PCIT Vs ATC Telecom Infrastructure Pvt. Ltd. (ITAT Mumbai)
ITAT Mumbai held that security charges involve supply of manpower only and the same does not involve “carrying on of any work”. Accordingly, provisions of section 194C are not attracted for expenses claimed as ‘security charges’. Hence, disallowance u/s 40(a)(ia) unjustified.
Facts- The present name of the assessee is “M/s ATC Telecom Infra P Ltd”. Earlier it was known as Viom Networks Ltd and earlier to that, it was known as “Wireless TT Info Services Ltd (WTTIL). The company WTTIL was wholly owned subsidiary company of M/s Tata Teleservices Ltd (TTSL). The assessee is engaged in the business of providing passive infrastructure to telecom companies.
During the year under consideration, the TTSL sold its passive infrastructure undertaking to WTTIL by entering into a Business Transfer Agreement (BTA) on 8.11.2007 read with an Amendment Agreement dated 26.2.2008. As per the BTA, the passive infrastructure business was sold as a going concern by way of slump sale w.e.f. 31st October, 2007. However, the transfer process could be completed only by February, 2008. It is stated that during the period from November, 2007 to February, 2008, the business carried by TTSL on behalf of WTTIL.
The first issue relates to the disallowance of depreciation. The assessee claimed that it has received assets worth Rs.846.19 crores under BTA and accordingly claimed depreciation of Rs.62.28 crores. The AO took the view that, as per Explanation 4A to sec. 43(1) of the Act, the assessee can claim depreciation on the WDV of assets as available in the books of TTSL.
AO further noticed that the assets received by the assessee included site restoration cost of Rs.8.06 crores (according to the assessee, it was Rs.6.00 crores only). The site restoration cost is the estimated cost that would be incurred on restoration of land on vacating the leased premises after dismantling the towers. The AO took the view that the site restoration cost is a notional expenditure. Accordingly, the AO disallowed the entire depreciation claim of Rs.62.28 crores.
CIT(A) partly allowed the appeal. Accordingly, being aggrieved, both revenue and assessee has preferred the present appeal.
Assessee also contested disallowance u/s. 40(a)(ia) on account of non-deduction of TDS on security charges.
Conclusion- Held that we agree with the analysis made and decision given by Ld CIT(A) holding that the provisions of Explanation 4A, 3 and 6 of Sec.43(1) shall not be applicable to the facts of the present case. The provisions of sec. 43(6)(c)(i)(C) was related to the computation of WDV and it is not applicable, since the assessee has purchased the assets in the hands of seller. Accordingly, we are of the view that the Ld CIT(A) was justified in holding that the assessee is entitled to claim depreciation on the purchase cost of Rs.846.19 crores.
Admittedly, the site restoration cost is not a cost incurred before the asset is ready for use. It is an expenditure that will be incurred, when the asset is dismantled. Even though it may not be a contingent liability as held by Ld CIT(A), yet the cost of restoration of site cannot be included in the cost of asset, since it is not an expenditure incurred before the asset is ready to put to use. Held that we are of the view that depreciation on site restoration cost is not allowable as deduction.
In the instant case, the security charges involve supply of manpower only and the same does not involve “carrying on of any work” within the meaning of the definition of the term “work” given in the Explanation III. Hence we are of the view that the provisions of sec.194C are not attracted for expenses claimed as “security charges”. Supply of manpower may not fall under the provisions of sec. 194J relating to “professional fees”. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the additions made u/s 40(a)(ia) relating to security charges.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These cross appeals are directed against the order dated 31.08.2018 passed by Ld CIT(A)-16, Mumbai and it relates to the assessment year 200809.
2. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the M/s. ATC Telecom Infrastructure Pvt. Ltd. (Formerly known as M/s. Viom Network Ltd.)
(a) disallowance of depreciation of Rs.14.72 crores on the additions of Rs.223.40 crores.
(b) disallowance made u/s 40(a)(ia) of the Act.
3. The revenue is aggrieved by the decision of Ld CIT(A) in granting relief in respect of
(a) disallowance of depreciation on purchase of assets from its holding company.
(b) disallowance of depreciation on the claim of site restoration cost.
(c) disallowance made u/s 40(a)(ia) of the Act.
4. The facts relating to the case are stated in brief. The present name of the assessee is “M/s ATC Telecom Infra P Ltd”. Earlier it was known as Viom Networks Ltd and earlier to that, it was known as “Wireless TT Info Services Ltd (WTTIL). The company WTTIL was wholly owned subsidiary company of M/s Tata Teleservices Ltd (TTSL). The assessee is engaged in the business of providing passive infrastructure to telecom companies.
5. During the year under consideration, the TTSL sold its passive infrastructure undertaking to WTTIL by entering into a Business Transfer Agreement (BTA) on 8.11.2007 read with an Amendment Agreement dated 26.2.2008. As per the BTA, the passive infrastructure business was sold as a going concern by way of slump sale w.e.f. 31st October, 2007. However, the transfer process could be completed only by February, 2008. It is stated that during the period from November, 2007 to February, 2008, the business carried by TTSL on behalf of WTTIL.
6. The first issue relates to the disallowance of depreciation. The assessee claimed that it has received assets worth Rs.846.19 crores under BTA and accordingly claimed depreciation of Rs.62.28 crores. The AO took the view that, as per Explanation 4A to sec. 43(1) of the Act, the assessee can claim depreciation on the WDV of assets as available in the books of TTSL. The AO further noticed that the assets received by the assessee included site restoration cost of Rs.8.06 crores (according to the assessee, it was Rs.6.00 crores only). The site restoration cost is the estimated cost that would be incurred on restoration of land on vacating the leased premises after dismantling the towers. The AO took the view that the site restoration cost is a notional expenditure. Accordingly, the AO disallowed the entire depreciation claim of Rs.62.28 crores.
6.1 Before Ld CIT(A), the assessee furnished detailed explanations on the claim of depreciation of RS.62.28 crores. Since there was not much discussion in the assessment order, the Ld CIT(A) called for a remand report from the AO. In the remand report, the issue of depreciation has been discussed under three heads, viz.,
(a) Disallowance of depreciation on the difference between purchase cost and the WDV of the holding company.
(b) Disallowance of depreciation on new additions for want of evidences.
(c) Disallowance of depreciation on the amount of “Site restoration cost” included in the value of assets.
The Ld CIT(A) deleted the disallowance with regard to item (a) and (c) above. Hence revenue is in appeal in respect of these two items. The Ld CIT(A) confirmed the disallowance with regard to item (b) above and hence the assessee is in appeal.
6.2.0 The first item relates to the disallowance of depreciation between purchase cost and the WDV of the holding company. The assessee had purchased the undertaking on slump sale basis by paying Rs.37 crores as detailed below:-
