ACIT(LTU), New Delhi V. M/s. MTNL, New Delhi

ITA 3565/DEL/2010

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4126 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 23-08-2016
• Assessment Year: 2001-2002
• Appeal Filed On: 23-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JYOTI KUMARI
• Keywords: Revised return
• Section: 143(3)

Judgement Text

1 ITA NOS. 3363, 3565/DEL/2010 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEM BER AND SMT SUCHITRA KAMBLE, JUD ICIAL MEMBER I.T.A .NO. 3363/DEL/2010 (A.Y 2001-02) MAHANAGAR TELEPHONE NIGAM LTD, JEEVAN BHARTI BUILDING, TOWER 1 12 TH FLOOR, 124, CONNAUGHT PLACE NEW DELHI (APPELLANT) VS DCIT, LTU NEW DELHI (RESPONDENT) I.T.A .NO. 3565/DEL/2010 (A.Y 2001-02) ACIT (LTU) NBCC PLAZA PUSHP VIHAR, NEW DELHI (APPELLANT) VS MAHANAGAR TELEPHONE NIGAM LTD, JEEVAN BHARTI BUILDING, TOWER 1, 12 TH FLOOR, 124, CONNAUGHT PLACE, NEW DELHI (RESPONDENT) APPELLANT BY SH. VED JAIN, ADV RESPONDENT BY MS. JYOTI KUMARI, CIT DR ORDER PER SUCHITRA KAMBLE, JM THESE APPEALS ARE FILED AGAINST THE ORDER DATED 5/5 /2010 PASSED BY CIT(A)- LTU, NEW DELHI. DATE OF HEARING 24.08.2016 DATE OF PRONOUNCEMENT 17.11.2016 2 ITA NOS. 3363, 3565/DEL/2010 2. THE GROUNDS OF APPEAL ARE AS UNDER: (ITA NO.3363/DEL/2010) 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORD ER PASSED BY COMMISSIONER OF INCOME TAX (APPEALS) IS B AD BOTH IN THE EYE OF LAW AND ON FACTS. 2(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN RESTRICTING THE D EDUCTION U/S 80IA OF THE ACT TO THE EXTENT OF 75% OF THE ELI GIBLE INCOME DESPITE HOLDING THAT THE ASSESSEE FULFILS TH E CONDITIONS STIPULATED IN SECTION 80IA (4) OF THE AC T AND IS ELIGIBLE FOR THE EXEMPTION. (II). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN SO RESTRICTING TH E DEDUCTION U/S 80IA TO THE EXTENT OF 75% REJECTING T HE CONTENTION OF THE APPELLANT THAT THERE IS NO SUCH P ROVISION OF PART DEDUCTION UNDER THE ACT AND THE SAME HAS TO BE ALLOWED AT 100% OF THE PROFITS AND GAINS OF THE ELI GIBLE BUSINESS. (III). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN IGNORING THE CONT ENTION OF THE APPELLANT THAT THERE BEING NO SUCH CONDITION IN CLAUSE (II) OF SECTION 80IA (4) APPLICABLE TO TELECOMMUNIC ATION SERVICES THAT SUCH UNDERTAKING SHOULD NOT USE OLD P LANT AND MACHINERY AS IS THE CASE FOR AVAILING EXEMPTION IN RESPECT OF INDUSTRIAL UNDERTAKING, HOTEL, SHIP, ETC . THE DEDUCTION UNDER THE SECTION HAS TO BE ALLOWED IN FU LL AND CANNOT BE RESTRICTED TO 75%. (ITA NO.3363/DEL/2010) 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE CIT(A) IS JUSTIFIED IN HOLDING THAT THE ASSESSE E IS ELIGIBLE FOR DEDUCTION U/S 80IA ON 75% OF THE INCOM E WHICH IS ATTRIBUTABLE TO NEW EXCHANGES INSTALLED AFTER 1/ 4/1995. 3 ITA NOS. 3363, 3565/DEL/2010 4. MTNL IS A PUBLIC SECTOR UNDERTAKING REGISTERED U NDER THE INDIAN COMPANIES ACT, 1956. THE ASSESSEE IS ENGAGE D IN THE BUSINESS OF PROVIDING TELECOMMUNICATION SERVICES WI THIN THE TERRITORIAL JURISDICTION OF THE STATE OF DELHI AND AREAS COVERED BY THE MUNICIPAL CORPORATION OF BOMBAY, NEW BOMBAY AND THA NE, WHICH IS AS PER THE LICENSE ISSUED BY THE TELEGRAPH AUTHO RITY IN THE DEPARTMENT OF TELECOM, GOVERNMENT OF INDIA. THE PRO VISIONS OF SECTION 80IA WERE MADE APPLICABLE TO THE TELECOMMUN ICATION INDUSTRY BY THE FINANCE ACT, 1997 WITH RETROSPECTIV E EFFECT FROM 01.04.1996 I.E. ASSESSMENT YEAR 1996-97. 5. THE ASSESSEE COMPANY FILED THE RETURN OF INCOME ON 31.10.2001 SHOWING THE INCOME AT RS.165,12,177/-. T HE ASSESSEE WAS ISSUED A NOTICE UNDER SECTION 143(2) DATED 03.0 9.2002. SUBSEQUENTLY, THE ASSESSEE FILED A REVISED RETURN O N 11.09.2002 DECLARING AN INCOME OF RS.166,20,12,405/-. THE ASSE SSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX AC T, 1961 ON 31.01.2003 ON TOTAL ASSESSED INCOME OF RS. 24,31,25 ,69,035/-. THE ASSESSEE CLAIMED 100% DEDUCTION UNDER SECTION 80IA OF THE ACT, ON THE GROUND THAT THE NEW UNDERTAKING ON THE WHOLE AN D IT IS ENTITLED FOR DEDUCTION FOR 100% OF ITS PROFITS AS PER SECTIO N 80IA OF THE ACT. 4 ITA NOS. 3363, 3565/DEL/2010 6. THE ASSESSING OFFICER HELD THAT THE ASSESSEE WOU LD BE ELIGIBLE FOR THE DEDUCTION UNDER SECTION 80IA OF THE ACT ONL Y ON PROPORTIONATE BASIS FOR THE EXCHANGES SET UP AFTER 01.04.1995. THUS DISALLOWED THE CLAIM OF THE ASSESSEE. BEING AGGRIEV ED THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) CONFIRME D THE ORDER OF THE ASSESSING OFFICER. 7. THE LD. AR SUBMITTED THAT IN THE EARLIER ASSESSM ENT YEARS, THE REVENUE WAS IN APPEAL BEFORE THE HON'BLE HIGH COURT AND THE SAME WAS DISMISSED. THEREFORE, THE APPEAL OF THE REVENU E HAS TO BE DISMISSED AND THE CROSS APPEAL OF THE ASSESSEE ALSO BE DISPOSED OFF ACCORDINGLY. 8. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSIN G OFFICER AND ALSO THAT OF ORDER OF CIT(A). THE LD. DR FURTHER SU BMITTED THAT THE THE ASSESSEE WOULD BE ELIGIBLE FOR THE DEDUCTION UN DER SECTION 80IA OF THE ACT ONLY ON PROPORTIONATE BASIS FOR THE EXCH ANGES SET UP AFTER 01.04.1995. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE I TAT ORDER IN ASSESSEES OWN CASE IN ITA NO. 2208 TO 2211 & 2700/ DEL/2007 ORDER DATED 11.03.2010. THE EXTRACT OF THE ORDER IS AS FOLLOWS: 35. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM THE RECORD, W E FOUND THAT THE ASSESSEE IS A GOVERNMENT OF INDIA UNDERTAKING ENGAG ED IN PROVIDING TELECOMMUNICATION SERVICES. IN RESPECT OF ITS INCOM E FROM PROVIDING TELECOMMUNICATION SERVICES, IT CLAIMED DEDUCTION U/ S 80IA WHICH WAS 5 ITA NOS. 3363, 3565/DEL/2010 DECLINED BY THE AO AND CIT(A) CONFIRMED THE AOS AC TION. IN AN APPEAL FILED BEFORE THE TRIBUNAL, AFTER APPRECIATING THE C ORRECT PROVISIONS OF THE LAW AS IT STOOD AT THE RELEVANT POINT OF TIME, THE MATTER WAS RESTORED BACK TO THE AO FOR DECIDING THE ISSUE AFRESH AS PER LAW. WHILE GIVING EFFECT TO THE ORDER OF THE TRIBUNAL, THE AO HAS ACCEPTED THE ASSE SSEES ELIGIBILITY FOR CLAIM OF DEDUCTION U/S 80IA HOWEVER THE QUANTUM OF DEDUCTION WAS RESTRICTED TO THE NUMBER OF EXCHANGES INSTALLED AFT ER 1995. SUB-SECTION (4C) DEALS WITH ALLOWABILITY OF CLAIM OF DEDUCTION U/S 80IA IN RESPECT OF ASSESSEE ENGAGED IN PROVIDING TELECOMMUNICATION SER VICES WHICH READS AS UNDER:- (4C). THIS SECTION APPLIED TO ANY UNDERTAKING WHIC H STARTS PROVIDING TELECOMMUNICATION SERVICES, WHETHER BASIC OR CELLULAR INCLUDING RADIO- PAGING, DOMESTIC SATELLITE SERVICE S OR NETWORK OF TRUNKING AND ELECTRONIC DATA INTERCHANGE SERVICES A T ANY TIME ON OR AFTER THE 1 ST APRIL, 1995 BUT BEFORE THE 31 ST DAY OF MARCH, 2000. 36. A PLAIN READING OF THE ABOVE SECTION MAKES IT C LEAR THAT UNLIKE PROVISIONS OF SUB-SECTION 2 OF SECTION 80IA IN RESP ECT OF INDUSTRIAL UNDERTAKING WHICH IMPOSES A CONDITION THAT IT SHOUL D BE A NEW UNDERTAKING AND THAT IT SHOULD NOT BE FORMED BY SPL ITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE, NOR THERE IS ANY CONDITION THAT IT SHOULD NOT BE FORMED BY TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. AFTER ANALYZING ALL THESE ELIGIBILITY CRITERIA, THE AO HAS REACHED TO T HE CONCLUSION THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IA (4C) OF THE INCOME TAX ACT. NOW, WE HAVE TO SEE WHETHER AO WAS JUSTIFIED IN RES TRICTING CLAIM OF DEDUCTION WITH REFERENCE TO EXCHANGES INSTALLED AFT ER 1995. IT IS PERTINENT TO MENTION HERE THAT DEDUCTION U/S 80IA IS TO BE CO MPUTED ON THE PROFITS OF THE ELIGIBLE BUSINESS AND NOT ON THE BASIS OF AMOUN T INVESTED IN PLANT & MACHINERY IN THE FORM OF TELEPHONE EXCHANGES. THERE FORE, THE PROFIT ACCRUING FROM TELECOMMUNICATION SERVICES IS REQUIRE D TO BE TAKEN INTO 6 ITA NOS. 3363, 3565/DEL/2010 ACCOUNT WHILE GRANTING CLAIM OF DEDUCTION U/S 80IA. IN THIS REGARD, WE FOUND THAT AFTER 1995, THERE IS A COMPLETE REVOLUTI ON IN TELECOMMUNICATION INDUSTRY AND OLD EXCHANGES, IF ANY, HAD BEEN TOTALL Y REVAMPED. IT WAS NOT MERELY ADDITION OF THE NEW EXCHANGES BUT THERE WAS ENTIRE CHANGE IN THE SET UP, TECHNOLOGY, INSTRUMENTS AND EQUIPMENTS. THE EXCHANGES WHICH WERE EARLIER OPERATING ON OLD TECHNOLOGY WHEREBY TH ERE WAS USE OF BIG CROSS BAR EXCHANGES WITH LARGE TELEPHONE INSTRUMENT S OF DIALING NUMBERS MECHANICALLY BY ROTATING THE DIAL. SINCE THIS TECHN OLOGY HAS BEEN TOTALLY ABANDONED AND REVAMPED, REPLACING THE OLD, MOST OF THE INCOME GENERATED IS ATTRIBUTABLE TO SUCH NEW TECHNOLOGY EXCHANGES. M ERELY ON THE NUMBER OF OLD EXCHANGES WHICH WERE NOT IN OPERATION AT ALL OR HAD UNDERGONE TOTALLY REVAMPED, INCOME CANNOT BE ATTRIBUTABLE TO SUCH OLD EXCHANGES, WE FOUND THAT THE NEW TECHNOLOGY AND THE NEW EXCHANGES MADE POSSIBLE A MULTITUDE OF NEW INTELLIGENT NETWORK SERVICES WHICH ARE LIKE CELLULAR SERVICES, VIRTUALLY CALLING CARD SERVICES, PREMIUM RATE SERVICES, ISDN, CALLING LINE IDENTIFICATION, CALL FORWARD ON BUSY A ND FREE LINES, CREDIT CARD PAYMENT SCHEME, TELE-MART INTERACTIVE VOICE RESPONS E SERVICES, DIRECTORY ON CD-ROM ETC. VARIOUS ADD ON SERVICES SUCH AS DATACOM , INET, DID PABX, VOICE MAIL, RADIO PAGING AND ISDN HAS BEEN STARTED AFTER 1.4.1995. IN ADDITION TO THIS PHONE PLUS FACILITIES LIKE DYNAMIC LOCKING, CALL WAITING/CALL TRANSFER, HOT LINES ETC. HAS BEEN EXTENDED TO VALUE D CUSTOMERS. FURTHER IN ORDER TO MINIMIZE HUMAN RE-INTERFACE, IMPORTANT OPE RATOR BASED SPECIAL SERVICES HAVE BEEN AUTOMATED WITH IVRS (INTERACTIVE VOICE RESPONSE SYSTEMS). WE ALSO FOUND THAT THE ASSESSEE MTNL STAR TED PROVIDING SEVERAL OTHER ADVANCED AND OTHER ADD ON SERVICES SUCH AS VI RTUAL CARD/ACCOUNT CARD CALLING, FREE PHONE, VIRTUAL PRIVATE NETWORK, PREMIUM RATE SERVICE, TELEWAITING ETC. A NEW TECHNIQUE NAMED DLC (DIGITAL LOOP CARRIER SYSTEM) HAS ALSO BEEN ESTABLISHED. THUS, 1995 ONWARDS THE A SSESSEES INDUSTRY HAS UNDERWENT A TREMENDOUS REVOLUTION RESULTING FRO M THE POSSIBILITIES OPENED UP BY INTRODUCTION OF TOTALLY DIFFERENT FACI LITIES. IT HAS INDUCTED DE NOVO SYSTEMS AND TECHNOLOGY IN PLACE OF OUTMODE AND ANTIQUATED SYSTEM 7 ITA NOS. 3363, 3565/DEL/2010 AND TECHNOLOGY. IN VIEW OF THE ABOVE DISCUSSION, IT IS CRYSTAL CLEAR THAT MERELY ON THE BASIS OF ATTRIBUTING THE INCOME IN TH E RATIO OF TELEPHONE EXCHANGES NOT PROPER, BUT WE HAVE TO SEE THE VARIOU S SERVICES RENDERED BY MTNL AFTER 1995 WHICH WERE ACTUALLY GENERATING INCO ME. SINCE THE DEDUCTION IS TO BE ALLOWED IN RESPECT OF INCOME GEN ERATED BY ALL THESE FACILITIES, WE ARE REQUIRED TO COMPUTE DEDUCTION AS PER THESE HOST OF SERVICES BEING RENDERED BY MTNL. THE LOWER AUTHORIT IES HAVE ALSO NOWHERE DECLINED THE VERY FACT OF OLD EXCHANGES TOTALLY BEI NG REVAMPED, MOST OF WHICH WERE NON-OPERATING AND UNDER DISCARDED POSITI ON. AS THE INCOME GENERATED THROUGH SO MANY SERVICES BEING RENDERED B Y THE NEW EXCHANGES WHICH IS ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80IA, WE CANNOT RESTRICT THE CLAIM IN RESPECT OF THE NOMINAL INCOME IF ANY GENER ATED OUT OF THE OLD EXCHANGES. KEEPING IN VIEW OF THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE AO TO ATTRIBUTE 75% (SEVENTY FI VE PERCENT) OF THE INCOME FROM VARIOUS SERVICES ENUMERATED ABOVE AS HAVING BE EN CARRIED OUT ONLY BY VIRTUE OF NEW EXCHANGES HAVING BEEN INSTALLED. 2 5% OF THE INCOME MAY BE ATTRIBUTED TO THE OLD EXCHANGES. ACCORDINGLY, TH E MATTER IS RESTORED BACK TO THE FILE OF THE AO FOR RECOMPUTING THE CLAIM OF DEDUCTION U/S 80IA WITH REFERENCE TO 75% OF THE INCOME BEING ELIGIBLE FOR D EDUCTION, WHEREAS BALANCE 25% IS NOT ELIGIBLE FOR DEDUCTION IN ALL TH E YEARS UNDER CONSIDERATION. WE DIRECT ACCORDINGLY. IN THE PRESENT APPEAL THE ORDER OF THE CIT(A) WHICH IS UNDER CHALLENGE HAS FOLLOWED THE ORDER OF THE ITAT MENTIO NED HEREINABOVE, AND RIGHTLY DIRECTED THE ASSESSING OFFICER TO THAT EFFECT. THERE IS NO NEED TO INTERFERE WITH THE SAME. 8 ITA NOS. 3363, 3565/DEL/2010 10. IN THE RESULT, THE APPEALS OF THE ASSESSEE AND THE REVENUE ARE DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 17 TH OF NOVEMBER, 2016. SD/- SD/- (J. SUDHAKAR REDDY) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMB ER DATED: 17/11/2016 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 26/08/2016 PS 2. DRAFT PLACED BEFORE AUTHOR 26/08/2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 30.11.2016 PS/PS 9 ITA NOS. 3363, 3565/DEL/2010 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 30.11.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.