Case Law Details
CIT Vs Shyam Telelink Ltd (Delhi High Court)
Conclusion:
Income on sale of prepaid cards to the extent of unutilized talk time did not accrue as income in the year of sale. If assessee had failed to perform the services as promised, it would be liable and under an obligation to refund the advance payment received under the ordinary law of contract or special enactments, like the Consumer Protection Act.
Held:
Assessee was engaged in the business of providing basic telecom services in the State of Rajasthan and had both prepaid and postpaid services. Revenue questioned the accounting treatment in respect of prepaid cards. Revenue held assessee must account for and include the entire amount paid on the date of purchase of the prepaid card by the subscriber. Date of purchase of the prepaid card would be the date when income had accrued to assessee. Assessee, however, recognized revenue on prepaid cards on the basis of actual usage and unutilized amount outstanding on the prepaid card, if any, at the end of the financial year, was carried forward to the next year. It was held every receipt is not income, for income is something which assessee is legally entitled to appropriate to the exclusion of the giver. The appropriation of prepaid amount was contingent upon assessee performing its obligation and rendering services to the prepaid customers as per the terms. If assessee had failed to perform the services as promised, it would be liable and under an obligation to refund the advance payment received under the ordinary law of contract or special enactments, like the Consumer Protection Act. However, AO while passing the appeal effect order would ensure that the unutilized talk time had been accounted for and included in the receipt of the year in which the amount had lapsed and was forgone.
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