMITED IS A BODY CORPORATE INCORPORATED IN BERMUDA. FLAG LAID A CABL E SYSTEM FROM WHICH THE REQUISITE CAPACITIES HAVE BEEN ACQUIRED BY VARIOUS CARRIERS ACROSS THE GLOBE. PURSUANT TO CAPACITY, SALES AGREEMENT ENTERED INTO BETWEEN THE FLAG LIMITED AND OTHER TELE-COMMUNICATION ENTITIES WORLD-OVER AN D ONE OF THEM IS BEING VSNL (ASSESSEE). IT WAS FURTHER EXPLAINED THAT THE DURATION OF THE AGREEMENT IS FOR 25 YEARS. IT WAS FURTHER EXPLAINED THAT UNDER THE SCHEME OF T HE FLAG 12 PROJECT EACH SIGNATORY IS TREATED AS A DEEMED OWNER OF THE CABLE TO THE EXTENT OF THE CAPACITY OWNED BY IT. THE ASSESSEE PROVIDED DOCUMENTARY EVIDENCE IN RESPECT OF ITS CLAIM. THE SUBMISSIONS M ADE BY THE ASSESSEE DID NOT FIND FAVOUR FROM THE ASSESSING OFFICER WHO WAS OF T HE OPINION THAT THE PROVISIONS OF SECTION 32 OF THE ACT FOR THE YEAR UN DER CONSIDERATION PROVIDED FOR DEPRECIATION IN THE CASE OF BUILDING, MACHINERY, PL ANT ETC., BEING TANGIBLE ASSETS. FURTHER, KNOWHOW PATENTS COMMERCIAL RIGHTS ETC., OF INTANGIBLE NATURE ARE ALLOWED DEPRECIATION ONLY IF THEY HAVE BEEN ACQ UIRED ON OR AFTER 1 ST APRIL, 1998. THE ASSESSING OFFICER WAS OF THE OPINION THAT WHAT THE ASSESSEE HAS ACQUIRED IS ONLY A RIGHT IN THE CABLE SYSTEM AND AS THE RIGHT TO USE HAS BEEN ACQUIRED BEFORE THE 1 ST DAY OF APRIL, 1998 THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR DEPRECIATION UNDER THE EXISTING PROVISIONS OF S ECTION 32. THE DEPRECIATION CLAIMED BY THE ASSESSEE AMOUNTING TO RS.9,92,18,603 /- WAS DISALLOWED. 17. THE ASSESSEE AGITATED THIS MATTER BEFORE THE CI T(A) AND SUBMITTED THAT THE ASSIGNABLE CAPACITY IN PURSUANT TO FLAG AGREEME NT DETERMINES THE VOTING INTEREST. THE CAPACITY IS OWNED BY THE SIGNATORIES IN COMMON UN-DIVIDED SHARES. THE SYSTEM IS JOINTLY OPERATED AND MAINTAIN ED BY THE SIGNATORY. IT WAS FURTHER POINTED OUT TO THE CIT(A) THAT UNDER ARTICL E 13.2 OF THE AGREEMENT, FLAG IS TO CONVEY THE INTEREST IN THE ASSIGNABLE CA PACITY BY WAY OF SALE OF OWNERSHIP, GRANT OF INDEFEASIBLE RIGHT OF USER AS T HE MATTER AGREED UPON. IT WAS ALSO EXPLAINED THAT EACH SIGNATORY CAN TRANSFER ITS CAPACITY TO ANOTHER BODY IN THE SUBJECT COUNTRY. IN VIEW OF THESE FACTS , THE ASSESSEE PERCEIVED ITSELF AS THE OWNER OF THE SEGMENT PURCHASED FROM FLAG AND HAS CLAIMED DEPRECIATION ON THE SAME. IT WAS EXPLAINED THAT THE FLAG CABLE IS A FIBRE OPTIC CABLE IN WHICH THE ASSESSEE HAS PURCHASED CERTAIN C APACITY WHICH WOULD ALLOW IT TO USE IT FOR TRANSMISSION, DATA ETC., 18. AFTER CONSIDERING THE FACTS IN TOTALITY, THE CI T(A) OBSERVED THAT THE ASSESSING OFFICER HAS DISALLOWED THE DEPRECIATION O N THE GROUND THAT THE ASSESSEE IS NOT A COMPLETE OWNER OF THE ASSET WHICH IS IN THE FORM OF CABLE NET WORK AND OWNED BY A CONSORTIUM OF NUMBER OF OPERATO RS AND WHAT THE 13 ASSESSEE OWNS IS ONLY A CERTAIN RIGHT OVER THE ASSE T. THE CIT(A) POINTED OUT THAT THE WORDS WHOLLY OR PARTLY HAVE BEEN INSERTED I N SECTION 32 WITH EFFECT FROM 14.4.1997 AND AS SUCH, THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON THE CABLE NET WORK EVEN THOUGH THE ENTIRE NET WORK IS N OT OWNED BY IT. THE CIT(A) CONCLUDED THAT THE ASSESSEE IS CLEARLY ENTITLED TO CLAIM THE DEPRECIATION AND DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATIO N ACCORDINGLY. 19. BEFORE US, THE LEARNED D.R. SUPPORTING THE FIND INGS OF THE ASSESSING OFFICER AND REITERATED THAT THE ASSESSEE HAS CLAIME D DEPRECIATION ON THE RIGHT TO USE THE CAPACITY ALLOCATED TO IT BY FLAG PROJECT AN D THAT BEING AN INTANGIBLE RIGHT, THE DEPRECIATION IS ALLOWABLE ONLY IF THE IN TANGIBLE ASSETS ARE PROCURED ON OR AFTER 1 ST DAY OF MARCH, 1998. THAT BEING NOT THE FACTS OF TH E PRESENT CASE, THE ASSESSEE IS NOT ENTITLED TO DEPRECIATION. 20. PER CONTRA, THE COUNSEL REITERATED THAT THE ASS ESSEE HAS ACQUIRED PART OWNERSHIP OF THE OPTICAL FIBRE CABLE PURSUANT TO TH E CAPACITY SALES AGREEMENT ENTERED INTO BETWEEN FLAG LIMITED AND OTHER TELECOM MUNICATION ENTITIES WORLD- OVER. AS SECTION 32 ITSELF PROVIDES THAT THE ASSESS EE CAN BE PART OWNER ALSO FOR THE CLAIM OF THE DEPRECIATION, THE COUNSEL FURTHER DREW OUR ATTENTION TO THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1997-98 IN ITA. NO. 3061/MUM/2003 AND SUBMITTED THAT A SIMILAR ISSUE CAME UP FOR ADJUDICATION BEFORE THE TRIBUNAL VIDE GROUND NO.5 W HEREIN THE DEPRECIATION ON INDEFEASIBLE RIGHT TO USE UNDER SEA CABLES WAS IN D ISPUTE. IN THAT CASE, THE TRIBUNAL AT PAGE-5 PARA 17 THUS HELD: LEARNED D.R. WAS NOT ABLE TO FACTUALLY CONTRADICT THAT THE CLAIM OF THE ASSESSEE , THAT IT IS THE MEMBER OF THE INTERNATION AL CONSORTIUM THAT OWNED THE CABLES , AND THAT IT IS A PART OWNER WITH THE RIGHT TO TRANSFER ITS SHARE TO OTHER AND ALSO A RIGHT TO SHARE THE S ALE PROCEED ON DE- COMMISSIONING OF THE SYSTEM IN PROPORTION TO THE RI GHTS HELD BY IT. WHEN THESE FACTS ARE NOT IN DISPUTE, WE HAVE NO HESITATI ON IN UPHOLDING THE 14 ORDER OF THE FIRST APPELLATE AUTHORITY IN DISMISSIN G GROUND NO.5 OF THE REVENUE. 21. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E ORDERS OF THE LOWER AUTHORITIES AND ALSO THE ORDER OF THE TRIBUNAL IN A SSESSEES OWN CASE IN ITA. NO. 3062/MUM/2003. THE FACTS OF THE PRESENT CASE AR E IDENTICAL WITH THE FACTS BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 1997-98 AND AS NO NEW FACTS HAVE BEEN BROUGHT ON RECORD WHICH MAY PERSUADE US TO TAKE A D IFFERENT VIEW, RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN ITA.3062/MUM/2003 (SUPRA), WE HAVE NO HESITATION IN CONFIRMING THE FINDINGS OF THE CIT(A). GROUND NO.2 IS ACCORDINGLY DISMISSED . 22. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 05-12-2012. SD/- SD/- (H L KARWA) (N.K.BILLAIYA) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATE 05 TH DECEMBER, 2012 VBP/- COPY TO 1. TATA COMMUNICATIONS LTD., (FORMERLY VIDESH SANCH AR NIGAM LIMITED), VIDESH SANCHAR BHAVAN, MAHATMA GANDHI ROAD, FORT , MUMBAI 400 001 PAN AAACV2808C 2. JCIT, S.R. 1, AAYAKAR BHAVAN, 5 TH FLOOR, MAHARSHI KARVE ROAD, MUMBAI 400 020. 3. CIT(A) - XXIV, C - 12, R.NO.408, PRATYAKSHAKAR BHAVAN, BANDRA - KURLA COMPLEX, BANDRA EAST, MUMBAI 51. 4. CIT, CITY - 1, MUMBAI 5. DR F BENCH 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, I.T.AT. MUMBAI BENCHE S MUMBAI.