ACIT 12(2)(1), MUMBAI V. ETISALTAT DB TELECOM P.LTD, MUMBAI

ITA 7544/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3884 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 18-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N SATHYA MOORTHYDR
• Keywords: Capital receipt
• Section: 143(3)

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , . . , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./ITA/7544/MUM/2014, /ASSESSMENT YEARS: 2008-09 ACIT-12(2)(1) ROOM NO.363, 3 RD FLOOR, AAYAKAR BHAVAN, MK ROAD MUMBAI-400 020. VS. M/S. ETISALAT DB TELECOM PVT. LTD. (FORMERLY KNOWN AS SWAN CAPITAL PVT. LTD.) ; MR. J.S. AOLOMON & CO. 3 RD FLOOR,CALCOT HOUSE,8/10 M.P. SHETTY MARG, FORT,MUMBAI-400 023. PAN:AAKCS 0136 Q ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI N. SATHYA MOORTHY-DR ASSESSEE BY: NONE / DATE OF HEARING: 21.07.2016 / DATE OF PRONOUNCEMENT:05.08.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - ASSESSEE-COMPANY,ENGAGED IN THE TELECOMMUNICATION S ERVICES, FILED ITS RETURN OF INCOME ON 27/09/2008,DECLARING TOTAL INCOME AT R S. 3.53 CRORES.THE RETURN WAS PROCESSED U/S. 143 (1) OF THE ACT. THE AO COMPL ETED THE ASSESSMENT U/S. 143(3) R.W.S.147 OF THE ACT,DETERMINING THE INCOME OF THE ASSESSEE AT RS. 4.69 CRORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING THE AD DITION OF RS. 1.16 CRORES,MADE BY THE AO ON ACCOUNT OF INTEREST RECEIV ED FROM THE FIXED DEPOSITS WITH THE DEPARTMENT OF TELECOMMUNICATION FOR OBTAIN ING TELECOM LICENCES. DURING THE ASSESSMENT PROCEEDINGS,THE AO HELD THAT THE INTEREST RECEIVED BY THE ASSESSEE WAS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES.HE RELIED UPON THE CASES OF BOKARO STEEL LTD.(236ITR315)PINK STAR (72ITD137) AND TUTICORIN ALKALI CHEMICALS AND FERTILISERS LTD (227 ITR 172). 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM,IT WAS A RGUED THAT THE ASSESSEE HAD 7544/M/14-ETISALAT DB TELECOM P.LTD. 2 RETURNED ITS ENTIRE INTEREST INCOME,THAT IT HAD EXC LUDED THAT COMPONENT WHICH WAS THE RESULT OF THE DIRECT DEPLOYMENT OF ITS FUND IN MARGIN MONEIS PLACED WITH THE BANKS FOR OBTAINING BANK GUARANTEES WHICH WERE NECESSARY FOR TELECOM LICENCES, THAT THE FUNDS IN QUESTION WERE DIRECTLY DEPLOYED FOR THE PURPOSE OF COMMENCEMENT OF ITS BUSINESS,THAT THE RESULTANT INT EREST RECEIPT WOULD HAVE TO BE REDUCED FROM THE PROJECT DEVELOPMENT COST AND WO ULD NOT BE CHARGED TO TAX AS INCOME FROM OTHER SOURCES.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER, THE FAA HELD THAT THE SOL E BUSINESS OF THE ASSESSEE WAS TO PROVIDE TELECOM SERVICES,THAT IT HAD FILED C OPIES OF THE LICENSE AGREEMENT FOR PROVISION OF UNIFIED ACCESS SERVICES IN MUMBAI SERVICE AREA THAT HAD BEEN ISSUED BY THE DEPARTMENT OF TELECOMMUNICATION,THAT THE LICENSE ALLOWED IT TO ROLL-OUT TELCOM SERVICES IN MUMBAI,THAT SIMILAR AGR EEMENTS WERE SIGNED BY IT FOR THE SEVERAL TELCOM CIRCLES ACROSS INDIA,THAT IT WAS REQUIRED TO FURNISH A PERFORMANCE BANK GUARANTEE OF RS. 20 CRORES AND FIN ANCIAL BANK GUARANTEE OF RS.50 CRORES, THAT AS PER THE AGREEMENT THE QUANTUM OF PERFORMANCE BANK GUARANTEE WAS TO BE REDUCED AFTER ONE YEAR FROM THE EFFECTIVE DATE OF GRANT OF LICENSE, THAT THE FINANCIAL BANK GUARANTEE WAS TO C ONTINUE AT THE SAME LEVEL THROUGHOUT THE SUBSISTENCE OF THE CONTRACT, THAT BA NK GUARANTEES WERE GIVEN BY THE BANKS TO THEIR REGULAR CUSTOMERS USUALLY AFTER DEPOSIT OF 10% OF THE MARGIN MONEY BY WAY OF A FIXED DEPOSIT, THAT PERFORMANCE B ANK GUARANTEES AND FINANCIAL BANK GUARANTEES,TOTALLING TO RS.70 CRORES HAD BEEN PROVIDED BY THREE BANKS NAMELY PUNJAB NATIONAL BANK, BANK OF BARODA A ND STATE BANK OF INDIA FOR OBTAINING LICENSES IN THE 13 CIRCLES THROUGHOUT THE COUNTRY,THAT THE TOTAL INTEREST EARNED THEREON DURING THE PREVIOUS RELEVAN T YEAR TO THE AY.UNDER CONSIDERATION WAS RS.1.30 CRORES,THAT THE QUANTUM O F INTEREST EARNED BY IT ON ACCOUNT OF FIXED DEPOSITS WITH THE BANKS PLACED BY WAY OF MARGIN MONEIS FOR OBTAINING THE BANK GUARANTEE WORKED OUT RS.1.30 CRO RES. THE FAA HELD THAT FACTS OF THE CASES, RELIED UPON BY THE AO,WERE TOTA LLY DIFFERENT FROM THE FACTS OF THE CASE UNDER APPEAL. HE REFERRED TO THE JUDGMENT OF THE HONORABLE SUPREME 7544/M/14-ETISALAT DB TELECOM P.LTD. 3 COURT IN THE CASE OF KARNAL CO-OPERATIVE SUGAR MILL S LTD.(243 ITR 2)AND HELD THAT INTEREST RECEIVED BY THE ASSESSEE ON THE MARGI N MONIES PLACED IN FD.S WITH THE BANKS FOR OBTAINING BANK GUARANTEES FOR FULFILL ING THE PRECONDITIONS LAID DOWN FOR ISSUE OF TELCOM LICENSES WAS A CAPITAL REC EIPT AND HENCE NOT CHARGEABLE TO TAX,THAT THE ASSESSEES TREATMENT OF THE SAME OF SETTING IT OFF AGAINST PROJECT DEVELOPMENT EXPENSES WAS INDEED THE CORRECT TREATMENT.FINALLY, HE ALLOWED THE APPEAL FILED BY THE ASSESSEE. 4. DURING THE COURSE OF HEARING BEFORE US, THE DEPARTM ENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE AO.NONE APPEARED ON BEHA LF OF THE ASSESSEE,AS STATED EARLIER. 5. WE HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. W E FIND THAT THE ASSESSEE HAD TO FURNISH PERFORMANCE BANK GUARANTEE AS WELL A S FINANCIAL BANK GUARANTEE, THAT THREE NATIONALISED BANKS HAD PROVIDED THE GUAR ANTEES TOTALLING TO RS.70 CRORES TO THE ASSESSEE FOR OBTAINING LICENCE IN 13 CIRCLES THROUGHOUT THE COUNTRY, THAT THE INTEREST EARNED THEREON AMOUNTED TO RS. 1. 30 CRORES, THAT THE FAA HELD THAT THE INTEREST EARNED BY THE ASSESSEE WAS FOR FU LFILLING THE PRECONDITIONS LAID DOWN FOR ISSUE OF TELCOM LICENSES.IN OUR OPINION,HE HAD RIGHTLY HELD THAT IT WAS A CAPITAL RECEIPT AND SAME HAD TO BE SET OFF AGAINS T PROJECT DEVELOPMENT EXPENSES.WE ALSO HOLD THAT HIS ORDER DOES NOT SUFFE R FROM ANY LEGAL INFIRMITY. THEREFORE,UPHOLDING HIS ORDER,WE DECIDE THE EFFECTI VE GROUND OF APPEAL AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE AO STANDS DISMISSE D. . ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH AUGUST,2016. 5 , 2016 SD/- SD/- ( . . / C.N. PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 05.08.2016. JV.SR.PS. 7544/M/14-ETISALAT DB TELECOM P.LTD. 4 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.