Mahanagar Telephone Nigam LTd, v. Addl CIT Range 4,

ITA 2700/DEL/2007 | 2005-2006
Pronouncement Date: 11-03-2010 | Result: Allowed

Appeal Details

RSA Number 270020114 RSA 2007
Assessee PAN AAACL0828R
Bench Delhi
Appeal Number ITA 2700/DEL/2007
Duration Of Justice 2 year(s) 9 month(s) 13 day(s)
Appellant Mahanagar Telephone Nigam LTd,
Respondent Addl CIT Range 4,
Appeal Type Income Tax Appeal
Pronouncement Date 11-03-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 11-03-2010
Date Of Final Hearing 21-01-2010
Next Hearing Date 21-01-2010
Assessment Year 2005-2006
Appeal Filed On 29-05-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : D : NEW DELHI BEFORE SHRI D.R. SINGH AND SHRI R.C. SHARMA ITA NO.2208 TO 2211 & 2700/D/07 ASSESSMENT YEARS : 1998-99 1999-00 2000-01 2001- 02 &2005-06 MAHANAGAR TELEPHONE NIGAM LTD. VS. A.C.I.T. JEEVAN BHARTI BUILDING TOWER 1 12 TH RANGE-4 FLOOR 124 CONNAUGHT PLACE NEW DELHI NEW DELHI PAN NO.AAA CL 0828 R ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : S/SHRI VED JAIN & MS. RANO JA IN CAS RESPONDENT BY : SMT. KAVITA BHATNAGAR CIT- DR O R D E R PER R.C. SHARMA AM: THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEARS 1998-99 1999-00 2000-01 2002-03 & 2005-06 IN THE MATTER OF ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) INCOME TAX ACT 1961. 2. COMMON GRIEVANCE OF THE ASSESSEE IN ALL THE YEAR S RELATE TO DENIAL OF CLAIM OF EXEMPTION U/S 80-1A IN RESPECT OF INCOME E ARNED FROM TELECOMMUNICATION SERVICES. THE GROUNDS TAKEN IN T HE ASSESSMENT YEAR 1998-99 READ AS UNDER:- I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE ORD ER PASSED BY THE LEARNED CIT(A) IS BAD BOTH IN THE EY E OF LAW AND ON THE FACTS. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEA RNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN UPHO LDING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING THE DEDUCTION U/S 80-1A OF THE ACT AS CLAIMED AND ALLOW ABLE UNDER THE PROVISION OF THE ACT. ITA NOS.2208 TO 2211 & 27 00/D/07 2 III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEA RNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFI RMING THE ACTION OF THE ASSESSING OFFICER BY WRONGLY INTERPRETING THE PROVISIONS OF SECTION 80-1A WHERE BY DEDUCTION IS AVAILABLE IN RESPECT OF INCOME DERIVED FROM PROVIDING TELECOM SERVICES ON OR 1 ST APRIL 1995 AND THE APPELLANT COMPANY BEING A SERVICE PROVIDER ITS TOT AL INCOME AS SUCH FROM PROVIDING TELECOM SERVICES SHAL L BE EXEMPT. IV) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEA RNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN NOT APPRECIATING THE CONTENTION OF THE ASSESSEE THAT TH E DEDUCTION AVAILABLE U/S 80-1A BEING UNDERTAKING BAS ED THE COMPUTATION OF INCOME ELIGIBLE EVEN OTHERWISE H AS TO BE WORKED OUT FOR EACH UNDERTAKING @100 PER CENT FO R FIRST FIVE YEARS AND @ 30 PER CENT FOR THE NEXT 5 Y EARS FROM THE DATE OF SETTING UP OF SUCH UNDERTAKING. V) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEA RNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN REJEC TING THE CONTENTION OF THE ASSESSEE THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS NOT IN CONSONANCE WITH THE DIR ECTION GIVEN BY THE ITAT. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. THE FACTS IN BRIEF ARE THAT ASSESSEE IS A GOVERNMENT OF INDIA UN DERTAKING ENGAGED IN PROVIDING TELECOMMUNICATION SERVICES. IN RESPECT O F INCOME DERIVED OUT OF TELECOMMUNICATION SERVICES THE ASSESSEE CLAIMED DE DUCTION U/S 801A WHICH WAS DECLINED BY THE ASSESSING OFFICER IN THE FIRST ROUND OF PROCEEDINGS BEFORE HIM ON THE PLEA THAT ASSESSEE IS NOT ELIGIBL E FOR SUCH CLAIM. THE CIT(A) CONFIRMED THE ORDER OF ASSESSING OFFICER IN RESPECT OF ALL THESE YEARS AND THE ASSESSEE FIELD SECOND APPEAL BEFORE THE TRI BUNAL AND THE TRIBUNAL RESTORED THE MATTER BACK TO THE FILE OF ASSESSING O FFICER WITH THE DIRECTION TO THE AO THAT ASSESSMENT IS TO BE FRAMED AFTER CONSID ERING THE OBSERVATIONS CONTAINED THEREIN. THIS IS SECOND ROUND OF APPEAL B EFORE US. THE ISSUE INVOLVED IN ALL THESE APPEALS IS THE QUANTUM OF DED UCTION UNDER SECTION 80-IA OF THE ACT. IN THE FIRST ROUND THE AO HAS RE JECTED THE 80-IA CLAIM IN ITA NOS.2208 TO 2211 & 27 00/D/07 3 TOTALITY ON THE GROUNDS OF ELIGIBILITY OF THE ASSES SEE COMPANY. HOWEVER WHILE FRAMING THE ASSESSMENT IN THE SECOND ROUND T HE AO HAS ACCEPTED THAT THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION BUT RES TRICTED THE CLAIM IN TERMS OF TOTAL TELEPHONE EXCHANGES SET UP BY THE ASSESSEE. D URING THE HEARING BEFORE THE ITAT IN THE FIRST ROUND THE ASSESSEE HA S RAISED THE FOLLOWING CONTENTIONS AS STATED IN THE ITAT ORDER PARA 52 INTERNAL PAGE 34 WHICH READS AS UNDER: 52. THE LEARNED AR FURTHER SUBMITTED THAT AS PER TH E PROVISIONS OF SECTION 80-IA THIS DEDUCTION IS AVAILABLE TO NINE T YPES OF BUSINESS WHICH HAVE BEEN REFERRED TO AS ELIGIBLE BUSINESSES. FOR EACH TYPE OF ELIGIBLE BUSINESSES DIFFERENT CONDITIONS HAVE BEEN IMPOSED. SUB- SECTION (1) OF SECTION 80-IA ONLY ENUMERATES THESE NINE TYPES OF BUSINESSES AND SUB-SECTION (2) TO SUB-SECTION (4F) I.E. IN ALL NINE SUB- SECTIONS PLACE CONDITIONS TO BE FULFILLED BY EACH T YPE OF BUSINESSES FOR BEING ELIGIBLE TO CLAIM DEDUCTION AS TABULATED BELO W : (I) INDUSTRIAL UNDERTAKING SUB-SECTION (2) PRESCR IBES THE CONDITION TO WHOM IT SHALL BE APPLICABLE. (II). HOTEL SUB-SECTION (3) (III) OPERATION OF A SHIP SUB-SECTION (4) (IV) DEVELOPING MAINTAINING AND OPERATING ANY INFRASTRUCTURE FACILITY SUB-SECTION (4A) ITA NOS.2208 TO 2211 & 27 00/D/07 4 (V) SPECIFIC AND INDUSTRIAL RESEARCH SUB-SECTION (4 B) (VI) TELECOMMUNICATION SERVICES SUB-SECTION (4C) (VII) INDUSTRIAL PARK SUB-SECTION (4D) (VIII) REFINING OF MINERAL OIL SUB-SECTION (4E) (IX) HOUSING PROJECTS SUB-SECTION (4F) 52.1 THUS THE CONDITIONS FOR EACH OF THE ENTITIES ARE EXCLUSIVE CONDITIONS AND IT IS NOT THAT THE CONDITIONS OTHER THAN THOSE STATED IN PARTICULAR SUB- SECTION SHALL BE APPLICABLE TO OTHE RS ALSO. ACCORDINGLY IN THE CASE OF THE APPELLANT WHICH IS PROVIDING TE LECOMMUNICATION SERVICES ALL IT HAS TO FULFILL IS THE CONDITION PRESCRIBED IN SUB-SECTION (4C) OF THE ACT WHICH READS AS UNDER : ( 4C). THIS SECTION APPLIES TO ANY UNDERTAKING WHICH START S PROVIDING TELECOMMUNICATION SERVICES WHETHER BASI C OR CELLULAR INCLUDING RADIO- PAGING DOMESTIC SATELLITE SERVICES OR NETWO RK OF TRUNKING AND ELECTRONIC DATA INTERCHANGE SERVICES AT ANY TIME O N OR AFTER THE 1 ST OF APRIL 1995 BUT BEFORE THE 31 ST DAY OF MARCH 2000. 52.2 THE ABOVE IS AN EXCLUSIVE CLAUSE APPLICABLE T O TELECOMMUNICATION SERVICES AND CAN NOT BE CONFUSE D WITH THE CONDITIONS WHICH ARE APPLICABLE TO INDUSTRIAL UNDE RTAKING AND SPECIFIED IN SUB-SECTION (2). IT IS IMPORTANT TO NOTE THAT THERE IS NO WORD SUCH AS NEW UNDERTAKING IN THIS SUB-SECTION NOR THERE IS ANY ITA NOS.2208 TO 2211 & 27 00/D/07 5 CONDITION THAT IT WOULD NOT HAVE BEEN FORMED BY SPL ITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE NOR THERE IS ANY CONDITION THAT IT SHOULD NOT BE FORMED BY TRANSFE R TO NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE . 52.3 IN THE ABSENCE OF ANY OF THESE CONDITIONS BEI NG APPLICABLE TO AN UNDERTAKING PROVIDING TELECOM SERVICES SUCH UNDER TAKING CAN BE FORMED OUT OF A BUSINESS ALREADY IN EXISTENCE AND SUCH UNDERTAKING CAN ALSO USE THE MACHINERY OR PLANT PREVIOUSLY USED FO R ANY PURPOSE AN STILL CAN BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA( 1). THESE ARE IMPORTANT DISTINCTIONS. 4. AFTER EXAMINING THE ABOVE CONTENTION THE ITAT HA D HELD IN PARA 60 INTERNAL PAGE 49AS UNDER :- WE HAVE HEARD THE PARTIES WITH REFERENCE TO THE MAT ERIAL ON RECORD. THE RELEVANT PROVISIONS OF STATUTE HAVE ALSO BEEN PERUSED. IT APPEARS TO US THAT THE APPELLANT HAS AN ARGUABLE C ASE BUT THE AUTHORITIES BELOW HAVE NOT PASSED ANY SPEAKING OR DER ON THE APPELLANTS CLAIM AS TO WHETHER THE APPELLANT COULD BE HELD AN UNDERTAKING AFTER IT HAD PUT UP NEW EXCHANGES TO THE NEW SUBSCRIBERS AND MEETS OUT THE ESSENTIAL REQUIREMENT SO AS TO ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA OF THE ACT. IF THE APPELLANT DID NOT PRESS ITS CLAIM IN THE EARLIER YEARS THAT ALONE SHOULD NOT BE TAKEN AS A DISQUALIFICATION FOR THIS PURPOSE. WE THEREFORE SET ASIDE THE DECISION OF THE AUTHORITIES BELOW AND RES TORE THE MATTER BACK TO THE ASSESSING OFFICER FOR TAKING A DECISION AFR ESH IN THE LIGHT ITA NOS.2208 TO 2211 & 27 00/D/07 6 OF AFORESAID DIRECTIONS. A REASONABLE OPPORTUNITY OF BEING HEARD SHALL BE AFFORDED TO THE APPELLANT BEFORE TAKING D ECISION IN ACCORDANCE WITH LAW. 5. ACCORDINGLY AFTER THE ISSUE WAS SET ASIDED TO TH E AO THE AO EXAMINED THE FACTS AND AGREED THAT THE ASSESSEE CO MPANY IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA. 6. HOWEVER THE ASSESSING OFFICER DID NOT ALLOW THE FULL DEDUCTION. HE ALLOWED A PART DEDUCTION ON THE BASIS THAT DEDUCTIO N IS AVAILABLE FOR NEW EXCHANGES ONLY AND ACCORDINGLY APPORTIONED THE TOTA L INCOME ELIGIBLE PROPORTIONATELY ON THE BASIS OF TOTAL EXCHANGES VIS --VIS THE NEW EXCHANGES. THE CIT(A) HAS CONFIRMED THE ORDER OF THE AO. AGGRI EVED BY THE ORDER OF CIT(A) THE ASSESSEE IS AGAIN BEFORE US. 7. IT WAS CONTENDED BY LD AR SHRI VED JAIN THAT: 1. THE ISSUE AS SUCH BEFORE THE HONOURABLE TRIBUNA L IS WHETHER ASSESSEE WILL BE ELIGIBLE FOR TOTAL INCOME AND WHE THER AO WAS JUSTIFIED IN APPORTIONING THE INCOME IN THE MANNER HE HAS D ONE. 2. FOR THIS IT IS IMPORTANT TO READ SECTION 80-IA A ND NOTICE THE IMPORTANT DIFFERENCE IN SUB-SECTION (4C) WHICH IS APPLICABLE IN RESPECT OF TELECOMMUNICATION SERVICES VIS--VIS EXEMPTION AVAILABLE IN RESPECT OF OTHER ACTIVITIES. 3. ON READING OF SECTION 80-IA IT IS BE NOTICED THAT THIS SECTION PROVIDES EXEMPTION TO A DIFFERENT TYPE OF ACTIVITI ES. SUB-SECTION STATES THESE 9 ACTIVITIES IN A NARRATIVE FORM. THE EXEMPT ION IS WITH REFERENCE TO THE UNDERTAKING AND THE ENTIRE INCOME WHICH IS DERIVED FROM THE BUSINESS OF THE UNDERTAKING IS ELIGIBLE FOR EXEMPTION. FURTHER THE PERCENTAGE OF INCOME EXEMPT FOR 9 DIFFERENT ACTIVITIES IS STATED IN SUB- SECTION (5) AND THE NUMBER ITA NOS.2208 TO 2211 & 27 00/D/07 7 OF YEARS FOR WHICH EXEMPTION IS AVAILABLE HAVE BEEN STATED IN SUB- SECTION (6). 4. (I). THERE IS NO SUCH CONDITION IN SUB-SECTION (4C) THAT UNDERTAKING SHOULD HAVE COME INTO EXISTENCE AFTER 1.4.1995. 5. THERE IS NO CONDITION THAT SUCH UNDERTAKING BE NEW. (III). THERE IS NO CONDITION THAT UNDERTAKING SH OULD NOT HAVE BEEN FORMED BY RECONSTRUCTION OF EXISTING BUSINESS. 6. THERE IS NO SUCH WORD NEW UNDERTAKING NOR NEW PLANT AND MACHINERY AS DISTINCT FROM THE REQUIREMENT IN THE CASE OF INDUSTRIAL UNDERTAKING WHERE IT HAS TO BE A NEW IN DUSTRIAL UNDERTAKING OR A NEW HOTEL OR A NEW SHIP OR SHIP NOT USED EARLIE R IN INDIA. 7. IN FACT EVEN IF AN UNDERTAKING BUYS OLD MA CHINERY OR EQUIPMENT ALREADY USED AND PROVIDES COMMUNICATION SERVICES IT WILL BE ELIGIBLE FOR EXEMPTION. 8. THERE IS NO SUCH CLAUSE IN SUB-SECTION (4C) READ WITH SECTION (1) OF SECTION 80-IA THAT ON AN UNDERTAKING BEING ELIGIBLE FOR EXEMPTION THE BENEFIT WILL BE AVAILABLE OR COMPUTED PROPORTIONA TELY FOR THE NEW EQUIPMENTS OR NEW MACHINERY. 9. THE AO AND THE CIT(A) HAS IGNORED THESE IMPORTAN T DIFFERENCES. 10. THE AO AND CIT HAS ALSO IGNORED THE FACT THAT THE APPELLANT UNDERTAKING HAS BEEN TOTALLY REVAMPED. IT IS NOT M ERELY ADDITION OF NEW EXCHANGES. THERE IS ENTIRE CHANGE IN THE SET U P TECHNOLOGY INSTRUMENTS AND EQUIPMENTS. IT WAS EARLIER OPERATI NG ON OLD TECHNOLOGY WHEREBY THERE USED TO BE BIG CROSS BAR E XCHANGES WITH LARGE TELEPHONE INSTRUMENT OF DIALING TELEPHONE NUM BERS MECHANICALLY ITA NOS.2208 TO 2211 & 27 00/D/07 8 BY ROTATING THE DIAL. THIS TECHNOLOGY AND THE SYST EM HAS BEEN TOTALLY ABANDONED AND NEW EXCHANGE SET UP REPLACING THE OLD . 11. THE OLD LINES STANDS REPLACED BY OPTICAL FIBRES LINES. 12. NEW TECHNOLOGY AND DEVICES MADE POSSIBLE A MULT ITUDE OF NEW AND INTELLIGENT NETWORK SERVICES. A HOST OF NEW SE RVICES WERE INTRODUCED BY MTNL AFTER 1.4.1995. THESE ARE CELL ULAR SERVICES VIRTUALLY CALLING CARD ACCOUNT CALLING CARD PREMI UM RATE SERVICE VIRTUAL PRIVATE NETWORK AND ISDN CALLING LINE IDE NTIFICATION PRESENTATION CALL FORWARDING ON BUSY AND FREE ELE CTRONIC CLEARING SCHEME VOLUNTARY DEPOSIT SCHEME CREDIT CARD PAYME NT SCHEME TELE- MART INTERACTIVE VOICE RESPONSE SERVICES TELEPHONE BILL ASSISTANCE TELE-CARDIOLOGY AND DIRECTORY ON CDROM. 13. SEVERAL NEW TECHNOLOGIES HAVE BEEN INTRODUCED A FTER 1.4.1995. SOME OF THEM ARE SDH (SYNCHRONOUS DIGITAL HIERARCHY ) AND THE DLC DIGITAL LOOP CARRIER SYSTEM) WHICH REACHES THE BEN EFITS OF OPTIC FIBRE TO THE SUBSCRIBER. FULLY DIGITAL NETWORK HAS BEEN ESTABLISHED. THIS HAS INVOLVED TOTALLY NEW DIMENSIONS OF WORK SCRAP PING OF OLD LINES AND LAYING NEW ONES DEMOLITION OF OLD EXCHANGES AN D CONSTRUCTION OF NEW ONES AND DISCARDING OF OLD MACHINERY AND INSTRU MENTS AND INSTALLATION AND INTRODUCTION OF NEW SOPHISTICATED ONES. 14. VARIOUS ADD ON SERVICES SUCH AS DATACOM INET DID PABX VOICE MAIL RADIO PAGING AND ISDN HAS BEEN STARTED AFTER 1.4.1995. IN ADDITION TO THIS PHONE PLUS FACILITIES LIKE DYNA MIC LOCKING CALL WAITING/CALL TRANSFER HOT LINES ETC. HAS BEEN EXTE NDED TO VALUED CUSTOMERS. FURTHER IN ORDER TO MINIMIZE HUMAN RE-I NTERFACE IMPORTANT OPERATOR BASED SPECIAL SERVICES HAVE BEEN AUTOMATED WITH IVRS (INTERACTIVE VOICE RESPONSE SYSTEMS). ITA NOS.2208 TO 2211 & 27 00/D/07 9 15. IT HAS STARTED PROVIDING SEVERAL OTHER ADVANCED AND OTHER ADD ON SERVICES SUCH AS VIRTUAL CARD/ACCOUNT CARD CALLING FREE PHONE VIRTUAL PRIVATE NETWORK PREMIUM RATE SERVICE TELEWAITING ETC. A NEW TECHNIQUE NAMED DLC (DIGITAL LOOP CARRIER SYSTEM) H AS ALSO BEEN ESTABLISHED. 16. THUS 1995 ONWARDS THE ASSESSEES INDUSTRY HAS UNDERWENT A TREMENDOUS REVOLUTION RESULTING FROM THE POSSIBILIT IES OPENED UP BY AUTOMATIC SELF OPERATED EXCHANGES. THIS WAS NOT A CHANGE OR MODIFICATION BUT INTRODUCTION OF TOTALLY DIFFERENT FACILITIES. IT HAS INDUCTED DE NOVO SYSTEMS AND TECHNOLOGY IN PLACE OF OUTMODE AND ANTIQUATED SYSTEM AND TECHNOLOGY. 17. POST NEW TELECOM POLICY 1994 IT HAS INVESTED A MORE THAN RS 5 000 CRORES IN DENOVO TECHNOLOGY. 18. THE AMENDMENT IN INCOME TAX ACT GRANTING EXEMPT ION TO TELECOM SECTOR WAS IN LINE WITH THE TELECOM POLICY. 19. THUS THE APPELLANTS UNDERTAKING MEETS ALL THE REQUIREMENT AND HENCE ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA. THE AO AGREED WITH THE ABOVE FACTS AND HAS NOT CONTROVERTED ANY O F THESE FACTS. HOWEVER HE STILL WORKS OUT THE DEDUCTION PROPORTIO NATELY. 20. THE ACTION OF AO IS WRONG AND AGAINST THE EXPRE SS PROVISIONS OF THE SECTION 80-IA. THE AO IS APPLYING CONDITION S WHICH ARE NOT PRESCRIBED FOR TELECOMMUNICATION SERVICES. AO BY R ESTRICTING THE DEDUCTION TO NEW EXCHANGE IS ASSUMING THAT AN UNDER TAKING SHOULD BE NEW AND FURTHER AN UNDERTAKING CAN NOT BE FORMED BY RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. THIS IS NOT A CONDITION FOR TELECOMMUNICATION SERVICES AS EXPLAINED HEREINABOVE . ITA NOS.2208 TO 2211 & 27 00/D/07 10 21. THE FACT THAT THE APPELLANT HAS STARTED PROVIDI NG CELLULAR RADIO PAGING SERVICES IS AN UNDISPUTED FACT NOT CONTROVER TED BY AO AS WELL AS CIT(A). 22 THUS THE ELIGIBILITY OF CLAIMING EXEMPTION IS FU LLY MET BY THE APPELLANT. 23 ONCE THE ELIGIBILITY CRITERIA IS FULFILLED THAN IN TERMS OF SUB- SECTION (1) OF SECTION 80-IA READ WITH CLAUSE (IC) OF SUB-SECTION (5) OF SECTION 80-IA 100 PER CENT OF THE INCOME OF THE UND ERTAKING SHALL BE EXEMPT. 24 SECTION 80-IA(5)(IC) NOWHERE PROVIDES THAT PROP ORTIONATE DEDUCTION WILL BE WORKED OUT. IT CLEARLY STATES IF THE UNDERTAKING IS ELIGIBLE THAN ITS ENTIRE INCOME WILL BE EXEMPT. 25. THE AO HAS ADMITTED THAT THE APPELLANT IS ELIGI BLE FOR EXEMPTION. IT IS NOT THE CASE OF THE REVENUE THAT APPELLANT IS NOT ELIGIBLE. ONCE IT IS ELIGIBLE IN THE ABSENCE OF AN Y STATUTORY PROVISION BIFURCATION OF INCOME IS NOT JUSTIFIED. 26 LEGAL OPINION SOUGHT BY THE APPELLANT ON THIS IS SUE ALSO SUPPORTS THE ABOVE INTERPRETATION. JUSTICE S.RANGA NATHAN (RETIRED JUDGE SUPREME COURT OF INDIA) IN HIS DETAILED OPINI ON (AT PAPER BOOK PG. 192 ) HAS OPINED AS UNDER : IT IS CLEAR THAT MTNL HAS SINCE 1.4 1995 INDUCTE D DENOVO SYSTEMS AND TECHNOLOGIES IN PLACE OF THE OUTMODED AND ANTIQ UATED SYSTEMS AND TECHNOLOGY THAT EXISTED EARLIER AND THIS WAS IN PUR SUANCE OF THE SAME NEW TELECOMMUNICATIONS POLICY THAT GAVE BIRTH TO TH E INSERTION OF THIS PART OF SEC.80-IA. IT IS VERY CLEAR THAT MTNL WHI CH WAS PROVIDING CERTAIN BASIC TELECOMMUNICATION SERVICES PRIOR TO 1 .4.1995 STARTED TO PROVIDE VARIOUS OTHER TYPES OF BASIC TELECOMMUNICAT ION SERVICES ON OR AFTER THAT DATE. ITS ACTIVITIES THEREFORE FALL S QUARELY WITHIN THE ITA NOS.2208 TO 2211 & 27 00/D/07 11 LANGUAGE OF SECTION 80-IA(4C). ONCE THIS CONDITION IS FULFILLED THE ENTERPRISE IS ENTITLED TO A DEDUCTION OF THE SPECIF IED PERCENTAGE OF ALL ITS PROFITS AND GAINS DERIVED FROM ITS BUSINESS OF PROVIDING BASIC TELECOMMUNICATION SERVICES WHETHER EXISTING OF EAR LIER OR INTRODUCED AFTER 1.4.1995. FOR THE REASONS ABOVE DISCUSSED I AM OF THE VIEW THAT THE MTNL IS ELIGIBLE FOR THE DEDUCTION U/S 80-IA OF THE INCOME TAX ACT 1961. 27. JUSTICE B.N.KIRPAL (CHIEF JUSTICE OF INDIA) AFT ER DETAILED ANALYSIS HAS OPINED AS UNDER : (PAPER BOOK PAGE 19 9-201) ON A CAREFUL ANALYSIS OF THE SAID PROVISION IT IS EVIDENT THAT THIS SECTION DOES NOT STATE THAT THE BENEFIT WILL BE GIV EN IF A NEW INDUSTRIAL UNDERTAKING COMES INTO EXISTENCE. THE OPENING OF S ECTION 80-IA(4)(II) ARE ANY UNDERTAKING WHICH HAS STARTED OR STARTS PR OVIDING. THIS WOULD MEAN THAT AN UNDERTAKING CAN EITHER BE A NEW ONE OR AN EXISTING UNDERTAKING WHICH STARTS PROVIDING TELECOM MUNICATION SERVICES WHETHER BASIC OR CELLULAR. THE QUERIST I S AN EXISTING UNDERTAKING AND WHAT HAS TO BE SEEN IS WHETHER THEY FALL IN THE CATEGORY OF SUCH UNDERTAKING WHICH STARTED TELECOMM UNICATION SERVICES WHETHER BASIC OR CELLULAR AFTER 1 ST APRIL 1995. 28. NOT ONLY THAT THE ISSUE OF EXEMPTION TO TELECOM SECTOR CAME UP FOR CONSIDERATION WHEN FINANCE BILL 2004 INTRODUC ED THE RESTRICTION ON TELECOM SECTOR OF BENEFIT BEING NOT AVAILABLE TO THOSE COMPANIES WHICH ARE FORMED BY WAY OF RECONSTRUCTION OR SPLITT ING OF BUSINESS ALREADY IN EXISTENCE OR USES OLD PLANT AND MACHINER Y. 29. THE TELECOMMUNICATION MINISTER THEN HAS WRITTEN A DO LETTER DT. 26 TH AUGUST 2004 RAISING APPREHENSION THAT WITH THE P ROPOSED RESTRICTION IN THE FINANCE BILL 2004 THE EXISTING COMPANY LIKE BSNL ITA NOS.2208 TO 2211 & 27 00/D/07 12 WILL LOOSE EXEMPTION. THE HONOURABLE FINANCE MINIS TER VIDE HIS DO LETTER DT. SEPTEMBER 2004 HAS CLARIFIED THAT THE RESTRICTION ON TRANSFER OF OLD PLANTS AND MA CHINERY AND RECONSTRUCTION OF BUSINESS WHICH HAVE BEEN MADE APP LICABLE TO TELECOM SECTOR BY THE FINANCE (NO.2) BILL 2004 ARE NOT MEANT TO COVER CASES SUCH AS BSNL WHICH HAVE BEEN CARVED OUT OF DEPARTMENT OF TELECOMMUNICATIONS. MOREOVER THE AMENDMENT WILL BE EFFECTIVE FROM ASSTT. YEAR 2005-06 THEREBY MAKING THE RESTRI CTIONS APPLICABLE TO UNDERTAKING IN THE TELECOM SECTOR WHICH START PR OVIDING TELECOMMUNICATION SERVICES ON OR AFTER 1.4.2004.THU S THE AMENDMENTS MADE WOULD NOT AFFECT THE ELIGIBILITY OF BSNL FOR A VAILING BENEFITS UNDER SECTION 80-IA OF THE INCOME TAX ACT. 30. THE ABOVE CLARIFICATION BY THE MINISTER OF FINA NCE SETS AT REST ALL DOUBTS ON THIS ISSUE OF INTERPRETATION. 31. IT MAY BE FURTHER APPRECIATED THAT A CONDITION OF NOT ALLOWING THE BENEFIT TO OLD UNDERTAKING WAS INTRODUCED IN TH E FINANCE ACT 2004. THIS CLEARLY MEANS THAT NO SUCH CONDITIONS A RE APPLICABLE TO UNDERTAKINGS BEFORE. 32. THE ABOVE VIEW GETS FURTHER FORTIFIED BY THE OR DER PASSED BY LEARNED CIT UNDER SECTION 263. IN THIS CASE AFTER THE AO HAS PASSED THE ORDER GRANTING DEDUCTION UNDER SECTION 80-IA T HE CIT ISSUED SHOW CAUSE NOTICE UNDER SECTION 263. ON BEING APPR AISED OF THE FACTS THE CIT NOT ONLY DROPPED 263 PROCEEDINGS BUT MADE F OLLOWING OBSERVATIONS IN HIS ORDER DT. 26.02.2008 (PB PG. 36 3) I AM OF THE VIEW THAT THE CASE OF MTNL (THE ASSESS EE) IS NOT ENTIRELY DIFFERENT FROM THAT OF BSNL. BOTH ARE PSUS OWNED B Y THE GOVT. OF INDIA AND AS FAR AS THE NATURE OF BUSINESS IS CONCE RNED THEY ARE SIMILAR ALSO. SINCE THE TAXATION LAW HAS ALSO BEEN FARMED BY THE SAME ITA NOS.2208 TO 2211 & 27 00/D/07 13 GOVT. AND SINCE THAT GOVT. HAS TAKEN THE VIEW THAT BSNL IS ELIGIBLE FOR SECTION 80-IA DEDUCTION IT IS LOGICAL FAIR AN D REASONABLE TO HOLD THAT THE SAME LIBERAL VIEW SHOULD BE TAKEN BY THE T AXING AUTHORITIES IN REGARD TO THE ALLOWABILITY OF SECTION 80-IA IN THIS CASE. IT HAS ALWAYS BEEN THE STAND TAKEN BY THE LEADING COURTS THAT THE BENEFICIAL PROVISION OF TAX LAWS SHOULD BE CONSTRUED LIBERALLY TO ENABLE THE INDUSTRY TO RECEIVE THE BENEFIT INTENDED FOR THEM. MOREOVER THERE IS NO REAL LOSS TO REVENUE AS THE ASSESSEE MTNL ITSELF IS OWNED BY THE GOVT. OF INDIA. 33. IN VIEW OF THE ABOVE FACTS THE AO WAS NOT JUSTI FIED IN TREATING EXCHANGE AS UN UNDERTAKING AND TREATING THE DENOVO EXCHANGES BASED ON ENTIRELY NEW TECHNOLOGY AS OLD EXCHANGES. THE A PPELLANT HAVING BEING ELIGIBLE FOR DEDUCTION AS HAS BEEN HELD BY AO HIMSELF. ITS TOTAL INCOME DERIVED FROM THE BUSINESS OF THE UNDERTAKING AS AGAINST INDIVIDUAL EXCHANGES WORKED OUT BY THE AO SHALL BE EXEMPT. 34. ON THE OTHER HAND LEARNED DR CONTENDED THAT AO HAS ALREADY ALLOWED CLAIM FOR DEDUCTION U/S 80IA WITH RESPECT OF NUMBER OF TELEPHONE EXCHANGES INSTALLED UP TO 1995 AND THEREAFTER. HE FURTHER RE LIED ON THE ORDER OF THE LOWER AUTHORITIES. 35. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GO NE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM THE RECORD WE FOUN D THAT THE ASSESSEE IS A GOVERNMENT OF INDIA UNDERTAKING ENGAGED IN PROVIDIN G TELECOMMUNICATION SERVICES. IN RESPECT OF ITS INCOME FROM PROVIDING TELECOMMUNICATION SERVICES IT CLAIMED DEDUCTION U/S 80IA WHICH WAS D ECLINED BY THE AO AND CIT(A) CONFIRMED THE AOS ACTION. IN AN APPEAL FIL ED BEFORE THE TRIBUNAL AFTER APPRECIATING THE CORRECT PROVISIONS OF THE LA W AS IT STOOD AT THE RELEVANT POINT OF TIME THE MATTER WAS RESTORED BACK TO THE AO FOR DECIDING THE ISSUE AFRESH AS PER LAW. WHILE GIVING EFFECT TO THE ORDE R OF THE TRIBUNAL THE AO ITA NOS.2208 TO 2211 & 27 00/D/07 14 HAS ACCEPTED THE ASSESSEES ELIGIBILITY FOR CLAIM O F DEDUCTION U/S 80IA HOWEVER THE QUANTUM OF DEDUCTION WAS RESTRICTED TO THE NUMBER OF EXCHANGES INSTALLED AFTER 1995. SUB-SECTION (4C) D EALS WITH ALLOWABILITY OF CLAIM OF DEDUCTION U/S 80IA IN RESPECT OF ASSESSEE ENGAGED IN PROVIDING TELECOMMUNICATION SERVICES WHICH READS AS UNDER:- ( 4C). THIS SECTION APPLIES TO ANY UNDERTAKING WHICH START S PROVIDING TELECOMMUNICATION SERVICES WHETHER BASI C OR CELLULAR INCLUDING RADIO- PAGING DOMESTIC SATELLITE SERVICE S OR NETWORK OF TRUNKING AND ELECTRONIC DATA INTERCHANGE SERVICES AT ANY TIME ON OR AFTER THE 1 ST OF APRIL 1995 BUT BEFORE THE 31 ST DAY OF MARCH 2000. 36. A PLAIN READING OF THE ABOVE SECTION MAKES IT C LEAR THAT UNLIKE PROVISIONS OF SUB-SECTION 2 OF SECTION 80IA IN RESP ECT OF INDUSTRIAL UNDERTAKING WHICH IMPOSES A CONDITION THAT IT SHOUL D BE A NEW UNDERTAKING AND THAT IT SHOULD NOT BE FORMED BY SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE NOR THERE IS ANY COND ITION THAT IT SHOULD NOT BE FORMED BY TRANSFER TO A NEW BUSINESS OF MACHINERY O R PLANT PREVIOUSLY USED FOR ANY PURPOSE. AFTER ANALYZING ALL THESE ELIGIBI LITY CRITERIA THE AO HAS REACHED TO THE CONCLUSION THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IA U/S 4C OF THE IT ACT. NOW WE HAVE TO SEE WHETHER AO W AS JUSTIFIED IN RESTRICTING CLAIM OF DEDUCTION WITH REFERENCE TO EX CHANGES INSTALLED AFTER 1995. IT IS PERTINENT TO MENTION HERE THAT DEDUCTI ON U/S 80IA IS TO BE COMPUTED ON THE PROFITS OF THE ELIGIBLE BUSINESS AN D NOT ON THE BASIS OF AMOUNT INVESTED IN PLANT & MACHINERY IN THE FORM OF TELEPHONE EXCHANGES. THEREFORE THE PROFIT ACCRUING FROM TELECOMMUNICATI ON SERVICES IS REQUIRED TO BE TAKEN INTO ACCOUNT WHILE GRANTING CLAIM OF DE DUCTION U/S 80IA. IN THIS REGARD WE FOUND THAT AFTER 1995 THERE IS A COMPLE TE REVOLUTION IN TELECOMMUNICATION INDUSTRY AND OLD EXCHANGES IF ANY HAD BEEN TOTALLY REVAMPED. IT WAS NOT MERELY ADDITION OF THE NEW EX CHANGES BUT THERE WAS ITA NOS.2208 TO 2211 & 27 00/D/07 15 ENTIRE CHANGE IN THE SET UP TECHNOLOGY INSTRUMENT S AND EQUIPMENTS. THE EXCHANGES WHICH WERE EARLIER OPERATING ON OLD TECHN OLOGY WHEREBY THERE WAS USE OF BIG CROSS BAR EXCHANGES WITH LARGE TELEP HONE INSTRUMENTS OF DIALING NUMBERS MECHANICALLY BY ROTATING THE DIAL. SINCE THIS TECHNOLOGY HAS BEEN TOTALLY ABANDONED AND REVAMPED REPLACING THE OLD MOST OF THE INCOME GENERATED IS ATTRIBUTABLE TO SUCH NEW TECHNOLOGY EX CHANGES. MERELY ON THE NUMBER OF OLD EXCHANGES WHICH WERE NOT IN OPERATION AT ALL OR HAD UNDERGONE TOTALLY REVAMPED INCOME CANNOT BE ATTRIB UTABLE TO SUCH OLD EXCHANGES WE FOUND THAT THE NEW TECHNOLOGY AND THE NEW EXCHANGES MADE POSSIBLE A MULTITUDE OF NEW INTELLIGENT NETWORK SER VICES WHICH ARE LIKE CELLULAR SERVICES VIRTUALLY CALLING CARD SERVICES PREMIUM RATE SERVICES ISDN CALLING LINE IDENTIFICATION CALL FORWARD ON BUSY AND FREE LINES CREDIT CARD PAYMENT SCHEME TELE-MART INTERACTIVE VOICE RE SPONSE SERVICES DIRECTORY ON CD-ROM ETC. VARIOUS ADD ON SERVICES S UCH AS DATACOM INET DID PABX VOICE MAIL RADIO PAGING AND ISDN HAS BEE N STARTED AFTER 1.4.1995. IN ADDITION TO THIS PHONE PLUS FACILITIE S LIKE DYNAMIC LOCKING CALL WAITING/CALL TRANSFER HOT LINES ETC. HAS BEEN EXTE NDED TO VALUED CUSTOMERS. FURTHER IN ORDER TO MINIMIZE HUMAN RE-INTERFACE IM PORTANT OPERATOR BASED SPECIAL SERVICES HAVE BEEN AUTOMATED WITH IVRS (INT ERACTIVE VOICE RESPONSE SYSTEMS). WE ALSO FOUND THAT THE ASSESSEE MTNL STARTED PROVIDING SEVERAL OTHER ADVANCED AND OTHER ADD ON S ERVICES SUCH AS VIRTUAL CARD/ACCOUNT CARD CALLING FREE PHONE VIRTUAL PRIV ATE NETWORK PREMIUM RATE SERVICE TELEWAITING ETC. A NEW TECHNIQUE NAMED DLC (DIGITAL LOOP CARRIER SYSTEM) HAS ALSO BEEN ESTABLISHED. THUS 1995 ONWA RDS THE ASSESSEES INDUSTRY HAS UNDERWENT A TREMENDOUS REVOLUTION RESU LTING FROM THE POSSIBILITIES OPENED UP BY AUTOMATIC SELF OPERATED EXCHANGES. THIS WAS NOT A CHANGE OR MODIFICATION BUT INTRODUCTION OF TOTALL Y DIFFERENT FACILITIES. IT HAS INDUCTED DE NOVO SYSTEMS AND TECHNOLOGY IN PLACE OF OUTMODE AND ITA NOS.2208 TO 2211 & 27 00/D/07 16 ANTIQUATED SYSTEM AND TECHNOLOGY. IN VIEW OF THE A BOVE DISCUSSION IT IS CRYSTAL CLEAR THAT MERELY ON THE BASIS OF ATTRIBUTI NG THE INCOME IN THE RATIO OF TELEPHONE EXCHANGES NOT PROPER BUT WE HAVE TO SEE THE VARIOUS SERVICES RENDERED BY MTNL AFTER 1995 WHICH WERE ACTUALLY GEN ERATING INCOME. SINCE THE DEDUCTION IS TO BE ALLOWED IN RESPECT OF INCOME GENERATED BY ALL THESE FACILITIES WE ARE REQUIRED TO COMPUTE DEDUCT ION AS PER THESE HOST OF SERVICES BEING RENDERED BY MTNL. THE LOWER AUTHORI TIES HAVE ALSO NOWHERE DECLINED THE VERY FACT OF OLD EXCHANGES TOTALLY BEI NG REVAMPED MOST OF WHICH WERE NON-OPERATING AND UNDER DISCARDED POSITI ON. AS THE INCOME GENERATED THROUGH SO MANY SERVICES BEING RENDERED B Y THE NEW EXCHANGES WHICH IS ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80IA WE CANNOT RESTRICT THE CLAIM IN RESPECT OF THE NOMINAL INCOME IF ANY GENER ATED OUT OF THE OLD EXCHANGES. KEEPING IN VIEW THE TOTALITY OF FACTS A ND CIRCUMSTANCES OF THE CASE WE DIRECT THE AO TO ATTRIBUTE 75% (SEVENTY FI VE PERCENT) OF THE INCOME FROM VARIOUS SERVICES ENUMERATED ABOVE AS HAVING BE EN CARRIED OUT ONLY BY VIRTUE OF NEW EXCHANGES HAVING BEEN INSTALLED. 25% OF THE INCOME MAY BE ATTRIBUTED TO THE OLD EXCHANGES. ACCORDINGLY THE MATTER IS RESTORED BACK TO THE FILE OF THE AO FOR RECOMPUTING THE CLAIM OF DED UCTION U/S 80IA WITH REFERENCE TO 75% OF THE INCOME BEING ELIGIBLE FOR D EDUCTION WHEREAS BALANCE 25% IS NOT ELIGIBLE FOR DEDUCTION IN ALL TH E YEARS UNDER CONSIDERATION. WE DIRECT ACCORDINGLY. 37. THE OTHER GROUNDS IN THE APPEAL WERE NOT PRESSE D BY THE LEARNED AR THE SAME ARE THEREFORE DISMISSED IN-LIMINE. 38. SINCE IN THE AY 2005-06 THERE WAS CHANGE IN TH E ELIGIBILITY CRITERIA OF DEDUCTION ELIGIBLE U/S 80IA WE DIRECT THE AO TO RE COMPUTE THE DEDUCTION IN TERMS OF THE AMENDED PROVISIONS OF THE LAW APPLICAB LE FOR THE AY 2005-06. HOWEVER THE SAME CRITERIA FOR APPORTIONING THE INC OME ATTRIBUTABLE TO ITA NOS.2208 TO 2211 & 27 00/D/07 17 INCOME GENERATED THROUGH VARIOUS SERVICES BY THE NE W EXCHANGES AND OLD EXCHANGES AT 75% AND 25% IS TO BE KEPT. WE DIRECT ACCORDINGLY. 39. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART IN TERMS INDICATED HEREINABOVE. THIS ORDER PRONOUNCED IN THE COURT ON 11-03-2010. SD/- SD/- ( D.R. SINGH ) ( R.C. SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 11-03-2010 NS : COPY FORWARDED TO : - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY DY. REGISTRAR