Vodafone India Ltd. Vs DCIT (ITAT Mumbai)
ITAT Mumbai held that the assessee is not liable to deduct tax at source from the discount paid on prepaid sim card/recharge vouchers. Thus, disallowance made u/s 40(a)(ia) of the Income Tax Act liable to be deleted.
Facts- The assessee is a Cellular Service Provider. The AO passed the draft assessment order by making transfer pricing adjustments made by the Transfer Pricing Officer (TPO) and also various additions. The assessee filed objections against the draft assessment order before Ld DRP. After receipt of the order passed by Ld DRP, the assessing officer has passed this final assessment order, which the assessee is challenging in the present appeal filed before the Tribunal. The revenue is challenging the decision of Ld DRP with regard to deduction claimed u/s 80IA of the Act.
Conclusion- Held that the co-ordinate bench has accepted that the assessee has started claiming deduction u/s 80IA from 2005-06 onwards, meaning thereby, the assessee should be eligible for deduction @ 100%, since the year under consideration would fall within the eligible period for making claim. Further, the AO had rejected the claim for deduction u/s 80IA of the Act on other miscellaneous income. We notice that both the issues are covered by the decision rendered by co-ordinate bench in assessee’s own case in AY 2008-09 in ITA No.6718/mum/2012 dated 08th May, 2023. Thus, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow deduction u/s 80IA of the Act.
Held that since the assessee did not earn any exempt income, the question of making disallowance u/s 14A of the Act will not arise as per the decision rendered by co-ordinate benches in the earlier years. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance made u/s 14A of the Act.
Held that the assessee is not liable to deduct tax at source from the discount paid on prepaid sim card/recharge vouchers. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance made u/s 40(a)(ia) of the Act.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These cross appeals are directed against the assessment order dated 21-01-2014 passed by the assessing officer for assessment year 2009-10 u/s 143(3) r.w.s 144C(13) of the Act in pursuance of directions given by Ld Dispute Resolution Panel (DRP).
2. The assessee is a Cellular Service Provider. The AO passed the draft assessment order by making transfer pricing adjustments made by the Transfer Pricing Officer (TPO) and also various additions. The assessee filed objections against the draft assessment order before Ld DRP. After receipt of the order passed by Ld DRP, the assessing officer has passed this final assessment order, which the assessee is challenging in the present appeal filed before the Tribunal. The revenue is challenging the decision of Ld DRP with regard to deduction claimed u/s 80IA of the Act.
3. The assessee has raised many grounds, while the revenue assails the decision of Ld DRP with regard to allowing deduction u/s 80IA of the Act. We notice that the first issue raised by the assessee in Ground no.1 & 2 relates to the disallowance made u/s 80IA of the Act. Hence the appeal of the revenue and the above said grounds are adjudicated together. With the adjudication of these grounds, the appeal of the revenue would get disposed of and the ground nos. 1 & 2 of the assessee will also be addressed.
3.1 The case of the revenue is that the assessee had commenced the business of providing telecommunications prior to 01-04-1995, i.e., in AY 1995-96. It is pertinent to note that the benefit of deduction u/s 80IA will be available only if assessee has started providing telecommunication services after 01-04-1995. The contention of the revenue is that the assessee is not eligible for deduction u/s 80IA of the Act, since the telecommunication business has been started by the assessee prior to 1.4.1995. Since the Ld DRP had held that the assessee has started providing telecommunication services after 01-04-1995, the revenue has filed this appeal.
3.2 We notice that the issue relating to the date of commencement of providing of telecommunication services by the assessee has been examined in detail by the co-ordinate bench in the assessee’s own case in AY 2005-06 in ITA No.5598/Mum/2017 dated 28-11-2022 and held that the assessee has started providing telecommunication services after 01-04-1995. The Tribunal also observed that the assessee has started claiming deduction u/s 80IA of the Act in respect of profits and gains derived from telecommunication services in AY 2005-06 for the first time. For the sake of convenience, we extract below the decision rendered by co-ordinate bench in AY 2005-06:-
“8. ………………………………. The primary reason for rejecting assessee’s claim by the Assessing Officer is that the assessee started providing telecommunication service in the Financial Year 1994-95 i.e. prior to 01/04/1995. As per the provisions of section 80IA the undertaking is eligible for benefit of deduction u/s. 80IA(4)(ii), if the undertaking started or starts providing telecommunication service on or after 1st day of April 1995. According to the Assessing Officer since, the assessee has started providing telecommunication services prior to 01/04/1995 the assessee is not eligible for claiming deduction u/s. 80IA of the Act. The assessee claimed deduction u/s. 80IA of the Act for the first time in AY 2005-06.
9. Two issues have emerged from the submissions and the grounds of appeal raised by the Department:
(i) Whether the assessee started providing telecommunication services before 01/04/1995 or thereafter; and
(ii) Whether the assessee is eligible to claim deduction u/s. 80IA(4)(ii) of the Act .
10. The primary reason for rejecting assesses claim of deduction u/s. 80 IA(4)(ii) of the Act by the Department is that the assessee started providing telecommunication services prior to 01/04/1995. Whereas, the claim of assessee is that the assessee started providing telecommunication services after 01/04/1995.
11. Before proceeding further to decide this issue, it would be imperative to refer to the provisions of section 80 IA(4)(ii) of the Act. The relevant extract of the same are reproduced herein below:
Section 80IA(4)(ii)
“(ii) any undertaking which has started or starts providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the 31st day of March, 2005.”
12. The Department in order to prove that the assessee started providing telecommunication services which includes radio paging services and cellular telephone services inter-alia placed reliance on following documents:
(i) Form No.10CCB furnished by the assessee for AYs 2005-06 & 2006-07;
(ii) Return of income of assessee for A.Y. 1995-96 and 1996-97;
(iii)Information extracted from Web portal of Max Telecom (predecessor of the assessee);
(iv)Licence agreement dated 29/11/1994;
(v) Telecom Commission report;
(vi) Additional evidences filed by the Department viz. communication between the assessee and Principal General Manager, Department of Telecommunication (in short ‘ the DoT’), invoices, etc.
13. On the other hand, the assessee in order to substantiate that the assessee started providing telecommunication services after 01/4/1995 inter-alia placed reliance on following documents:
(i) Assessment order for Assessment Year 1995-96 and 1996-97;
(ii) Letter of approval and letter of clearance issued by DoT Government of India;
(iii) Auditors Certificate clarifying date of commencement of services;
(iv) Interface/Service approval Certificate;
(v) Radio frequency assignment letter;
(vi) Approval from CBDT u/s. 10(23G) of the Act, etc.
14. Hutchison Max Telecom Pvt. Ltd. (predecessor of the assessee) was incorporated on 21/02/1992 with the main object of providing radio paging services and cellular telephone services in India. Initially, the assessee claimed that the business of assessee commenced in Financial Year 1994-95 i.e. the period relevant to the Assessment Year 1995-96. The assessee in the return of income for Assessment Year 1995-96 claimed interest expenditure and depreciation, accordingly. The Assessing Officer issued a questionnaire dated 16/12/1997 making specific enquiries regarding the details of commencement of paging and cellular services and details of machinery, equipment and installation required for operating paging and cellular services. The Assessing Officer after making detailed enquiries came to conclusion that cellular services were started by the assessee on 16/11/1995. Even pilot services prior to commencement of commercial services were started on 27/07/1995 and radio paging services commenced during the period May 1995 to June 1995. The Assessing Officer in assessment order dated 09/03/1998 for Assessment Year 1995-96 categorically held that the asessee’s business was not set up by 31/03/1995. The relevant extracts from the assessment order for 1995-96 are reproduced herein below:
“6. After taking into account all the facts relevant to the issues and the submissions made by the assessee, it is held that the assessee’s business was not set up in 1992. It is also held that the business of the assessee has not been set up till the closure of the accounting year relevant to the assessment year under consideration i.e. 31/03/1995. The reasons for holding so are discussed below:
A. xxxxx
B. xxxxx
C. xxxxx
D. The nature of the business of the assessee is such that it requires a large scale development of highly sophisticated communication equipment. These equipments could be operationalised only after developing the requisite software for that area. There is no evidence provided by the assessee company on record to show that necessary equipments and the required software was installed by the assessee on31/03/1995. It is pertinent to note that even the pilot services for cellular telephone and the paging services were started 2 to 4 months after the closure of the previous year under consideration. This means that the required equipments and software were installed by the assessee only after 2 to 3 months of the closure of the previous year in question.”
[Emphasized by us]
The assessee filed appeal against the aforesaid assessment order before the CIT(A), however, the said appeal was withdrawn by the assessee. No revision proceedings were carried out by the Department for the Assessment Year 1995-96. Thus, the aforesaid assessment order attained finality.
In the assessment order for 1996-97 dated 09/01/1999 passed u/s. 143(3) of the Act, the Assessing Officer in para 3 recorded, “The assessee’s business has commenced in the financial year pertaining to current asstt. year. The cellular services had started on 16/11/1995 and paging services in 7 cities were also started in May/June 1995.” The Assessing Officer in assessment order for Assessment Year 1996-97 in para -3.1 of the order further observed, “The issue regarding setting up of business has already been decided in the case of assessee company in Asst. year 1995-96 by passing a detailed order. ”The Assessing Officer after recording the above facts allowed assessee’s claim of depreciation in Assessment Year 1996-97. The aforesaid findings given in the assessment order for Assessment Year 1996-97 were confirmed by the CIT(A) vide order dated 11/09/2000. No further appeal was filed by either of the sides thereafter, hence, the findings in the assessment order for Assessment Year 1996-97 became final.
15. The assessee in order to substantiate that cellular services commenced after 01/04/1995 referred to the communication dated 31/05/1995 from DoT, Wireless Planning and Co-ordination (WPC) Wing (at page 113 of Assessee’s paper book -1), whereby Radio Frequency Channels for GSM Cellular Network in Mumbai was assigned to the assessee. Our attention was also drawn to the letter dated 13/10/1995 at page 116 of the Paper Book-1, whereby Ministry of Communications (WPC Wing) accorded permission for launching cellular mobile telephone services at Mumbai subject to final clearance from Director (VAS-I), DoT. The said clearance was accorded to the assessee by Director (VSA-I) vide letter dated 20/10/1995 (at page 117 of Paper Book-1). Although, the licence agreement was executed between the assessee and DoT in November, 1994 the assessee could not have started cellular mobile telephone services till the time radio frequency was assigned and all clearances prior to commencement of cellular mobile telephone services are obtained by the assessee. A perusal of the said agreement (Condition -20) clearly mentioned that a separate licence shall be required from the WPC Wing of Ministry of Communication which will permit utilisation of appropriate radio frequency spectrum for establishment and operation of cellular mobile telephone services. Thus, without allocation of radio frequency the assessee could not have commenced cellular mobile telephone services. As is evident from permits/assignment letters from the DoT referred above it is evident that the said permissions/clearances were granted to the assessee after 01/04/1995.
In so far as radio paging services is concerned the assessee received Interface/Service approval Certificate for the seven cities (Telecom District) in the month of April/May 1995. The date-wise details of the same are tabulated herein below:
