The DCIT(OSD), Circle-8, Ahmedabad V. M/s. Vodafone West Ltd., Ahmedabad

ITA 909/AHD/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9939 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 18-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 28-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM MOHAN TIWARI
• Assessee Lawyers: S N SOPARKAR WITH SHRI ROHIT
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; International transaction; Earning of tax free income; Additional evidence; Bad and doubtful debts; Difference of opinion; Avoidance of tax; Relationship of principal and agent; Revenue expenditure; Capital expenditure
• Section: 92C; 143(3); 92B; 92A; 14A; 194C; 10B; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER, AND SHRI S. S. GODARA, JUDICIAL MEMBER. ITA NO.909 /AHD/2014 (ASSESSMENT YEAR: 2009- 10) D.C.I.T. (OSD), CIRCLE-8, AHMEDABAD APPELLANT VS. M/S. VODAFONE WEST LTD., 6 TH FLOOR, SAKAR-II, ELLIS BRIDGE, AHMEDABAD RESPONDENT & ITA NO.944 /AHD/2014 (ASSESSMENT YEAR: 2009- 10) VODAFONE WEST LTD., (FORMERLY KNOWN AS VODAFONE ESSAR GUJARAT LIMITED), VODAFONE HOUSE, B WING, 4 TH FLOOR, CORPORATE ROAD, PRAHLADNAGAR, AHMEDABAD - 380051 APPELLANT VS. D.C.I.T. (OSD), CIRCLE-8, AHMEDABAD RESPON DENT PAN: AAACF1190P ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 2 - /BY REVENUE : SHRI RAM MOHAN TIWARI, CIT.DR / BY ASSESSEE : SHRI S. N. SOPARKAR WITH SHRI ROHIT PANSARI, A.R. /DATE OF HEARING : 18.08.2016 /DATE OF PRONOUNCEMENT : 17.11.2016 ORDER PER S. S. GODARA, JUDICIAL MEMBER THE REVENUE AND ASSESSEE INITIATE INSTANT CROSS APP EALS FOR ASSESSMENT YEAR 2009-10 AGAINST THE DCIT (OSD), CIRCLE-8, AHME DABADS ASSESSMENT ORDER DATED 30.01.2014 PASSED IN FURTHERANCE TO THE DISPUTE RESOLUTION PANEL, AHMEDABADS DIRECTIONS ISSUED ON 20.12.2013, IN PROCEEDINGS U/S.143(3) R.W.S. 144C OF THE INCOME TAX ACT,1961; IN SHORT THE ACT. WE HAVE HEARD BOTH THE PARTIES REITERATING THEIR RE SPECTIVE STANDS. 2. WE COME TO REVENUES APPEAL ITA NO.909/AHD/2014. ITS FIRST SUBSTANTIVE GROUND CHALLENGES THE DISPUTE RESOLUTIO N PANELS DIRECTIONS DRP HEREAFTER ISSUED TO THE ASSESSING OFFICER FOR DELETING DISALLOWANCE OF LOSS OF RS.4,02,03,570/- CLAIMED AT ASSESSEES BEHE ST ON ACCOUNT OF CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK OF SIM CAR DS AS ON 31.03.2009. 3. THIS ASSESSEE IS A COMPANY PROVIDING CELLULAR MO BILE TELEPHONIC SERVICES IN GUJARAT STATE. IT DECLARED SIM CARDS STOCK AS ON 31.03.2009 AT NIL VALUE. THE ASSESSING OFFICER SOUGHT TO KNOW REASON S THEREOF. THE ASSESSEE FILED REPLY DATED 05.02.2013 STATING TO HAVE HELD ITS SIM CARDS FOR SALE IN ORDINARY COURSE OF BUSINESS. IT HAD ISSUED SIGNIFIC ANT QUANTITIES OF SIM CARDS TO CUSTOMERS FOR PROVIDING CONNECTION WITHOUT CHARGING ANY SEPARATE SALE PRICE ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 3 - DURING THE YEAR. IT CLAIMED THE SAID SIM CARDS VA LUE AT RS. NIL TILL THE SAME WERE ACTIVATED AT CUSTOMERS END. THE ASSESSEE ST RESSED THE POINT THAT ITS SIM CARDS IN QUESTION WERE NOT IN THE NATURE OF AN INDEPENDENT PRODUCT TO BE SOLD IN OPEN MARKET. IT FOLLOWED COST OR MARKET PR ICE; WHICHEVER IS LOWER FORMULA TO JUSTIFY NIL PRICE IN QUESTION IN TUNE WI TH NOT ONLY SECTION 211(3A) R.W.S. 211(3C) OF THE COMPANIES ACT BUT ALSO ASSERT ED TO HAVE PREPARED ITS BOOKS AS PER AS-2. 4. THE CASE FILE INDICATES THAT THE ASSESSING OFFIC ER REJECTED ALL THESE PLEAS. HE OBSERVED IN DRAFT ASSESSMENT THAT THE AS SESSEE HAS ITSELF VALUED 15,68,545 SIM CARDS CARRYING OPENING STOCK OF RS.29 MILLION AS AGAINST CLOSING STOCK OF 21,74,521 SIM CARDS AT RS.NIL. HE ALLEGED THE ASSESSEE TO HAVE ADOPTED DEVIATION IN VALUATION OF ITS SIM CARD S IN THIS MANNER NOT SUSTAINABLE UNDER THE PROVISIONS OF THE ACT. ALL T HIS LED TO THE IMPUGNED ADDITION OF RS.4,02,03,570/- PROPOSED IN THE ABOVE DRAFT ASSESSMENT ORDER. 5. THE ASSESSEE PREFERRED OBJECTIONS BEFORE THE DRP . THIS PANEL REVERSES ASSESSING OFFICERS FINDINGS HEREINABOVE AS FOLLOWS : 5.3 WE HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND CONTENTIONS OF THE AO AS INCORPORATED IN THE DRAFT ASSESSMENT ORDER. WE HAVE ALSO GONE THROUGH THE VARIOUS ORAL AND WRITTEN SUBMISSION MADE BY THE ASS ESSEES REPRESENTATIVE. IN THE EARLIER YEARS, THE ASSESSEE USED TO CHARGE COST OF SIM CARD SEPARATELY FROM ITS CUSTOMERS BUT FROM THIS PREVIOUS YEAR IN LINE WITH CHANGE IN MARKET CONDITIONS, THE ASSESSEE STARTED DISTRIBUTING ITS SIM CARDS AT FREE OF COST AND NO AMOUNT WAS SEPARATELY CHARGED FROM THE CUSTOMERS FOR THE SAME. ALSO, THE ASSESSEE HAD NOT INCREASED ITS PRICE OF SERVICES FOR ISSUING SIM CAR DS TO COMPENSATE FOR FREE SIM CARDS ISSUED TO CUSTOMERS. THIS SUBSTANTIATES THAT IN LINE WITH THE MARKET CONDITIONS, MARKET VALUE OF SIM CARDS WAS NIL. THUS , THE ASSESSEE HAD NOT CHANGED HIS METHOD OF VALUING CLOSING STOCK AND CON TINUED TO FOLLOW THE SAME ACCOUNTING TREATMENT OF VALUING ITS CLOSING STOCK A T LOWER OF MARKET VALUE OR COST. HOWEVER, IN THE CURRENT YEAR, AS MARKET VALUE OF SI M CARDS BECAME NIL, IT BEING SOWER THAN ITS COST, THEY WERE VALUED AT NIL. FURTH ER, IN .SUBSEQUENT YEARS ALSO, THE SAME ACCOUNTING TREATMENT OF VALUING CLOSING S TOCK AT LOWER OF MARKET VALUE OR COST HAS ALSO BEEN CONSISTENTLY FOLLOWED BY THE ASSESSE. FURTHER, WE HAVE ALSO GONE THROUGH JUDGMENT OF HON'BLE JURI SDICTIONAL GUJARAT HIGH COURT IN THE CASE OF VOLTAMP TRANSFORMERS LTD (327 ITR 36 0) WHEREIN IT WAS HELD THAT AC) CANNOT DISPUTE THE VALUATION METHOD ADOPTED BY THE ASSESSEE WITHOUT BRINGING ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 4 - ANY COGENT OR RELIABLE EVIDENCE ON RECORD. IN THE INSTANT CASE, THE AO HAS NOT BEEN ABLE TO PROVIDE ANY EVIDENCES AS TO IF THERE W AS ANY MARKET VALUE OF SIM CARDS. AO HAS PROCEEDED TO MAKE ADDITION ONLY ON TH E BASIS THAT AS OPENING STOCK OF SIM CARDS HAD A VALUE, IT WAS ESSENTIAL THAT CLO SING STOCK OF SIM CARDS SHOULD ALSO BE VALUED. THE SAID VIEW IGNORES THE FACT THAT IT IS NOT NECESSARY THAT MARKET VALUE OF BOTH OPENING AS WELL AS CLOSING STOCK SHOU LD BE SAME. IT MAY BE POSSIBLE THAT MARKET VALUE OF A PRODUCT MAY BE THERE IN BEGI NNING OF THE YEAR BUT MAY REDUCE TO NIL BY THE YEAR END. THUS, IN ABSENCE OF ANY RELIABLE EVIDENCE BY THE AO, AS PER THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF VOLTAMP TRANSFORMERS, WE ACCEPT ASSESSEE'S CONTENTI ON THAT IT .HAD RIGHTLY VALUED ITS SIM CARDS AT NIL VALUE, BEING THEIR MA RKET VALUE. FURTHER, AUDITORS HAVE ALSO NOT DISPUTED VALUATION OF SIM CARDS IN THE FIN ANCIAL STATEMENTS. EVEN OTHERWISE, ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80IA OF THE ACT IN PAST AND CURRENT YEARS AND HENCE, THERE IS NO IMPACT ON TAXABLE INCOME. IN THE LIGHT OF ABOVE, OBJECTIONS OF THE ASSESSEE AGAINST THE PROPOSED UPWARD ADJUSTMENT ARE ALLOWED. THEREFORE, WE HEREBY DIRECT THE AO TO DELETE THE PROPOSED ADDITION OF RS.4,02,03,570. AS THIS GROUND IS ALLOWED ON MERITS, WE HAVE NOT ADJUDICATED ALTERNATIVE GROUND RAISED BY THE ASSESS EE. 6. WE HAVE HEARD RIVAL CONTENTIONS. IT IS CLEAR BY NOW THAT THE INSTANT ISSUE ARISES BETWEEN THE PARTIES QUA CLOSING STOCK VALUATION OF ASSESSEES SIM CARDS AS ON 31.03.2009. ITS CASE AS NARRATED IN PR ECEDING PARAGRAPHS IS THAT THESE SIM CARDS NOWHERE CARRIED AN INDEPENDENT VALU E NOT BEING IN THE NATURE OF AN INDEPENDENT SALEABLE PRODUCT. IT SUCCESSFULL Y PROVED BEFORE THE DRP TO HAVE CHANGED ITS PRACTICE FROM THAT OF SEPARATELY C HARGING FOR SIM CARDS IN EARLIER ASSESSMENT YEARS TO NOT ASKING THE CUSTOMER S IN QUESTION FOR MAKING SEPARATE PAYMENT THEREOF IN THE IMPUGNED ASSESSMENT YEAR. IT HAS SOLD THE IMPUGNED SIM CARD FREE OF COST IN RELEVANT PREVIOUS YEAR IN OTHER WORDS. WE FIND FROM THE CASE FILE THAT THERE IS NOT EVEN A SI NGLE AGREEMENT EXECUTED BETWEEN ASSESSEE AND ITS CUSTOMERS PLACED ON RECORD AT REVENUES END TO DISPUTE THIS CRUCIAL FACT. IT IS THUS CLEAR THAT T HE ASSESSEE HAS NEITHER ATTRIBUTED ANY VALUATION OF ITS SIM CARDS NOR HAS IT RECEIVED ANY SEPARATE PRICE THEREOF. THAT BEING THE CASE, WE DEEM IT APPROPRIATE TO OBSE RVE THAT THE LEARNED PANEL HAS RIGHTLY ACCEPTED ASSESSEES CONTENTIONS IN PREC EDING PARAGRAPHS. IT FURTHER HOLDS THAT THE ASSESSEE IS ALREADY ELIGIBLE FOR SECTION 80IA DEDUCTION. MEANING THEREBY THAT THERE IS NO IMPACT ON ITS TAXA BLE INCOME. THE REVENUES GROUNDS NOWHERE REBUT THIS FACTUAL POSITI ON. WE ACCORDINGLY FIND ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 5 - NO REASON TO INTERFERE IN THE DRPS ACTION FORMING SUBJECT MATTER OF THE INSTANT GROUND. THIS SUBSTANTIVE GROUND IS REJECTE D. 7. THE REVENUES SECOND SUBSTANTIVE GROUND SEEKS TO REVIVE SECTION 14A R.W. RULE 8D DISALLOWANCE OF RS.92.75LACS MADE IN T HE IMPUGNED DRAFT ASSESSMENT AND DELETED IN DRPS PROCEEDINGS. SUFFI CE TO SAY, THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME IN THE IMPUGNED AS SESSMENT YEAR. HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. CORRTE CH ENERGY PVT. LTD. 45 TAXMANN.COM 116 (GUJARAT) HOLDS IN IDENTICAL CIRCUM STANCES THAT THE ABOVE STATUTORY PROVISION IS NOT EXIGIBLE IN ABSENCE OF A NY EXEMPT INCOME IN THE RELEVANT PREVIOUS YEAR. LD. DEPARTMENTAL REPRESENT ATIVE FAILS TO CONTROVERT THIS LEGAL POSITION. THE REVENUES SECOND SUBSTANT IVE GROUND FAILS ACCORDINGLY. 8. THE REVENUES NEXT SUBSTANTIVE GROUND NO.(3A) PL EADS THAT THE PANEL HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSE SSING OFFICER TO CONSIDER ASSESSMENT YEAR 1997-98 INSTEAD OF 1996-97 AS THE I NITIAL ASSESSMENT YEAR IN WHICH THE ASSESSEE STARTED PROVIDING ITS CELLULAR S ERVICES. SHRI SOPARKAR TAKES US TO PAGE 87 OF THE PAPER BOOK COMPRISING OF THIS TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2006-07 AN D 2007-08 DECIDING THE VERY ISSUE AGAINST THE REVENUE. LD. DEPARTMENTAL R EPRESENTATIVE DOES NOT POINT OUT ANY EXCEPTION THERETO IN THE IMPUGNED ASS ESSMENT YEAR. THIS SUBSTANTIVE GROUND ACCORDINGLY FAILS. 9. THE REVENUES NEXT SUBSTANTIVE GROUND (3B) AVERS THAT THE PANEL HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO APPLY S ECTION 80IAS AMENDED PROVISION FROM A.Y.2000-01 THEREBY ALLOWING THE IMP UGNED DEDUCTION @ 100% OF THE PROFITS OF THE RELEVANT PREVIOUS YEAR. SHRI SOPARKAR STATES HEREIN AS WELL THAT THIS TRIBUNALS ORDER IN A.Y. 2006-07 (SUPRA) ADJUDICATES THE VERY ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 6 - ISSUE IN ASSESSEES FAVOUR. THE SAME GOES UNREBUTT ED AT THE REVENUES END. WE ACCORDINGLY DECLINE THIS GROUND AS WELL. 10. THE REVENUES NEXT SUBSTANTIVE GROUND (3C) ASSA ILS CORRECTNESS OF THE DRPS DIRECTIONS TO THE ASSESSING AUTHORITY TO ALLO W SECTION 80IA DEDUCTION AMOUNTING TO RS.94.7 MILLION AND RS.138.90 MILLIONS ON ACCOUNT OF SHARING OF PASSIVE INFRASTRUCTURE AND CELL SITES; RESPECTIV ELY. THE ASSESSING OFFICERS MAIN REASON FOR DISALLOWING THE CORRESPONDING CLAIM WAS THAT NEITHER THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LEASING OF A SSETS NOR SHARING OF CELL SITES. HE HELD THAT THE ABOVE INCOMES COULD NOT BE TREATED TO HAVE BEEN DERIVED FROM AN ELIGIBLE UNDERTAKING U/S.80IA IN OT HER WORDS. SHRI SOPARKAR PLACES ON RECORD HONBLE DELHI HIGH COURTS DECISIO N IN A BATCH OF CASES ITA NOS.476-490/2016 PCIT VS. BSNL DECIDED ON 01.08.201 6 UPHOLDING THIS TRIBUNALS DELHI BENCHS ORDER CONCLUDING THAT THE ABOVE DERIVED FROM CRITERIA DOES NOT APPLY IN CASE OF AN UNDERTAKING P ROVIDING TELECOMMUNICATION SERVICES IN VIEW OF THE FACT THAT SECTION 80IA(2A) STARTS WITH A NON OBSTANTE CLAUSE TREATING THE SAME AS A S EPARATE SPECIES. HIS FURTHER CASE IS THAT THIS TRIBUNALS ORDER IN ASSESSEES CA SE FOR A.Y. 2006-07 (SUPRA) ALSO ADJUDICATES THE VERY ISSUE IN ITS FAVOUR. THE REVENUE FAILS TO CONTROVERT BOTH THESE LEGAL DEVELOPMENTS. WE THUS FIND NO MER IT IN THIS SUBSTANTIVE GROUND. IT IS ACCORDINGLY REJECTED. 11. THE REVENUES NEXT SUBSTANTIVE GROUND NO.3 PLEA DS THAT THE DRP HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW S ECTION 80IA DEDUCTION ON FOREIGN EXCHANGE GAIN IN VIOLATION OF THE ABOVE DER IVED FROM CRITERIA. WE HAVE ALREADY CONCLUDED IN PRECEDING PARAGRAPHS THAT THIS DERIVED FROM CONDITION DOES NOT APPLY IN A TELECOMMUNICATION UND ERTAKING CASE. THE ASSESSEE SUBMITS THAT THESE GAINS HAVE ARISEN ON AC COUNT OF SETTLEMENT/RESTATEMENT OF TRANSACTIONS IN REVENUE A CCOUNT. IT STRONGLY ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 7 - CONTENDS THAT THERE EXISTS VERY MUCH A DIRECT/PROXI MATE NEXUS DATING ITS SOURCES TO ITS TELECOMMUNICATION BUSINESS. THE RE VENUE IS FAIR ENOUGH IN NOT DISPUTING THIS FACTUAL POSITION. WE FIND THAT HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. DEVERSONS INDUSTRIES LTD. (2015) 5 5 TAXMAN.COM 189 (GUJARAT) HOLDS THAT SUCH A NET EXCHANGE RATE IS TO BE TREATED AS TO HAVE BEEN DERIVED FROM THE ELIGIBLE UNDERTAKING IN QUESTION. WE RESPECTFULLY FOLLOW THE SAME TO REJECT THIS REVENUES GROUND AS WELL. 12. THE REVENUES NEXT SUBSTANTIVE GROUND (3E) POSS ES CHALLENGE TO DRPS DIRECTIONS ISSUED TO THE ASSESSING OFFICER FOR ALLO WING THE ASSESSEE THE RELIEF OF SECTION 80IA DEDUCTION ON BAD DEBTS RETURNED BAC K. ITS ARGUMENT IS THAT THE SAME AMOUNTS TO DOUBLE DEDUCTION. WE FIND FROM THE CASE FILE THAT ASSESSEES STAND BEFORE THE ASSESSING OFFICER WAS T HAT THESE BAD DEBTS WRITTEN BACK ARE IN RESPECT OF CELLULAR SERVICES ONLY AS AL LOWED IN EARLIER YEARS THEREBY REDUCING THE CORRESPONDING SECTION 80IA DED UCTION CLAIM. IT EMPHASIZE THAT THESE SUMS ARE NOW TAXABLE IN THE IM PUGNED ASSESSMENT YEAR U/S.41(1) OF THE ACT ARE TO BE CHARACTERIZED AS BUS INESS INCOME ONLY. IT QUOTED THIS TRIBUNALS ORDER IN RADHA MADHAV INDUST RIES CASE ITA NO.1935/AHD/2007 HOLDING IDENTICAL PROFITS U/S.41(1 ) AS TO HAS BEEN DERIVED FROM THE ELIGIBLE UNDERTAKING. THE ASSESSING OFFIC ER OPINED THAT SUCH A COURSE OF ACTION WOULD AMOUNT TO DOUBLE DEDUCTION A S THE VERY SUM STOOD ACCEPTED AS BAD DEBTS IN EARLIER YEARS AND NOW THES E FIGURES ARE SOUGHT TO BE INCLUDED IN SECTION 80IA DEDUCTION CLAIM. 13. WE COME TO DRPS FINDINGS NOW. LD. PANEL NEGAT ES THIS DOUBLE DEDUCTION REASON AFTER HOLDING THAT ASSESSEES BAD DEBTS CLAIM IN EARLIER ASSESSMENT YEARS WOULD HAVE REDUCED ITS ELIGIBLE DE DUCTION THEREIN. IT FURTHER PLACES RELIANCE ON THE ABOVE RADHA MADHAVS CASE LA W (SUPRA) TO ACCEPT ASSESSEES CONTENTIONS LEAVING BEHIND THE REVENUE A GGRIEVED. ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 8 - 14. HEARD BOTH SIDES. THERE IS HARDLY ANY QUARREL THAT THE ASSESSEE CLAIMED THESE SUMS AS BAD DEBTS (REVENUE RECEIPTS) IN EARLI ER ASSESSMENT YEARS. THE SAME STOOD ALLOWED. IT THEREAFTER RECEIVED BACK TH ESE SUMS IN THE IMPUGNED ASSESSMENT YEAR IN THE NATURE OF BUSINESS INCOME U/ S.41(1) OF THE ACT. A CO- ORDINATE BENCH OF THE TRIBUNAL (SUPRA) CONCLUDES IN THESE FACTS THAT SUCH AN INSTANCE DOES NOT AMOUNT TO DOUBLE DEDUCTION CLAIM. THE REVENUE FAILS TO INDICATE ANY EXCEPTION IN FACTS OF THE INSTANT CASE . WE ACCORDINGLY REJECT THE INSTANT SUBSTANTIVE GROUND AS WELL. 15. THE REVENUES NEXT SUBSTANTIVE GROUND NO.4 PLEA DS THAT THE DRP HAS ERRED IN DELETING DISALLOWANCE OF RS.66LACS MADE ON ACCOUNT OF MISCELLANEOUS EXPENDITURE WRITTEN OFF IN THE NATURE OF CAPITAL EXPENDITURE AND CRYSTALLIZED IN EARLIER ASSESSMENT YEARS TO BE ELIG IBLE AS DEDUCTION IN THE IMPUGNED ASSESSMENT YEAR. 16. WE COME TO THE RELEVANT FACTS PERTINENT TO THIS ISSUE. THE ASSESSEE HAD PAID THE ABOVE AMOUNT TO BSNL IN PRECEDING ASSESSME NT YEARS IN THE NATURE OF ADVANCE FOR USE OF FORECASTED E1S (PSTN) TRAFFIC . IT COULD NOT CONSUME THE SAID WINDOW. THE ASSESSEE WOULD THUS REQUEST T HE ABOVE PAYEE TO ADJUST THESE ADVANCES AGAINST OTHER PAYABLES OR REFUNDS. THIS PAYEE FORFEITED THE ENTIRE SUM. THE ASSESSEE STATED TO HAVE MADE ALL EFFORTS TO RECOVER THE ABOVE FIGURE. IT FINALLY WROTE OFF THE SAME IN THE IMPUG NED ASSESSMENT YEAR. THIS FOLLOWED ASSESSEES CLAIM OF BUSINESS LOSS U/S.28 O F THE ACT. THE ASSESSING OFFICERS DRAFT ASSESSMENT ORDER INTER ALIA OBSERVE D THAT THE ASSESSEE WAS ITSELF NOT SURE IN RAISING SECTION 36(1)(VII) OR SE CTION 37 OR SECTION 28 CLAIM, IT DID NOT FILE ANY EVIDENCE OF ANY NEGOTIATIONS WI TH M/S. BSNL IN ORDER TO MAKE THE RECOVERY IN QUESTION. HE FINALLY TREATED THE ABOVE SUM IN THE NATURE OF PRIOR PERIOD EXPENSES AS INCURRED IN EARLIER ASS ESSMENT YEARS WHICH COULD ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 9 - NOT BE CLAIMED IN THE IMPUGNED ASSESSMENT YEAR. AL L THIS RESULTED IN THE IMPUGNED DISALLOWANCE. 17. WE ADVERT TO DRPS FINDINGS NOW DECIDING THE IS SUE IN ASSESSEES FAVOUR AS FOLLOWS: 9.3 WE HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND CONTENTIONS OF THE AO AS INCORPORATED IN THE DRAFT ASSESSMENT ORDER. W E HAVE ALSO GONE THROUGH THE VARIOUS ORAL AND WRITTEN SUBMISSION MAD E BY THE ASSESSEE'S REPRESENTATIVE. ADVANCE PAID BY THE ASSESSEE WAS FO RFEITED BY BSNL IN JULY 2007. SUBSEQUENTLY, ASSESSEE FOLLOWED UP WITH BSNL FROM TIME TO TIME FOR OBTAINING REFUND OR ADJUSTING THE SAID AMOUNT AGAIN ST OTHER LIABILITIES. ASSESSEE ALSO MADE PROVISION FOR THIS PROBABLE LOSS IN MARCH 2008 AND DID NOT CLAIM AS DEDUCTION. HOWEVER, AS THERE WAS NO SU CCESS FOR REFUND, BASED ON MANAGEMENT REPRESENTATION, THE ASSSESSEE FINALLY WROTE OFF THE AMOUNT AS IRRECOVERABLE IN AY 2009-10. THUS, BASED ON THE SEQUENCE OF EVENTS, IT IS EVIDENT THAT AMOUNT FORFEITED BY BSNL AND WRITTEN O FF BY THE ASSESSEE IS A BUSINESS LOSS AND IS NOT AN EXPENDITURE. HENCE, AS THE SAID AMOUNT IS NOT AN EXPENDITURE, IT CANNOT QUALIFY AS A PRIOR PERIOD EXPENDITURE AS CONTENDED BY THE AO. FURTHER, AS FAR AS CLAIMING DE DUCTION OF BUSINESS LOSS IS CONCERNED, THE SAME IS COVERED UNDER PROVISIONS OF SECTION 28 OF THE ACT. HENCE, AMOUNT IRRECOVERABLE FROM BSNL BEING WRITTEN OFF BY THE ASSESSEE IN AY 2009-10 WILL CONSTITUTE A BUSINESS LOSS AND A S IT HAS OCCURRED IN AY 2009-10, IT IS ALLOWABLE AS A DEDUCTION UNDER PROVI SIONS OF SECTION 28 OF THE ACT IN AY 2009-10. EVEN OTHERWISE, ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80IA OF THE ACT IN PAST AND CURRENT Y EARS AND HENCE, THERE IS NO IMPACT ON TAXABLE INCOME. IN LIGHT OF THE ABOVE, THE OBJECTION RAISED BY ASSESSEE IS ALLOWED AND THE AO IS DIRECTED TO DELET E THE PROPOSED ADDITION OF RS 66,00,000. AS THIS GROUND IS ALLOWED IN FAVOU R OF THE ASSESSEE, WITHOUT PREJUDICE GROUND HAS NOT BEEN ADJUDICATED. 18. HEARD BOTH SIDES. WE HAVE NARRATED IN PRECEDIN G PARAGRAPHS ABOUT ASSESSEES PAYMENT MADE TO BSNL FOR VERY MUCH A BUS INESS PURPOSE WHICH WAS FORFEITED THEREBY RESULTED IN THE IMPUGNED WRIT E OFF AS BUSINESS LOSS U/S.28 OF THE ACT IN THE IMPUGNED ASSESSMENT YEAR. EVEN THE ASSESSING OFFICER IS FAIR ENOUGH IN NOT DISPUTING THE ABOVE F ACTS. PAGE 200 OF THE PAPER BOOK REVEALS THAT THE ASSESSEE WROTE OFF THE SAME I N THE IMPUGNED ASSESSMENT YEAR ONLY. THE ONLY SUBSTANTIVE OBJECTION RAISED I N COURSE OF THE IMPUGNED DRAFT ASSESSMENT IS THAT THE ABOVE ADVANCE SUM IS I N THE NATURE OF PRIOR PERIOD EXPENSES. WE FIND THAT HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. ABDUR ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 10 - RAZZAK & CO. (1981) 6 TAXMAN 346 (GUJARAT) HOLDS TH AT SUCH AN ADVANCE WRITE OFF IS VERY MUCH ALLOWABLE IN THE NATURE OF B USINESS LOSS U/S.28 OF THE ACT. WE RESPECTFULLY FOLLOW THE SAME TO UPHOLD THE ABOVE DRPS FINDINGS IN QUESTION. THIS REVENUES GROUND ALSO FAILS. 19. THE REVENUES NEXT TWO SUBSTANTIVE GROUND NOS. 5-6 AVER THAT THE DRP HAS ERRED IN ALLOWING SECTION 80IA DEDUCTION ON ROA MING CHARGES AS WELL AS ON DISCOUNTS OFFERED TO PREPAID DISTRIBUTORS DISALL OWED U/S.40(A)(IA) OF THE ACT. SHRI SOPARKAR SUBMITS AT THIS STAGE THAT ASSE SSEES CORRESPONDING TWO SUBSTANTIVE GROUNDS RAISED IN ITS CROSS APPEAL NO. ITA NO.944/AHD/2014 ALSO ASSAIL CORRECTNESS OF THE DRPS FINDINGS AFFIR MING ASSESSING OFFICERS ACTION IN DRAFT ASSESSMENT INVOKING THE ABOVE DISAL LOWANCE ON THE SAID TWO PAYMENTS. THE REVENUE DOES NOT DISPUTE THIS FACTUA L POSITION. WE THUS PROCEED TO ADJUDICATE THE ASSESSEES CORRESPONDING SUBSTANTIVE GROUNDS AS WELL RAISED IN ITS CROSS APPEAL TOGETHER FOR DISPOS AL. 20. WE COME TO THE FORMER ISSUE OF ROAMING CHARGES. THE ASSESSEE HAD PAID INTERNATIONAL AND NATIONAL ROAMING CHARGES OF RS.10,63,42,991/- AND RS.47,77,93,577/-; RESPECTIVELY WITHOUT DEDUCTING A NY TDS. IT PLEADED THAT THERE EXISTED NO HUMAN INTERVENTION IN THE SAID SER VICES SO AS TO BE TREATED AS FEE FOR TECHNICAL SERVICES. THE ASSESSING OFFICER SOUGHT ASSISTANCE FROM TECHNICAL EXPERTS. THEY STATED THAT THE IMPUGNED R OAMING FACILITY IN CELLULAR SERVICES CANNOT BE 100% AUTOMATED WHEREIN HUMAN INT ERVENTION IS PRESENT INTER ALIA IN CASE OF PHYSICAL HARDWARE, SOFTWARE B UG AND SNAPPING OFF FIBER CABLES. LD. DEPARTMENTAL REPRESENTATIVE TAKES US T O PAGE 71 OF THE ASSESSMENT ORDER IN THIS REGARD. THE ASSESSING OFF ICER ACCORDINGLY APPEARS TO HAVE HELD THAT THE IMPUGNED ROAMING CHARGES ARE NOT IN THE NATURE OF STANDARDIZED FULLY AUTOMATED FACILITY. ALL THIS LE D TO THE IMPUGNED ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 11 - DISALLOWANCE U/S.40(A)(IA) OF THE ACT QUA THE ABOVE TWO ROAMING EXPENSES. LD. PANEL APPROVED THE SAME. 21. WE HAVE HEARD RIVAL SUBMISSIONS. WE PUT UP A S PECIFIC QUERY TO REVENUE AS TO WHETHER THERE IS ANY DIRECT EVIDENCE PINPOINTING HUMAN INTERVENTION ELEMENT IN ASSESSEES ROAMING FACILITI ES AVAILED FROM ITS PAYEES. NO MATERIAL IS QUOTED IN RESPONSE TO OUR QUERY EXCE PT PAGE 71 OF THE ASSESSMENT ORDER. MEANING THEREBY THAT THERE IS ON LY AN INFERENCE THAT THE ASSESSEE MUST HAVE PAID FOR THE IMPUGNED ROAMING CH ARGES INVOLVING HUMAN INTERVENTION COMPONENT. THIS CASE FILE REVEALS THA T THIS TRIBUNALS KOLKATA BENCH IN ITA NO.1864/KOL/2012 VODAFONE EAST LTD. (A SSESSEES SISTER CONCERN) VS. ACIT DECIDED ON 15.09.2015 EXAMINES AL L FINE POINTS IN CASE OF IDENTICAL ROAMING CHARGES IN CELLULAR TELEPHONY PAR LANCE TO CONCLUDE THAT THE SAME ARE NOT LIABLE FOR TDS DEDUCTION AS FOLLOWS: 4.10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. IT WOULD BE PERTINENT TO NOTE HERE THAT ROAMING SERVICES ARE PROVIDED BY OTHER TELECOM OPERATORS BY USING THEIR EXISTING TEL ECOM NETWORK/ INFRASTRUCTURE AND NO INCREMENTAL INVESTMENT IS REQUIRED TO PUT UP ANY ADDITIONAL NETWORK /INFRASTRUCTURE FOR PROVISION OF SUCH ROAMING SERVI CES. THE AFORESAID FACT LENDS FURTHER SUPPORT TO THE CONTENTION THAT ROAMING SERV ICES ARE STANDARD AUTOMATED SERVICES, WHICH ARE PROVIDED BY OTHER TELECOM OPERA TORS TO SUBSCRIBERS OF VEL USING THE SAME NETWORK/INFRASTRUCTURE AS IS USED BY SUCH OPERATORS FOR PROVISION OF TELECOMMUNICATION SERVICES TO ITS OWN SUBSCRIBERS. THEREFORE, IN ESSENCE, ROAMING SERVICES ARE SIMILAR IN NATURE TO THE TELECOM SERVI CES PROVIDED BY A TELECOM OPERATOR TO ITS OWN SUBSCRIBERS AND HENCE ROAMING C HARGES WOULD PARTAKE THE SAME CHARACTER AS THE NORMAL TELECOMMUNICATION CH ARGES PAID BY A SUBSCRIBER TO ITS SERVICE PROVIDER. 4.11. WE ARE NOT IN AGREEMENT WITH THE ARGUMENTS OF THE LEARNED DR THAT THE WORD 'TECHNICAL' USED IN EXPLANATION 2 TO SECTION 9 (1)(VII) OF THE ACT SHOULD TAKE THE SAME CHARACTER OF 'MANAGERIAL' OR 'CONSULTANCY' PROVIDED IN THE SAID SECTION WHEREIN HUMAN INTERVENTION IS REQUIRED AND ACCORDIN GLY EVEN FOR TECHNICAL SERVICES, HUMAN INTERVENTION IS DEFINITELY REQUIRED . IN THIS REGARD, THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS BHARTI CELLU LAR LTD IN 319 ITR 139 (DEL) HAD HELD THAT SINCE THE ENTIRE PROCESS OF MAKING A CALL AND SWITCHING THE CALL FROM ONE NETWORK TO THE OTHER IS DONE AUTOMATICALLY ON T HE BASIS OF MACHINES AND DOES NOT INVOLVE ANY HUMAN INTERFACE, THE INTERCONNECT C HARGES CANNOT BE REGARDED AS FEE FOR TECHNICAL SERVICES (FTS) AND HENCE WOULD NO T FALL IN THE AMBIT OF SECTION 194J OF THE ACT. WE FIND THAT ON FURTHER APPEAL BY THE REVENUE TO THE HON'BLE ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 12 - SUPREME COURT IN CIT VS BHARTI CELLULAR LTD IN 330 ITR 239 (SC), THE HON'BLE APEX COURT HAD STATED THAT 'RIGHT FROM 1979 VARIOUS JUDGEMENTS OF THE HIGH COURTS AND TRIBUNAL HAVE TAKEN THE VIEW THAT THE WO RDS 'TECHNICAL SERVICES' HAVE GOT TO BE READ IN THE NARROWER SENSE BY APPLYING TH E RULE OF NOSCITUR A SOCIIS, PARTICULARLY, BECAUSE THE WORDS 'TECHNICAL SERVICES ' IN SECTION 9(L)(VII) R.W. EXPLANATION 2 COMES IN BETWEEN THE WORDS 'MANAGERIA L AND CONSULTANCY SERVICES'. WE FIND THAT THE PRINCIPLES LAID DOWN BY THE DELHI HIGH COURT HAVE BEEN ACCEPTED BY THE APEX COURT AS SUCH AND THE APEX COURT HAS ME RELY DIRECTED THE TDS OFFICER TO CARRY OUT FACTUAL VERIFICATION TO DETERMINE THE EXTENT OF HUMAN INVOLVEMENT. BASED ON THIS DIRECTION, THE CBDT HAD ALSO ISSUED I NSTRUCTION NO. 5 OF 2011 DATED 30.3.2011 INSTRUCTING THE REVENUE AUTHORITIES TO SE EK OPINION OF TECHNICAL EXPERTS IN CASE OF COMPLEX TECHNICAL MATTERS. 4.12. AS PER THE DIRECTIONS OF THE SUPREME COURT IN THE CASE OF CIT VS BHARTI CELLULAR LTD IN 330 ITR 239 (SC), THE TDS OFFICER H AS BEEN DIRECTED TO OBTAIN TECHNICAL EVIDENCE FROM THE EXPERTS IN THE TELECOM FIELD WITH REGARD TO THE FACT OF EXISTENCE OF HUMAN INTERVENTION FOR THE ROAMING SER VICES AND ACCORDINGLY THE ACIT, CIRCLE 51(1), NEW DELHI HAD RECORDED STATEMEN T FROM SHRI TANAY KRISHNA ON 29.9.2010. THE LEARNED AR HAS ALSO FILED PRAYER FOR RECEIPT OF ADDITIONAL EVIDENCE IN TERMS OF RULE 29 OF ITAT RULES ON 20.7. 2015 CONTAINING THE STATEMENTS RECORDED FROM SHRI TANAY KRISHNA ON 29.9.2010 IN TH E CASE OF VODAFONE ESSAR MOBILE SERVICES LTD & CROSS EXAMINATION BY VODAFONE ESSAR MOBILE SERVICES LTD ON 29.9.2010. THIS APPLICATION UNDER RULE 29 CONTAI NS A PRAYER WITH REASONS THAT THESE DOCUMENTS COULD NOT BE FILED BEFORE THE LOWER AUTHORITIES AND THAT THESE DOCUMENTS ARE VERY CRUCIAL FOR THE DISPOSAL OF THE CASE UNDER APPEAL AS THE EXAMINATION OF THE TECHNICAL EXPERTS HAD TAKEN PLAC E POST THE PROCEEDINGS BEFORE THE ASSESSING OFFICER AND AS PER THE DIRECTIONS OF THE HON'BLE SUPREME COURT, THESE STATEMENTS WERE RECORDED IN THE CASE OF THE G ROUP COMPANY OF THE ASSESSEE. HOWEVER, IT IS SEEN THAT THE STATEMENT OF SHRI TANA Y KRISHNA ON 29.9.2010 HAVE BEEN RELIED UPON BY THE LEARNED CIT(APPEALS) VIDE P AGE 29 OF HIS ORDER BUT THE CROSS EXAMINATION OF SHRI TANAY KRISHNA IS NOT IN R ECORDS OF THE LOWER AUTHORITIES. WE FIND THAT THE STATEMENT IS VERY MUCH RELEVANT FO R THE DISPOSAL OF THESE APPEALS AND ARE HEREBY ADMITTED AS ADDITIONAL EVIDENCE (IN RESPECT OF CROSS EXAMINATION STATEMENT OF SHRI TANAY KRISHNA ON 29.9.2010) IN TE RMS OF RULE 29 OF ITAT RULES AS THEY GO INTO THE ROOT OF THE ISSUE. 4.13. WE FIND THAT THIS ISSUE NEED NOT BE SET ASIDE TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR SEEKING FRESH TECHNICAL EVIDE NCES FROM EXPERTS AS THE SAME HAD ALREADY BEEN OBTAINED IN THE CASE OF THE GROUP COMPANY OF THE ASSESSEE AND CBDT HAD ALSO ISSUED INSTRUCTIONS IN THIS REGARD TO SEEK EVIDENCES. ANY TECHNICAL EVIDENCE OBTAINED IN A CASE CAN BE USED IN THE CASE OF ANOTHER ASSESSEE AS LONG AS THE FACTS AND CIRCUMSTANCES INVOLVED ARE IDENTICAL. IN THE INSTANT CASE, THE FACTS IN THE CASE OF VODAFONE ESSAR MOBILE SERVICES LTD ARE IDENTICAL WITH THE FACTS OF THE ASSESSEE HEREIN AND ALSO IT HAPPENS TO BE THE GROUP COMPANY OF THE ASSESSEE. 4.14. SHRI TANAY KRISHNA'S STATEMENT-QUESTIONS AND ANSWERS - 4, 5, 6 & 16 ARE REPRODUCED BELOW :- QUESTION 4: CAN YOU ENLIGHTEN US ABOUT THE FUNCTION ING OF THE NETWORK SYSTEM OF THE CELLULAR OPERATORS AT THE TIME OF REC EIVING OR PROVIDING INTER- ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 13 - CONNECT SERVICES TO EACH OTHER INCLUDING INSTALLATI ON, INTERCONNECTIVITY ETC FROM THE VERY BEGINNING? ANS. 4: AS REGARDS TO INTERCONNECT TO GATEWAY SWITC HES/MSC OF TWO DIFFERENT OPERATORS ARE INTERCONNECTED USING ANY TR ANSPORT TECHNOLOGY WHICH INVOLVES WIRES AS WELL AS HUMAN INTERFACE FOR SETTING UP. IT INVOLVES DIFFERENT PHASES - I) PLANNING PHASE- WHERE HOW MUCH CAPACITY REQUIRED AND HOW MUCH TRAFFIC HANDLING CAPACITY IS REQUIRED ON THESE BASI S HARDWARE AND SOFTWARE IS DETERMINED. II) SELECTION OF VENDOR - IS DONE TO DETERMINE WHO WILL PROVIDE THESE SERVICES ALONG WITH HIS CONSULTANCY. III) HARDWARE AND SOFTWARE IS SUPPLIED BY THE VENDO R AND IT IS CUSTOMIZED TO THE NEED OF THE NETWORK AS PER THE TEC SPECIFICA TIONS. IV) INSTALLATION AS PER VENDOR GUIDELINES - IT INVO LVES INSTALLATION OF BOTH HARDWARE AND SOFTWARE. V) CALL CONFIGURATION/PROVISIONING OF SYSTEM - IN T HIS THE OPERATOR HAS TO CONFIGURE AND MAKE PROVISION IN DATA BASE AS TO HOW THE CALLS WILL FLOW. THIS HAS TO BE DONE BY A TECHNICALLY COMPETENT PERS ON. VI) TESTING - IT IS EXHAUSTIVE TESTING. THE CALLS A RE TESTED ON VARIOUS MODES (TERMINATING, LOADING ETC) ON NETWORK PORTION. (A) SOFTWARE BY HARDWARE TESTING - STAND ALONE TEST ING (B) INTERCONNECT TESTING - IT IS DONE TO TEST IF IT IS COMPATIBLE WITH OTHER HARDWARE/SOFTWARE. THIS TESTING EMPLOYS TECHNICALLY QUALIFIED PROFESSIONALS AND TESTED AS PER THE AGREED PLAN BETWEEN SERVICES PROVIDER AND VENDOR. QUESTION 5: IN YOUR EXPERT OPINION, DOES THE SYSTEM WORK AUTOMATICALLY WHEN NETWORK SYSTEM OF ONE CELLULAR OPERATOR GETS C ONNECTED WITH THE NETWORK SYSTEM OF OTHER CELLULAR OPERATOR? ANS. 5: WHEN A CALLS GET CONNECTED BY ONE OPERATOR TO OTHER, PER SE IT IS AN AUTOMATIC CONNECTION, BUT THERE CAN BE INSTANCES WH EN THERE IS A PROBLEM IN THE CALL CONNECT WHICH MAY REQUIRE RESOLUTION TH ROUGH HUMAN INTERVENTION. QUESTION 6: HENCE THERE IS NO 100% AUTOMATIC OPERAT ION OF THIS NETWORK. CAN YOU EXPLAIN WHAT KIND OF HUMAN INTERVENTION IS REQUIRED? ANS. 6: YES AS I SAID EARLIER IT CAN'T BE 100% FULL Y AUTOMATED. THERE ARE SEVERAL CIRCUMSTANCES UNDER WHICH HUMAN INTERVENTIO N WOULD BE REQUIRED. I WOULD BRIEFLY TELL YOU ABOUT EACH OF SUCH CIRCUMS TANCES ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 14 - (A) THERE COULD BE A CASE WHERE THERE IS FAILURE IN PHYSICAL HARDWARE. (B) THERE COULD BE A PROBLEM DUE TO SOFTWARE BUG. (C) THERE COULD BE SNAPPING OF FIBRE OPTIC CABLES. IN (A), (B), (C) ABOVE YOU ARE REQUIRED INTERVENTIO N OF TEAMS OF TECHNICAL EXPERTS TO REMEDY THE SITUATION. QUESTION 16: PLEASE TELL US THE PLACES OR POINTS OR AREAS WHERE HUMAN INTERVENTION WITH EACH OTHER? ANS. 16: AS HAS BEEN DETAILED IN SEVERAL ANSWERS TH AT I HAVE GIVEN EARLIER, ONE CAN BROADLY SAY THAT WHEN THERE IS AN INTERCONN ECTION BETWEEN TWO SERVICE PROVIDERS, HUMAN INTERVENTION IS CONSTANTLY REQUIRED FOR MANAGEMENT OF NETWORK/SYSTEM, CAPACITY ENHANCEMENT AND MONITORING OF SYSTEM/NETWORK. 4.15. CROSS EXAMINATION PROCEEDINGS OF SHRI TANAY KRISHNA - QUESTIONS AND ANSWERS - 3,4,5,7,11 & 12 ARE REPRODUCED BELOW:- Q.3. WHAT IS THE PROCESS OF CARRIAGE OF CALLS ORIGI NATING ON NETWORK OF ONE OPERATOR AND TERMINATING ON THE NETWORK OF THE OTHE R OPERATOR? THE CALL FROM ONE NETWORK TO THE OTHER NETWORK FLOW S AUTOMATICALLY, I.E. WITHOUT ANY HUMAN INTERVENTION. ONCE A CALL ORIGINA TES, THE CALL TRAVELS AUTOMATICALLY. IN ESTABLISHMENT OF A CALL, THEREIN NO HUMAN INTERVENTION I.E., ONCE A SUBSCRIBER DIALS AND THE CALL GETS CON NECTED WITHOUT ANY FAULT, THEN THERE IS NO HUMAN INTERVENTION. INTERVENTION I S 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 ENT IRE PROCESS OF CARRIAGE OF CALL FROM ONE OPERATOR TO ANOTHER? NO, AS STATED ABOVE, NO HUMAN INTERVENTION IS REQUI RED IN THE PROCESS OF CARRIAGE OF CALLS. HOWEVER, HUMAN INTERVENTION IS R EQUIRED AT THE INTER- CONNECT SET-UP STAGE (INCLUDING CONFIGURATION, INST ALLATION, TESTING, ETC.) AND CAPACITY ENHANCEMENT, MONITORING (INCLUDING NET WORK MONITORING), MAINTENANCE, FAULT IDENTIFICATION, REPAIR AND ENSUR ING 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 RESTR ICTED 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 QUESTI ONS POSED TO YOU BY THE TAX DEPARTMENT, YOU HAVE MENTIONED THAT SERVICES OF A TECHNICAL EXPERT ARE REQUIRED FOR INTER-CONNECT ARRANGEMENTS. PLEASE CON FIRM WHETHER SUCH ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 15 - SERVICES ARE REQUIRED FOR PROVISION OF INTER-CONNEC T SERVICES, I.E., CARRIAGE OF CALLS FROM ONE NETWORK TO ANOTHER, OR ARE PRIMAR ILY 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 PR OVISION OF INTERCONNECT SERVICES. I.E., CARRIAGE OF CALLS ORIGINATING ON NE TWORK OF ONE OPERATOR AND TERMINATION THE NETWORK OF THE OTHER OPERATOR? WE HAVE ANSWERED IN QUESTION NO 5. Q.12. IN ANSWER TO QUESTION 21 OF YOUR STATEMENT, Y OU HAVE STATED THAT IN CELLULAR NETWORKS THE LEVEL OF HUMAN INTERVENTION I S MUCH HIGHER AND OF SOPHISTICATED TECHNICAL LEVEL. IN THIS REGARD, DO Y OU 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 NE TWORKS AND DO NOT REQUIRE HUMAN INTERVENTION FOR CARRIAGE OF CALLS. H OWEVER, AS STATED IN QUESTION 4 OF THIS CROSS EXAMINATION, HUMAN INTERVE NTION IS REQUIRED AT THE INTER-CONNECT SET-UP STAGE [INCLUDING CONFIGURATION , INSTALLATION, TESTING, ETC) AND CAPACITY ENHANCEMENT, MONITORING (INCLUDIN G NETWORK MONITORING), MAINTENANCE, FAULT IDENTIFICATION, REP AIR AND ENSURING QUALITY OF SERVICE AS PER INTERCONNECT. 4.16. THE NEXT ARGUMENT OF LEARNED DR THAT ROAMING CHARGES ARE PAID FOR BOTH INTERCONNECTIVITY AND ALSO FOR USAGE OF TRANSMISSIO N LINES AND HUMAN INTERVENTION IS VERY MUCH INVOLVED WITH REGARD TO USAGE OF TRANS MISSION LINES. WE FIND THAT THE HUMAN INVOLVEMENT IS INVOLVED ONLY WHEN SOMETHING G OES WRONG IN THE MAINTENANCE OF TRANSMISSION LINES AND FOR CONNECTIV ITY PER SE, HUMAN INTERVENTION IS NOT INVOLVED. THIS ISSUE COULD ALSO BE LOOKED IN TO FROM THE ANGLE OF APPLICABILITY OF TDS PROVISIONS ON TRANSMISSION CHARGES / WHEELIN G CHARGES PAID BY POWER GENERATING COMPANIES. THIS ISSUE HAD REACHED THE CO RRIDORS OF VARIOUS JUDICIAL FORUMS AND NOW HAS BEEN PUT TO REST BY THE FOLLOWIN G DECISIONS:- CIT(TDS)- VS MAHARASHTRA STATE ELECTRICITY DISTRIBU TION CO. LTD REPORTED IN 375 ITR 23 (BOM) - 'BY THIS APPEAL, THE REVENUE HAS PROPOSED THE FOLLO WING QUESTIONS TO BE SUBSTANTIAL QUESTIONS OF LAW:- '(A) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE INCOME TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE PAYMENTS OF THE WHEELING AND TRANSMISSION CHARGES M ADE BY THE ASSESSES TO THE ENTITIES LIKE MAHARASHTRA STATE ELECTRICITY TRA NSMISSION CO. LTD. (MSETCL) AND POWER GRID CORPORATION OF INDIA LTD. ( PGCIL) FOR THE USE OF TRANSMISSION LINES OR OTHER INFRASTRUCTURE, I.E. , PLANT, MACHINERY AND ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 16 - EQUIPMENT COULD NOT BE TERMED AS RENT UNDER THE PRO VISIONS OF SECTION 1941 OF THE ACT AND, CONSEQUENTLY, THE PROVISIONS OF SEC TION 201 AND SECTION 201(1A) COULD NOT BE APPLIED? (B) WITHOUT PREJUDICE TO THE ABOVE, WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, PAYMENT OF WH EELING AND TRANSMISSION CHARGES TO THE ENTITLES LIKE MSETCL AN D PGCIL, SHOULD HAVE BEEN TREATED AS FEES FOR TECHNICAL SERVICES AND TAX SHOULD HAVE BEEN DEDUCTED AT SOURCE UNDER SECTION 194] OF THE ACT FR OM THE PAYMENTS?' HE SUBMITTED THAT IN THE CASE OF CHHATTISGARH STATE ELECTRICITY BOARD NO APPEAL HAD BEEN FILED BY THE REVENUE AND THE REVENUE ACCEP TED THE DECISION OF THE TRIBUNAL WHICH WAS FOLLOWED BY THE TRIBUNAL IN THE CASE OF THE PRESENT ASSESSEE AS WELL. MERELY DRAWING POWER AND CARRYING POWER THROU GH TRANSMISSION LINES AND TRANSMISSION SYSTEM WOULD NOT AMOUNT TO RENTING UP EQUIPMENT OR ITS CHARGE OR RENT'. THE HON'BLE SUPREME COURT HAS ALSO SHOWN US SOME DI RECTION IN THIS BEHALF. WHILE INTERPRETING THE EXPRESSION 'RENT', THE APPLICABILI TY OF SECTION 194-1 MUST BE GATHERED FROM WHETHER THE WHEELING AND TRANSMISSION CHARGES DRAW ITS COLOUR FROM THE BASIC MEANING OF THE EXPRESSION 'RENT'. IT IS SEEN FROM THE DECISION OF THE SUPREME COURT IN SINGAPORE AIRLINES (SUPRA) THAT TH E MEANING OF 'RENT' MUST BE UNDERSTOOD IN THE CONTEXT IN WHICH THEY ARE USED. I N THE PRESENT SET OF FACTS, IT IS NOT POSSIBLE TO EQUATE THE WHEELING AND TRANSMISSIO N CHARGES PAYABLE MSETCL WITH RENT. ON FACTS IT IS SEEN THAT THE MERC ORDER DATED JUNE 27, 2006, DEALS WITH MSEDCL'S CONTENTIONS, APROPOS THE METHODOLOGY PROPO SED BY MERC. THE TRANSMISSION CHARGES CONTEMPLATED BY MERC INCLUDES THE CROSS-SUBSIDISATION OF TRANSMISSION CHARGES ACROSS LICENSEES WHEN FOUND TO BE UNECONOMICAL AND UNCOMPETITIVE. IT IS FURTHER OBSERVED THAT MERC HAS CONSIDERED POOLING OF TRANSMISSION CHARGES DURING BULK POWER TRANSMISSION FROM ONE LICENSEE TO ANOTHER LICENSEE. IT IS AFTER CONSIDERING ALL THESE ASPECTS THAT A COMPOSITE CHARGE METHOD FOR ANY SUCH TRANSMISSION WAS ADOPTED. THUS, IT IS SEEN THAT THE METHODOLOGY FOR DETERMINING OF THE TRANSMISSION TARIFF COULD NOT BE DETERMINED IN A MECHANICAL MANNER AS IF THE CHARGE WAS ONLY FOR USE OF THE STA TE TRANSMISSION UTILITY. THE MERC WHILE PASSING THIS ORDER ON TRANSMISSION CHARG ES HAD RECEIVED VARIOUS OBJECTIONS SOME, INTER ALIA, SUPPORTING THE COMPOSI TE TARIFF, SOME AGAINST. HOWEVER, WE NEED NOT DIVERT OUR ATTENTION TO THE DE TAILS OF PRICING FORMULA FINALLY ADOPTED. THERE IS NOTHING ON RECORD TO SUPPORT THE REVENUE'S CONTENTION THAT THE WHEELING AND TRANSMISSION CHARGES ASSUMES THE CHARA CTER OF RENT. WE ARE IN AGREEMENT WITH MR. MISTRI THAT THE EXPRESSION 'RENT ' MUST BE CONCEPTUALLY UNDERSTOOD. THE CONCEPT OF RENT UNDER THE INCOME-TA X ACT DOES NOT ENCOMPASS, IN OUR VIEW, THE WHEELING AND TRANSMISSION CHARGES PAY ABLE BY THE ASSESSEE ESPECIALLY WHEN THE ASSESSEE IS DISCHARGING A PUBLI C FUNCTION. THE EXPRESSION OF 'TRANSMISSION CHARGES AND/OR 'WHEELING CHARGES' ENT AILS DISTRIBUTION OF ELECTRICITY IN THE AREA OF THE CORPORATION AND THEY CANNOT BE S UBJECTED TO PROVISIONS OF SECTION 194-1 OF THE ACT. WE, HOWEVER, CLARIFY THAT THIS IS RESTRICTED TO THE CASE OF THE ASSESSEE IN VIEW OF THE PUBLIC FUNCTION TO BE UNDER TAKEN BY IT, AS A RESULT OF THE RESTRUCTURING OF THE MAHARASHTRA STATE ELECTRICITY BOARD. ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 17 - IT IS PERTINENT TO MENTION HERE THAT SECTION 62 OF THE ACT PROVIDES THAT THE COMMISSION MAY, IN THE CASE OF SUPPLY OF ELECTRICIT Y FIX A MAXIMUM CEILING OF THE TARIFF, IN AN ATTEMPT TO PROMOTE COMPETITION AMONGS T THE DISTRIBUTION LICENSEES. THUS, THE VERY CONCEPT OF THE CHARGE FOR TRANSMISSI ON ELECTRICITY AND WHEELING OF ELECTRICITY, AS THE CASE MAY BE, IS SUBJECT TO THE TARIFF THAT WILL BE DETERMINED BY THE MERC IN PUBLIC INTEREST. HENCE, IT IS INCOMPREHENSI BLE THAT THE TARIFF PASSES THE TEST AS FEES FOR TECHNICAL SERVICES. ONCE AGAIN APP LYING THE PRINCIPLES OF CONCEPTUAL INTERPRETATION TO THE TARIFF TO BE FIXED FOR THE WHEELING AND TRANSMISSION CHARGES OF ELECTRICITY, IT CANNOT BE INTERPRETED TO MEAN FEES FOR THE PROVIDING TECHNICAL SERVICES. UNDER THE OPEN ACCESS SYSTEM, I T IS THE MSEDCL WHICH WILL BE AVAILING OF THE SAID TRANSMISSION FACILITY. NO 'SER VICE' IS BEING PROVIDED BY THE MSETCL OR THE STATE TRANSMISSION UTILITY. NO DOUBT, MSEDCL, AS TRANSMISSION LICENSEE IS REQUIRED TO PROVIDE SUPERINTENDENCE, MA INTENANCE AND REPAIRS TO THE SYSTEM. HOWEVER, NO SUCH SERVICE IS RENDERED BY THE MSETCL TO MSEDCL. MSETCL IS OBLIGED TO MAINTAIN THE SYSTEM BY VALUE O F OPERATION OF LAW UNDER THE ELECTRICITY ACT. THE MSEDCL ACCESSES THE STATE TRAN SMISSION UTILITY AND DISTRIBUTES ELECTRICITY PASSING THROUGH THE STATE T RANSMISSION UTILITY. OUR VIEWS STAND FORTIFIED BY THE VERY FACT THAT THE REVENUE I TSELF IS CONFUSED AND UNSURE AS TO THE NATURE OF THE CHARGE. THE FOCUS OF THE REVENUE IS ONLY THE REQUIREMENT OF DEDUCTION OF TAX WHETHER UNDER SECTION 194-1 OR SEC TION 194]. THIS APPROACH IS ERRONEOUS. THE REVENUE CONTENDS THAT THE WHEELING A ND TRANSMISSION CHARGES COULD BE RENT OR FEES FOR TECHNICAL SERVICES BUT, I N OUR VIEW IT IS NEITHER. WHEELING CHARGES REPRESENT THE CHARGE FOR PERMITTING USE OF THE STATE TRANSMISSION UTILITY BY PERSONS OTHER THAN THE DISTRIBUTION LICENCE. THE TR ANSMISSION CHARGES SIMPLY CONSTITUTE FEES FOR AVAILING OF THE SAID TRANSMISSI ON UTILITY TO BE USED BY OPEN ACCESS CONCEPT FOR DISTRIBUTION OF ELECTRICITY TO T HE LICENSEES AND CONSUMERS. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW TH AT THE WHEELING AND TRANSMISSION CHARGES ARE NEITHER RENT NOR FEES FOR TECHNICAL SERVICES. KEEPING THE SAID INTERPRETATION INTO EFFECT, WE FIND THAT WHILE INTERPRETING THE EXPRESSION 'RENT' IN THE PRESENT SCENARIO, WE MUST BEAR IN MIND THAT TAKING INTO ACCOUNT THE FUNCTIONING OF MSEDCL WHICH IS A PUBLIC UTILITY, IT WILL NOT BE APPROPRIATE TO EQUATE THE TRANSMISSION CHARGES OR WHEELING CHARGES TO RENT OR FEES FOR TECHNICAL SERVICE. IN OUR VIEW, THE TRANSMISSION CHARGES AND/OR WHEELI NG CHARGES ARE NOT AMOUNTS PAID UNDER ANY ARRANGEMENT FOR USE OF LAND, BUILDING, PLANT MACHINERY, EQUIPMENT, FURNITURE, FITTING, ETC. AND, THEREFORE, NOT RENT. EQUALLY, THE AMOUNTS ARE NOT FEES FOR TECHNICAL SERVICES. IN THE FACTS AND C IRCUMSTANCES OF THIS CASE, WE ANSWER THE QUESTION IN FAVOUR OF THE ASSESSEE AND A GAINST THE REVENUE. THE APPEAL IS DISPOSED OF ACCORDINGLY. THERE WILL BE NO ORDER AS TO COSTS. B) AURO MIRA BIOPOWER INDIA P LTD VS ITO TDS REPORT ED IN (2015) 55 TAXMANN.COM 452 (CHENNAI-TRIBUNAL) 'SECTION 194 READ WITH SECTION 9 OF THE INCOME TAX ACT, 1961-DEDUCTION OF TAX AT SOURCE- FEES FOR PROFESSIONAL OR TECHNICAL S ERVICES (TRANSMISSION CHARGES)- ASSESSMENT YEAR 2012-13-WHETHER, WHERE AS SESSEE PAID WHEELING, SCHEDULING AND TRANSMISSION CHARGES TO ST ATE POWER UTILITY FOR USING ITS DISTRIBUTION NETWORK TO SELL ENERGY GENER ATED BY ASSESSEE TO END CONSUMERS AND SAME DID NOT INVOLVE ANY HUMAN ELEMEN T, ASSESSEE WAS NOT ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 18 - REQUIRED TO DEDUCT TDS UNDER SECTION 194)-HELD, YES [PARA 6] IN FAVOUR OF ASSESSEE'. C) DCIT VS DELHI TRANSCO LTD REPORTED IN (2014) 52 TAXMANN.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 PE RTINENT TO TAKE NOTE OF THE FINDING RECORDED BY THE TRIBUNAL IN THE CASE OF CHH ATTISGARH STATE ELECTRICITY BOARD -VS. - ITO (SUPRA) (2012) 50 SOT 33 (MUM.)- NO FURT HER APPEAL TO HIGH COURT BY DEPARTMENT THE RELEVANT FINDING READ AS UNDER: ' 11. WE FIND THAT THE POWER PURCHASE AGREEMENT ENT ERED INTO BY THE ASSESSEE WITH NTPC, [COPY PLACED BEFORE US AT PAGES 15-27 OF THE PAPER- BOOK), SPECIFICALLY PROVIDES THAT 'POWER SHALL BE M ADE AVAILABLE BY THE NTPC AT THE BUSBARS OF THE STATION AND IT SHALL BE OBLIGATION AND RESPONSIBILITY OF THE CSEB TO MAKE THE REQUIRED ARR ANGEMENT FOR EVACUATION OF POWER FROM SUCH DELIVERY POINTS OF NT PC'. IT IS PURSUANT TO THESE OBLIGATIONS THAT THE ASSESSEE, ALONG WITH OTH ER BULK POWER BENEFICIARIES - NAMELY M P STATE ELECTRICITY BOARD, GUJARAT ELECTRICITY BOARD, MAHARASHTRA STATE ELECTRICITY BOARD, ELECTRI CITY DEPARTMENT - GOVERNMENT OF GOA, ADMINISTRATION OF DAMAN & DIU, A ND ELECTRICITY DEPARTMENT - ADMINISTRATION OFDADRA AND NAGAR HAVEL I, HAS ENTERED INTO A 'BULK POWER TRANSMISSION AGREEMENT' WITH PGCIL. T HE PREAMBLE OF THIS AGREEMENT, INTER ALIA, NOTES THAT THE PGCIL 'IS DES IROUS TO TRANSMIT ENERGY FROM THE CENTRAL SECTOR POWER STATION(S) TO THE BUL K POWER BENEFICIARIES AND THAT THE SAID BULK POWER BENEFICIARIES ARE DESI ROUS OF RECEIVING THE SAME THROUGH POWERGRID TRANSMISSION SYSTEM ON MUTUA LLY AGREED TERMS AND CONDITIONS'. THIS AGREEMENT PROVIDES THAT 'POWE RGRID SHALL OPERATE AND MAINTAIN THE TRANSMISSION SYSTEM BELONG ING TO IT IN THE WESTERN REGION AS PER AGREED GUIDELINES AND THE DIR ECTIVES OF THE WESTERN REGIONAL ELECTRICITY BOARD AND THE REGIONAL LOAD DI SPATCH CENTERS, AND COOPERATE WITH THE BULK POWER BENEFICIARIES OF THE REGION, SO AS TO MAINTAIN THE SYSTEM PARAMETERS WITHIN ACCEPTABLE/RE ASONABLE LIMITS EXCEPT WHERE IT IS NECESSARY TO TAKE MEASURES TO PREVENT I MMINENT DAMAGE TO ANY EQUIPMENT'. IN RESPECT OF THESE SERVICES, THE BULK POWER BENEFICIARIES ARE TO PAY TO PGCIL A MONTHLY CHARGES COMPUTED IN THE MANN ER SET OUT IN CLAUSE 9 OF THE SAID AGREEMENT THIS CLAUSE, IN TURN, REFER S TO FORMULA SET OUT IN A.4 OF ANNEXURE 1 WHICH REFERS TO THE SAME RATIO OF AGR EED ANNUAL CHARGES DIVIDED BY 12 AS IS BETWEEN POWER TRANSMITTED TO EA CH BENEFICIARY TO TOTAL SALES FROM THAT PARTICULAR POINT OF DELIVERY. IN OT HER 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 BENE FICIARY TO THE TOTAL SALE OF POWER FROM THAT DELIVERY POINT IT IS, HOWEVER, N OT IN DISPUTE THAT THE TRANSMISSION LINES ARE IN THE PHYSICAL CONTROL OF P GCIL, THESE ARE MAINTAINED AND OPERATED BY THE PGCIL AND, SO FAR AS THE ASSESSEE IS CONCERNED, ITS INTEREST IN THE TRANSMISSION LINES I S RESTRICTED TO THE FACT THAT ELECTRICAL POWER PURCHASED BY THE ASSESSEE, SIMULTA NEOUSLY ALONGWITH ELECTRICAL POWER PURCHASED BY OTHER BULK POWER BENE FICIARIES, IS TRANSMITTED THROUGH THESE TRANSMISSION LINES. THE W AY IT WORKS IS LIKE THIS. ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 19 - THE POWER AVAILABLE AT THE DELIVERY POINTS, COLLECT IVELY FOR ALL THE BULK POWER BENEFICIARIES, IS LOADED FOR TRANSMISSION ON THESE TRANSMISSION LINES OR POWERGRID AND EACH OF THE BENEFICIARIES IS ALLOW ED 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 A ND 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 T HE ENTIRE POWER GRID OR TRANSMISSION LINES ENABLING THE BENEFICIARY TO UTIL IZE THE POWER TO THE EXTENT OF HIS ALLOCATION. ON THESE FACTS, THE QUESTION THA T REQUIRES OUR ADJUDICATION IS WHETHER OR NOT THE PAYMENT FOR TRANSMISSION CHAR GES CAN BE TERMED AS 'RENT' FOR THE PURPOSES OF SECTION 194-1 OF THE ACT . 12. LET US NOW TAKE A LOOK AT THE STATUTORY PROVISI ON 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 A S FOLLOWS: ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU UNDI VIDED 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 THERE ON AT THE RATE OF- (A) TWO PER CENT FOR THE USE OF ANY MACHINERY OR PLANT OR EQUIPMENT; AND (B) TEN PER CENT FOR THE USE OF ANY LAND OR BUILDING (I NCLUDING FACTORY BUILDING) OR LAND APPURTENANT TO A BUILDING (INCLUDING FACTOR Y 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 A GGREGATE OF THE AMOUNTS OF SUCH INCOME CREDITED OR PAID OR LIKELY T O BE CREDITED OR PAID DURING THE FINANCIAL YEAR BY THE AFORESAID PERSON T O THE ACCOUNT OF, OR TO, THE PAYEE, DOES NOT EXCEED [ONE HUNDRED EIGHTY THOU SAND RUPEES]: PROVIDED FURTHER THAT AN INDIVIDUAL OR A HINDU UNDI VIDED FAMILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BU SINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIF IED UNDER CLAUSE (A) OR CLAUSE (B) OF SECTION 44AB DURING THE FINANCIAL YEA R IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH SUCH INCOME BY WAY OF R ENT IS CREDITED OR PAID, SHALL BE LIABLE TO DEDUCT INCOME-TAX UNDER THIS SEC TION. 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 OR ARRANGEMENT FOR THE USE OF (EITHER SEPARATELY OR TO GETHER) ANY, -, (A) LAND; OR (B) BUILDING (INCLUDING FACTORY BUILDING); OR (C) LAND APPURTENANT TO A BUILDING (INCLUDING FACTO RY 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;] ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 20 - (II) WHERE ANY INCOME IS CREDITED TO ANY ACCOUNT, W HETHER CALLED 'SUSPENSE ACCOUNT' OR BY ANY OTHER NAME, IN THE BOOKS OF ACCO UNT 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 PROVISIO NS OF THIS SECTION SHALL APPLY ACCORDINGLY. 13. THE CASE OF THE ASSESSING OFFICER, WHICH HAS BE EN SUSTAINED IN THE FIRST APPEAL, IS THAT SINCE EXPRESSION 'RENT', FOR THE PU RPOSE OF SECTION 1941, INCLUDES 'ANY PAYMENT, BY WHATEVER NAME CALLED, UND ER ANY LEASE, SUB- LEASE, TENANCY OR ANY OTHER AGREEMENT OR ARRANGEMEN T' FOR THE USE OF MACHINERY, PLANT OR EQUIPMENT, AND SINCE THE ASSESS EE HAS MADE THE PAYMENTS TOWARDS TRANSMISSION CHARGES FOR USE OF TH E MACHINERY, PLANT AND EQUIPMENT COLLECTIVELY CONSTITUTING MODE OF TRANSMI SSION OF POWER, THE PROVISIONS OF SECTION 194-1 COME INTO PLAY ON THE F ACTS OF THIS CASE. 14. THE CORE ISSUE THAT WE MUST DEAL WITH IS WHETHE R THE PRESENT ARRANGEMENT UNDER THE BULK POWER TRANSMISSION AGREE MENT CAN BE TERMED CAN BE COVERED BY THE SCOPE OF EXPRESSION ANY OTHER AGREEMENT OR ARRANGEMENT 'FOR THE USE OF APPEARING IN EXPLANATIO N (I) TO SECTION 194-I. 15. EXPLANATION (I) TO SECTION 194-I, AS WE HAVE NO TED 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 EVI DENT FROM A PLAIN READING OF THE AGREEMENTS UNDER WHICH IMPUGNED PAYM ENTS HAVE BEEN MADE, THE PAYMENTS HAVE BEEN MADE FOR THE SERVICES OF TRANSMISSION OF ELECTRICITY AND NOT THE USE OF TRANSMISSION WIRES P ER SE. IT IS A SIGNIFICANT FACT THAT THESE TRANSMISSION LINES ARE NOT ONLY BEI NG USED FOR TRANSMISSION OF ELECTRICITY TO THE ASSESSEE BUT ALSO FOR TRANSMI SSION TO ELECTRICITY TO VARIOUS OTHER ENTITIES. THE TRANSMISSION LINES CONT INUE 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 O PERATIONS OF THE SAME. ON THESE FACTS, IN OUR HUMBLE UNDERSTANDING, THE AS SESSEE HAS MADE THE PAYMENTS FOR TRANSMISSION OF ELECTRICITY IN WHICH T RANSMISSION LINES HAVE BEEN USED RATHER THAN FOR THE USE OF TRANSMISSION L INES PER SE. THE PAYMENTS COULD BE SAID TO HAVE BEEN MADE FOR 'THE U SE OF TRANSMISSION LINES' IN A CASE IN WHICH THE OBJECT OF CONSIDERATI ON FOR WHICH PAYMENTS ARE MADE WAS THE USE OF TRANSMISSION LINES SIMPLICT OR. AND SUCH A USE BY THE ASSESSEE DOES NOT EXTEND BEYOND THE TRANSMISSIO N OF ELECTRICITY THROUGH SUCH LINES IN THE SENSE THAT THE SAME TRANSMISSION LINES CONTINUE TO BE IN THE CONTROL OF PGCIL FOR TRANSMISSION OF ELECTRICIT Y FOR OTHER ENTITIES AND FOR ALL PRACTICAL PURPOSES. EVEN AS ELECTRICITY PUR CHASED BV THE ASSESSEE IS TRANSMITTED TO THE ASSESSEE FROM THE NTPC BUSBAR TO ITS LANDING POINTS, THE SAME TRANSMISSION LINES CONTINUE TO BE ENGAGED IN S IMILAR 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 BV THE PGCIL. UNDOUBTEDLY, FOR THE PURPOSE OF AN ARRANGEMENT BEIN G TERMED AS IN THE NATURE OF RENT FOR THE PURPOSE OF SECTION 194-1, TH E 'CONTROL' AND 'POSSESSION', IN LEGAL TERMS, OF AN ASSET MAY NOT N OT NEEDED TO BE WITH THE ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 21 - PERSON BENEFITING FROM THE ASSET IN QUESTION, IT IS A CONDITION PRECEDENT FOR INVOKING SECTION 194 I THAT THE ASSET FOR THE USE O F WHICH THE PAYMENT IN QUESTION IS MADE, SHOULD HAVE SOME ELEMENT OF ITS C ONTROL 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 T HE 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 O F AN ASSET AND BENEFIT FROM AN ASSET, WE MAY USEFULLY REFER TO THE FOLLOWI NG 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 TA XES [2001] 124 STC 426 (KAR.), WHICH HAS BEEN FOLLOWED BY HON'BLE DELH I HIGH COURT IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. V. DIT [2011] 332ITR 340/197 TAXMAN 263/9 TAXMANN.COM 168, IN THE FOLLOW ING TERMS: '9. THUS IF THE TRANSACTION IS ONE OF LEASING/HIRIN G/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 CUSTOM ER 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 EX TENDED DEFINITION OF 'SALE'. ON THE OTHER HAND, IF THE CUSTOMER ENTRUSTS TO THE ASSESSEE THE WORK OF ACHIEVING A CERTAIN DESIRED RESULT AND THAT INVO LVES 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 R ESULT 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 POSITI ON FURTHER, WITH AN ILLUSTRATION WHICH IS A VARIATION OF THE ILLUSTRATI ON USED BY THE ANDHRA PRADESH HIGH COURT IN THE CASE OF RASHTRIYA ISPAT N IGAM LTD. V. CTO.[1990] 77 STC 182 (AP). ILLUSTRATION (I) A CUSTOMER ENGAGES A CARRIER (TRANSPORT OPERATO R) TO TRANSPORT ONE CONSIGNMENT (A FULL LORRY LOAD) FROM PLACE A TO B, FOR AN AGREED CONSIDERATION WHICH IS CALLED FREIGHT CHARGES OR LO RRY HIRE. THE CARRIER SENDS ITS LORRY TO THE CUSTOMER'S DEPOT , PICKS UP THE CONSIGNMENT AND PROCEEDS TO THE DESTINATION FOR DEL IVERY OF THE CONSIGNMENT THE LORRY IS USED EXCLUSIVELY FOR THE C USTOMER'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 TRANSF ERRED 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 EF FECTIVE CONTROL OF THE CUSTOMER; (II) THE CARRIER DECIDES HOW, WHEN AND WH ERE THE LORRY MOVES TO THE DESTINATION, AND CONTINUES TO BE IN EFFECTIVE C ONTROL OF THE LORRY; (HI) THE CARRIER CAN AT ANY POINT (OF TIME OR PLACE) TRA NSFER THE CONSIGNMENT IN ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 22 - THE LORRY TO ANOTHER LORRY; OR THE CARRIER MAY UNLO AD 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 OPERATO R, UNDER WHICH THE TRANSPORT OPERATOR HAS TO PROVIDE A LORRY TO THE CU STOMER, BETWEEN THE HOURS 8 A.M. TO 8 P.M. AT THE CUSTOMER'S FACTORY FO R ITS USE, AT A FIXED HIRE PER DAY OR HIRE PER KM. SUBJECT TO AN ASSURED MINIM UM, FOR A PERIOD OF ONE MONTH OR ONE WEEK OR EVEN ONE DAY; AND UNDER THE CO NTRACT, THE TRANSPORT OPERATOR IS RESPONSIBLE FOR MAKING REPAIRS APART FR OM PROVIDING A DRIVER TO DRIVE THE LORRY AND FILLING THE VEHICLE WITH DIESEL FOR RUNNING THE LORRY. THE TRANSACTION INVOLVES AN IDENTIFIED VEHICLE BELONGIN G TO THE TRANSPORT OPERATOR BEING DELIVERED TO THE CUSTOMER AND THE CU STOMER IS GIVEN THE EXCLUSIVE AND EFFECTIVE CONTROL OF THE VEHICLE TO B E 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 TRANS PORT OPERATOR RENDERS NO OTHER SERVICE TO THE CUSTOMER........' 17. IT IS THUS CLEAR THAT IN A SITUATION IN WHICH T HE PAYMENT IN MADE FOR THE USE OF AN ASSET SIMPLICITER, WHETHER WITH CONTROL A ND POSSESSION IN ITS LEGAL SENSE OR NOT, THE PAYMENT COULD BE SAID TO BE FOR T HE USE OF AN ASSET HOWEVER, IN A SITUATION IN WHICH THE PAYMENT IS MAD E ONLY FOR THE PURPOSE A SPECIFIC ACT, I.E. POWER TRANSMISSION IN THIS CAS E, AND EVEN IF AN ASSET IS USED IN THE SAID PROCESS, THE PAYMENT CANNOT BE SAI D 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 1941 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 THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS APPRECIATE D THE CONTROVERSY IN RIGHT PROSPECTIVE AND NO INTERFERENCE IS CALLED FOR . THEREFORE, ITA NO. 3526,3528,3629,3530 ARE DISMISSE D. THE VARIOUS DECISIONS CITED SUPRA HAVE HELD THAT TH ERE WILL BE NO TDS ON TRANSMISSION CHARGES AND THE SAME ANALOGY WOULD APP LY WITH EQUAL FORCE IN THE CASE OF TRANSMISSION CHARGES IN TELECOM INDU STRY. 4.17. FROM THE AFORESAID STATEMENT RECORDED FROM TE CHNICAL EXPERTS PURSUANT TO THE DIRECTIONS OF THE SUPREME COURT IN CIT VS BHART I CELLULAR LTD ( 330 ITR 239) WHICH HAS BEEN HEAVILY RELIED UPON BY THE LEARNED C ITA, WE FIND THAT HUMAN ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 23 - INTERVENTION IS REQUIRED ONLY FOR INSTALLATION / SE TTING UP / REPAIRING / SERVICING / MAINTENANCE / CAPACITY AUGMENTATION OF THE NETWORK. BUT AFTER COMPLETING THIS PROCESS, MERE INTERCONNECTION BETWEEN THE OPERATORS WHILE ROAMING, IS DONE AUTOMATICALLY AND DOES NOT REQUIRE ANY HUMAN INTERV ENTION AND ACCORDINGLY CANNOT BE CONSTRUED AS TECHNICAL SERVICES. IT IS CO MMON KNOWLEDGE THAT WHEN ONE OF THE SUBSCRIBERS IN THE ASSESSEE'S CIRCLE TRAVELS TO THE JURISDICTION OF ANOTHER CIRCLE, THE CALL GETS CONNECTED AUTOMATICALLY WITHO UT ANY HUMAN INTERVENTION AND IT IS FOR THIS, THE ROAMING CHARGES IS PAID BY THE ASS ESSEE TO THE VISITING OPERATOR FOR PROVIDING THIS SERVICE. HENCE WE HAVE NO HESITATION TO HOLD THAT THE PROVISION OF ROAMING SERVICES DO NOT REQUIRE ANY HUMAN INTERVENT ION AND ACCORDINGLY WE HOLD THAT THE PAYMENT OF ROAMING CHARGES DOES NOT FALL U NDER THE AMBIT OF TDS PROVISIONS U/S 194J OF THE ACT. 4.18. AS FAR AS THE APPLICABILITY OF PROVISIONS OF SECTION 194C ARE CONCERNED, WE HOLD THAT THE PROVISIONS OF SECTION 194C OF THE ACT WOULD BECOME APPLICABLE ONLY WHERE SOME WORK (WORKS CONTRACT) IS BEING CARRIED O UT AND THERE IS SOME HUMAN INTERVENTION INVOLVED IN THE CARRIAGE OF SUCH WORK. THE TERM 'WORK' IS DEFINED IN SECTION 194C AS FOLLOWS:- 'WORK SHALL INCLUDE: A) ADVERTISING; B) BROADCASTING AND TELECASTING INCLUDING PRODUCTIO N OF PROGRAMMES FOR SUCH BROADCASTING OR TELECASTING; C) CARRIAGE OF GOODS OR PASSENGERS BY ANY MODE OF T RANSPORT OTHER THAN BY RAILWAYS; D) CATERING; E) MANUFACTURING OR SUPPLYING A PRODUCT ACCORDING T O THE REQUIREMENT OR SPECIFICATION OF THE CUSTOMER BY USING MATERIAL PUR CHASED FROM SUCH CUSTOMER, BUT DOES NOT INCLUDE MANUFACTURING OR SUP PLYING A PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCHASED FROM A PERSON, OTHER THAN SUCH C USTOMER.' WE HOLD THAT 194C IS APPLICABLE ONLY WHERE ANY SUM IS PAID FOR CARRYING OUT ANY WORK INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT AN Y WORK. THUS, 'CARRYING OUT ANY WORK' IS THE SUBSTANCE FOR MAKING THE PAYMENT RELAT ING TO SUCH WORK, LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 194COF THE ACT. FOR CARRYING OUT ANY WORK, MANPOWER IS SINE QUA NON AND WITHOUT MANPOWER, IT C ANNOT BE SAID THAT WORK HAS BEEN CARRIED OUT. UNDER SECTION 194C EACH AND EVERY WORK/SERVICE IS NOT COVERED, HENCE THE NATURE OF WORK DONE OR SERVICE PERFORMED IS REQUIRED TO BE SEEN. MOREOVER, THE TERM 'WORK' IS DEFINED IN SECTION 194 C OF THE ACT. THE WORD 'WORK' IN SECTION 194C REFERRED TO AND COMPREHENDS ONLY THE A CTIVITIES OF WORKMAN. IT IS THE PHYSICAL FORCE WHICH HAS COMPREHENDED IN THE WORD ' WORK'. WE HAVE ALREADY HELD THAT THE PAYMENT OF ROAMING CHARGES DOES NOT REQUIR E ANY HUMAN INTERVENTION. HENCE IN THE ABSENCE OF HUMAN INTERVENTION, THE SER VICES RENDERED IN THE CONTEXT OF THE IMPUGNED ISSUE DOES NOT FALL UNDER THE DEFINITI ON OF 'WORK' AS DEFINED IN SECTION ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 24 - 194C AND HENCE THE PROVISIONS OF SECTION 194C ARE N OT APPLICABLE TO THE IMPUGNED ISSUE. 4.19. LET US NOW GET INTO THE APPLICABILITY OF PROV ISIONS OF SECTION 1941 OF THE ACT TO THE FACTS OF THE IMPUGNED ISSUE. THE TERM 'RENT' IS DEFINED IN SECTION 1941 AS BELOW:- 'FOR THE PURPOSES OF THIS SECTION, 'RENT' MEANS ANY PAYMENT, BY WHATEVER NAME CALLED, UNDER ANY LEASE, SUBLEASE, TENANCY OR ANY OTHER AGREEMENT OR ARRANGEMENT FOR THE USE OF (EITHER SEPARATELY OR TO GETHER) ANY,- (A) LAND; OR (B) BUILDING (INCLUDING FACTORY BUILDING); OR (C) LAND APPURTENANT TO A BUILDING (INCLUDING FACTO RY 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.' THE REAL TEST TO BE CONSIDERED IS WHETHER IT IS POS SIBLE TO SAY THAT IT IS THE ASSESSEE WHO HAS USED THE EQUIPMENT AND HAS PAID THE ROAMING CHARGES TO THE OTHER SERVICE PROVIDER WITH WHOM IT HAS ENTERED INTO A NATIONAL R OAMING AGREEMENT. WE HOLD THAT IT IS NOT POSSIBLE TO SAY SO BECAUSE IF AT ALL ANYONE CAN BE SAID TO HAVE USED THE EQUIPMENT IT CAN ONLY BE THE SUBSCRIBER OF THE ASSE SSEE BUT NOT THE ASSESSEE. IF ANYTHING THE ASSESSEE IS PLACED IN A POSITION OF A MERE FACILITATOR BETWEEN ITS SUBSCRIBER AND THE OTHER SERVICE PROVIDER, FACILITA TING A ROAMING CALL TO BE MADE BY THE SUBSCRIBER. THE ASSESSEE CANNOT BE SAID TO H AVE USED THE EQUIPMENT WHICH IS INVOLVED IN PROVIDING THE ROAMING FACILITY. THE ASS ESSEE COLLECTS THE ROAMING CHARGES FROM ITS SUBSCRIBER AND PASSES IT ON TO THE OTHER SERVICE PROVIDER. IT IS RELEVANT AT THIS JUNCTURE TO GET INTO THE JUDGEMENT OF THE APEX COURT IN THE CASE OF BSNL AND ANOTHER VS UNION OF INDIA AND OTHERS (2006 ) 282 ITR 273 (SC). ONE OF THE QUESTIONS WHICH AROSE FOR CONSIDERATION WAS WHE THER THERE WAS ANY TRANSFER OF A RIGHT TO USE ANY GOODS BY PROVIDING ACCESS OR TEL EPHONE CONNECTION BY THE TELEPHONE SERVICE PROVIDER TO A SUBSCRIBER. REFERRI NG TO SECTION 4 OF THE TELEGRAPH ACT, 1885, WHICH GIVES EXCLUSIVE PRIVILEGE IN RESPE CT OF TELECOMMUNICATION AND THE POWER TO GRANT LICENCES TO THE CENTRAL GOVERNMENT, IT WAS CONTENDED BY THE SERVICE PROVIDERS THAT THEY PROVIDED ONLY A SERVICE BY THE UTILIZATION OF TELEGRAPH LICENSED TO THEM FOR THE BENEFIT OF THE SUBSCRIBERS. THE SUPREME COURT PROCEEDED ON THE ASSUMPTION THAT INCORPOREAL RIGHTS MAY BE GOODS FOR THE PURPOSE OF LEVYING SALES TAX A ND POSED TO ITSELF THE QUESTION WHETHER THE ELECTROMAGNETIC WAVES THROUGH WHICH THE SIGNALS ARE TRANSMITTED CAN FULFIL THE CRITERIA FOR BEING DESCRIBED AS 'GOODS'. THE COURT HELD THAT THE ELECTROMAGNETIC WAVES CANNOT BE CALLED GOODS. THEY WERE HELD TO BE MERELY THE MEDIUM OF COMMUNICATION; THE WAVES ARE NEITHER ABST RACTED NOR CONSUMED, THEY ARE NOT DELIVERED, STORED OR POSSESSED, NOR ARE THE Y MARKETABLE. WHAT WAS TRANSMITTED IS NOT AN ELECTROMAGNETIC WAVE BUT THE SIGNAL THROUGH SUCH MEANS. THE SUPREME COURT THEREAFTER GAVE A MORE BASIC REASON T O HOLD THAT THE ELECTROMAGNETIC WAVES CANNOT BE CONSIDERED AS GOODS AND IT IS THIS REASON WHICH ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 25 - IS RELEVANT FOR OUR PURPOSE. IT WAS HELD THAT A SUB SCRIBER TO A TELEPHONE SERVICE COULD NOT REASONABLY BE TAKEN TO HAVE INTENDED TO P URCHASE OR OBTAIN ANY RIGHT TO USE ELECTROMAGNETIC WAVES OR RADIO FREQUENCIES WHEN A TELEPHONE CONNECTION IS GIVEN. NOR DOES THE SUBSCRIBER INTEND TO USE ANY PO RTION OF THE WIRING, THE CABLE, THE SATELLITE, THE TELEPHONE EXCHANGE, ETC. AS FAR AS THE SUBSCRIBER IS CONCERNED, NO RIGHT TO THE USE OF ANY OTHER GOODS, INCORPOREAL OR CORPOREAL, IS GIVEN TO HIM OR HER WITH THE TELEPHONE CONNECTION. IN VIEW OF THE ABOVE, WE HOLD THAT THE PAYMENT OF R OAMING CHARGES BY THE ASESSSEE TO OTHER SERVICE PROVIDER CANNOT BE CONSID ERED AS RENT WITHIN THE MEANING OF SECTION 1941 OF THE ACT. 4.20. ACCORDINGLY, WE HOLD THAT THE PAYMENT OF ROAM ING CHARGES OF RS.55,41,01,320/- DOES NOT FALL UNDER THE AMBIT OF TDS PROVISIONS EITHER U/S 194C / 1941 OR 194J OF THE ACT AND HENCE WE HAVE NO HESITA TION IN DIRECTING THE LEARNED ASSESSING OFFICER TO DELETE THE ADDITION MADE U/S 4 0(A)(IA) ON THIS ACCOUNT. 22. WE FOLLOW THE ABOVE PRECEDENT IN ABSENCE OF ANY DISTINCTION ON FACTS BEING POINTED OUT AT REVENUES BEHEST. THE ASSESSE ES CORRESPONDING GROUND IN ITS APPEAL SUCCEEDS WHEREAS REVENUES GROUND NO. 5 FAILS. 23. THIS LEAVES US WITH THE LATTER ISSUE AS TO WHET HER THE ASSESSEE IS LIABLE TO DEDUCT TDS UPON DISCOUNT COUPONS OFFERED TO PREP AID DISTRIBUTORS AS DISALLOWED U/S.40(A)(IA) OF THE ACT. CASE RECORD R EVEALS THAT A CO-ORDINATE BENCH IN M/S. VODAFONE ESSAR GUJARAT LTD. (ASSESSEE S SISTER CONCERN) VS. ACIT ITA NO.386/AHD/2011 DECIDED ON 07.07.2015 ADJU DICATES THE VERY ISSUE AGAINST THE REVENUE AS UNDER: 7. WE FIND THAT WHAT IS SOLD BY THE ASSESSEE IS AI RTIME, WHETHER THROUGH THE PHYSICAL VOUCHERS OR THROUGH THE ELECTRONIC TRANSFE R OF REFILL/ RECHARGE VALUE, TO ITS DISTRIBUTORS. IT IS THIS TRANSACTION WHICH IS SUBJE CT MATTER OF DIFFERENT PERCEPTIONS, SO FAR AS TAX WITHHOLDING OBLIGATIONS OF THE SELLER ARE CONCERNED, OF THE PARTIES BEFORE US. AS A MATTER OF FACT, THE ASSESSMENT ORDE R ITSELF STATES THAT THE ASSESSEE HAS SOLD THE 'PRE-PAID VOUCHERS, OF VARIOUS FACE VA LUE, TO ITS DISTRIBUTORS, AT A RATE LOWER THAN ITS FACE VALUE', AND THAT 'THE DIFFERENC E (BETWEEN THE FACE VALUE AND THE PRICE AT WHICH IS SOLD) IS NOTHING BUT COMMISSION O N WHICH NO TAX HAS BEEN DEDUCTED'. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICATE IN THIS APPEAL IS WHETHER THE PROVISIONS OF SECTION 194H WILL COME IN TO PLAY IN RESPECT OF THE DIFFERENCE BETWEEN THE PRICE AT WHICH THE AIRTIME I S THUS SOLD TO THE DISTRIBUTORS AND ITS RECOMMENDED RETAIL PRICE TO THE END CONSUME RS. ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 26 - 8. THIS ISSUE IS NO LONGER RES INTEGRA. AS THE SAME BUSINESS MODEL, WITH NO OR PERIPHERAL VARIATIONS, HAS BEEN FOLLOWED BY ALMOST ALL THE OPERATORS IN THE MOBILE TELECOMMUNICATION INDUSTRY, THIS ISSUE HAS BEEN SUB JECT MATTER BEFORE VARIOUS FORUMS, AND MORE IMPORTANTLY, BEFORE VARIOUS HON'BL E HIGH COURTS. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE ABOVE ISSUE I N APPEAL IS SUBJECT MATTER OF DIFFERENCE OF OPINION BY VARIOUS HON'BLE NON-JURISD ICTIONAL HIGH COURTS AND THAT WE DO NOT HAVE THE BENEFIT OF GUIDANCE BY HON'BLE J URISDICTIONAL HIGH COURT. 9. THIS ISSUE IS COVERED, IN FAVOUR OF THE ASSESSEE , BY HON'BLE KARNATAKA HIGH COURT'S COMMON JUDGEMENT IN THE CASES OF BHARTI AIR TEL LIMITED, TATA TELESERVICES LIMITED AND VOADFONE SOUTH LIMITED, REPORTED AS BHA RTI AIRTEL LIMITED VS. DCIT [(2015) 372 ITR 33 (KAR)] WHEREIN THEIR LORDSHIPS H AVE, INTER ALIA, OBSERVED AS FOLLOWS: '62. IN THE APPEALS BEFORE US, THE ASSESSEES SELL P REPAID CARDS/VOUCHERS TO THE DISTRIBUTORS. AT THE TIME OF THE ASSESSEE SELLI NG THESE PRE-PAID CARDS FOR A CONSIDERATION TO THE DISTRIBUTOR, THE DISTRIBUTOR DOES NOT EARN ANY INCOME. IN FACT, RATHER THAN EARNING INCOME, DISTRIBUTORS I NCUR EXPENDITURE FOR THE PURCHASE OF PREPAID CARDS. ONLY AFTER THE RESALE OF THOSE PREPAID CARDS, DISTRIBUTORS WOULD DERIVE INCOME. AT THE TIME OF TH E ASSESSEE SELLING THESE PRE-PAID CARDS, HE IS NOT IN POSSESSION OF ANY INCO ME BELONGING TO THE DISTRIBUTOR. THEREFORE, THE QUESTION OF ANY INCOME ACCRUING OR ARISING TO THE DISTRIBUTOR AT THE POINT OF TIME OF SALE OF PRE PAID CARD BY THE ASSESSEE TO THE DISTRIBUTOR DOES NOT ARISE. THE CONDITION PRECE DENT FOR ATTRACTING SECTION 194H OF THE ACT IS THAT THERE SHOULD BE AN INCOME PAYABLE BY THE ASSESSEE TO THE DISTRIBUTOR. IN OTHER WORDS THE INC OME ACCRUED OR BELONGING TO THE DISTRIBUTOR SHOULD BE IN THE HANDS OF THE AS SESSEES. THEN OUT OF THAT INCOME, THE ASSESSEE HAS TO DEDUCT INCOME TAX THERE ON AT THE RATE OF 10% AND THEN PAY THE REMAINING PORTION OF THE INCOME TO THE DISTRIBUTOR. IN THIS CONTEXT IT IS PERTINENT TO MENTION THAT THE ASSESSE E SELLS SIM CARDS TO THE DISTRIBUTOR AND ALLOWS A DISCOUNT OF RS.20/-, THAT RS.20/- DOES NOT REPRESENT THE INCOME AT THE HANDS OF THE DISTRIBUTOR BECAUSE THE DISTRIBUTOR IN TURN MAY SELL THE SIM CARDS TO A SUB DISTRIBUTOR WHO IN TURN MAY SELL THE SIM CARDS TO THE RETAILER AND IT IS THE RETAILER WHO SE LLS IT TO THE CUSTOMER. THE PROFIT 86 EARNED BY THE DISTRIBUTOR, SUB-DISTRIBUTO R AND THE RETAILER WOULD BE DEPENDENT ON THE AGREEMENT BETWEEN THEM AND ALL OF THEM HAVE TO SHARE RS.20/- WHICH IS ALLOWED AS DISCOUNT BY THE ASSESSE E TO THE DISTRIBUTOR. THERE IS NO RELATIONSHIP BETWEEN THE ASSESSEE AND T HE SUB-DISTRIBUTOR AS WELL AS THE RETAILER. HOWEVER, UNDER THE TERMS OF T HE AGREEMENT, SEVERAL OBLIGATIONS FLOW IN SO FAR AS THE SERVICES TO BE RE NDERED BY THE ASSESSEE TO THE CUSTOMER IS CONCERNED AND, THEREFORE, IT CANNOT BE SAID THAT THERE EXISTS A RELATIONSHIP OF PRINCIPAL AND AGENT. IN THE FACTS OF THE CASE, WE ARE SATISFIED THAT, IT IS A SALE OF RIGHT TO SERVICE. T HE RELATIONSHIP BETWEEN THE ASSESSEE AND THE DISTRIBUTOR IS THAT OF PRINCIPAL T O PRINCIPAL AND, THEREFORE, WHEN THE ASSESSEE SELLS THE SIM CARDS TO THE DISTRI BUTOR, HE IS NOT PAYING ANY COMMISSION; BY SUCH SALE NO INCOME ACCRUES IN T HE HANDS OF THE DISTRIBUTOR AND HE IS NOT UNDER ANY OBLIGATION TO P AY ANY TAX AS NO INCOME IS GENERATED IN HIS HANDS. THE DEDUCTION OF INCOME TAX AT SOURCE BEING A VICARIOUS RESPONSIBILITY, WHEN THERE IS NO PRIMARY RESPONSIBILITY, THE ASSESSEE HAS NO OBLIGATION TO DEDUCT TDS. ONCE IT I S HELD THAT THE RIGHT TO ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 27 - SERVICE CAN BE SOLD THEN THE RELATIONSHIP BETWEEN T HE ASSESSEE AND THE DISTRIBUTOR WOULD BE THAT OF PRINCIPAL AND PRINCIPA L AND NOT PRINCIPAL AND AGENT. THE TERMS OF THE AGREEMENT SET OUT SUPRA IN UNMISTAKABLE TERMS DEMONSTRATE THAT THE RELATIONSHIP BETWEEN THE ASSES SEE AND THE DISTRIBUTOR IS NOT THAT OF PRINCIPAL AND AGENT BUT IT IS THAT O F PRINCIPAL TO PRINCIPAL. 63. IT WAS CONTENDED BY THE REVENUE THAT, IN THE EV ENT OF THE ASSESSEE DEDUCTING THE AMOUNT AND PAYING INTO THE DEPARTMENT , ULTIMATELY IF THE DEALER IS NOT LIABLE TO TAX IT IS ALWAYS OPEN TO HI M TO SEEK FOR REFUND OF THE TAX AND, THEREFORE, IT CANNOT BE SAID THAT SECTION 194H IS NOT ATTRACTED TO THE CASE ON HAND. AS STATED EARLIER, ON A PROPER CO NSTRUCTION OF SECTION 194H AND KEEPING IN MIND THE OBJECT WITH WHICH CHAP TER XVII IS INTRODUCED, THE PERSON PAYING SHOULD BE IN POSSESSI ON OF AN INCOME WHICH IS CHARGEABLE TO TAX UNDER THE ACT AND WHICH BELONG S TO THE PAYEE. A STATUTORY OBLIGATION IS CAST ON THE PAYER TO DEDUCT THE TAX AT SOURCE AND REMIT THE SAME TO THE DEPARTMENT. IF THE PAYEE IS N OT IN POSSESSION OF THE NET INCOME WHICH IS CHARGEABLE TO TAX, THE QUESTION OF PAYER DEDUCTING ANY TAX DOES NOT ARISE. AS HELD BY THE APEX COURT IN BH AVANI COTTON MILLS LIMITED'S CASE, IF A PERSON IS NOT LIABLE FOR PAYME NT OF TAX AT ALL, AT ANY TIME, THE COLLECTION OF TAX FROM HIM, WITH A POSSIB LE CONTINGENCY OF REFUND AT A LATER STAGE WILL NOT MAKE THE ORIGINAL LEVY VA LID. 64. IN THE CASE OF VODAFONE, IT IS NECESSARY TO LOO K INTO THE ACCOUNTS BEFORE GRANTING ANY RELIEF TO THEM AS SET OUT ABOVE. THEY HAVE ACCOUNTED THE ENTIRE PRICE OF THE PREPAID CARD AT RS.100/- IN THEIR BOOK S OF ACCOUNTS AND SHOWING THE DISCOUNT OF RS.20/- TO THE DEALER. ONLY IF THEY ARE SHOWING RS.80/- AS THE SALE PRICE AND NOT REFLECTING IN THE IR ACCOUNTS A CREDIT OF RS.20/- TO THE DISTRIBUTOR, THEN THERE IS NO LIABIL ITY TO DEDUCT TAX UNDER SECTION 194H OF THE ACT. THIS EXERCISE HAS TO BE DO NE BY THE ASSESSING AUTHORITY BEFORE GRANTING ANY RELIEF. THE SAME EXER CISE CAN BE DONE EVEN IN RESPECT OF OTHER ASSESSEES ALSO. 65. IN THE LIGHT OF THE AFORESAID DISCUSSIONS, WE A RE OF THE VIEW THAT THE ORDER PASSED BY THE AUTHORITIES HOLDING THAT SECTIO N 194H OF THE ACT IS ATTRACTED TO THE FACTS OF THE CASE IS UNSUSTAINABLE .' 10. AS WE TAKE NOTE OF THE VIEWS SO EXPRESSED BY HO N'BLE KARNATAKA HIGH COURT, WE MAY ALSO NOTE THAT THIS ISSUE HAS BEEN DECIDED A GAINST THE ASSESSEE BY, AMONGST OTHERS, HON'BLE KERALA HIGH COURT, IN THE CASE OF V ODAFONE ESSAR CELLULAR LTD VS. ACIT [(2010) 332 ITR 255 (KER)]. THE SAME APPROACH HAS BEEN ADOPTED BY SOME VARIOUS OTHER HON'BLE NON JURISDICTIONAL HIGH COURT S AS WELL, SUCH AS IN THE CASES OF BHARTI CELLULAR LIMITED VS ACIT [(2013) 354 ITR 507 (CAL)] AND CIT VS IDEA CELLULAR LIMITED [(2010) 325 ITR 148 (DEL)]. IN THE CASE OF VODAFONE ESSAR CELLULAR LTD (SUPRA) THEIR LORDSHIPS HAVE, INTER AL IA, OBSERVED AS FOLLOWS :- 4. THE MAIN QUESTION TO BE CONSIDERED IS WHETHER SE CTION 194H IS APPLICABLE FOR THE 'DISCOUNT' GIVEN BY THE ASSESSEE TO THE DISTRIBUTORS IN THE COURSE OF SELLING SIM CARDS AND RECHARGE COUPONS UN DER PREPAID SCHEME AGAINST ADVANCE PAYMENT RECEIVED FROM THE DISTRIBUT ORS. WE HAVE TO ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 28 - NECESSARILY EXAMINE THIS CONTENTION WITH REFERENCE TO THE STATUTORY PROVISIONS NAMELY, SECTION 194H .... WHAT IS CLEAR FROM EXPLANATION (I) OF THE DEFINITIO N CLAUSE IS THAT COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIV ED OR RECEIVABLE DIRECTLY OR INDIRECTLY BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR THE SERVICES RENDERED. WE HAVE ALREADY TAKEN NOTE OF OU R FINDING IN BPL CELLULAR'S CASE (SUPRA) ABOVE REFERRED THAT A CUSTO MER CAN HAVE ACCESS TO MOBILE PHONE SERVICE ONLY BY INSERTING SIM CARD IN HIS HAND SET (MOBILE PHONE) AND ON ASSESSEE ACTIVATING IT. BESIDES GETTI NG CONNECTION TO THE MOBILE NETWORK, THE SIM CARD HAS NO VALUE OR USE FO R THE SUBSCRIBER. IN OTHER WORDS, SIM CARD IS WHAT LINKS THE MOBILE SUBS CRIBER TO THE ASSESSEE'S NETWORK. THEREFORE, SUPPLY OF SIM CARD, WHETHER IT IS TREATED AS SALE BY THE ASSESSEE OR NOT, IS ONLY FOR THE PURPOSE OF RENDERI NG CONTINUED SERVICES BY THE ASSESSEE TO THE SUBSCRIBER OF THE MOBILE PHONE. BESIDES THE PURPOSE OF RETAINING A MOBILE PHONE CONNECTION WITH A SERVICE PROVIDER, THE SUBSCRIBER HAS NO USE OR VALUE FOR THE SIM CARD PUR CHASED BY HIM FROM ASSESSEE'S DISTRIBUTOR. THE POSITION IS SAME SO FAR AS RECHARGE COUPONS OR E TOPUPS ARE CONCERNED WHICH ARE ONLY AIR TIME CHAR GES COLLECTED FROM THE SUBSCRIBERS IN ADVANCE. WE HAVE TO NECESSARILY HOLD THAT OUR FINDINGS BASED ON THE OBSERVATIONS OF THE SUPREME COURT IN B SNL'S CASE (SUPRA) IN THE CONTEXT OF SALES TAX IN THE CASE OF BPL CELLULA R LTD. (SUPRA) SQUARELY APPLY TO THE ASSESSEE WHICH IS NOTHING BUT THE SUCC ESSOR COMPANY WHICH HAS TAKEN OVER THE BUSINESS OF BPL CELLULAR LTD. IN KERALA. SO MUCH SO, THERE IS NO SALE OF ANY GOODS INVOLVED AS CLAIMED B Y THE ASSESSEE AND THE ENTIRE CHARGES COLLECTED BY THE ASSESSEE AT THE TIM E OF DELIVERY OF SIM CARDS OR RECHARGE COUPONS IS ONLY FOR RENDERING SERVICES TO ULTIMATE SUBSCRIBERS AND THE DISTRIBUTOR IS ONLY THE MIDDLEMAN ARRANGING CUSTOMERS OR SUBSCRIBERS FOR THE ASSESSEE. THE TERMS OF DISTRIBU TION AGREEMENT CLEARLY INDICATE THAT IT IS FOR THE DISTRIBUTOR TO ENROLL T HE SUBSCRIBERS WITH PROPER IDENTIFICATION AND DOCUMENTATION WHICH RESPONSIBILI TY IS ENTRUSTED BY THE ASSESSEE ON THE DISTRIBUTORS UNDER THE AGREEMENT. I T IS PERTINENT TO NOTE THAT BESIDES THE DISCOUNT GIVEN AT THE TIME OF SUPPLY OF SIM CARDS AND RECHARGE COUPONS, THE ASSESSEE IS NOT PAYING ANY AMOUNT TO T HE DISTRIBUTORS FOR THE SERVICES RENDERED BY THEM LIKE GETTING THE SUBSCRIB ERS IDENTIFIED, DOING THE DOCUMENTATION WORK AND ENROLLING THEM AS MOBILE SUB SCRIBERS TO THE SERVICE PROVIDER NAMELY, THE ASSESSEE. EVEN THOUGH THE ASSESSEE HAS CONTENDED THAT THE RELATIONSHIP BETWEEN THE ASSESSE E AND THE DISTRIBUTORS IS PRINCIPAL TO PRINCIPAL BASIS, WE ARE UNABLE TO ACCE PT THIS CONTENTION BECAUSE THE ROLE OF THE DISTRIBUTORS AS EXPLAINED A BOVE IS THAT OF A MIDDLEMAN BETWEEN THE SERVICE PROVIDER NAMELY, THE ASSESSEE, AND THE CONSUMERS. THE ESSENCE OF A CONTRACT OF AGENCY IS T HE AGENT'S AUTHORITY TO COMMIT THE PRINCIPAL. IN THIS CASE THE DISTRIBUTORS ACTUALLY CANVASS BUSINESS FOR THE ASSESSSEE AND ONLY THROUGH DISTRIBUTORS AND RETAILERS APPOINTED BY THEM ASSESSEE GETS SUBSCRIBERS FOR THE MOBILE SERVI CE. ASSESSEE RENDERS SERVICES TO THE SUBSCRIBERS BASED ON CONTRACTS ENTE RED INTO BETWEEN DISTRIBUTORS AND SUBSCRIBERS. WE HAVE ALREADY NOTIC ED THAT THE DISTRIBUTOR IS ONLY RENDERING SERVICES TO THE ASSESSEE AND THE DISTRIBUTOR COMMITS THE ASSESSEE TO THE SUBSCRIBERS TO WHOM ASSESSEE IS ACC OUNTABLE UNDER THE SERVICE CONTRACT WHICH IS THE SUBSCRIBER CONNECTION ARRANGED BY THE ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 29 - DISTRIBUTOR FOR THE ASSESSEE. THE TERMINOLOGY USED BY THE ASSESSEE FOR THE PAYMENT TO THE DISTRIBUTORS, IN OUR VIEW, IS IMMATE RIAL AND IN SUBSTANCE THE DISCOUNT GIVEN AT THE TIME OF SALE OF SIM CARDS OR RECHARGE COUPONS BY THE ASSESSEE TO THE DISTRIBUTORS IS A PAYMENT RECEIVED OR RECEIVABLE BY THE DISTRIBUTOR FOR THE SERVICES TO BE RENDERED TO THE ASSESSEE AND SO MUCH SO, IT FALLS WITHIN THE DEFINITION OF COMMISSION OR BROKER AGE UNDER EXPLANATION (I) OF SECTION 194H OF THE ACT. THE TEST TO BE APPL IED TO FIND OUT WHETHER EXPLANATION (I) OF SECTION 194H IS APPLICABLE OR NO T IS TO SEE WHETHER ASSESSEE HAS MADE ANY PAYMENT AND IF SO, WHETHER IT IS FOR SERVICES RENDERED BY THE PAYEE TO THE ASSESSEE. IN THIS CASE THERE CAN BE NO DISPUTE THAT DISCOUNT IS NOTHING BUT A MARGIN GIVEN BY THE ASSESSEE TO THE DISTRIBUTOR AT THE TIME OF DELIVERY OF SIM CARDS OR RECHARGE COUPONS AGAINST ADVANCE PAYMENT MADE BY THE DISTRIBUTOR. TH E DISTRIBUTOR UNDOUBTEDLY CHARGES OVER AND ABOVE WHAT IS PAID TO THE ASSESSEE AND THE ONLY LIMITATION IS THAT THE DISTRIBUTOR CANNOT CHAR GE ANYTHING MORE THAN THE MRP SHOWN IN THE PRODUCT NAMELY, SIM CARD OR RECHAR GE COUPON. DISTRIBUTOR DIRECTLY OR INDIRECTLY GETS CUSTOMERS F OR THE ASSESSEE AND SIM CARDS ARE ONLY USED FOR GIVING CONNECTION TO THE CU STOMERS PROCURED BY THE DISTRIBUTOR FOR THE ASSESSEE. THE ASSESSEE IS ACCOU NTABLE TO THE SUBSCRIBERS FOR FAILURE TO RENDER PROMPT SERVICES PURSUANT TO C ONNECTIONS GIVEN BY THE DISTRIBUTOR FOR THE ASSESSEE. THEREFORE, THE DISTRI BUTOR ACTS ON BEHALF OF THE ASSESSEE FOR PROCURING AND RETAINING CUSTOMERS AND, THEREFORE, THE DISCOUNT GIVEN IS NOTHING BUT COMMISSION WITHIN THE MEANING OF EXPLANATION (I) ON WHICH TAX IS DEDUCTIBLE UNDER SECTION 194H OF THE A CT. THE CONTENTION OF THE ASSESSEE THAT DISCOUNT IS NOT PAID BY THE ASSES SEE TO THE DISTRIBUTOR BUT IS REDUCED FROM THE PRICE AND SO MUCH SO, DEDUCTION UNDER SECTION 194H IS NOT POSSIBLE ALSO DOES NOT APPLY BECAUSE IT WAS THE DUTY OF THE ASSESSEE TO DEDUCT TAX AT SOURCE AT THE TIME OF PASSING ON THE DISCOUNT BENEFIT TO THE DISTRIBUTORS AND THE ASSESSEE COULD HAVE GIVEN DISC OUNT NET OF THE TAX AMOUNT OR GIVEN FULL DISCOUNT AND RECOVERED TAX AMO UNT THEREON FROM THE DISTRIBUTORS TO REMIT THE SAME IN TERMS OF SECTION 194H OF THE ACT.' 11. THERE IS NO, AND THERE CANNOT BE ANY, DISPUTE A BOUT THE FUNDAMENTAL LEGAL POSITION THAT IN THE HIERARCHICAL JUDICIAL SYSTEM, THAT WE HAVE IN OUR COUNTRY, LOWER TIERS OF JUDICIAL HIERARCHY HAS TO RESPECTFULLY FOL LOW THE VIEWS EXPRESSED BY THE HIGHER TIERS OF JUDICIAL HIERARCHY. IN THE CASE OF ACIT VS DUNLOP INDIA LIMITED [(1985) 154 ITR 172 (SC)], HON'BLE SUPREME COURT HA S OBSERVED, QUOTING THE HOUSE OF LORDS, AS FOLLOWS: WE DESIRE TO ADD AND AS WAS SAID IN CASSELL & CO. L TD. VS. BROOME (1972) AC 1027 (HL), WE HOPE IT WILL NEVER BE NECESSARY FO R US TO SAY SO AGAIN THAT 'IN THE HIERARCHICAL SYSTEM OF COURTS' WHICH E XISTS IN OUR COUNTRY, 'IT IS NECESSARY FOR LOWER TIER', INCLUDING THE HIGH CO URT, 'TO ACCEPT LOYALLY THE DECISIONS OF THE HIGHER TIERS'. 'IT IS INEVITAB LE IN A HIERARCHICAL SYSTEM OF COURTS THAT THERE ARE DECISIONS OF THE SUPREME A PPELLATE TRIBUNAL WHICH DO NOT ATTRACT THE UNANIMOUS APPROVAL OF ALL MEMBER S OF THE JUDICIARY.... BUT THE JUDICIAL SYSTEM ONLY WORKS IF SOMEONE IS AL LOWED TO HAVE THE LAST WORD AND THAT LAST WORD, ONCE SPOKEN, IS LOYALLY AC CEPTED' (SEE OBSERVATIONS OF LORD HAILSHAM AND LORD DIPLOCK IN B ROPME VS. CASSELL). ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 30 - THE BETTER WISDOM OF THE COURT BELOW MUST YIELD TO THE HIGHER WISDOM OF THE COURT ABOVE. THAT IS THE STRENGTH OF THE HIERAR CHICAL JUDICIAL SYSTEM 12. THE QUESTION WHETHER THE NON- JURISDICTIONAL HI GH COURT BINDS THE TRIBUNAL BENCHES OR NOT CAME UP FOR CONSIDERATION BEFORE HON 'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GODAVARIDEVI SARAF [(1978) 113 I TR 589 (BOM)]. THAT WAS A CASE IN WHICH THEIR LORDSHIPS WERE IN SEISIN OF THE QUESTION AS TO 'WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN VIEW OF DECISION IN THE CASE OF A.M. SALI MARICAR & ANR. VS. ITO & ANR. [(1973) 90 ITR 1 16 (MAD)] THE PENALTY IMPOSED ON THE ASSESSEE UNDER S. 140A(3) WAS LEGAL ? THE SPECIFIC QUESTION BEFORE THEIR LORDSHIPS THUS WAS WHETHER THE TRIBUNAL, WHIL E SITTING IN BOMBAY, WAS JUSTIFIED IN FOLLOWING THE MADRAS HIGH COURT DECISI ON. IT WAS IN THIS CONTEXT THAT HON'BLE BOMBAY HIGH COURT CONCLUDED AS FOLLOWS: 'IT SHOULD NOT BE OVERLOOKED THAT IT ACT IS AN ALL INDIA STATUTE, AND IF A TRIBUNAL IN MADRAS HAS TO PROCEED ON THE FOOTING T HAT S. 140A(3) WAS NON- EXISTENT, THE ORDER OF PENALTY UNDER THAT SECTION C ANNOT BE IMPOSED BY ANY AUTHORITY UNDER THE ACT. UNTIL A CONTRARY DECISION IS GIVEN BY ANY OTHER COMPETENT HIGH COURT, WHICH IS BINDING ON THE TRIBU NAL IN THE STATE OF BOMBAY (AS IT THEN WAS), IT HAS TO PROCEED ON THE F OOTING THAT THE LAW DECLARED BY THE HIGH COURT, THOUGH OF ANOTH ER STATE, IS THE FINAL LAW OF THE LAND..............AN AUTHORITY LIKE TRIBUNAL HAS TO RESPECT THE LAW LAID DOWN BY THE HIGH COURT, THOUGH OF A DIFFERENT STATE, SO LONG AS THERE IS NO CONTRARY DECISION ON THAT ISSUE BY ANY OTHER HIG H COURT......... 13. IN THE CASE OF CIT VS SHAH ELECTRICAL CORPORATI ON [(1994) 207 ITR 350 (GUJ)], VIDE JUDGMENT DATED 23RD JUNE 1993, THEIR LORDSHIPS HAD AN OCCASION TO CONSIDER THE AFORESAID VIEWS. IT WAS IN THIS CONTEXT THAT TH EIR LORDSHIPS HAVE OBSERVED AS FOLLOWS: 3. WHAT IS CONTENDED BY THE LEARNED ADVOCATE FOR TH E REVENUE IS THAT THE TRIBUNAL DECIDED THE APPEAL ON 26TH OCT., 1976. BY THAT TIME, THE ANDHRA PRADESH HIGH COURT HAD UPHELD THE VALIDITY OF S. 14 0A(3). HE DREW OUR ATTENTION TO THE JUDGMENT OF THE ANDHRA PRADESH HIG H COURT IN KASHIRAM VS. ITO (1977) 107 ITR 825 (AP). FROM THE REPORT, IT APPEARS THAT THE SAID JUDGMENT WAS DELIVERED ON 10TH DEC., 1975. THEREFORE, THE TRIBUNAL WAS NOT RIGHT IN PROC EEDING ON THE BASIS THAT ONLY THE MADRAS HIGH COURT JUDGMENT WAS IN THE FIELD AND , THEREFORE, IT WAS OPEN TO IT TO PROCEED ON THE BASIS THAT S. 140A(3) WAS NON-EXI STENT. HE ALSO SUBMITTED THAT FOR THAT REASON, THE TRIBUNAL WAS NOT RIGHT IN FOLLOWIN G THE JUDGMENT OF THE BOMBAY HIGH COURT IN GODAVARIDEVI'S CASE (SUPRA). 4. IN OUR OPINION, THE LEGAL POSITION IS CORRECTLY STATED BY THE PUNJAB & HARYANA HIGH COURT IN CIT VS. VED PRAKASH (1989) 77 CTR (P& H) 116 : (1989) 178 ITR 332 (P&H) WHEN IT OBSERVED THAT 'UNLESS AND UNTIL T HE SUPREME COURT OR THE HIGH COURT OF THE STATE IN QUESTION, UNDER ART. 226 OF T HE CONSTITUTION, DECLARES A PROVISION OF THE ACT TO BE ULTRA VIRES, IT MUST BE TAKEN TO BE CONSTITUTIONALLY VALID AND TREATED AS SUCH'. ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 31 - 5. IN OUR OPINION, THE TRIBUNAL OF ANOTHER STATE WO ULD BE JUSTIFIED IN PROCEEDING ON THE BASIS THAT THE PROVISION HAS CEASED TO EXIST BE CAUSE IT HAS BEEN DECLARED AS ULTRA VIRES BY THE HIGH COURT ONLY WHEN THERE IS SO ME MATERIAL TO SHOW THAT THE SAID DECISION HAS BEEN ACCEPTED BY THE DEPARTMENT. ............. (EMPHASIS BY UNDERLINING SUPPLIED BY US) 14. A LITTLE LATER, HOWEVER, WHILE DEALING WITH A M ATERIALLY SIMILAR SITUATION, IN THE CASE OF CIT VS MAGANLAL MOHANLAL PANCHAL (HUF) [(19 94) 210 ITR 580 (GUJ)], VIDE JUDGMENT DATED 1ST SEPTEMBER 1994, THEIR LORDS HIPS HAVE HELD AS FOLLOWS: ........ AT THE TIME WHEN THE TRIBUNAL DECIDED THE APPEAL, THAT WAS THE ONLY DECISION IN THE FIELD AND, THEREFORE, IN VIEW OF WH AT THE BOMBAY HIGH COURT HAS HELD IN CIT VS. SMT. GODAVARIDEVI SARAF (1978) 113 ITR 589 (BOM) AND CIT VS. SMT. NIRMALABAI K. DAREKAR (1990) 186 ITR 2 42 (BOM), THE TRIBUNAL WAS BOUND TO FOLLOW THE SAID JUDGMENT OF T HE MADRAS HIGH COURT. IT, THEREFORE, CANNOT BE SAID THAT THE TRIBUNAL COM MITTED AN ERROR IN FOLLOWING THE SAID JUDGMENT OF THE MADRAS HIGH COUR T. IN VIEW OF THE SAID DECISION OF THE MADRAS HIGH COURT, THE ONLY COURSE WHICH THE TRIBUNAL COULD HAVE FOLLOWED WAS TO DIRECT THE ITO TO CONSID ER THE PARTIAL PARTITION ON THE MERITS AND PASS AN ORDER UNDER S. 171 FIRST AND THEN UNDER S. 143(3) OF THE ACT 15. IT IS CLEAR THAT, EXCEPT ON THE ISSUE OF LE GALITY OF THE STATUTORY PROVISION ITSELF, THE DECISIONS OF EVEN THE NON-JURISDICTIONAL HIGH C OURTS ARE BINDING ON THE LOWER TIERS OF JUDICIAL HIERARCHY SUCH AS THIS TRIBUNAL. AS WE HOLD SO, WE ARE ALIVE TO THE SCHOOL OF THOUGHT THAT NON JURISDICTIONAL HIGH COUR TS ARE NOT BINDING ON THE SUBORDINATE COURTS AND TRIBUNALS, AS ARTICULATED BY HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. VED PRAKASH [(198 9) 178 ITR 332 (P&H)] BUT THEN THAT WAS A CASE IN THE CONTEXT OF VALIDITY OF A STATUTORY PROVISION, I.E. 140A(3), COVERED BY THE RIDER TO THE GENERAL PROPOSITION. TH IS EXCEPTION DOES NOT COME INTO PLAY IN THE PRESENT CASE AS WE ARE NOT, AND WE CANN OT BE, DEALING WITH THE CONSTITUTIONAL VALIDITY OF A PROVISION. CLEARLY, TH EREFORE, THE VIEWS EXPRESSED BY HON'BLE NON JURISDICTIONAL HIGH COURT, IN THE ABSEN CE OF A DIRECT DECISION ON THAT ISSUE BY THE HON'BLE JURISDICTIONAL HIGH COURT, DES ERVE UTMOST RESPECT AND DEFERENCE. 16. THE DIFFICULTY, HOWEVER, ARISES IN THE CASE IN WHICH HON'BLE NON JURISDICTIONAL HIGH COURTS HAVE EXPRESSED CONFLICTING VIEWS AND TH E SUBORDINATE COURTS AND TRIBUNALS DO NOT HAVE THE BENEFIT OF GUIDANCE FROM HON'BLE JURISDICTIONAL HIGH COURT. 17. IN OUR HUMBLE UNDERSTANDING OF THE LEGAL POSITI ON AND OF THE PROPRIETY, IT WILL BE WHOLLY INAPPROPRIATE FOR US TO CHOOSE VIEWS OF O NE OF THE HIGH COURTS BASED ON OUR PERCEPTIONS ABOUT REASONABLENESS OF THE RESPECT IVE VIEWPOINTS, AS SUCH AN EXERCISE WILL DE FACTO AMOUNT TO SITTING IN JUDGMEN T OVER THE VIEWS OF THE HON'BLE HIGH COURTS- SOMETHING DIAMETRICALLY OPPOSED TO THE VERY BASIC PRINCIPLES OF HIERARCHICAL JUDICIAL SYSTEM. OF COURSE, WHEN THE M ATTER TRAVELS TO HON'BLE JURISDICTIONAL HIGH COURT, THEIR LORDSHIPS, BEING U NFETTERED BY THE VIEWS OF A NON- ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 32 - JURISDICTIONAL HIGH COURT, CAN TAKE SUCH A CALL ON MERITS. THAT EXERCISE, AS WE UNDERSTAND, SHOULD NOT BE CARRIED OUT BY US. 18. THE CHOICE OF WHICH OF HON'BLE HIGH COURT TO FO LLOW MUST, THEREFORE, BE MADE ON SOME OBJECTIVE CRITERION. WE HAVE TO, WITH OUR H IGHEST RESPECT OF ALL THE HON'BLE HIGH COURTS, ADOPT AN OBJECTIVE CRITERION FOR DECID ING AS TO WHICH OF THE HON'BLE HIGH COURT SHOULD BE FOLLOWED BY US. WE FIND GUIDAN CE FROM THE JUDGMENT OF HON'BLE SUPREME COURT IN THE MATTER OF CIT VS. VEGETABLE PRODUCTS LTD. [(1972) 88 ITR 192 (SC)]. HON'BLE SUPREME COURT HAS LAID DOWN A PRINCIPLE THA T 'IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISIONS ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADOPTED' ALTHOUGH THIS PRINCIPLE SO LAID DOWN WAS IN THE CONTEXT OF PENALTY, AND THEIR LORDSHIPS SPECIFICALLY STATED SO IN SO MANY WORDS, IT HAS BEEN CONSISTENTLY FOLLOWED FOR THE IN TERPRETATION ABOUT THE STATUTORY PROVISIONS AS WELL. IN ANOTHER SUPREME COURT JUDGME NT, PETRON ENGG. CONSTRUCTION (P) LTD. & ANR. VS. CBDT & ORS. [(1989 ) 175 ITR 523 (SC)] THE ABOVE PRINCIPLE OF LAW HAS BEEN REITERATED BY OBSER VING AS FOLLOWS: '......COUNSEL SUBMITS THAT WHEN TWO INTERPRETATION S ARE POSSIBLE TO BE MADE, THE INTERPRETATION WHICH IS FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED. IN SUPPORT OF THAT CONTENTION, LEARNED COU NSEL HAS PLACED RELIANCE UPON A FEW DECISIONS OF THIS COURT IN CIT VS. MADHO PRASAD JATIA (1976) 105 ITR 179 (SC); CIT VS. VEGETABLE PR ODUCTS LTD. (1973) 88 ITR 192 (SC) AND CIT VS. KULU VALLEY TRANSP ORT CO. P. LTD. (1970) 77 ITR 518 (SC) : .........THE ABOVE PRINCIPLE OF LAW IS WELL-ESTABLISHED AND THERE IS NO DOUBT ABOUT THAT.......' 19. HAVING NOTED THE LEGAL POSITION AS ABOVE, IT IS APPROPRIATE, FOR THE SAKE OF COMPLETENESS, TO NOTE THE EXCEPTION TO THIS GENERAL RULE AS WELL. HON'BLE SUPREME COURT HAD, HOWEVER, SOME OCCASIONS TO DEVIATE FROM THIS GENERAL PRINCIPLE OF INTERPRETATION OF TAXING STATUTE WHICH CAN BE CONST RUED AS EXCEPTIONS TO THIS GENERAL RULE. IT HAS BEEN HELD THAT THE RULE OF RES OLVING AMBIGUITIES IN FAVOUR OF TAX-PAYER DOES NOT APPLY TO DEDUCTIONS, EXEMPTIONS AND EXCEPTIONS WHICH ARE ALLOWABLE ONLY WHEN PLAINLY AUTHORISED. THIS EXCEPT ION, LAID DOWN IN LITTMAN VS. BARRON 1952(2) AIR 393 AND FOLLOWED BY APEX COURT IN MANGALORE CHEMICALS & FERTILIZERS LTD. VS. DY. COMMR. OF CT (1992) SUPPL. (1) SCC 21 AND NOVOPAN INDIA LTD. VS. CCE & C 1994 (73) ELT 769 (SC), HAS BEEN SUMMED UP IN THE WORDS OF LORD LOHEN, 'IN CASE OF AMBIGUITY, A TAXIN G STATUTE SHOULD BE CONSTRUED IN FAVOUR OF A TAXPAYER DOES NOT APPLY TO A PROVISI ON GIVING TAX-PAYER RELIEF IN CERTAIN CASES FROM A SECTION CLEARLY IMPOSING LIABI LITY'. THIS EXCEPTION HAS BEEN ALSO REITERATED BY HON'BLE SUPREME COURT IN THE CAS E OF OIL & NATURAL GAS COMMISSION VS CIT (CIVIL APPEAL NO. 730 OF 2007, JU DGMENT DATED 1 ST JULY 2015; REPORTED IN WWW.ITATONLINE.ORG). HOWEVER, IN THE PRESENT CASE, THIS EXCEPTION HAS NO APPLICATION. THE RULE OF RESOLVING AMBIGUITY IN FAVOUR OF THE ASSESSEE DOES NOT ALSO APPLY WHERE THE INTERPRETATION IN FAVOUR OF AS SESSEE WILL HAVE TO TREAT THE PROVISIONS UNCONSTITUTIONAL, AS HELD IN THE MATTER OF STATE OF M.P. VS. DADABHOY'S NEW CHIRMIRY PONRI HILL COLLIERY CO. LTD. AIR 1972 (SC) 614. THAT IS WHAT HON'BLE JURISDICTIONAL HIGH COURT HAS ALSO HELD IN THE CASE OF SHAH ELECTRICAL CORPORATION (SUPRA). NONE OF THESE EXCEPTIONS, HOWEVER, ADMITTE DLY APPLY TO THE SITUATION THAT WE ARE DEALING WITH AT PRESENT. ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 33 - 20. THERE CAN BE NO DISPUTE ON THE PROPOSITION THAT IRRESPECTIVE OF WHETHER OR NOT THE JUDGMENTS OF HON'BLE NON JURISDICTIONAL HIGH CO URTS ARE BINDING ON US, THESE JUDGMENTS DESERVE UTMOST RESPECT WHICH IMPLIES THAT , AT THE MINIMUM, THESE JUDGMENTS ARE TO BE CONSIDERED REASONABLE INTERPRET ATIONS OF THE RELATED LEGAL AND FACTUAL SITUATION. VIEWED THUS, WHEN THERE IS A REA SONABLE INTERPRETATION OF A LEGAL AND FACTUAL SITUATION, WHICH IS FAVOURABLE TO THE A SSESSEE, SUCH AN INTERPRETATION IS TO BE ADOPTED BY US. IN OTHER WORDS, HON'BLE NON JU RISDICTIONAL HIGH COURT'S JUDGMENT IN FAVOUR OF THE ASSESSEE, IN THE LIGHT OF THIS LEGAL PRINCIPLE LAID DOWN BY HON'BLE SUPREME COURT, IS TO BE PREFERRED OVER THE HON'BLE NON JURISDICTIONAL HIGH COURT NOT FAVOURABLE TO THE ASSESSEE. IN OUR H UMBLE UNDERSTANDING, IT IS ONLY ON THIS BASIS, WITHOUT SITTING IN VALUE JUDGMENT ON THE VIEWS EXPRESSED BY A HIGHER TIER OF JUDICIAL HIERARCHY, THAT THE CONFLICTING VI EWS OF HON'BLE NON JURISDICTIONAL HIGH COURTS CAN BE RESOLVED BY US IN A TRANSPARENT, OBJECTIVE AND PREDICTABLE MANNER. 21. IT IS VERY TEMPTING TO BELIEVE, OR PRETEND TO B ELIEVE, THAT, IN THE ABSENCE OF DIRECT DECISION ON THE ISSUE BY THE HON'BLE JURISDI CTIONAL HIGH COURT, WE HAVE UNFETTERED DISCRETIONS IN EXERCISE OF OUR JUDICIAL POWERS BUT THEN SUCH AN APPROACH WILL NOT ONLY BE CONTRARY TO SETTLED LEGAL POSITION , AS SET OUT ABOVE, BUT ALSO, IN A WAY, AN EXERCISE IN IMPROPRIETY. 22. WE MAY ALSO MENTION THAT A SINGLE MEMBER BENCH OF THIS TRIBUNAL, IN THE CASE OF ITO VS BHARAT SANCHAR NIGAM LIMITED AND VICE VERSA (ITA NO 170/HYD/2010 AND CO NO 10/HYD/10; ORDER DATED 5TH JUNE 2015) HAS REACHED THE SAME CONCLUSION BUT THE REASONING ADOPTED, FOR FOLLOWING HON'BLE KARNATAKA HIGH COURT'S JUDGMENT IN THE CASE OF BHARTI AIRTEL LIMIT ED (SUPRA), WAS STATED TO BE THAT 'SINCE NO JURISDICTIONAF HIGH COURT DECISION IS AVA ILABLE AS ON DATE, THE LATEST DECISION OF KARNATAKA HIGH COURT, WHICH HAS CONSIDE RED AND DISTINGUISHED EARLIER RULINGS OF OTHER HIGH COURTS, DESERVES TO B E FOLLOWED'. OUR CONCLUSION IS THE SAME BUT OUR DECISION TO FOLLOW HON'BLE KARNATA KA HIGH COURT'S JUDGMENT IS SIMPLY THIS JUDGMENT IS TO BE PREFERRED OVER, IN TH E LIGHT OF SETTLED LEGAL PRINCIPLES SET OUT ABOVE, OTHER HON'BLE HIGH COURT JUDGMENTS, BECAUSE IT IS FAVOURABLE TO THE ASSESSEE. WITH UTMOST RESPECT AND REVERENCE TO ALL THE HON'BLE COURTS, IT IS NOT FOR US TO CHOOSE WHICH DECISION IS TO BE FOLLOWED BECAU SE OF ITS MERITS BECAUSE OF WHAT IT HAS DISCUSSED OR BECAUSE OF HOW IT HAS DISTINGUI SHED OTHER HON'BLE HIGH COURTS OR BECAUSE OF ITS TIMING I.E. OF ITS BEING LATEST. EVEN WHEN A NON-JURISDICTIONAL HIGH COURT DISTINGUISHES ALL OTHER DECISIONS OF HON'BLE HIGH COURTS BUT HOLDS A VIEW UNFAVOURABLE TO THE ASSESSEE, THAT DECISION CANNOT NORMALLY BE PREFERRED OVER A DECISION FROM ANOTHER HON'BLE NON JURISDICTIONAL HI GH COURT DECISION, OF EQUAL STATURE, IN FAVOUR OF THE ASSESSEE. THAT IS, AS WE UNDERSTAND, CORRECT APPROACH TO THE MATTER AND THAT IS THE REASON WHY WE COME TO TH E SAME CONCLUSION AS THE SMC DID BUT FOR ALTOGETHER DIFFERENT REASONS. 23. WE HAVE ALSO NOTED THAT MATERIAL FACTS OF THE C ASE AND THE TERMS OF AGREEMENTS WITH THE DISTRIBUTORS ARE THE SAME AS WERE BEFORE H ON'BLE KARNATAKA HIGH COURT IN THE ABOVE CASE. A COMPARATIVE CHART OF THESE CLA USES IS AS FOLLOWS: SL. NO. DISCOSURE IN THE AGREEMENT AS HIGHLIGHTED IN THE HONBLE KARNATAKA HIGH COURTS JUDGMENT CORRESPONDING CLAUSE IN THE AGREEMENT OF THE ASSESSEE WITH ITS PRE-PAID DISTRIBUTORS ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 34 - RELEVANT EXTRACTS 1 THE AGREEMENT STIPULATES THAT THE DISTRIBUTORS HAVE TO REPRESENT TO THE CUSTOMERS THAT THE DISTRIBUTOR'S AGREEMENT WITH THE CUSTOMERS/ITS DEALERS IS ON PRINCIPAL-TO-PRINCIPAL BASIS AND ASSESSES IS NO WAY CONCERNED OR LIABLE TO THE CUSTOMERS/DEALERS OF THE DISTRIBUTOR' -PAGE 68. CLAUSE 17.2 SPECIFICALLY PROVIDES THAT THE RELATIONSHIP CREATED BY THE AGREEMENT IS THAT OF A BUYER AND SELLER AND THAT THE AGREEMENT IS ON A 'PRINCIPAL TO PRINCIPAL' BASIS AND NEITHER PARTY IS, NOR SHALL BE DEEMED TO BE, AN AGENT/PARTNER OF THE OTHER. IT IS ALSO PROVIDED THAT NOTHING IN THE AGREEMENT SHALL BE CONSTRUED TO RENDER THE DISTRIBUTOR A PARTNER OR AGENT OF THE ASSESSEE 2 'DISTRIBUTOR SHALL NOT MAKE ANY PROMISE, REPRESENTATBN OR TO GIVE ANY WARRANTY OR GUARANTEE WITH RESPECT TO SERVICES AND PRODUCTS, WHO ARE NOT AUTHORIZED BY THE ASSESSEE'- PAGE 69. CLAUSE 1E OFANNEXURE III TO THE AGREEMENT PROVIDES THAT THE DISTRIBUTOR SHALL NOT MAKE ANY PROMISES OR REPRESENTATBN OR GIVE ANY WARRANTIES OR GUARANTEES IN RESPECT OF THE SERVICE TICKETS EXCEPT SUCH AS ARE CONSISTENT WITH THOSE WHICH ACCOMPANY THE SERVICE TICKET OR AS EXPRESSLY AUTHORIZED BY THE ASSESSEE IN WRITING. 3 THAT THE INSURANCE LIABILITY FOR THE ENTIRE STOCK IN TRADE IN THE PREMISES AT THE ADDRESS UNDER REFERENCE WILL BE OF THE DISTRIBUTOR AND THE LIABILITY FOR ANY LOSS OR DAMAGE DUE TO ANY FIRE, BURGLARY, THEFT ETC., WILL BE OF THE DISTRIBUTOR.'- PAGE 69. AS PER CLAUSE (IV) OF ANNEXURE II TO THE AGREEMENT, THE ASSESSEE IS NOT LIABLE FOR ANY LOSS, PILFERAGE OR DAMAGE TO THE RECHARGE VOUCHERS/SERVICE TICKETS POST- DELIVERY OF THE SAME TO THE DISTRIBUTORS. THE ASSESSEE DOES NOT COMPENSATE THE DISTRIBUTORS FOR ANY UNSOLD STOCK 4 'THE DISTRIBUTOR HAS NO EXPRESS OR IMPLIED RIGHT OR AUTHORITY TO ASSUME OR UNDERTAKE ANY OBLIGATION IN RESPECT OF OR ON IN THE NAME OF THE ASSESSEE.' PAGE 70. DISTRIBUTOR DOES NOT HAVE AN AUTHORITY TO ASSUME OR CREATE ANY OBLIGATIONS VWL'S BEHALF OR INCUR ANY LIABILITY ON BEHALF OF VWL OR ACCEPT ANY CONTRACT BINDING UPON VWL (CLAUSE 17.1 OF THE AGREEMENT). 5 'CHANNEL PARTNER BE LIABLE TO PAY ALL THE TAXES SUCH AS SALES TAX, SERVICE TAX APPLICABLE AND PAYABLE IN RESPECT OF THE SUBJECT MATTER OF THIS AGREEMENT AND STATUTORY INCREASE IN RESPECT THEROF -PAGE 72. THE DISTRIBUTOR SHALL PAY ALL LICENSES, FEE, TAXES, DUTIES, SALES TAX, SERVICE TAX AND ANY OTHER CHARGES, ASSESSMENTS PENALTIES WHETHER STATUTORY OR OTHERWISE LEVIED BY ANY AUTHORITY IN CONNECTION WITH THE OPERATION OF DISTRIBUTOR'S OFFICE (CLAUSE III(B) OF ANNEXURE III TO AGREEMENT). ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 35 - 6 'AFTER SALE OF PRODUCTS DISTRIBUTOR/CHANNEL PARTNER CANNOT RETURN GOODS TO THE ASSESSEE FOR WHATEVER REASON'-PAGE 74. THE ASSESSEE SHALL NOT BE RESPONSIBLE FOR ANY POST DELIVERY DEFECT IN THE SERVICE TICKETS. NO REQUEST OF REFUND OF ANY MONEY SHALL BE ENTERTAINED BY THE ASSESSEE IN ANY CIRCUMSTANCES (CLAUSE E-ANNEXURE I). 7 'DISTRIBUTORS ARE EVEN PREVENTED FROM MAKING ANY REPRESENTATION TO THE RETAILERS UNLESS AUTHORIZED BY THE ASSESSEE'. THE DISTRIBUTOR SHALL NOT MAKE ANY PROMISES OR REPRESENTATIONS OR GIVE ANY WARRANTIES OR GUARANTEES IN RESPECT OF THE PRODUCTS (I.E. SIM CARS AND PRE- PAID VOUCHERS) (CLAUSE 1E ANNEXURE III). 24. IN THE LIGHT OF THE ABOVE DISCUSSIONS, AND PART ICULARLY AS THERE IS NO DISPUTE THAT THE FACTUAL MATRIX OF ALL THE CASES BEFORE THE HON'BLE NON JURISDICTIONAL HIGH COURTS WERE MATERIALLY THE SAME AS IN THIS CASE, IN CONFORMITY WITH THE ESTEEMED VIEWS OF HON'BLE KARNATAKA HIGH COURT IN BHARTI AIR TEL'S CASE (SUPRA), AND HOLD AS FOLLOWS: (A) ON THE FACTS OF THE CASE, AND AS IS EVIDENT FRO M A READING OF THE AGREEMENTS BEFORE US, THE ASSESSEE HAS SOLD, BY WAY OF PREPAID VOUCHERS, E-TOP UPS AND PREPAID SIM CARDS, THE 'RIGHT TO SERVICE' ON PRINCIPAL TO PRINCIPAL BA SIS TO ITS DISTRIBUTORS. AS EVIDENT FROM THE TERMS AND CONDITIONS FOR SALE, PLACED AT PAGE 136 OF THE PAPER-BOOK, NOT ONLY THAT THE SALE WAS FINAL AND THE ASSESSEE WAS NOT RESPONSIBLE FOR ANY POST-DELIVERY DEFECTS IN THE SE RVICES, IT WAS SPECIFICALLY AGREED THAT 'NO REQUEST OF REFUND OF ANY MONEY SHALL BE ENTERTA INED BY VEGL (I.E. THE ASSESSEE) UNDER ANY CIRCUMSTANCES'. (B) THE FACT THAT THERE ARE CERTAIN CONDITIONS AND STIPULATIONS ATTACHED TO THE SALE OF THIS RIGHT OF SERVICE BY THE ASSESSEE TO HIS DIS TRIBUTORS DOES NOT AFFECT THE CHARACTER OF SALE ON PRINCIPAL TO PRINCIPAL BASIS. (C) SECTION 194 H COMES INTO PLAY ONLY IN A SI TUATION IN WHICH 'ANY PERSON, ........RESPONSIBLE FOR PAYING..... TO A RESIDENT, ANY INCOME BY WAY OF COMMISSION ' PAYS OR CREDITS SUCH 'INCOME BY WAY OF COMMISSION' . HOWEVER, SINCE AT THE TIME OF THE ASSESSEE SELLING THESE RIGHTS FOR A CONSIDER ATION TO THE DISTRIBUTOR, THE DISTRIBUTOR DOES NOT EARN ANY INCOME, THE PROVISION S OF SECTION 194 H DO NOT COME INTO PLAY ON THE TRANSACTION OF SALE OF THE RIGHT T O SERVICE BY THE ASSESSEE TO HIS DISTRIBUTORS. THE CONDITION PRECEDENT FOR ATTRACTIN G SECTION 194H OF THE ACT IS THAT THERE SHOULD BE AN INCOME PAYABLE BY THE ASSESSEE T O THE DISTRIBUTOR (D) SO FAR AS THE TRANSACTION OF SALE OF 'RIGHT TO SERVICE' BY THE ASSESSEE TO HIS DISTRIBUTOR IS CONCERNED, WHILE IT HAS INCOME POTEN TIAL AT A FUTURE POINTS OF TIME (I.E. WHEN THIS RIGHT TO SERVICE IS SOLD AT A PROFI T BY THE DISTRIBUTOR), RATHER THAN ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 36 - EARNING INCOME, DISTRIBUTORS INCUR EXPENDITURE FOR THE PURCHASE OF PREPAID CARDS. THEREFORE, AT THE TIME OF THE ASSESSEE SELLING THES E PRE-PAID CARDS, HE IS NOT IN POSSESSION OF ANY INCOME BELONGING TO THE DISTRIBUT OR. ACCORDINGLY, THE QUESTION OF ANY INCOME ACCRUING OR ARISING TO THE DISTRIBUTOR A T THE POINT OF TIME OF SALE OF PREPAID CARD BY THE ASSESSEE TO THE DISTRIBUTOR DOE S NOT ARISE. (E) IN A SITUATION IN WHICH THE ASSESSEE HAS CREDIT ED THE SALE PROCEEDS AT THE TRANSACTION VALUE (IN CONTRAST WITH THE TRANSACTION BEING SHOWN AT FACE VALUE AND THE DIFFERENCE BETWEEN FACE VALUE AND THE TRANSACTI ON VALUE CREDITED TO THE DISTRIBUTOR), THE TAX DEDUCTION LIABILITY UNDER SEC TION 194H DOES NOT ARISE. WHILE LEARNED COUNSEL FOR THE ASSESSEE HAS STATED AT THE BAR THAT THE SALE PROCEEDS ARE CREDITED AT THE TRANSACTION VALUE, THIS ASPECT OF T HE MATTER IS TO BE VERIFIED BY THE ASSESSING OFFICER, AND IN CASE THE SALES IS ACCOUNT ED FOR AT THE FACE VALUE, TO THAT EXTENT, THE TAX WITHHOLDING LIABILITY IS TO BE SUST AINED, BOTH THE LEARNED REPRESENTATIVES ARE AD IDEM THAT N EITHER THE HONBLE APEX COURT NOR JURISDICTIONAL HIGH COURT HAVE DECID ED THE ISSUE TILL DATE. WE THUS DRAW SUPPORT FROM ABOVE EXTRACTED TRIBUNALS D ECISION AND DIRECT THE ASSESSING OFFICER TO FINALIZE SIMILAR FACTUAL VERIF ICATION IN THE VERY TERMS REPRODUCED HEREINABOVE. THIS ISSUE SUCCEEDS IN ASS ESSEES FAVOUR AS INDICATED HEREINABOVE. THE REVENUES CORRESPONDING GROUND NO.6 IS THUS DECLINED. SHRI SOPARKAR INFORMS US AT THIS STAGE T HAT THE ASSESSEE RAISES ONLY THE ABOVE TWO GROUNDS IN ITS APPEAL. WE ACCORDINGL Y ACCEPT ASSESSEES APPEAL ITA NO.944/AHD/2014 RAISING THESE TWO SUBSTA NTIVE GROUND ONLY IN THE TERMS INDICATED HEREINABOVE. 24. THE REVENUES NEXT SUBSTANTIVE GROUND NO.7 PLEA DS THAT THE DRP HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF R S.1,21,82,00,000/- MADE IN THE COURSE OF THE IMPUGNED DRAFT ASSESSMENT ON ACCO UNT OF RECEIPT OF PREPAID SERVICES CRYSTALLIZED IN THE IMPUGNED ASSESSMENT YE AR. THE SOLE ISSUE BETWEEN THE PARTIES IS ABOUT INCOME ARISES FROM SAL E OF PREPAID CARDS. THE REVENUE TREATS THE SAME TO BE A MERE RECHARGE TAXAB LE IN THE YEAR OF PURCHASE. THE ASSESSEES STAND AS AGAINST THIS IS THAT AS-9 MANDATES REVENUE RECOGNITION ONLY WHEN THE CORRESPONDING SERVICES AR E ACTUALLY RENDERED. WE NOTICE FROM THE CASE FILE THAT A CO-ORDINATE BENCH OF THIS TRIBUNAL IN (2013) 31 TAXMANN.COM 239 (DELHI-TRIB.) ACIT VS. SHYAM TELELI NKS LTD. UPHOLDS THE ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 37 - SAID ASSESSEES IDENTICAL CONTENTION ON THE PRINCIP LE OF RECOGNITION OF INCOME OF ACCRUAL BASIS PERTAINING TO SALE OF PREPAID SIM CARDS. WE FURTHER NOTICE THAT THE SAID CO-ORDINATE BENCH IN PARA 16 REMITS T HE ISSUE BACK TO THE ASSESSING OFFICER FOR FACTUAL VERIFICATION TO PREVE NT REVENUE LEAKAGE. WE ALSO FOLLOW SUIT IN THIS LEGAL AND FACTUAL BACKDROP AND DIRECT THE ASSESSING OFFICER TO VERIFY AS TO WHETHER THE ASSESSEE HAS DE CLARED THE REVENUE IN RESPECT OF THE EXPIRED PREPAID CARDS OR NOT IN THE SUCCEEDING ASSESSMENT YEAR. THIS REVENUES GROUND IS THUS PARTLY ACCEPTED FOR S TATISTICAL PURPOSES. 25. THE REVENUES NEXT SUBSTANTIVE GROUND NO.8 PLEA DS THAT THE DRP HAS ERRED IN TREATING ASSESSEES LICENSE FEE PAID TO DE PARTMENT OF TELECOMMUNICATION AS REVENUE EXPENDITURE U/S.37(1) OF THE ACT. SHRI SOPARKAR SUBMITS AT THIS STAGE THAT TRIBUNALS ORDE R IN ASSESSEES CASE FOR A.Y. 2006-07 (SUPRA) SQUARELY COVERS THE ISSUE IN ITS FA VOUR. THE SAME GOES UNREBUTTED FROM OTHER SIDE. WE THUS DECLINE THIS S UBSTANTIVE GROUND AS WELL. 26. THE REVENUES NEXT SUBSTANTIVE GROUND NO.8 AVER S THAT THAT THE DRP HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DEL ETE ROYALTY DISALLOWANCE OF RS.1,67,24,62,560/- PAID TO THE WIRELESS PLANNING C OMMISSION. THE ASSESSEE INFORMS THAT HEREIN AS WELL THAT THE DRPS FINDINGS UNDER CHALLENGE RELY ON HONBLE DELHI HIGH COURTS JUDGMENT 221 CTR 305 UPH OLDING TRIBUNAL S ORDER 120 TTJ 289 IN ITS OWN CASE FOR A.Y. 1999-200 0 CONCLUDING THE IMPUGNED PAYMENTS ARE IN THE NATURE OF REVENUE EXPE NDITURE ONLY. WE THUS FIND NO REASON TO ADOPT A DIFFERENT APPROACH IN THE IMPUGNED ASSESSMENT YEAR. THIS SUBSTANTIVE GROUND IS ALSO REJECTED. 27. THE REVENUES NEXT SUBSTANTIVE GROUND PLEADS TH AT THE DRP HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE OF RS .18,22,71,089/- MADE U/S.36(1)(III) OF THE ACT ON ACCOUNT OF CAPITALIZAT ION OF EXPENSES RELATING TO CAPITAL WORK IN PROGRESS. WE FIND THAT THE DRPS D IRECTIONS UNDER CHALLENGE ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 38 - ELABORATELY DISCUSS FACTS OF THE CASE ALONG WITH AS SESSING OFFICERS FINDINGS AND ASSESSEES SUBMISSIONS AS FOLLOWS: 15. THE ELEVENTH GROUND OF OBJECTION RAISED BY THE ASSEESEE IS THAT THE AO HAS ERRED IN MAKING PROPORTIONATE DISALLOWANCE OF INTER EST EXPENSES AMOUNTING TO RS 18,22,71,089 CLAIMED UNDER SECTION 36(1)(III) OF THE ACT, BY PLACING RELIANCE ON EXPLANATION 8 TO SECTION 43(1) OF THE A CT. : 15.1 ON THIS ISSUE, IN BRIEF, THE ASSESSING OFFICER HAS BASED HIS CONCLUSION IN THE DRAFT ASSESSMENT ORDER ON THE FOLLOWING CONTENTIONS : * AS PER SECTION 36(1)(III) OF THE ACT, INTEREST PA ID ON CAPITAL BORROWED FOR ACQUISITION OF ASSETS FOR EXTENSION OF BUSINESS IS NOT ALLOWED AS A DEDUCTION. .RELIANCE WAS PLACED ON EXP LANATION 8 TO SECTION 43(1) OF THE ACT; * THE ONUS OF THE ASSESSE WHO CLAIMED ANY EXPENDITU RE TO PROVE THAT THE SAID EXPENDITURE, INCLUDING THE EXPENDITURE CLA IMED UNDER SECTION 36(1)(III) OF THE ACT WAS FOR BUSINESS PURP OSES. RELIANCE IN THIS REGARD WAS PLACED ON THE FOLLOWING .JUDICIAL P RECEDENTS: MALWA COTTON SPINNING MILLS VS ACIT (89 ITD 65) (IT AT - CHANDIGARH); TIRUPATI TRADING CO. V. CIT [2000] (242 ITR 132) (H ON'BLE CALCUTTA HIGH COURT); IRIVENI ENGINEERING WORKS LTD. VS CIT (167 ITR 742) (HON'BLE ALLAHABAD HIGH COURT); SANGHVI SWISS REFILLS P LTD VS, ITO (85 ITD 59) (MU MBAI ITAT); CIT VS. ORISSA CEMENT LTD. (258 ITR 365) (DELHI ITA T); CIT V. MOTOR GENERAL FINANCE LTD [2002] (254 ITR 4 49) (DELHI ITAT) * THE ASSESSE COULD NOT PROVE BY WAY OF SUBMITTING FUND FLOW STATEMENT THAT THERE WAS NO DIVERSION OF INTEREST B EARING FUND. 15.2 WITH REGARD TO THIS GROUND OF OBJECTION, THE S UBMISSIONS OF THE ASSESSE, IN BRIEF, ARE AS UNDER: * ASSESSEE HAD INCURRED INTEREST EXPENDITURE IN RE SPECT OF VARIOUS ECB LOANS OBTAINED FOR ACQUISITION OF CAPITAL ASSET S FOR CONTINUATION OF THE EXISTING TELECOM CONNECTIVITY B USINESS; * THE INTEREST PAID ON BORROWED FUNDS FOR ACQUISITI ON OF A CAPITAL ASSET, EVEN FOR A PERIOD PRIOR TO THE DATE OF PUT T O USE, QUALIFIES AS A DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT. RELI ANCE IN THIS REGARD IS PLACED ON THE FOLLOWING JUDICIAL PRECEDENTS: CORE HEALTHCARE LTD (298 ITR 194)'(HON'BLE SUPREME COURT); UNITED PHOSPHOROUS LTD (299 ITR 9) (HON'BLE SUPREME COURT); ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 39 - VARCLHMAN POLYTEX LTD V CIT (349 ITR 090) (HON'BLE SUPREME COURT) * EXPLANATION 8 TO SECTION 43(1) OF THE ACT STATES THAT ANY INTEREST EXPENDITURE INCURRED ON ACQUISITION OF CAPITAL ASSE T AFTER IT IS PUT TO USE CANNOT BE CAPITALIZED IN THE ACTUAL COST. IN TH E INSTANT CASE, THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE EVEN AFT ER VARIOUS ASSETS HAVE BEEN PUT TO USE. HENCE, AS PER PROVISIONS OF E XPLANATION 8 TO SECTION 43(1) OF THE ACT, THESE INTEREST EXPENSES C ANNOT FORM PART OF ACTUAL COST OF THE ASSET AS PER SECTION 43(1) OF TH E ACT AND HENCE, CANNOT BE CAPITALIZED. * THE CASE LAWS RELIED UPON BY THE AO DEALS WITH CA SES WHEREBY INTEREST FREE LOANS / ADVANCES WERE PROVIDED BY THE ASSESSEE TO ITS GROUP COMPANIES / SISTER CONCERNS / SUBSIDIARIES AN D THE ASSESSEE WAS UNABLE TO SUBSTANTIATE THAT THE SAID LOANS / AD VANCES WERE PROVIDED OUT OF OWN FUNDS AND NOT OUT OF BORROWED F UNDS. HOWEVER, IN THE INSTANT CASE, AS NO INTEREST FREE LOANS / AD VANCES WERE GIVEN TO GROUP COMPANIES, THE DECISIONS RELIED BY AO ARE NOT APPLICABLE. DECISION 15.3 WE HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND CONTENTIONS OF THE AO AS INCORPORATED, IN THE DRAFT ASSESSMENT ORDER. WE HAVE ALSO GONE THROUGH THE VARIOUS ORAL AND WRITTEN SUBMISSION MAD E BY THE ASSESSEE'S REPRESENTATIVE. THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE DURING THE YEAR IN RESPECT OF VARIOUS ECB LOANS OBTAINED FOR A CQUISITION OF CAPITAL ASSETS. THE ASSESSE HAS ACQUIRED CAPITAL ASSETS FOR ITS EXISTING BUSINESS AND NOT FOR THE PURPOSE OF EXTENSION OF THE BUSINESS. H ENCE, PROVISO TO SECTION 36(1)(III) OF THE ACT CANNOT BE INVOKED AND DEDUCIB ILITY OF INTEREST EXPENDITURE WOULD BE DETERMINED BY SECTION 36(1)(II I) OF THE ACT. FURTHER, AS MENTIONED BY THE ASSESSEE, IT HAS INCUR RED INTEREST, EXPENDITURE ON ECBS USED FOR ACQUISITION OF CAPITAL ASSETS AND HENCE, INTEREST EXPENDITURE HAS ALSO BEEN INCURRED EVEN AFTER CAPIT AL ASSETS HAVE BEEN PUT TO USE. THUS, PROVISIONS OF EXPLANATION 8 TO SECTIO N 43(1) ARE ALSO NOT APPLICABLE TO THE ASSESSSEE AS PER DECISIONS OF HON 'BLE SUPREME COURT IN THE CASE OF CORE HEALTH CARE .IS RELIED ON BY THE A SSESSEE. IN THE SAID DECISION, HON'BLE SUPREME COURT HELD THAT INTEREST EXPENDITURE INCURRED ON BORROWINGS USED FOR ACQUISITION OF CAPITAL ASSETS F OR THE PURPOSES OF EXISTING BUSINESS AND NOT FOR THE PURPOSE OF EXPANS ION, WOULD BE ALLOWABLE AS A DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT. HENCE, INTEREST EXPENDITURE INCURRED BY THE ASSESSEE WHICH IS NOT F OR THE EXTENSION OF EXISTING BUSINESS BUT FOR THE PURPOSE OF NORMAL BUS INESS OPERATIONS WOULD BE ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT. F URTHER, HON'BLE SUPREME COURT HAS AFTER CONSIDERING PROVISIONS OF EXPLANATI ON 8 TO SECTION 43(1) HELD THAT THE SAID EXPLANATION IS NOT RELEVANT WHIL E DETERMINING DEDUCTION OF INTEREST EXPENDITURE UNDER SECTION 36(1)(III) OF THE ACT. THE RELEVANT OBSERVATIONS OF HON'BLE SUPREME COURT IN CASE OF CO RE HEALTH CARE LTD. ARE AS UNDER: ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 40 - 'THE DETERMINATION OF ACTUAL COST IN SECTION 43(1) HAS RELEVANCY IN RELATION TO SECTION 32(DEPRECIATION ALLOWANCE), SECTION 32A( INVESTMENT ALLOWANCE), SECTION 33(DEVELOPMENT REBATE ALLOWANCE), AND SECTI ON 41 (BALANCING CHARGE). 'ACTUAL COST' OF AN ASSET HAS NO RELEVANCY IN RELATION SECTION 36(1)(III) OF THE 1961 ACT. , THIS REASONING FLOWS FROM A BARE READING OF SECTION 43(1). SECTION 43 DEFINES CERTAIN TERMS RELEVANT TO INCOME FROM PROFITS AND GAINS OF BUSINESS AND, THEREFORE, THE SAID SECTION COMMENCES WITH THE WORDS 'IN SECTIONS 28 TO 41 AND UNLESS THE CONTEXT OTHERWISE REQUIRES' 'ACTUAL COST' SHALL MEAN THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE, REDUCING BY THAT PORTION OF THE COST THER EOF, IF ANY, AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR A UTHORITY. IN OTHER WORDS, EXPLANATION 8 APPLIES ONLY TO THOSE SECTIONS LIKE S ECTIONS 32, 32A, 33 AND 41 WHICH DEAL WITH CONCEPTS LIKE DEPRECIATION. THE CONCEPT OF DEPRECIATION IS NOT THERE IN SECTION 36(1)(III), TH AT IS WHY THE LEGISLATURE HAS USED THE WORDS 'UNLESS THE CONTEXT OTHERWISE RE QUIRES'. HENCE, EXPLANATION 8 HAS NO RELEVANCY TO SECT/ON 36(1)(III ). IT HAS RELEVANCY TO THE AFOREMENTIONED ENUMERATED SECTIONS. THEREFORE, IN O UR VIEW EXPLANATION 8 HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE .... SECTION 36(1)(III) IS ATTRACTED WHEN THE ASSESSEE BORROWS THE CAPITAL FOR THE PURPOSE OF HIS BUSINESS. IT DOES NOT MATTER WHETHER THE CAPITAL IS BORROWED IN ORDER TO ACQUIRE A REVENUE ASSET OR A CAPITAL ASSET, BECAUSE OF THAT THE SECTION REQUIRES IS THAT THE ASSESSEE MUST BORROW THE CAPIT AL FOR THE PURPOSE OF HIS BUSINESS. ....' THE ABOVE PRINCIPLES WERE SUBSEQUENTLY FOLLOWED BY HON'BLE SUPREME COURT IN THE CASE OF UNITED PHOSPHOROUS LTD. (299;L TR 9) AND VARDHMAN POLYTEX LTD V CIT (349 ITR 690). HENCE, RESPECTFULLY FOLLOWING THE ABOVE JUDGMENTS O F HON'BLE, SUPREME COURT, WE HOLD THAT INTEREST EXPENDITURE INCURRED B Y THE ASSESSEE ON ECB USED FOR ACQUISITION OF CAPITAL ASSETS IS ELIGIBLE FOR DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT. ACCORDINGLY, WE DIRECT THE A O TO DELETE THE PROPOSED ADDITION OF INTEREST EXPENDITURE INCURRED BY ASSESS EE. HENCE, THIS GROUND OF ASSESSEE IS ALLOWED. 28. HEARD BOTH SIDES. THE REVENUE STRONGLY CONTEND S THAT THE ASSESSING OFFICER HAD RIGHTLY INVOKED THE IMPUGNED DISALLOWAN CE IN THE ABOVE DRAFT ASSESSMENT BY QUOTING SECTION 43(1) EXPLANATION 8 O F THE ACT. IT HOWEVER FAILS TO DISPUTE THAT HONBLE APEX COURT DECISION I N CORE HEALTHCARE CASE (SUPRA) CATEGORICALLY HOLDS THAT THE SAID EXPLANATI ON DOES NOT APPLY IN CASE OF 36(1)(III) DEDUCTION. THE ASSESSEE AT THIS STAGE S TATES TO HAVE INCURRED THE IMPUGNED INTEREST EXPENDITURE IN RESPECT OF VARIOUS EXTERNAL CORPORATE BORROWINGS OBTAINED FOR ACQUISITION OF CAPITAL ASSE TS FOR CONTINUING ITS EXISTING TELECOM BUSINESS ONLY AND NOT FOR EXTENSIO N THEREOF. ITS FURTHER CASE ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 41 - IS THAT THE INTEREST IN QUESTION PAID ON BORROWED F UNDS FOR ACQUISITION OF A CAPITAL ASSET IS ALLOWABLE EVEN FOR A PERIOD TO DAT ED OF ITS BEING PUT TO USE. AS PER HONBLE APEX COURTS DECISION HEREINABOVE HOLDI NG THAT THERE IS NO DISTINCTION U/S.36(1)(III) BETWEEN INTEREST INCURRE D ON CAPITAL BORROWED FOR REVENUE OR CAPITAL PURPOSES PROVIDED THE SAME IS US ED FOR BUSINESS PURPOSES IRRESPECTIVE OF THE RESULT OF USE OF SUCH CAPITAL. WE AFFORDED AMPLE REBUTTAL OPPORTUNITY TO REVENUE. LD. DEPARTMENTAL REPRESENT ATIVE FAILS TO TAKE US TO ANY MATERIAL IN THE CASE FILE SO AS TO PROVE THAT A SSESEES INTEREST IN QUESTION IS COVERED U/S.36(1)(III) PROVISO AS AMENDED BY THE FINANCE ACT, 2015 W.E.F. 01.04.2016 SINCE IT IS A CASE WHEREIN THE IMPUGNED INTEREST IS IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS ALREAD Y ATTRACTING THE MAIN LIMB OF STATUTORY PROVISION INSTEAD OF THE ABOVE PROVISO . THIS REVENUES GROUND IS ACCORDINGLY DECLINED. 29. THIS LEAVES US WITH THE REVENUES LAST SUBSTANT IVE GROUND ASSAILING CORRECTNESS OF THE DRPS DIRECTIONS DELETING UPWARD TRANSFER PRICING ADJUSTMENT ON VARIOUS FACETS IN GROUND NOS. 11 TO 1 1(J) IN ITS PLEADINGS. 30. A PERUSAL OF THE CASE RECORD INDICATES THAT THE ASSESSEE HAD PAID BRAND ROYALTY FEE AMOUNTING TO RS.5,37,37,397/- AND RS.2, 68,68,699/- TO ITS OVERSEAS ASSOCIATE ENTERPRISES, NAMELY, M/S. VODAFO NE IRELAND MARKETING LTD. AND M/S. RISING GROUPS LTD.; RESPECTIVELY. IT ADOPTED THE TRANSACTION NET MARGIN METHOD (TNMM) TO BENCHMARK THE SAME. WE FIN D FROM TRANSFER PRICING OFFICERS ORDER DATED 28.01.2013 THAT HE RE JECTED ASSESSEES METHOD AFTER HOLDING THAT THE SAME WAS AN INDIRECT ONE LIA BLE TO GIVE WAY TO THE OTHER DIRECT METHODS IN THE INCOME TAX RULES. HE RELIED ON THIS TRIBUNALS DECISION IN M/S. SERDIA PHARMACEUTICALS INDIA PVT. LTD. CASE 44 SOT 391 (MUMBAI) TO ADOPT CUP METHOD (COMPARABLE UNCONTROLLED PRICE) IN FACTS OF THE INSTANT CASE. HE THEREAFTER WAS OF THE VIEW THAT ARMS LEN GTH PRICE FOR ROYALTY ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 42 - PAYMENT FOR ESSAR BRAND AS RS. NIL AND CORRESPON DING PAYMENT HAD TO BE RESTRICTED TO 0.25% ON GROSS SALES AS AGAINST 0.275 % DECLARED BY THE ASSESSEE. HE ADOPTED SIMILAR COURSE OF ACTION FOR THE LATER P AYEE REGARDING VODAFONE BRAND. THE SAME RESULTED IN THE IMPUGNED UPWARD AD JUSTMENT OF RS.3,17,53,917/-. WE NOTICE FROM THE ABOVE TPOS O RDER THAT HE WENT BY ASSESSEES RELATED PARTIES ROYALTY AGREEMENT TRANSA CTIONS IN PROPOSING THE IMPUGNED ADJUSTMENT. THE DISPUTE RESOLUTION PANEL REVERSES THE SAME LEAVING THE REVENUE AGGRIEVED. 31. WE HAVE HEARD RIVAL CONTENTIONS. SUFFICE TO SA Y, SINCE THE TRANSFER PRICING OFFICER IN THE INSTANT CASE HAS PROCEEDED T O PROPOSE THE IMPUGNED UPWARD ADJUSTMENT ON THE BASIS OF RELATED PARTY TR ANSACTIONS AFTER ADOPTING CUP METHOD INSTEAD OF TNMM HEREINABOVE, WE FIND THA T A CO-ORDINATE BENCH OF THIS TRIBUNAL IN ACIT VS. BILAG INDUSTRIES PVT. LTD. ITA NO. 1441 & 1670/AHD/2006 AND 343/AHD/2012 QUOTES A CATENA OF C ASE LAW TO DISAGREE WITH SUCH AN APPROACH AS FOLLOWS: 28. WE HAVE HEARD BOTH THE SIDES. LEARNED REPRESE NTATIVES REITERATE THEIR RESPECTIVE PLEADINGS IN SUPPORT OF AND AGAINST THE IMPUGNED TRANSFER PRICING ADJUSTMENT. THERE IS HARDLY AND DISPUTE THAT THE A SSESSEE AGREED TO SUPPLY DELTAMETRIN AND ITS INTERMEDIATE CHEMICAL SOLUTIONS TO THE ABOVE STATED ASSOCIATE ENTERPRISE OR ITS DESIGNEE. THIS LIS HOWEVER IS CON FINED TO ARMS LENGTH PRICE DETERMINATION OF 18 TONES SUPPLIED TO THE FOREIGN E NTITY. THE ASSESSEE CHARGES @ US $ 126.2 PER KG BY FOLLOWING COST + 55% MARKUP. I TS AGREEMENT QUOTED DELTAMETRIN PRICE TO BE @ 161.20 US $ PER KG. THE A SSESSEE ALSO ADMITTED THE LATTER RATE TO BE AT ARMS LENGTH PRICE AS ALREADY I NDICATED IN PAGE 292 OF THE PAPER BOOK. THIS MADE THE TPO TO INTER ALIA TO REJECT ASS ESSEE'S OTHER CONTENTIONS FOR MAKING IMPUGNED UPWARD TRANSFER PRICING ADJUSTMENT OF RS. 2,96,10,000/- SUBJECT MATTER OF THE INSTANT LITIGATION. 29. WE DEEM IT APPROPRIATE AT THIS STAGE TO DEAL WI TH CHAPTER X OF THE ACT CONTAINING TRANSFER PRICING PROVISIONS RELATING TO AVOIDANCE OF TAX INTRODUCED BY THE FINANCE ACT, 2001 W.E.F. 01-04-2002. THE IMPUGN ED ASSESSMENT YEAR BEFORE US IS THE FIRST FULL FLEDGED YEAR OF BUSINESS THEREAFT ER. SECTION 92(1) MANDATES ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION TO BE COMPUTED HAVING REGARD TO ARMS LENGTH PRICE. THE SAME ADMITTEDLY APPLIES IN C ASE OF INTERNATIONAL TRANSACTIONS; AS IT THEN WAS, BETWEEN TWO ASSOCIATE ENTERPRISES ILLUSTRATED IN SECTION 92A OF THE ACT. WE REPEAT THAT THIS ASSESSE E AND ITS OVERSEAS ASSOCIATE ENTERPRISE ADMITTEDLY FALL IN THIS CATEGORY. THERE IS FURTHER NO QUARREL ABOUT ITS DELTAMETHRIN SALE TO BE IN THE NATURE OF INTERNATIO NAL TRANSACTIONS U/S. 92B OF THE ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 43 - ACT. WE NOTICE THAT SECTION 92C(1) OF THE ACT POSTU LATES ARMS LENGTH PRICE COMPUTATION BY APPLYING SIX METHODS NAMELY; COMPARA BLE UN-CONTROLLED PRICE METHOD (CUP), RE-SALE PRICE METHOD (RPM), COST +MET HOD (CPM), PROFIT SPLIT METHOD (PSM), TRANSACTIONAL NET MARGIN METHOD (TNMM ) AND THE RESIDUARY ONE SUCH OTHER METHODS AS MAY BE PRESCRIBED BY THE CENT RAL BOARD OF DIRECT TAXES. AN ASSESSING OFFICER'S JURISDICTIONAL FLOWS THEREAFTER U/S. 92CA OF THE ACT TO MAKE REFERENCE TO THE TPO FOR ASCERTAINING ARMS LENGTH P RICE OF THE RELEVANT INTERNATIONAL TRANSACTIONS. 30. WE NOW COME TO THE CORRESPONDING INCOME TAX RULES. RULE 10A DEFINES VARIOUS EXPRESSIONS USED IN ALL CONTEMPORARY PROVIS IONS. SUB-RULE (A); AS IT WAS IN THE IMPUGNED ASSESSMENT YEAR DEFINES AN UN-CONTROLL ED TRANSACTION TO MEAN A TRANSACTION OTHER THAN THAT BETWEEN TWO ASSOCIATE ENTERPRISES; WHETHER RESIDENT OR NON-RESIDENT. WE KEEP IN MIND THE SAME AND PROCEED FURTHER TO RULE 10B PRESCRIBING ARMS LENGTH PRICE FOR THE PURPOSE OF SE CTION 92C(2) OF THE ACT BY USING ANY OF THE SIX METHOD AS THE MOST APPROPRIATE METHO D AS ENUMERATED IN CLAUSE (A) TO (F); RESPECTIVELY IN THE GIVEN SEQUENCE IN CHAPT ER 10 OF THE ACT. THE LAST CLAUSE (F) RELEVANT FOR ANY OTHER APPROPRIATE METHOD HEREI NABOVE CONTAINS A SPECIFIC RULE 10AB. THIS IS ADMITTEDLY NOT GERMANE TO THE ISSUE BEFORE US. WE FIND THAT ONLY CLAUSE (A) TO (E) HEREINABOVE PERTAINING TO ' CUP' AND TNMM METHODS ARE RELEVANT FOR THE INSTANT ADJUDICATION. WE FIND IT A FIT CASE TO REPEAT THAT THE ASSESSEE HAD EMPLOYED TNMM METHOD FOR CHARGIN G @ COST + 55% MARKUP I.E. AN INDIRECT METHOD FOR DECLARING ITS ALP. THE TPO ADOPTED ITS DIRECT SALE PRICE @ 161.2 US $ PER KG FOR MAKING THE IMPUGNED UPWARD AD JUSTMENT. WE DO NOT FIND A SINGLE OBSERVATION EVEN IN HIS ORDER REJECTING ASSE SSEE'S TNMM METHOD BEFORE ADOPTING THE AGREEMENT PRICE IN QUESTION UNDER THE CUP METHOD. 31. WE STAY BACK ON RULE 10B(1)(A) AT THIS STAGE. I T IS EVIDENT THAT THIS CLAUSE PRESCRIBES CUP METHODS APPLICATION TO DETERMINE CON TROLLED PRICE OF AN INTERNATIONAL TRANSACTION BY THE PRICE CHARGED OR P AID FOR PROPERTY TRANSFER OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRAN SACTION; OR A NUMBER OF TRANSACTION, AS IDENTIFIED. THE SAME FORMS A PRICE CHARGED OR PAID IN RELATION TO PROPERTY OR SERVICES AS THE BASIS OF ALP TRANSACTIO N. WE REFERRED TO THE ABOVE STATED RULE 10A(A) TO OBSERVE HERE THAT THE EXPRESS ION 'COMPARABLE UN-CONTROLLED TRANSACTION' SIGNIFIES A TRANSACTION BETWEEN ENTERP RISES OTHER THAN ASSOCIATE ONES; WHETHER RESIDENT OR NON-RESIDENT. IT HAS ALREADY CO ME ON RECORD THAT THE TPO IN THE INSTANT CASE RELIED UPON ASSESSEE'S AGREED PRIC E RATE OF US $ 161.20 PER KG FOR DELTAMETHRIN SUPPLY IN ORDER TO MAKE THE IMPUGNED T RANSFER PRICING ADJUSTMENT. WE REPLY ON ABOVE STATED STATUTORY PROVISION IN THE ACT AS WELL AS RULE TO OBSERVE THAT THE SAME IS RATHER IN THE NATURE OF A COMPARAB LE CONTROLLED TRANSACTION BETWEEN TWO ASSOCIATE ENTERPRISES NEGATING THE BASI C FUNDAMENTAL CONDITION OF CUP METHODS APPLICATION. 32. WE PROCEED FURTHER TO OBSERVE HERE THAT VARIOUS CO-ORDINATE BENCHES OF THIS TRIBUNAL HAVE ALREADY ADJUDICATED THIS ISSUE AS TO WHETHER AN ACCEPTED NET PROFIT MARGIN FROM A TRANSACTION WITH AN ASSOCIATE ENTERPR ISE CAN BE TAKEN AS COMPARABLE OR NOT BEING AN INTERNAL COMPARABLE FOR DETERMINING ARMS LENGTH PRICE. TWO TRIBUNALS DECISIONS REPORTED AS (2012) 2 4 TAXMANN.COM 28 (MUM) (TM) TECHNIMONT ICB PVT. LTD. VS. ACIT AS REITERATED IN ITA 2587/AHD2012 PINO BISAZZA GLASS PVT. LTD VS. ACIT ALREADY DECIDE THIS ISSUE IN ASSESSEE'S FAVOUR TO ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 44 - CONCLUDE THAT SUCH A COMPARABLE IS NOT TO BE ADOPTE D AS COMPARABLE UN-CONTROLLED TRANSACTION PRICE IN QUESTION. 33. WE HAVE ALREADY NOTICED THAT A COMPARABLE UN-CO NTROLLED TRANSACTION INSTEAD OF A CONTROLLED FORMS SINE QUA NON FOR DETERMINING ALP OF AN INTERNATIONAL TRANSACTION BETWEEN TWO ASSOCIATE ENTERPRISES LEAVI NG BEHIND NO SCOPE OF APPLICATION OF ESTOPPEL PRINCIPLE OR ACCEPTANCE OF AGREED PRICES IN ABSENCE OF AN COMPARABLE UN-CONTROLLED TRANSACTION. THE REVENUE'S VEHEMENT CONTENTIONS ADVANCED IN THE COURSE OF HEARING SEEKING TO INVOKE ESTOPPEL PRINCIPLE FAILS TO CONVINCE US. 34. WE FURTHER DEEM IT APPROPRIATE TO OBSERVE AT TH IS STAGE THAT THE IMPUGNED ASSESSMENT YEAR 2002-03 IS THE FIRST FULL-FLEDGED B USINESS OF YEAR AFTER INTRODUCTION OF CHAPTER X TRANSFER PRICING PROVISION INCORPORATE D IN THE ACT. THE TPO'S ORDER DATED 10-03-2005 DOES NOT EVEN ISSUE A SHOW CAUSE N OTICE DISAGREEING WITH ASSESSEE'S TNMM METHOD. HE HAS RATHER PROCEEDED TO ADOPT CUP METHOD(SUPRA) AGAIN BY IGNORING THE FUNDAMENTAL CONDITION OF APPL YING THE SAME. SAME IS THE CASE WITH LEARNED CIT(A) WHO HAS PROCEEDED ON REVEN UE NEUTRAL IMPLICATION WITHOUT EVEN TAKING INTO SECTION 92(1) R.W.S. 92C A ND 92C(4) PROVISO ALONG WITH RULES DISCUSSED HEREINABOVE AT LENGTH. THERE IS HA RDLY ANY DISPUTE THAT THIS CHAPTER AND THE RULES NOTIFIED THEREUNDER PRESCRIBE THAT AN ARMS LENGTH PRICE IS NOT THE PRICE AN ASSESSEE IS CHARGING OR PAYING FOR BEI NG A PARTY IN THE INTERNATIONAL TRANSACTION IN QUESTION BUT IT IS THE PRICE I.E. TO BE PAID OR CHARGED IN SUCH A COMPARABLE CONTROLLED TRANSACTION IN COMPARISON TO A COMPARABLE UN-CONTROLLED TRANSACTION. WE REPEAT THAT THE TPO HAS NOT KEPT IN MIND THIS FINE DISTINCTION. WE ACCORDINGLY REVERSE HIS ACTION ON THIS SOLE LEGAL P RINCIPLE. NEEDLESS TO SAY, THE CIT(A) HAS ALREADY DELETED THE IMPUGNED ADJUSTMENT. WE FIND NO REASON TO INTERFERE IN THE LOWER APPELLATE ORDER ALBEIT ON A DIFFERENT SCORE AS ENUMERATED HEREINABOVE. THIS REVENUE'S GROUND IS DECLINED ACCO RDINGLY. WE HAVE GIVEN OUT THOUGHTFUL CONSIDERATION TO RIVA L CONTENTIONS. LD. DEPARTMENTAL REPRESENTATIVE FAILS TO PINPOINT ANY E XCEPTION IN FACTS OF THE INSTANT CASE VIS--VIS THOSE EXTRACTED HEREINABOVE WITH REGARD TO THE IMPUGNED UPWARD TRANSFER PRICING ADJUSTMENT BASED O N RELATED PARTY AGREEMENTS ONLY. WE THUS FIND NO REASON TO INTERFE RE WITH THE DRPS DIRECTION UNDER CHALLENGE ON THIS COUNT ALONE. THI S SUBSTANTIVE GROUND IS ALSO REJECTED. 32. WE COME TO ASSESSEES CROSS APPEAL ITA NO.944/A HD/2014. SHRI SOPARKAR INVITES OUR ATTENTION TO THE PRECEDING PAR AS ALLOWING BOTH OF ASSESSEES SUBSTANTIVE GROUNDS CHALLENGING SECTION 40(A)(IA) DISALLOWANCE(S) ON ROAMING CHARGES AND PREPAID SIM CARDS (SUPRA). NEEDLESS TO SAY, NO ITA NO.909 & 944/AHD/2014 (DCIT VS. M/S. VODAFONE W EST LTD.) A.Y. 2009-10 - 45 - SEPARATE ADJUDICATION IS REQUIRED. THIS APPEAL ITA NO.944/AHD/2014 IS ALLOWED IN TERMS INDICATED HEREINABOVE. 33. THE REVENUES APPEAL ITA NO.909/AHD/2014 IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES AND ASSESSEES CROSS APPEAL IT A NO.944/AHD/2014 IS ACCEPTED. [PRONOUNCED IN THE OPEN COURT ON THIS THE 17 TH DAY OF NOVEMBER, 2016.] SD/- SD/- (PRAMOD KUMAR) (S . S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 17/11/2016 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ()*+ ,--. ./0 / DR, ITAT, AHMEDABAD 1+2345 / GUARD FILE. BY ORDER / . // ./0