The DCIT, Circle-1,, RAJKOT-GUJARAT v. Ishan Infotech Ltd.,, RAJKOT-GUJARAT

ITA 1312/RJT/2010 | 2007-2008
Pronouncement Date: 31-07-2013 | Result: Dismissed

Appeal Details

RSA Number 131224914 RSA 2010
Assessee PAN AAACI8683C
Bench Rajkot
Appeal Number ITA 1312/RJT/2010
Duration Of Justice 2 year(s) 7 month(s) 30 day(s)
Appellant The DCIT, Circle-1,, RAJKOT-GUJARAT
Respondent Ishan Infotech Ltd.,, RAJKOT-GUJARAT
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2013
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 31-07-2013
Date Of Final Hearing 22-07-2013
Next Hearing Date 22-07-2013
Assessment Year 2007-2008
Appeal Filed On 01-12-2010
Judgment Text
Y I IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH RAJKOT. . . R . . BEFORE SHRI T. K. SHARMA JM AND SHRI D. K. SRIVASTAVA AM ITA NO. 1312/RJT/2010 'R R / ASSESSMENT YEAR 200 7 - 0 8 THE DEPUTY COMMISSIONER OF INCOME - TAX CIRCLE - 1 RAJKOT. ( / APPELLANT) ISHAN INFOTECH LTD. 315/316 DR. YAGNIK ROAD OPP: JAGNATH TEMPLE RAJKOT. PAN : A A ACI8683C / RESPONDENT D I / REVENUE BY AVINASH KUMAR DR 'REI / ASSESSEE BY SHRI J. C. RANPURA CA I Y / DATE OF HEARING 2 2 - 0 7 - 2013 I Y / DATE OF PRONOUNCEMENT 31 - 0 7 - 2013 / ORDER . . R / T. K. SHARMA J. M. : THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DATED 14 - 09 - 2010 OF CIT (A) - I RAJKOT FOR THE ASSESSMENT YEAR 200 7 - 0 8 . 2. BRIEFLY STATED T HE FACTS ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN TRADING OF COMPUTE R HARDWARE AND PROVIDING TELECOMMUNICATION SERVICES. FOR THE ASSESSMENT YEAR UNDER APPEAL IT FILED THE RETURN OF INCOME ON 3 1 - 1 0 - 2007 DECLARING THE TOTAL INCOME OF RS. 12 58 620 / - AFTER CLAIMING THE DEDUCTION U/S.80IA(4) OF RS.21 34 454/ - . AO FRAMED THE AS SESSMENT U/S. 143(3) OF THE I.T. ACT 1961 ON 3 0 - 1 1 - 20 0 9 WHEREIN HE DISALLOWED THE DEDUCTION CLAIMED U/S.80IA(4)((II) OF RS.21 34 434/ - ON THE GROUND THAT ASSESSEE - COMPANY IS NOT AN INFRASTRUCTURE DEVELOPER ISP OR BROADBAND NETWORK AND HENCE NOT ELIGIBLE FOR DEDUCTION CLAIMED UNDER THIS SECTION. 3. ON APPEAL IN THE IMPUGNED ORDER THE LD. CIT (A) DIRECTED THE AO TO ALLOW THE DEDUCTION U/S.80IA(4) FOR THE DETAILED REASONS GIVEN IN PARA - 5 WHICH READS AS UNDER: - ITA 1312 - 201 0 2 5. I HAVE CONSIDERED THE ISSUE CAREFULLY . AS PER SEC.80IA(4) DEDUCTION IS ALLOWABLE TO A CONCERN STARTS PROVIDING INTERNET SERVICES. SO FAR AS APPELLANTS CASE IS CONCERNED IT HAS PURCHASED A SPECIFIC QUANTUM OF BANDWIDTH FROM ANOTHER COMPANY AND HAS STARTED PROVIDING INTERNET SERVICES. WHEN T HE APPELLANT PURCHASED A PARTICULAR BANDWIDTH FROM ANOTHER COMPANY IT DOES NOT BECOME A CONTRACTOR FOR THAT COMPANY BUT IT BECOMES AN INDEPENDENT CONCERN. THE AOS FINDING THAT THE APPELLANT IS MERELY WORKING FOR THE OTHER PARTY IS NOT PROPER BECAUSE FO R PROVIDING NET WORK SERVICES THE APPELLANT HAD TO CREATE VARIOUS INFRASTRUCTURE FACILITY SO THAT IT IS ABLE TO PROVIDE INTERNET SERVICES TO ITS CUSTOMER. THE APPELLANT HAS INCURRED INITIAL CAPITAL EXPENDITURE FOR LAYING INFRASTRUCTURE FOR PROVIDING INTER NET SERVICES IN THE FORM OF FIBRE NETWORK IN THE ENTIRE AREA OF RAJKOT SO THAT IT CAN CATER BROADBAND INTERNET SERVICE REQUIREMENT. PROVIDING OF SUCH FIBRE NET WORK IS ESSENTIAL FOR BRINGING INTERNET SERVICES TO THE USERS. WITHOUT LAYING SUCH INFRASTRUCTUR E NET WORK IT CANNOT BE POSSIBLE TO CATER TO THE NEEDS OF THE USERS WHO ARE USING INTERNET SERVICES PROVIDED BY THE APPELLANT. IN FACT THE FINDING OF THE AO THAT VARIOUS ITEMS LIKE DARK FIBRES RIGHT OF WAY ETC. HAD TO BE PROVIDED BUT WAS NOT PROVIDED B Y THE APPELLANT IS ALSO INCORRECT BECAUSE APPELLANT HAD LAID DARK FIBRES RIGHT OF WAY AND DUCT SPACE ETC. TO CREATE PROPER INFRASTRUCTURE FACILITY TO PROVIDE INTERNET SERVICES. THE PLAIN READING OF SECTION STATES THAT APPELLANT ENGAGED IN PROVIDING INTER NET SERVICES IS ENTITLED TO THIS DEDUCTION. AS DISCUSSED EARLIER THE APPELLANT HAS PURCHASED BANDWIDTH AND LAID ITS OWN INFRASTRUCTURE FACILITIES TO PROVIDE INTERNET SERVICES TO THE USERS. THEREFORE APPELLANT IS ENTITLED TO DEDUCTION U/S.80IA AS CLAIMED . THE AO IS DIRECTED TO ALLOW APPELLANTS CLAIM. AGGRIEVED WITH THE ORDER OF LD. CIT (A) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS: - 1 . THE L D. CIT (A) - I RAJKOT HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.21 34 454/ - MADE ON A/C. OF DISALLOWANCE U/S. 80IA OF THE ACT. 4. AT THE TIME OF HEARING BEFORE US ON BEHALF OF THE REVENUE SHRI AVIASH KUMAR DR APPEARED AND POINTED OUT THAT ASSESSEE - COMPANY IS PROVIDING INTERNET SERVICES TO ITS CUSTOMERS IN THE LOCAL CITY THROUGH CABLE SYSTEM THEREFORE IT IS NOT ELIGIBLE FOR ALLOWING DEDUCTION U/S.80IA OF THE I.T. ACT 1961. THE LD. CIT (A) DELETED THE ADDITION BY INFERRING THAT ASSESSEE PURCHASED BANDWIDTH AND LAID ITS OWN INFRASTRUCTURE TO PROVIDE INTERNET SERVICES TO TH E USERS THEREFORE IT WAS ELIGIBLE FOR DEDUCTION U/S.80IA OF THE I.T. ACT 1961. THE LD. DR POINTED OUT THAT DEDUCTION U/S.80IA IS ELIGIBLE ONLY TO THOSE ASSESSEES WHO ARE ACTUALLY INTERNET SERVICE PROVIDER (ISP) AND ONLY SUCH UNDERTAKINGS ARE CREATING BR OADBAND NETWORK AND THEN PROVIDING SERVICES EMANATING THERE FROM AND ASSESSEE WHO MERELY SERVICE PROVIDER IS NOT QUALIFIED FOR ENJOYING DEDUCTION U/S.80IA. IN THE INSTANT CASE THE ASSESSEE DOES NOT FULFILL THE CRITERIA LAID DOWN BECAUSE IT IS NOT AN ISP REGISTERED WITH THE DOT HAVING REQUIRED LICENSE. IT MERELY PURCHASING ITA 1312 - 201 0 3 BANDWIDTH FROM BLAZNET LTD. AND IS NOT AN ISP. THEREFORE KEEPING IN VIEW THE DETAILED REASONS MENTIONED IN SUB - PARA(6) OF THE ASSESSMENT ORDER DISALLOWANCE OF CLAIM WAS RIGHTLY MADE A ND LD. CIT (A) WITHOUT REBUTTING THE EVIDENCE RECORDED IN PARA - 6 OF THE ASSESSMENT ORDER DELETED THE ADDITION. THEREFORE DISALLOWANCE MADE BY AO BE RESTORED. AS AGAINST THIS SHRI J. C. RANPURA AR APPEARED FOR THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDE R OF LD. CIT (A). THE COUNSEL OF THE ASSESSEE POINTED OUT THAT ASSESSEE IS PROVIDING BROADBAND INTERNET SERVICES SINCE THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2005 - 06. SUCH SERVICES FALL UNDER THE CATEGORY OF TELECOMMUNICATION SERVICES U/S.80IA OF TH E I.T. ACT 1961. IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2005 - 06 IN A NOTE FORMING PART OF THE COMPUTATION OF INCOME IT WAS SUBMITTED THAT WE HAVE STARTED TO PROVIDE TELECOMMUNICATION SERVICES SPECIFICALLY NETWORK OF TURNKEY BROADBAND NETW ORK AND INTERNET SERVICES DURING THIS YEAR AND THEREFORE WE ARE ELIGIBLE FOR DEDUCTION U/S.80IA [SUB SEC.4(II)]. DURING CURRENT YEAR WE ARE NOT OPTING FOR DEDUCTION AS PER THE PROVISION OF SUB SEC.(2) WE WILL EXERCISE THE OPTION OF INITIAL YEAR IN FUTUR E. THE CLAIM WAS HOWEVER MADE AND ACCEPTED BY THE DEPARTMENT IN A Y 2006 - 07 AS ALSO 2008 - 09. 5. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT THE AO MADE A VERY NARROW INTERPRETATION OF THE TERM PROVIDING OF TELECOMMUNICATION SERVICES AND HELD THAT T HE ASSESSEE IS ONLY A SERVICE PROVIDER AND NOT AN UNDERTAKING. AO IGNORED THE FACTS THAT THE ASSESSEE HAD LAID NETWORK OF FIBRE OPTICS AND WIRELESS NETWORK IN ORDER TO TAKE THE BROADBAND SERVICES TO THE DOOR STEPS OF SERVICE BENEFICIARIES AND THAT THE LAST MILE OF BROADBAND SERVICES WERE CRUCIAL WHICH WERE PROVIDED BY THE ASSESSEE. IF NO SUCH INFRASTRUCTURE FACILITIES WERE CREATED THE INTERNET SERVICES WOULD REMAIN ONLY ON PAPER. IT IS ALSO CONTENDED THAT THE AO FAILED TO APPRECIATE THE NATURE OF THE ASSESSEES BUSINESS AS ALSO THE INTENT OF THE LEGISLATION. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CYBER BAZAR (INDIA) P LTD. VS. ACIT 237 CTR (KAR) 172 HAD DEFINED TELECOMMUNICATION SERVICE BY HOLDING THAT THE DEFINITION OF TELECOMMUNICATION SERVICE UNDER SECTION 2(K) OF TELECOM REGULATORY AUTHORITY OF INDIA ACT 1997 IS AN EXHAUSTIVE DEFINITION IT EXPRESSLY INCLUDES ELECTRONIC VOID MAIL DATA SERVICE ITA 1312 - 201 0 4 AUDIO TEXT SERVICES AND VIDEO TEXT SERVICES ALSO. UNDER SECTION 80IA(4)(II) THE DEFINITION IS AN INCLUSIVE DEFINITION WITHOUT SPECIFYING THE AFORESAID SERVICES. THUS ANY FORM OF FACILITATING TELECOM RELATED SERVICES FALLS UNDER THE DEFINITION OF TELECOMMUNICATION SERVICES AND HENCE ARE ELIGIBLE FOR DEDUCTION. 6. COUNSEL OF THE ASSESSEE RELIE D ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ESSEL SHYAM COMMUNICATIONS LTD. VS. CIT [81 CCH 122 DEL HC] WHEREIN IT WAS HELD THAT CLAUSE (II) TO SECTION 80IA(4) QUOTED ABOVE CAN BE BIFURCATED INTO SEVERAL PARTS. IT APPLIES TO AN UNDER TAKING WHICH HAD STARTED OR WAS PROVIDING (I) TELECOMMUNICATION SERVICES WHETHER BASIC OR CELLULAR (II) RADIO PAGING (III) DOMESTIC SATELLITE SERVICE (IV)NETWORK OF TRUNKING (V) BROADBAND NETWORK AND (VI) INTERNET SERVICE. ANY COMPANY PROVIDING THE SAI D SERVICES WAS ENTITLED TO CLAIM BENEFIT IN RESPECT OF INCOME EARNED I.E. PROFITS AND GAINS DERIVED FROM THE SAID SERVICES. THEREFORE THE FIRST AND FOREMOST REQUIREMENT WHEN A DEDUCTION IS CLAIMED WITH REFERENCE TO CLAUSE (II) OF SECTION 80IA(4) IS TO D ETERMINE AND DECIDE WHETHER THE ACTIVITY UNDERTAKEN BY THE ASSESSEE IS COVERED BY ANY OF THE CATEGORIES MENTIONED IN CLAUSE (II) TO SECTION 80IA(4). FINALLY COUNSEL OF THE ASSESSEE CONTENDED THAT ASSESSEE IS AN UNDERTAKING PROVIDING BROADBAND INTERNET SER VICES AFTER LAYING NECESSARY NETWORK FOR CARRYING THE DATA AFTER MAKING INITIAL CAPITAL INVESTMENT AND THEREFORE IS ELIGIBLE FOR CLAIM OF DEDUCTION U/S.80IA (4) WHICH IS RIGHTLY ALLOWED BY LD. CIT (A). FURTHER ASSESSEE IS PROVIDING SUCH SERVICE SINCE ASSE SSMENT YEAR 2005 - 06 AND ONWARDS AND ITS CLAIM INITIAL ASSESSMENT I.E. 2006 - 07 HAS BEEN ACCEPTED. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. TATA COMMUNICATIONS INTERNET SERVICES LTD. 251 CTR (DEL) 290 HELD THAT RESTRAIN OF SECTION 80IA(3) CANNOT BE CONSIDERED FOR EVERY YEAR OF CLAIM OF DEDUCTION BUT CAN BE CONSIDERED ONLY IN THE YEAR OF FORMATION OF THE BUSINESS. THE HONBLE GUJARAT HIGH COURT HAS ALSO IN THE CASE OF SAURASHTRA CEMENT & CHEMICAL INDUSTRIES VS. CIT 123 ITR 669 (GUJ) HELD THAT A REBATE GRANTED UNDER S. 80J CANNOT BE WITHDRAWN IN A SUBSEQUENT YEAR WITHOUT DISTURBING THE RELIEF GRANTED IN THE EARLIER YEAR. ITA 1312 - 201 0 5 7. TO SUM UP COUNSEL OF THE ASSESSEE PLEADED THAT VIEW TAKEN BY LD. CIT (A) BE UPHELD. 8. IN REJOINDER LD. DR POINTED O UT THAT THE ASSESSMENTS FOR THE YEAR 2005 - 06 AND 2006 - 07 WERE COMPLETED U/S.143(1) AND THEREFORE IT CANNOT BE SAID THAT IN THOSE TWO YEARS AO EXPRESSED ANY OPINION ON MERITS REGARDING ALLOWANCE OF DEDUCTION U/S.80IA(4) IN THOSE TWO YEARS. 9. HAVING HEARD BOTH SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT ASSESSEE - COMPANY HA D INCURRED INITIAL CAPITAL EXPENDITURE FOR LAYING INFRASTRUCTURE FOR PROVIDING INTERNET SERVICES IN THE FORM OF FIBRE NETWORK IN THE ENTIRE AREA OF RAJKOT SO THAT IT CAN CREATE INTERNET BROADBAND SERVICES REQUIREMENT. IN EARLIER TWO YEARS DEDUCTION U/S.80IA(4) AS CLAIMED IS ALLOWED AND NO REMEDIAL ACTIONS WERE TAKEN BY AO IN THOSE TWO YEARS AFTER COMPLETING THE ASSESSMENT YEAR UNDER APPEAL. BE THAT IT MAY BE IN RESPECT OF PROVIDING INTERNET SERVICES ALSO AN ASSESSEE IS ENTITLED TO DEDUCTION U /S.80IA(4) AS HELD BY HONBLE DELHI HIGH COURT IN THE CASE OF ESSEL SHYAM COMMUNICATIONS LTD. (SUPRA). WE ARE THEREFORE OF THE VIEW THAT LD. C IT (A) IS LEGALLY AND FACTUALLY CORRECT IN HOLDING THAT ASSESSEE IS ENTITLED TO DEDUCTION U/S.80IA(4) OF THE I.T. ACT 1961. WE THEREFORE DECLINED TO INTERFERE. 10. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. 11 . THIS O RDER IS PRONOUNCED IN OP EN COURT ON THE DATE MENTIONED HEREINABOVE. SD/ - SD/ - ( . . D D. K. SRIVASTAVA ) ( Y . . R / T. K. SHARMA) / ACCOUNTANT MEMBER ' D / JUDICIAL MEMBER / ORDER DATE 31 - 0 7 - 2013. /RAJKOT NVA/ - RJO O / COPY OF ORDER FORWARDED TO: - 1 . / APPELLANT - THE DEPUTY C OMMISSIONER OF INCOME - TAX CIR - 1 RAJKOT. 2 . / RESPONDENT - ISHAN INFOTECH LTD. 315/316 DR. YAGNIK ROAD OPP: JAGNATH TEMPLE RAJKOT. 3 . I T / CONCERNED CIT - I RAJKOT. 4 . T - / CIT (A) - I RAJKOT. 5 . ''I Y I / DR ITAT RAJKOT 6 . R / GUARD FILE. / BY ORDER TRUE COPY. PRIVATE SECRETARY ITAT RAJKOT .