INDUS TOWERS LTD.,GURUGRAM, HARYANA vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 12(1), NEW DELHI, NEW DELHI

PER MANISH AGARWAL, AM : These are cross-appeals filed by the assessee and the Revenue against the order of Ld.CIT(A), Delhi-31 in Appeal No.1136/22-23 dated 07.08.2023 arising out of assessment order dated 08.05.2019 passed u/s 143(3) of the Income Tax Act, 1961 (“the Act”) for AY 2011-12.

1. “That the Commissioner of Income Tax (Appeals) ['CIT(A)'] erred on facts and in law in upholding the disallowance of depreciation of Rs.1146,28,00,512 in respect of passive infrastructure assets (PIAs) which Page | 4 vested in the appellant pursuant to tax compliant amalgamation of Bharti Infratel Ventures Ltd. (BIL), Vodafone Essar Infrastructure Ltd. (VEIL) and Idea Cellular Tower Infrastructure Ltd. (ICTIL) [collectively called Tower Companies ('TowerCos')] into the appellant. 1.1 That the CIT(A)/ the assessing officer ['AO'] erred on facts and in law in disallowing depreciation holding cost of PIAs in the hands of the appellant (following immediately preceding year, i..e, assessment year 2010-11) as Nil on the erroneous ground that the cost in the hands of amalgamating TowerCos [previous owner] was Nil. 1.2 That the CIT(A)/ AO failed to appreciate that PIAs were received as "gift" by the TowerCos from the Operating Companies ('Opcos') and consequently, the cost/ WDV in the hands of the Opcos shall be the cost in hands of TowerCos in terms of Explanation 2 to Section 43(1) of the Act. 1.3 That the CIT(A)/ AO erred in alleging that PIA's were not received as "gift" by the TowerCos from Opcos and consequently, benefit of written down value (WDV) in the hands of the Opcos cannot be adopted. 1.4 That the CIT(A)/ AO erred on facts and in law in disregarding two separate and independent steps of restructuring viz., (1) transfer/ gift of PIAs from Opcos to TowerCos as gift; and (2) amalgamation of TowerCos in the appellant and in holding that the two steps have to be seen in conjunction. 1.5. That the CIT(A)/AO erred on facts and in law in treating the aforesaid two separate steps/transactions as one and consequently erroneously alleging that the ultimate result of the transaction was transfer of PIAs by Opcos to the appellant for consideration (being shares issued pursuant to second step of amalgamation), and thus there was no 'gift' in step (1) above. 1.6 That the CIT(A)/AO erred on facts and in law in levelling various false and baseless allegations, including but not limited to alleging/ holding that the essential element of gift, being divesture of ownership was missing, inasmuch as ownership was retained by the Opcos in a circuitous manner as Opcos were allotted shares by the appellant pursuant to amalgamation. 1.7 That the CIT(A) erred on facts and in law not appreciating that disallowance of depreciation is directly contrary to the binding orders of the Hon'ble Courts, in particular the order passed by the jurisdictional Delhi High Court in case of Vodafone Essar Ltd. (Company Petition No.334/2009), wherein the Court(s) approved the scheme of restructuring involving 'gift' of PIAs by the Opcos to the TowerCos, while expressly rejecting the identical allegations/ arguments of the Revenue. 1.8 That the CIT(A) erred on facts and in law in observing that (i) the Delhi High Court has merely overruled the objections of the Revenue which does not tantamount to a finding that impugned transfer of assets was by way of gift; and (ii) impugned scheme does not specify transaction as 'gift' but only demerger.

1.9 That the CIT(A) erred on facts and in law in not following the binding order(s) passed by the CIT(A) and this Hon'ble Tribunal in the case of Bharti Infratel Ltd. (one of the Tower Companies) wherein transaction has been accepted as gift, inter alia, relying on the aforesaid High Court order in blatant violation of judicial discipline and propriety. 1.10 Without prejudice, the CIT(A)/ AO erred on facts and in law in disallowing depreciation of Rs. 1146,28,00,512 instead of correct amount of Rs.1140,24,74,625 quantified at page 17 of the assessment order. Re: Additional claim of enhanced depreciation on ESDs (80% vis-a- vis 15%) [Rs.287.27 crores] [AO: claim not considered; CIT(A): Pg 67 to 721 2. That on facts and circumstances of the case and in law, the appellant is entitled to additional claim of depreciation of Rs.287,27.27,750 crores, being the enhanced depreciation computed @ 80% on Energy Saving Devices (ESDs) instead of 15% claimed in the return of income. 2.1 That the CIT(A) erred on facts and in law in holding that appellant was not entitled to make additional claim in scrutiny assessment proceedings conducted pursuant to amalgamation, since the same is akin to reassessment proceedings under section 144/148 of the Act. 2.2 That the CIT(A)/ AO erred on facts and in law in holding that sufficient evidence has not been placed to demonstrate that the relevant devices/ equipment falls within the ambit of 'Energy Saving Devices' eligible for higher depreciation @ 80% under the Act. 2.3 That the CIT(A)/ AO erred on facts and in law in not judiciously considering the submissions and robust documentation including engineer's report, invoice, vendor certification, etc., placed on record by the appellant to substantiate the claim. 2.4 That the CIT(A) erred on facts and in law in holding that depreciation at higher rate cannot be allowed in the year under consideration qua ESDs acquired in earlier years (forming part of opening block of asset), erroneously relying on Explanation 5 to section 32(1) of the Act. Re: Disallowance of Capital Work in Progress (CWIP) written off [Rs.24.87 crores] [AO: Pg 118 to 123; CIT(A): Pg 72 to 741 3. That the CIT(A) erred on facts and in law in upholding disallowance of Rs.24,87,00,000 made by the assessing officer towards write-off of capital work in progress (CWIP) in relation to tower infrastructure sites abandoned before installation/ completion, holding the same to be capital in nature. 3.1 That the CIT(A)/ AO erred on facts and in law in not appreciating that the aforesaid expenditure on abandoned sites does not result in coming into existence of any capital asset and the same being directly related to the existing business of the appellant, is allowable as business deduction.

3.2 That the CIT(A)/ AO erred on facts and in law in not appreciating that the aforesaid write-off of CWIP is alternatively allowable as business loss under section 28 of the Act. Re: Disallowance of provision for site restoration expenses (SRO)/ asset retirement obligation (ARO) [Rs.36.64 crores] [AO: Pg 123 to 149; CIT(A): Pg 74 to 821 4. That the CIT(A) erred on facts and in law in upholding disallowance of amortization of Rs.36,63,84,595 towards provision for site restoration expenses (SRO)/ asset retirement obligation (ARO) alleging the same to be unascertained liability. 4.1 That the CIT(A)/AO erred on facts and in law in not appreciating that provision for SRO/ARO, recognized as per applicable accounting standard, is an ascertained liability to restore the tower sites at end of relevant lease agreement(s)/ tenure, which is quantified on a scientific and reasonable basis and reviewed periodically. 4.2 That the CIT(A) erred on facts and in law in drawing adverse inferences based on complete misunderstanding/misappreciation of the facts relating to reversal of provision in subsequent year(s) and variance between actual expenditure and the provision made. Re: Disallowance of provision for expenses [Rs.169.41 crores] [AO: Pg 149 to 187; CIT(A): Pg 91 to 1031 5. That the CIT(A) erred on facts and in law in upholding disallowance to the extent of Rs.169.41 crores [as against Rs.173.36 crores made by the assessing officer] towards year-end provisions for following expenses alleging the same to be unascertained liability: Nature of Provision Amt disallowed by AO Amt upheld by CIT(A) Other operating expenses Rs.53.32 crores Rs.53.32 crores Rates and Taxes Rs.97.33 crores Rs.97.33 crores Salary Expenses Rs.5.77 crores Rs.1.82 crores Power and Fuel Rs.16.94 crores Rs.16.94 crores Total Rs.173.36 crores Rs.169.41 crores 5.1 That the CIT(A)/AO erred on facts and in law in not appreciating that the year-end provisions were made on a scientific and rational basis and are thus ascertained liability, not to be disallowed while computing business income. 5.2 That the CIT(A)/AO erred on facts and in law in drawing adverse inference merely on account of subsequent variance between actual expenditure vis-à-vis provisions created at year end. 5.3 That the CIT(A)/AO erred on facts and in law in not appreciating that the year-end provisions are recognized following consistent, regular and accepted method of accounting under matching/ matching principles every year, and reversal of excess provisions are offered to tax in the year of reversal. 5.4 That the CIT(A)/AO erred on facts and in law in not appreciating that the issue of disallowance of provisions of expenses is a revenue neutral issue and must not be agitated by the Revenue more so when consistent policy/ method is followed over the years. Re: Disallowance of provision for SLA credits [Rs.16 crores] [AO: Pg 187 to 190; CIT(A): Pg 103 to 107] 6. That the CIT(A) erred on facts and in law in upholding disallowance of Rs. 16,00,00,000 towards provisions for service level agreement (SLA) credits payable by the company to the customers (telecom operators) for downtime faced in network/ service, alleging the same to be unascertained liability. 6.1 That the CIT(A)/AO erred on facts and in law in not appreciating that the provision for SLA credit is made on the events specified and mechanism laid in the Master Services Agreement (MSA) and thus cannot be treated as unascertained liability. 6.2 That the CIT(A)/ AO erred in not appreciating that provision is created on the basis of initial network downtime reports, which is subsequently actualized on receipt/reconciliation of power downtime provided by the customers. 6.3 That the CIT(A)/AO erred on facts and in law in not considering that the mechanism demonstrates that provision for SLA credit is computed on a scientific and rational basis and hence is an ascertained liability. 6.4 That the CIT(A)/AO erred on facts and in law in drawing adverse inference merely on account of variance in actualization of the provision in subsequent year considering cumulative data for various years. 6.5 That the CIT(A)/AO erred on facts and in law in not appreciating that the provision is recognized following consistent, regular and accepted method, and reversal of excess provisions are offered to tax in the year of reversal. Re: Disallowance of other credits notes [Rs.56.80 crores] [AO: Pg 190 to 197; CIT(A): Pg 107 to 113] 7. That CIT(A) erred on facts and in law in upholding disallowance of other credit notes' amounting to Rs.56,80,00,000 made by the assessing officer holding the same to be prior period expense. 7.1 That CIT(A)/AO erred on facts and in law in not appreciating that the aforesaid credit notes relates to revenues/ invoices already recognized and offered to tax in preceding year, disputes in relation to which stands settled during the year under consideration and thus liability stands crystallized during the relevant year under appeal. 7.2 That CIT(A) erred on facts and in law in holding that the appellant ought to have adjusted the aforesaid credit notes against the provisions made in preceding year(s) without appreciating that no provision for which credit notes was made. 7.3 That CIT(A)/AO erred on facts and in law in drawing adverse inferences based on complete misunderstanding of the facts relating issuance of such credit notes completely ignoring the submissions and documents placed on record. 7.4 Without prejudice to above grounds, the CIT(A) ought to have directed that the aforesaid credit notes be deductible from income for assessment year 2010-11. Re: Disallowance of interest paid on u/s 36(1)(iii) [AO: Pg 222 to 236; CIT(A): Pg 130 to 1401 8. That the CIT(A) erred on facts and in law in principally upholding disallowance of interest paid on loans, if any, utilized for acquisition/ setting-up of tower sites applying proviso to section 36(1)(iii) of the Act. 8.1 That the CIT(A)/ AO erred on facts and in law in not appreciating that interest, if any, incurred in respect of setting-up of towers site, which is part of regular business of the appellant, is allowable in terms of section 36(1)(iii) of the Act. 8.2 That the CIT(A)/ AO erred on facts and in law in not appreciating that no borrowed funds were utilized for setting-up of tower sites during the relevant year. 8.3 That the CIT(A) erred on facts and in law in directing computation of disallowance in an arbitrary, illogical and irrational manner. Re: Disallowance of interest on tax already offered to tax in AY 2015-16-double taxation [Rs.0.53 crores] [AO: Pg 247 to 248; CIT(A): Pg. 157 to 1581 9. That the CIT(A) erred on facts and in law in upholding disallowance of sum of Rs.53,00,000 debited on account of interest on tax debited to the profit and loss account without appreciating that the same amount stands reversed in financial year relevant to assessment year 2015-16 and stands offered to tax in that year; the addition leads to double taxation which is impermissible. 9.1 Without prejudice, the CIT(A) erred on facts and in law in not directing that the aforesaid amount be excluded from income of assessment year 2015-16. Adjustments while computing book profits under section 115JB [MAT Provisions] 10. That the CIT(A) erred on facts and in law in upholding various adjustments made by the AO while computing books profits without appreciating that the audited financial statements were sacrosanct for computing book profits, and various adjustments were beyond the scope permissible under Explanation to section 115JB of the Act.

Re: Adjustment of depreciation on alleged revaluation of assets [Rs.931.18 crores] [AO: Pg 255 to 277; CIT(A): Pg 40 to 62] 11. That the CIT(A) erred on facts and in law in upholding the upward adjustment on account of alleged excess depreciation of Rs.931.18 crores made by the AO while computing book profit, alleging the same to be attributable to revaluation of PIAs, covered under clause (iia) of Explanation 1 to section 115JB of the Act. 11.1 That the CIT(A)/ AO erred in not appreciating that PIA's vested in the appellant in immediately preceding year (assessment year 2010-11) pursuant to scheme of restructuring/amalgamation and were accordingly correctly recorded at fair value, which was, in any case, in terms of the binding Scheme and the applicable accounting standards. 11.2 That the CIT(A)/ AO also erred in not appreciating that recording of PIAs at fair values in accordance with the binding scheme of restructuring/ amalgamation and applicable accounting standards, cannot be construed as 'revaluation' as contemplated under clause (iia) of Explanation I to section 15JB of the Act. 11.3 That the CIT(A)/ AO erred on facts and in law in holding that the book values of PIAS acquired by the appellant in preceding year shall be Nil, and therefore, the entire amount of depreciation relates to 'revaluation' requiring upward adjustment while computing book profits. 11.4 That the CIT(A) erred on facts and in law in referring to provisions of sections 43(1)/43(6) of the Act, without appreciating that the same are not applicable/ relevant for computing book profits. 11.5 That the CIT(A) erred on facts and in law in upholding holding alternative adjustment of book depreciation of Rs.364.11 crores in respect of PIAs received from VEIL on the ground that the said entity had recorded PIAs received from Opco (Vodafone) at Nil value. Re: Adjustment of provision for SRO/ARO [Rs.36.63 crores] [AO: Pg 277 to 289; CIT(A): Pg 82 to 83] 12. That the CIT(A) erred on facts and in law in upholding upward adjustment of amortization of Rs.36.63 crores towards provision for SRO/ARO while computing book profits alleging the same to be unascertained liability covered under clause (c) of Explanation 1 to section 115JB of the Act. 12.1 That the CIT(A) erred on facts and in law in upholding, on an alternate basis, upward adjustment of Rs.20.50 crores out of SRO/ARO amortization alleging the same to be attributable to revaluation covered under clause (iia) of Explanation 1 to section 115JB of the Act. Re: Disallowance of provision for expenses [Rs.169.41 crores] [AO: Pg 290; CIT(A): Pg 91 to 103] 13. That the CIT(A) erred on facts and in law in upholding upward adjustment to the extent of Rs.169.41 crores [as against Rs.173.36 crores made by the AO] towards year-end provisions, while computing book Page | 10 profits, alleging the same to be unascertained liability covered under clause (c) of Explanation 1 to section 115JB of the Act. Re: Disallowance of provision for SLA credits [Rs. 16 crores] [AO: Pg 290; CIT(A): Pg 103 to 107] 14. That the CIT(A) erred on facts and in law in upholding upward adjustment of Rs.16 crores towards provisions for SLA credits payable to the customers (telecom operators) for downtime faced in network/ service while computing book profits alleging the same to be unascertained liability covered under clause(c) of Explanation 1 to section 115JB of the Act. Re: Others 15. That on the facts and circumstances of the case and in law, the CIT(A) erred in not allowing MAT credit in respect of additional tax (MAT) liability assessed for immediately preceding year.

1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and facts, in deleting the disallowances amounting to Rs. 47,27,10,000/- made on account of depreciation 'provisional capitalization without appreciating the fact that such capitalization is nothing but merely a provision and no depreciation on same can be allowed.

2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and facts, in deleting the disallowances amounting to Rs 11,23,85,330/- made on account of disallowance of depreciation corresponding to actual date of put to use (date of capitalization of telecom sites) overlooking the fact that RFAI notice generation date cannot be held to be the date on which the asset is put to use.

3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and facts, in deleting the disallowances amounting to Rs. 15,91,92,544/- on account of capitalization of salary of persons involved in acquisition of fixed assets in certain divisions.

4. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in law and facts by restricting the disallowance on account of provision of salary expense to Rs 1.82 Crores and directing to allow the balance amount of Rs 3.95 Crores after verification in contravention to the provisions of section 251(1)(a) of the Act.

5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and facts, in deleting the disallowances amounting to Rs. 61.41 crores and asking the AO to do further verification on disallowances of Rs 66.26 Cr and 7.76 Cr without remanding the issues to the AO on account of Absorbed Energy Costs.

6. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and facts in giving the above direction which is in contravention to the provisions of section 251(1)(a) of the Act.

10. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and facts on the issue of disallowance of Rs 27,31,00,000 on account of difference in turnover reported in Service Tax Return vis a vis Income Tax Return by directing the AO to allow the same after verification in contravention to the provisions of section 251(1)(a) of the Act.

12. That the appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid ground/(s) of appeal either before or at the time of hearing of the appeal.”

. First we take the assessee’s appeal in 2607/Del/2023 [Assessment Year 2011-12].

In Grounds of appeal Nos. 1 to 1.10, assessee has 8. challenged the disallowance of depreciation on passive infrastructure assets at INR 11,46,28,00,512/- and in Ground of appeal Nos.11 to 11.5, the assessee has challenged the action of AO/Ld.CIT(A) in making upwards adjustment of INR 931.18 crores in the book profits computed u/s 115JB of the Act on this account.

9. At the outset, Ld.AR submits that this issue is covered in favour of the assessee in terms of the order of Co-ordinate Bench of the Tribunal for AY 2010-11 in 2212 & 2762/Del/2023 vide order dated 10.12.2024 wherein the Co- ordinate Bench of the Tribunal has allowed the depreciation on the assets transferred to the assessee company in terms of merger scheme w.e.f. 01.04.2009. He thus, submits that when Ld.CIT(A has confirmed the disallowance by following the order of Ld. CIT (A) for AY 2010-11 which stood reversed by the Co-ordinate Bench in aforesaid appeals and there is no change in the facts and circumstances, the order of the Co-ordinate Bench on this issue passed in AY 2010-11 deserves to be followed and disallowance made deserves to be deleted.

10. Per contra, Ld.CIT DR for the Revenue supported the orders of the lower authorities and submits that it is not in their knowledge whether said order has been challenge by the Revenue further before the Hon’ble High Court therefore, the observations of the assessee deserved to be confirmed.

11. Heard the contentions of both the parties and perused the material available on record. Admittedly, there is no change in the facts and circumstances of the case. Further the assets transferred to the assessee company in terms of the merger agreement were the same assets on which depreciation was claimed in the immediately preceding year i.e. 2010-11 which was disallowed by the AO and finally allowed by the Co-ordinate Bench of the Tribunal. The Coordinate Bench while deleting the disallowance has made following observations in para 3.23 to 3.30 as under:- 3.23 “We find that the first step of demerger scheme in the case of Vodafone Essar Ltd was subject matter of examination and adjudication by the Hon'ble Delhi High Court in company Petition No. 334/2009 dated 29.03.2011 which is enclosed in pages 1074 A to 1074W of the Paper Book. This decision was vehemently relied upon by the learned DR before us wherein, it was held that the petitioners had fairly admitted that any question of tax liability was within the purview of income tax department and that the department would be free to pursue either transferor company or transferee company notwithstanding the sanction of the Court. The scheme per se was sanctioned by the Hon'ble Delhi High Court to be proceeded, with liberty given to the Income Tax Authorities to move against any of the parties concerned in case the department was of the view or belief that there had been any impermissible evasion of payment of tax by the petitioners. The entire essence of the arguments advanced by the learned DR before us is effectively captured in the said judgment. But what is to be seen is to understand the scheme of demerger as first step and scheme of merger as a 2nd step. The entire scheme of demerger has been accepted and approved by the Hon‟ble High Court which indeed contained the fact of gift of assets also. The department cannot try to rewrite the scheme. All the objections of the department had to be filed when due notice was given to them prior to the sanction of the scheme of arrangement. The department cannot question the validity of the sanction of the scheme when the approved scheme is at the stage of implementation. The scheme once sanctioned by the competent court is binding on all the stakeholders which admittedly include the department also. Accordingly, the revised return filed by the assessee by giving due effect to the scheme of demerger and merger had to be accepted and given Page | 14 effect to by the revenue. In support of this proposition, the learned AR rightly placed reliance on the decision of the Hon'ble Supreme Court in the case of Dalmia Power Ltd Vs. ACIT reported in 420 ITR 339 (SC) . Since, the due notices were issued to the income tax department before sanctioning of the scheme by the competent court, the binding nature of the scheme cannot be questioned or challenged at the time of implementation of the scheme as the scheme had attained statutory force not only between the transferor or transferee company but also between statutory authorities to whom notices were issued by the Court. Needless to mention that every scheme of arrangement and amalgamation must provide for an “appointed date” which is the date on which the assets and liabilities of the transferor company vest in, and stand transferred to the transferee company so that the scheme comes into effect from the “appointed date” unless the same is modified by the Court. 3.24 Further, we also find that the Hon‟ble Madras High Court in the case of Ponni Sugars (Erode) Ltd Vs. ACIT in WP No. 12510 and 12511/2004; 12255/2006; 3830/2007; 1054/2008, 2629/2009 among others dated 16.10.2020 had also considered the aspect of slump sale under the demerger scheme. The issue that was before the Hon‟ble Madras High Court was whether depreciation is eligible to that assessee on the fair market value of assets. The brief facts of that case are Ponni Sugars and Chemicals Ltd (PSCL) set up Erode Sugar Mill in Tamil Nadu in the year 1984. Subsequently, another sugar mill was set up in Orissa in 1994. In view of the loss in sugar mill at Orissa, PSCL became a sick industrial company. Consequently, a scheme of arrangement was confirmed by the Company Court, the said scheme contemplated a slump sale u/s 2(42C) of the Act wherein transfer of assets of Erode Unit was made on fair market value to the transferee company and transferee company claimed depreciation on the basis of fair market value of assets in the return of income. The learned AO in that case disallowed the depreciation claim by treating the scheme as one of the “demerger” u/s 2(19AA) of the Act thereby restricting the claim of depreciation only on written down value of assets being transferred from PSCL to Ponni Sugars (Erode) Ltd. Hon‟ble High Court held that the order sanctioning scheme of arrangement by the company Court pursuant to Section 391 to 394 of the Companies Act, 1956 will have a statutory force binding on all the concerned and the sanction of the Court would operate as a judgment in rem. It observed that the Company Court, while considering the petition for sanctioning under the Companies Act, had approved the scheme of demerger and the statement u/s 393 of the Companies Act. The statement being in conformity with the scope of the terms of the scheme of arrangement, becomes an integral part of the scheme, which was sanctioned by the Company Court, and thus the transfer of the undertaking will not be considered to be one of the demerger within the meaning of Section 2(19AA) of the Income Tax Act, 1961. The Hon‟ble Madras High court held that impugned proceedings itself is fallacious and further proceedings thereon cannot be sustained and accordingly quashed the same.

3.25 Keeping this proposition laid down by the Hon‟ble High Court and Hon'ble Supreme Court into consideration, in our considered opinion, the action of the learned CIT(A) in the instant case before us merging both the schemes, is wrong. It is to be noted that parties to the scheme in the first step of demerger are different and parties to the scheme in the 2nd step of merger are different. By merging both schemes together, the learned CIT(A) is only try to rewrite the scheme which is not permissible. Now coming to the liberty given by the Hon'ble Delhi High Court to the Income Tax Department to question any possible tax evasion in the scheme of arrangement sanctioned by the court, the same had to be understood only in the context of any tax evasion being carried out by the assessee while giving effect to the scheme need to be looked into by the Income tax department if there is some tax evasion as liberty is given by the Hon'ble High Court while sanctioning the scheme. But the very basis of sanction of the scheme per se cannot be challenged or looked into by the tax department at the time of implementation of the scheme. Under the erstwhile provisions of the Companies Act, 1956, there is specific provision in Section 394(7) of the Companies Act, 1956 wherein, liberty was given to the tax department to challenge the scheme of arrangement sanctioned by the competent court before the higher court. This admittedly was not done in the instant case before us by the income tax department. Hence, the scheme of arrangement under 2 independent steps carried out in the instant case before us cannot be questioned at all. The first scheme which was sanctioned did contain the element of gift of assets. Hence, the aspect of gift, as rightly contended by the learned AR before us, attaining finality, is correct and deserve to be accepted. At the cost of repetition, we would like to state that initial transaction of demerger of PIAs without any consideration is a case which is specifically affirmed by the Hon'ble Delhi High Court while approving the demerger scheme for one of the tower company i.e. Vodafone Infrastructure Ltd in Company Petition No 334/2009 referred supra. Further, the very same transaction qualifying as gift was confirmed by the Hon‟ble Gujarat High Court in the case of Vodafone West Ltd (Vodafone Essar Gujarat Ltd as it was then known) in Company Petition No. 183/2009 wherein, the same demerger scheme as approved by the Hon'ble Delhi High Court was filed. Hence, in view of the specific finding of the Hon‟ble High Courts, the income tax department again questioning the impugned transaction as not qualifying for gift at this stage cannot be permitted. 3.26 Further, the entire gamut of transaction was subject matter of consideration by the coordinate bench of Mumbai Tribunal, where one of the members herein was the author in the case of Vodafone Idea Ltd Vs. ACIT reported in 149 taxmann.com 169 (Mumbai Tribunal) wherein, the case was sought to be reopened by recording the following reasons:- “The assessee transferred the Passive Infrastructure Assets(PAs) amounting to Rs. 1622,77,10000-10 Idea Cellular Tower Infrastructure Ltd. ITCIL., a 100% subsidiary of M/s. Aditya Birla Telecom Ltd. (ABTL)who in turn is 100% subsidiary of the assessee Idea Cellular Ltd) through Demerger at Nil consideration with an Page | 16 appointed date of 1-1-2009. Subsequently, ICTIL amalgamated in Indus Towers Ltd. (Indus), resulting into transfer of PIAs amounting to Rs. 1622,77,60,000/- to Indus. Thus, the PIASS of the assessee, having a book value of Rs. 1622,77,60,000/-as on 31-12-2008, stood transferred to Indus without payment of any taxes. This business arrangement is a colourable device through which PIA having book value of Rs. 1622,77,60,000/- have been transferred out of the block of assets of the assessee at Nil consideration and without payment of due taxes. In view of this there is reason to believe that the colourable device created through a scheme of De- merger and Amalgamation is only for tax evasion and no taxes on these transactions have been paid. The Balance Sheet of ABTL indicates that the investment in Indus, have increased from Rs. 1,90,000/- as on 31-3-2009 to Rs. 7330,75,56,000/- as on 31-3- 2010 as ABTL fair valued its investment in Indus. Since the assessee is a holding company of ABTL, therefore, this increase in fair valuation of Indus is due to the transfer of PIAs from Idea Cellular Ltd. to Indus. The fair valuation of ABTL's investments in Indus has increased by Rs. 7330,75,56,000/- as a result of receipt of PIAS of Idea Cellular Ltd. by Indus Therefore, this increase in fair valuation of investment in Indus of Rs. 7330,75,56,000/- is, effectively the fair market value of PIAS of Idea Cellular Ltd. which were transferred at book value at Rs. 1622,77,60,000/-through a scheme of De-merger and subsequent Amalgamation. Therefore, I have reason to believe that the difference of Rs. 5707,97,96,000/- (Rs.7330,75,56,000 -Rs.1622,77,60,000) is the value of benefit received by Idea Cellular Ltd. from business which has escaped assessment due to failure on the part of the assessee to disclose all material facts at the time assessment u/s 143(3) and is required to be taxed u/s 28(iv) of the I.T. Act." 3.27 This aspect of the reasons was adjudicated by the Mumbai Tribunal by observing as under:- “8. With regard to issue mentioned in point (v) of the reasons recorded, the facts of the case pertaining to the issue and the treatment given by the ld. AO are explained below:- (a) The assessee under a court approved Scheme of Arrangement transferred its Passive Infrastructure Assets (PIAs) having book value of Rs. 1622,77,60,000/- to Idea Cellular Tower Infrastructure Ltd.(ICTIL) at nil consideration with the appointed date of 1-1-2009. ICTIL was a 100% subsidiary of/s. Aditya Birla Telecom Ltd. (ABTL) which in turn was a 100% subsidiary of the assessee. Subsequently, ICTIL amalgamated into Indus Towers Ltd. (Indus) resulting in transfer of PIAS having book value of Rs. 1622,77,60,000/- to Indus: By a separate Scheme of Arrangement u/s. 391 r.w.s. 394 of the Companies Act, 1956, the telecom undertaking of ABTL (comprising Bihar and Jharkhand telecom circles and related assets and liabilities) was demerged into the assessee with the Appointed Date of April 01, 2009. Pursuant to this Page | 17 separate Scheme, ABTL revalued its investment in shares of Indus from Rs. 1,90,000/- as on 31-3-2009 to Rs. 7330,75,56,000/- as on 31-3-2010.These facts have been pictorially explained by the assessee as under:-

This was done as part of a separate scheme u/s. 391 r.w.s. 394 of the Companies Act, 1956 under which the telecom undertaking of ABTL (comprising Bihar and Jharkhand telecom circles and related assets and liabilities) was demerged into Idea with the Appointed Date of April 01, 2009. (b) From the above facts, the ld. AO held that the Scheme of Arrangement through which the PIAs of the assessee having book value of Rs. 1622,77,60,000/- was transferred to ICTIL for Nil consideration and then from ICTIL to Indus on the subsequent amalgamation of ICTIL with Indus was a colorable device to evade taxes. That this was a transfer of assets of the assessee to an entity outside the Group, and that ICTIL was only an intermediary through which the assets were being routed to avoid taxes and duties that would otherwise be attracted. The ld. AO also observed that not only the assessee but two other shareholders of Indus namely, Vodafone and Bharti Airtel had also resorted to such subterfuge. The ld. AO noted that in the related case of M/s Vodafone Essar Gujarat Limited, by an Order dated 9th December 2010, the Hon'ble Gujarat High Court had accepted the submissions of the Income-tax Department upholding the locus of the Income-tax Department and rejected similar Scheme of Arrangement proposed by Vodafone Essar Gujarat Limited under sections 391 to 394 of the Companies Act, 1956 vide Company Petition No. 183 of2009. That the present Scheme of Arrangement in the assessee's case also had been challenged by the Department before the Hon'ble Gujarat High Court vide Civil Application No. 2933 of 2013. (c) The ld. AO held that since the entire undertaking of the PIAs had been transferred ultimately to Indus, the gains accruing to the assessee had to be considered as flowing from the slump sale as Page | 18

per section 50B of the Act. The revaluation of ABTL's investment in Indus at Rs. 7330,75,56,000/- as on 31-3-2010 which was apparently because of the transfer of PIAs from the assessee to Indus was treated as the full consideration and the book value of the PIAs of Rs. 1622,77,60,000/- was taken as the cost of acquisition. In this manner, the ld. AO computed short term capital gains of Rs.5707,97,96,000/-. (d) The ld. AO did not accept the Scheme of Arrangement as he was of the view that it was a colorable device to evade tax and since in the related case of M/s Vodafone Essar Gujarat Limited, similar Scheme of Arrangement proposed by Vodafone was rejected by the Hon'ble Gujarat High Court and the Department had challenged the Scheme of Arrangement in the assessee's case also. (e) On the issue of colorable device to evade tax, the assessee has submitted that Indus is a separate independent entity assessable to tax and it is paying taxes. That it is a joint venture company between Bharti Airtel Group, Vodafone Group and the assessee, formed to provide Passive Infrastructure (PI) services on commercial basis to telecom operators including the foregoing parties. Indus is registered with DOT as IP-1 to provide Pl and related maintenance services to various telecommunications operators in India on a shared basis. Indus was formed as part of joint efforts of telecom operators to economise on cost of maintenance of PI Assets by pooling in towers in a jointly owned company. Presently, Indus is the largest telecom tower company in India. Govt. of India had also issued directions to promote sharing of infrastructure by telecom operators to achieve economies of scale and focus on active telecom services by the operators. Pursuant to the Govt. directive, the cellular operators in India initiated Project MOST (Mobile Operators Shared Towers). Thus, formation of Indus met with the regulatory directions as well as commercial advantage to the promoters of Indus. This rationale was stated in all the Schemes of Arrangement entered into to meet this purpose which has been approved by various High Courts. That similar arrangements were entered into by the other Promoters of Indus namely Vodafone and Bharti Airtel. (f) The Department in the case of Vodafone had challenged the demerger of the PI Undertaking of Vodafone Essar Gujarat Ltd into Vodafone Infrastructure Ltd. before the single judge of the Hon'ble Gujarat High Court on the ground that the said demerger scheme was formulated with the purpose of evading taxes/stamp duties etc. The single judge did not approve the said demerger of Vodafone Essar Infrastructure Ltd. This is the decision referred to by the ld. AO in the assessment order. (g) The assessee submitted that the decision of the Single Judge

8.2. Moreover, the revaluation of shares has been made by ABTL on 31/03/2010 which falls in A.Y.2010-11. Hence, the event which had occurred in A.Y.2010-11 in the hands of ABTL can never be a ground for reopening in the case of assessee for A.Y.2009-10. Hence, reopening on this issue fails directly for A.Y.2009-10. 8.3. Further the ld. AO had stated that this entire device would result in benefit u/s.28(iv) of the Act to the assessee in the sum of Rs. 5707,97,96,000/- (7330,75,56,000-1622,77,60,000). Even if the entire contentions of the revenue and the ld. DR are to be accepted it is ABTL who had revalued its shares for Rs. 7330,75,56,000/- in Indus Towers Ltd. It is ABTL pursuant to the merger of ICTIL with Indus Towers were issued shares in Indus Towers Ltd. Hence, by way of a scheme of demerger and merger if the Passive Infrastructure Assets worth Rs. 1622,77,60,000 has been transferred to ICTIL (by way of demerger) and subsequently by way of merger with Indus Towers, for Nil consideration, the benefit, if any, on this entire transaction, would only arise for ABTL and certainly not the assessee herein. Hence, the applicability of the provisions of section 28(iv) of the Act in the hands of the assessee absolutely fails in the instant case. We are making it very clear that we are not even suggesting that the said sum of Rs. 5707,97,96,000/- would become benefit u/s.28(iv) of the Act in the hands of the ABTL. The above observations are made only for the limited purpose of addressing the issue that provisions of section 28(iv) of the Act can never be applied in the hands of the assessee herein for A.Y.2009-10 in the facts and circumstances of the assessee herein. 8.4. In any case, we find that the revaluation of shares in Indus Tower to the extent of Rs. 7330 Crores duly captures the value of Passive Infrastructure Assets transferred by other telecom operators like Bharti Airtel, Vodafone and also assessee herein. As stated earlier, the transfer of these towers to a separate company was made as per the policy decision taken by the Government of India. Because of the fact that Indus Towers was holding the huge towers pursuant to the transfers made by Vodafone, Airtel and assessee, the value of shares of Indus Towers Ltd had increased substantially. This increased value of shares had been captured in the revaluation of shares made by ABTL as on 31/03/2010 to the extent of its shareholding in Indus. Hence, there cannot be any benefit in the sum of Rs. 5707.9796 Crores u/s.28(iv) of the Act in the hands of the assessee for A.Y.2009-10. 8.5. Moreover, we find that the ld. AO had relied on the decision of the single Bench of Hon'ble Gujarat High Court dated 09/12/2010 which rejected the merger scheme in the case of Vodafone Essar Gujarat Ltd., In re [2013] 33 taxmann.com 544/[2012] 342 ITR 135 In this decision, the Scheme of Arrangement proposed by Vodafone Essar Gujarat Ltd. u/ss.391-394 of the Companies Act, 1956 vide Company Petition No.183 of 2009 was rejected by the Hon'ble Page | 21 Gujarat High Court by accepting the stand of the Income-tax department that this has been made against public interest and with a view to evade payment of taxes. Accordingly, the case of the Revenue is that this is a transfer of assets of the assessee to an entity outside the group, and ICTIL is only an intermediary through which the assets are being routed, to avoid taxes and duties that would otherwise be attracted and therefore the Scheme of Amalgamation was neither a scheme nor arrangement nor a compromise contemplated u/s.391 of the Companies Act, 1956. The scheme of arrangement as envisaged was not really a scheme of arrangement or a scheme of demerger, so as to be eligible for a sanction by the Hon'ble Company Judge u/ss.391-394 of the Companies Act 1956. The Revenue's case is that the scheme of demerger was to transfer the PIAs to Indus Towers through the intermediary ICTIL. Hence, the transfer of assets by way of demerger tantamount to gift. The case of the Revenue is also that the company cannot gift its assets. The Revenue also says that the demerger is not section 2(19AA) compliant and that ICTIL is merely a paper company prior to amalgamation with Indus. 8.6. We are unable to comprehend ourselves to accept to the aforesaid averments made by the ld. AO in his assessment order which were also heavily relied upon by the ld. DR before us. It is pertinent to note that the single Bench decision of the Hon'ble Gujarat High Court which has been heavily relied upon by the ld. AO and the ld. DR before us has been reversed by the Division Bench order of the Hon'ble Gujarat High Court itself. The date of decision of the single Bench of the Hon'ble Gujarat High Court order is 09/12/2010. The date of the Division Bench order of Hon'ble Gujarat High Court is Vodafone Essar Gujarat Ltd. v. Department of Income-tax [2013] 35 taxmann.com 397/216 Taxman 187 (Mag.)/353 ITR 222, 27/08/2012. It is also further pertinent to note that this Division Bench order of the Hon'ble Gujarat High Court has been approved by the Hon'ble Supreme Court in the case DIT v. Vodafone Essar Gujarat Ltd.[2016] 66 taxmann.com 374/[2015] 373 ITR 525 vide its order dated 15/04/2015. Hence, the decision of the Division Bench of the Hon'ble Gujarat High Court arising out of the decision of the Single Bench of Gujarat High Court had attained finality by the decision of the Hon'ble Supreme Court.

8.7. In view of the above, the entire contentions made by the ld. AO and the ld. DR before us on merits of the issue and also challenging the claim of demerger and claim of merger with the respective parties stated supra, deserves to be dismissed. 3.28 Further, we find that the entire issue in dispute is covered by the decision of Delhi Tribunal in case of Bharti Infra Tel Ltd, one of the tower companies for AY 2010-11 in ITA 5332/Del/2014 dated 26.04.2022 wherein, it was observed as under:- Page | 22 “9. We have heard the rival contentions and perused the material available on records and gone through the orders of the authorities below. We find that Ld.CIT(A) has given finding on fact by observing as under:- 4. Findings on ground of appeal

No.1 to 1.7:- "The facts of the appellant's case with respect to the above grounds lie in a narrow canvas. The appellant has transferred certain specified telecom infrastructure to its wholly owned subsidiary for which the Scheme of Arrangement was approved by the Hon'ble Delhi High Court vide order dated 29.03.2011 in Company Petition no 324/2009. In para 9 of the said order has been noted that the scheme is intended to restructure, within the group of companies controlled by the transferor company (ie. the assessee) the holding of the passive infrastructure assets in a more efficient manner consistent with the diverse needs of the business. That the transferee company shall not be required to issue any shares or pay any consideration to the transferor company or its shareholders. In para 16 of the said order it has again been mentioned by the Hon'ble High Court that the passive infrastructure assets are being transferred without any consideration and the value of investment of the shareholders of the transferor company shall not deplete in any manner.... In the concluding para no 35 sanction has been granted by the Hon'ble High Court to the scheme of arrangement under sections 391 and 394 of the Companies Act, 1956 with the observation that the passive infrastructure assets of the transferor company shall stand merged with the transferee company from the appointed date i.e. 01.04.2009. Thus the stand of the assessee before the AO was that since the above said infrastructure assets were transferred to the subsidiary company at Nil consideration therefore there has been a resultant loss on such transfer effected on 05.05.2011 for Rs.5992,05,10,000/-. This loss was added back in the computation of income by the assessee. The AO has however held that the provision of Section 45 of the Act are applicable to such transfer of assets made by the appellant company to its wholly owned subsidiary and has computed Short Term Capital Gain on the same. The working of such short term capital gain has been made by taking the value of sale consideration of the transferred assets based on the value assigned to such assets (which remained with the assessee company after the transfer) in the red herring prospectus issued on 11.12.2012 for the purposes of IPO. Further for computing the Short Term Capital Gain the AO in his assessment order has referred to the Explanation 7A to Section 47 of the LT. Act 1961 for determining the actual cost Page | 23 which has been taken by him as per the books of the assessee company at Rs. 5992,05,10,000.. As against the above finding of the AO the substance of the submission of the appellant is that the Scheme of Arrangement has been approved by the Delhi High Court and that the transfer of assets of the passive infrastructure was made at Nil value and thereby the transaction is in the nature of gift in terms of Section 122 of the Transfer of Property Act, 1882 as the term "gift" has not been defined under the Income Tax Act, 1961. That accordingly the provision of Section 47(iii) of the Act are attracted in respect of transfer of capital asset under a gift and consequently provision of Section 45 of the Act do not apply to such transfer. Without prejudice, to the above primary argument, the appellant has without prejudice submitted that as there was no sale consideration involved in the impugned transfer therefore even otherwise the computation mechanism for capital gains would also fail in terms of Section 50. (this being depreciable asset) read with section 48 and 49 of the Act. The appellant lastly also objected to the adoption of a notional and hypothetical value of sale consideration based on the value given in the red herring prospectus issued for the purposes of IPO which was a date much later than the date of actual transfer of the assets. The said issue of IPO was in December 2012 whereas the transfer of assets was effected on 05.05.2011. That under the law the sale consideration cannot be based on deemed sale value as there is no provision under the law to undertake such exercise for the purpose of computing Capital gains and that as per section 50 the full value of consideration has to be the actual consideration which has to pass hands. I have considered the submission of the appellant with respect to chargeability of short term capital gain u/s 45 of the Act on the impugned transfer. In facts of the case it is observed that appellant has transferred specified telecom assets under the scheme of arrangement approved by the Hon'ble Delhi High Court under Section 391 and 394 of the Companies Act. In paras 22 & 23 of the Hon'ble Delhi High Court order dated 29.03.2011 in Company Petition no 324/2009 (the assessee's case) it has inter alia been held that the objections of the Income Tax Department to the scheme of arrangement are akin to that filed by them in the matter of Vodafone Essar Infrastructure Ltd in Company Petition no 334/2009 and that since these objections stand dismissed in that petition therefore no separate orders are required to be passed in the Petition No. 324/2009. It is a matter of record that the scheme of arrangement approved by the Hon'ble High Court in Page | 24 assessee's case entails transfer of the passive infrastructure assets at Nil consideration. Moreover the AO has not brought any fact on record to controvert the assessee's claim that the said transfer was effected without consideration. Therefore, such transaction being without consideration, falls within the definition of "gift" in terms of Transfer of Property Act, 1882 which also movable assets. While on this issue it is relevant to note that in Company Petition No 334/2009 in the case of M/s Vodafone Essar Infrastructure Ltd the Income Tax Department had while objecting to the approval of the Scheme of Arrangement had raised a broad submission that Section 391 of the Companies Act, 1956 does not contemplate a gift from one party to the Scheme to the other party for the reason that the expression of "arrangement" with members contemplated an arrangement in the nature of the contract with a consideration involved, which is missing in this case. With regard to this objection of the Income Tax Department the Hon'ble High Court in para 30 of the said order observed after making reference to the meaning assigned to the word "gift" in various Court decisions has noted that it seems that there is no legal impediment to a company transferring property by a gift. After detailed discussion as to whether transfer of assets by way of a gift is covered within the meaning of the word "arrangement" as appearing in Section 391/394 of the Companies Act, 1956 the Hon'ble Court has concluded in para 45 of this petition that the I.T. Department has failed to persuade the court that a transfer by way of gift is not permissible under section 391 of the Companies Act, 1956. In my considered view the above observations of the Hon'ble High Court supports the contention of the assessee that the transfer of impugned asset without consideration in the instant... case to its subsidiary company is transaction in the nature of "gift" and therefore falls within the provision of Section 47(iii) of the Income Tax Act, 1961 and accordingly, the transaction question would not be regarded as transfer for the purposes of section 45, which is the charging section for capital gains. I have also considered the alternate submission of the appellant with regard to the failure of computation mechanism provided in case of depreciable assets as under section 50 of the I.T. Act which mandates appropriate modifications with respect to the provisions of section 48 and 49 and lays down that for the mode of computation there must be a full value of consideration received or accruing. However as in the present fact of the case as no consideration has either been received or accrued to the appellant, hence the computation mechanism for computing the capital gain fails.

Further, for the purpose of computing short term capital gain, the AO has adopted sale consideration on the basis of value given in the red herring prospectus issued for the purposes of IPO in December 2012. In this connection the principle laid down by the Supreme Court in the case of Shoorji Vallabhdas & Co. 46 ITR and in the case of Godhra Electricity Co. Ltd v. CIT 225 ITR 746 would be applicable to appellant's case, wherein it is held as under:- "Income tax Act takes into account two points of time at which the liability to' tax is attracted, viz, the accrual of the income or its receipt, but the substance of the matter is income. If income does not result at all, there cannot be tax, even through in book keeping, an entry is made about hypothetical income", which does not materialize ". Based on the above discussion the AO was not justified in computing Short Term Capital Gain on the transfer of assets and hence the Ground 1 to 1.7 are allowed in favour of the appellant and the addition made for Rs. 505,72,00,000/- is directed to be deleted."

14. Heard both the parties. It is seen that this issue has already been considered and decided by the Co-ordinate Bench of ITAT in its order for AY 2010-11 in the aforesaid Co- ordinate Bench of the Tribunal by making observations in para 3.32 to 3.35 and in para 10 to 10.4 of the order, has deleted the upward adjustments and allowed the depreciation in computing the book profits. The relevant observations as contained in aforesaid paras are reproduced as under:- 3.32 “We have heard the rival submissions and perused the materials available on record. The Passive Infrastructure Assets (PIAs) vested in the assessee with effect from 1-4-2009 pursuant to a two-step court approved scheme, the assessee in its books in accordance with the mandate of the court approved scheme, recorded the PIAs at its fair value of Rs 16306 crores. The book depreciation thereon was debited to the Profit and Loss Account as per the applicable accounting policy and applicable standard and was claimed as reduction while computing book profits under section 115JB of the Act. The Learned AO since had treated that PIAs were received for nil consideration, observed that accounting of PIAs in the books by the assessee at its fair value tantamount to revaluation and Page | 27 accordingly depreciation on the so-called revalued amount would not be allowed as reduction under clause (iia) of Explanation 1 to section 115JB of the Act. Consequentially, the Learned AO made an upward adjustment of Rs 1112.30 crores on account of this transaction while computing book profit under section 115JB of the Act. This was reduced to Rs 1030.95 crores by the Learned CITA rectifying the factual errors committed by the Learned AO. 3.33 We have already held that transaction of gift of assets under the first step court approved scheme as a genuine gift. The transfer of assets at fair value to the assessee has already been accepted as genuine as the same was done in accordance with the approved schemes of the Hon‟ble High Courts. Hence the claim of book depreciation on fair value of assets cannot be questioned by the department. The same does not tantamount to revaluation. It is pertinent to note that the entire accounting treatment in the books of tower companies on receipt of PIAs from operating companies under court approved scheme with specific reference to accounting treatment in the books of the transferee company and the accounting treatment pursuant to merger of tower companies into assessee had already been part of the approved schemes of the Hon’ble High Court, which cannot be questioned at this stage. 3.34 Pursuant to the scheme of amalgamation, the value of assets are to be recognized at their fair values only. The Delhi bench of this Tribunal in the case of Priapus Developers Pvt. Ltd. vs. ACIT reported in 104 taxmann.com 298 had considered an identical issue where shares acquired pursuant to amalgamation were recognized at their fair values, wherein the learned AO treated the same as revaluation and denied deduction of fair value as cost of acquisition while computing book gains on transfer of shares. The Tribunal held that recognition of shares at fair value does not amount to revaluation. The conclusion drawn by the Delhi Tribunal in this regard are as under:- 17. Such a premise of the Assessing Officer cannot be approved for the reason that; ♦ Firstly, this reserve has not been created on revaluation of asset albeit same has been acquired through amalgamation and the shares have been valued as per the purchase method for a certain price. ♦ Secondly, it is not revaluation of any asset held by the assessee, because no such reserve has been created by the assessee on revaluation of shares. Revaluation of assets takes place only when the assessee decides to revalue the asset existing in the balance sheet. ♦ Lastly, in this case all the assets belonged to amalgamating companies, that is, the shares of IHFL originally belonged to PREPL and PPPL and appeared in their balance sheet; and these assets entered in the books of assessee by virtue of amalgamation valued on fair market value as mandated by the order of Hon'ble High Page | 28 Court. Thus, it would be wrong to say that there was any kind of revaluation of assets. Therefore, there could not be any question of invoking clause (j) of Explanation to section 115JB for calculation of book profit u/s. 115JB. Here in this case, nowhere it has been disputed that the profit and loss account has not been prepared in compliance of requirement of Part-I and Part-II of the Companies Act, 2013 and as per accounting standard. The profit and loss account has been approved by the Statutory Auditors and also laid before the Members in the AGM, which is sacrosanct for computing the book profit u/s. 115JB. Thus, once the accounts have been prepared in accordance with the Companies Act duly certified by statutory auditors and approved by Company AGM, then same cannot be disturbed as held by Hon'ble Supreme Court in the case of Apollo Tyres (supra). Here the Assessing Officer cannot tinker with such profit and loss account or treat the part of capital reserve by holding that it should have been routed through regular profit and loss account. The reasoning given by the ld. CIT (A) too cannot be upheld for the same reason. 3.35 Hence the assessee would be entitled for claim of depreciation in the computation of book profits under section 115JB of the Act. Accordingly, the Ground Nos. 10 & 11 raised by the assessee are allowed. …………………. ………………….

10. The Ground Nos. 10& 11 raised by the assessee are challenging the upward adjustment of depreciation on aforesaid assets obtained pursuant to the scheme of arrangement, while computing book profits under section 115JB of the Act. 10.1 We have heard the rival submissions and perused the materials available on record. The Passive Infrastructure Assets (PIAs) vested in the assessee with effect from 1-4-2009 pursuant to a two-step court approved scheme, the assessee in its books in accordance with the mandate of the court approved scheme, recorded the PIAs at its fair value of Rs 16306 crores. The book depreciation thereon was debited to the Profit and Loss Account as per the applicable accounting policy and applicable standard and was claimed as reduction while computing book profits under section 115JB of the Act. The Learned AO since had treated that PIAs were received for nil consideration, observed that accounting of PIAs in the books by the assessee at its fair value tantamount to revaluation and accordingly depreciation on the so-called revalued amount would not be allowed as reduction under clause (iia) of Explanation 1 to section 115JB of the Act. Consequentially, the Learned AO made an upward adjustment of Rs 1112.30 crores on account of this transaction while computing book profit under section 115JB of the Act. This was reduced to Rs 1030.95 crores by the Learned CITA rectifying the factual errors committed by the Learned AO. Page | 29 10.2 We have already held that transaction of gift of assets under the first step court approved scheme as a genuine gift. The transfer of assets at fair value to the assessee has already been accepted as genuine as the same was done in accordance with the approved schemes of the Hon’ble High Courts. Hence the claim of book depreciation on fair value of assets cannot be questioned by the department. The same does not tantamount to revaluation. It is pertinent to note that the entire accounting treatment in the books of tower companies on receipt of PIAs from operating companies under court approved scheme with specific reference to accounting treatment in the books of the transferee company and the accounting treatment pursuant to merger of tower companies into assessee had already been part of the approved schemes of the Hon’ble High Court, which cannot be questioned at this stage. 10.3 Pursuant to the scheme of amalgamation, the value of assets are to be recognized at their fair values only. The Delhi bench of this Tribunal in the case of Priapus Developers Pvt. Ltd. vs. ACIT reported in 104 taxmann.com 298 had considered an identical issue where shares acquired pursuant to amalgamation were recognized at their fair values, wherein the learned AO treated the same as revaluation and denied deduction of fair value as cost of acquisition while computing book gains on transfer of shares. The Tribunal held that recognition of shares at fair value does not amount to revaluation. The conclusion drawn by the Delhi Tribunal in this regard are as under:- “17. Such a premise of the Assessing Officer cannot be approved for the reason that; ♦ Firstly, this reserve has not been created on revaluation of asset albeit same has been acquired through amalgamation and the shares have been valued as per the purchase method for a certain price. ♦ Secondly, it is not revaluation of any asset held by the assessee, because no such reserve has been created by the assessee on revaluation of shares. Revaluation of assets takes place only when the assessee decides to revalue the asset existing in the balance sheet. ♦ Lastly, in this case all the assets belonged to amalgamating companies, that is, the shares of IHFL originally belonged to PREPL and PPPL and appeared in their balance sheet; and these assets entered in the books of assessee by virtue of amalgamation valued on fair market value as mandated by the order of Hon'ble High Court. Thus, it would be wrong to say that there was any kind of revaluation of assets. Therefore, there could not be any question of invoking clause (j) of Explanation to section 115JB for calculation of book profit u/s. 115JB. Here in this case, nowhere it has been disputed that the profit and loss account has not been prepared in compliance of requirement of Part-I and Part-II of the Companies Act, 2013 and as Page | 30

per accounting standard. The profit and loss account has been approved by the Statutory Auditors and also laid before the Members in the AGM, which is sacrosanct for computing the book profit u/s. 115JB. Thus, once the accounts have been prepared in accordance with the Companies Act duly certified by statutory auditors and approved by Company AGM, then same cannot be disturbed as held by Hon'ble Supreme Court in the case of Apollo Tyres (supra). Here the Assessing Officer cannot tinker with such profit and loss account or treat the part of capital reserve by holding that it should have been routed through regular profit and loss account. The reasoning given by the ld. CIT (A) too cannot be upheld for the same reason.” 10.4 Hence the assessee would be entitled for claim of depreciation in the computation of book profits under section 115JB of the Act. Accordingly, the Ground Nos. 10 & 11 raised by the assessee are allowed.”

16. Ground of appeal Nos. 2 to 2.4 raised by the assessee are with respect to claim of depreciation at enhanced rate on electricity saving devices @ 80% amounting to INR 287.27 crores. The AO has made the disallowance without considering the submissions made by the assessee. Ld.CIT (A) by following the order of his predecessors in AY 2010-11 has upheld the disallowance. The said disallowance stood deleted and depreciation @ 80% was allowed by the Co-ordinate Bench in assessee’s own case for AY 2010-11 in aforesaid appeals by observing in para 9.1 to 9.4 as under:-

9.1 “We have heard the rival submission and perused the material available on record. The telecom tower sites comprises two infrastructure facilities namely passive infrastructure (owned by the assessee) and active infrastructure (owned by the customers/ telecom operators). Further, as part of the standard business offerings, the assessee renders following telecom infrastructure support services to customers/ telecom operators:- -Access to passive infrastructure installed/constructed (i.e. towers, shelter room) by of active infrastructure equipment (i.e. microwave radio, antenna, base transmission station etc.) by telecom operators, the assessee to be used for installation and safe keeping -24x7x365 uninterrupted power supply at desired current and voltage levels - Temperature below 35 degrees Celsius inside the shelter room all the time. 9.2. To ensure uninterrupted power supply at the tower sites at the required temperature level, besides the power connection taken from the respective state electricity boards, the assessee has installed following energy saving equipments:-  Auto Mains Failure (AMF) Panel  Switch Mode Power Supply (SMPS)  Free Cooling Unit (FCU)  Power Factor Capacitors (PFC)  Power Management Systems (PMS)/Power Interface Unit (PIU)  Integrated Power Management Systems (IPMS)  AC/DC Energy Meters 9.3 In the return of income, the assessee had inadvertently claimed depreciation on abovementioned energy saving devices at the rate of 15%, whereas the same qualify for depreciation at the rate of 80%, being energy saving devices. Accordingly, claim for higher depreciation was raised before the ld AO vide letter dated 06.02.2019. To substantiate that the specified assets qualify as 'Energy Saving Device', the assessee had also furnished a detailed technical report from a Chartered Engineer defining nature and functionality of each of above-mentioned devices and how these devices help in saving energy and how such devices qualify as energy saving devices under the Act highlighting the relevant entry of the depreciation. 9.4 The ld AO completely disregarded the aforesaid submissions of the assessee and proceeded to deny the claim of enhanced depreciation @ 80% of energy saving device and granted 15% which was the claim of the assessee. This action of the AO was upheld by the ld CIT(A). We have gone though the depreciation schedule wherein we find that the energy saving device which had been installed with the assessee fall under category of 80% rate of depreciation. The ld AO had applied the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd reported in 284 ITR 323 (SC) to deny the claim of additional allowance towards enhanced rate of Page | 32 depreciation on energy saving devices. We find that the said decision is not applicable to appellate authorities and hence, the ld CIT(A) ought to have considered the claim of the assessee on merits. Since, the said issue is glaring on us, we proceed to decide the same at our level instead of sending it back to the file of the ld CIT(A). We find that the devices installed by the assessee are only to ensure uninterrupted power supply at the tower sites at the required temperature level. Hence, these equipments do fall under the category of energy saving device eligible for enhanced rate of depreciation of 80%. Hence, the ld AO is directed to grant 80% depreciation on this energy saving device and recompute the allowable income tax deprecation u/s 32 of the Act for the year under consideration and also for subsequent years consequentially. Accordingly, ground No. 8 raised by the assessee is hereby allowed.”

19. Heard the parties. It is seen that this issue has already been decided by the Co-ordinate Bench in assessee’s own case for AY 2010-11 wherein while allowing the appeal of the assessee, the Co- ordinate Bench has observed in para 4.2 to 4.4 of the order as under:- Page | 33 4.2. “The ld AO however disregarded the contentions of the assessee and proceeded to disallow the sum of Rs. 9,71,61,370/- on account of CWIP written off holding the same to be capital in nature. The ld AO observed that merely because a particular business project had been abandoned by the assessee as it did not materialize, the nature of expenditure which is primarily capital in nature cannot be converted into revenue expenditure by claiming loss thereon. This action of the ld AO was upheld by the ld CIT(A). 4.3. From the modus operandi adopted by the assessee in its business model which is referred supra, we find that if the tower site before its setting up gets cancelled by the customers due to cancellation of service order or cancellation of tenancy agreement with the landlord or due to any other business reason, gets aborted before setting-up of the tower or before it gets ready for active installation, the expenditure already incurred thereon would not result in setting up of a tower site cable of generating any revenue out of it and the expenditure incurred thereon would have to be ultimately written off by the assessee as there would be no value/ benefit by retaining the same in the books of account. The purpose of incurrence of such expenditure is intricately and inextricably linked with the primary business of the assessee vis-à-vis the project that is aborted due to aforesaid reasons beyond the control of the assessee, is not doubted by the revenue in the instant case. The genuineness of incurrence of such expenditure is also not doubted by the revenue. The only grievance of the revenue is that the expenses were incurred by the assessee for setting up of a new tower site which is capital in nature and since the said project of setting up of tower site got abandoned / aborted, the said entries of expenditure continues to remain as capital in nature and the abandoned project loss would only have to be construed as capital loss and not revenue business loss. The fact of the project getting aborted/ abandoned is not disputed by the revenue. That the project is linked with the primary business of the assessee is not doubted. Hence, if such business project gets abandoned, the amount already spent on the said project would only have to be construed as a business loss when the same is written off in the books and hence squarely allowable as deduction. This issue is also no longer res integra in view of the decision of the Hon‟ble Bombay High Court in the case of CIT vs Idea Cellular Ltd reported in 76 taxmann.com 77 (Bom HC) wherein that assessee was engaged in providing cellular mobile services, claimed deduction for sum of Rs. 3.90 crores being the amount of expenses incurred on setting up of cell towers, which were subsequently abandoned by the assessee since, the site was found to be unsuitable and written off in the books of accounts. The Hon‟ble Bombay High Court held that since the new cellular towers were constructed in addition to the existing towers and no new business was being set up by assessee, expenditure incurred in respect of the said abandoned cell towers would be allowable business expenditure u/s 37(1) of the Act. Similar view was also taken by the Hon‟ble Calcutta High Court in the case of Binani Cements Ltd vs CIT reported in 380 ITR 116 (Cal). Similar view was taken by the Hon‟ble Jurisdictional High Court in the case of CIT vs Priya Village Roadshows Ltd reported in 332 ITR 594 (Del). 4.4. In view of the aforesaid observations and respectfully following the judicial precedents relied upon herein above, Ground Nos. 3 to 3.1 raised by the assessee are hereby allowed.”

22. The AO disallowed the same as by observing that these are ascertained liability thus, not allowable both under the normal provisions and under MAT. Ld.CIT(A) by following the order of CIT(A) in AY 2010-11 has confirmed the disallowance.

23. Heard both the parties. This issue is decided by the Co- ordinate Bench in AY 2010-11 in aforesaid Co- ordinate Bench in para 5.1 to 5.7 has made the following observations: - 5.1 “We have heard the rival submissions and perused the material available on record. We have already stated that the assessee is engaged in the business of providing passive infrastructure (PI) telecom service to several telecom operators. In order to provide PI services, the assessee enters into long term lease agreements with the land/ premises owners for setting-up of telecom towers, shelters, DG sets etc. Since such setting-up of telecom towers involves substantial modification of the premises to enable installation of such steel structures, shelters, generators, foundation etc., it is agreed by the assessee to restore such sites back to their original condition at the time of termination of the lease agreement. Accordingly, Site Restoration Obligation (SRO) arises in respect of the setting-up , installation, alteration or modification, which the assessee undertakes for the purpose of setting-up of towers on the leased premise. 5.2 The assessee placed copies of sample lease agreement which contained such obligations to be performed by the assessee before the lower authorities in order to restore the site to its original condition as agreed in the lease agreement. The assessee had to incur substantial expenditure to be incurred on un-installation and restoring back the premises to its original condition. Accordingly, the assessee estimated the site restoration cost to be incurred at the end of lease period on a reasonable and scientific basis and made a provision thereon in accordance with Accounting Standard-29 (AS-29) (provision, contingent liability and contingent assets) issued by the Institute of Chartered Accountants of India (ICAI) on account of expenses for ARO/ SRO. During the year under consideration, the assessee created a provision of Rs. 2129 crores. The estimated cost of dismantling of the tower per site was arrived taking the base rate for ground-based towers (GBT) of Rs. 53,180 and base rate for other towers of Rs. 1,16,604/-. The assessee obtained quotation from the third party vendors for dismantling cost and used the same while making the estimate after due application of inflation rates thereon. The cost of dismantling the tower was multiplied by factor worked out based on the inflation rate and useful life of the tower was estimated to be 20 years. For the purpose of applying the discounting factor for computing the present value of SRO/ ARO, the assessee considered 10 years Indian Govt Bond yield rate. The entire workings for provision of ARO/ SRO are enclosed at page 1457 to 1463 of Paper book Volume-III. In the books of accounts, the fixed assets are depreciated as per the prescribed rates for accounting purposes and the site restoration cost is amortized over the remaining period of lease of the site, in line with the matching principle in accounting. For the purpose of computing income under normal provisions of the Act, the assessee excludes such SRO cost from the cost of fixed assets and therefore does not claim any tax depreciation thereon. Following the mercantile system of accounting and the law enunciated by the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd v. CIT [1997] 225 ITR 802 (SC) and Rotork Controls India (P.) Ltd. vs. CIT [2009] 314 ITR 62 (SC), such SRO is amortized over the tenure of the lease and claimed as business expenditure deductible. During the relevant assessment year, the assessee Page | 36 amortized Rs.101,11,00,000 in the books of accounts in respect of site restoration obligation. For the purposes of MAT, since ARO liability represents an ascertained liability, the same has been accordingly claimed as an allowable expense under provisions of Section 115JB of the Act. 5.3 The ld AO concluded that the provision of expenses on account of SRO/ ARO as an unascertained liability not eligible for deduction both under the normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act and accordingly, disallowed the sum of Rs. 101.11 crore amortized during the year by making the following observations:- -The term for lease period for tower sites is normally 20 years; during this period - the lease period may be extended on mutual agreement, terms of lease agreement may be altered; the appellant may not remove tower at all on its expenses. -Cost of removal of tower after period of 20 years cannot be reliably determined at the beginning of the lease term. -In the books of accounts, the appellant is capitalizing such obligation but for the purpose of the Act, same is being claimed as revenue expense. -Had the provision been made on the basis of adopting any scientific or technical basis or on the basis of past experience, there could not have been such a huge balance in the provision for ARO obligation account. There is no doubt that the provision are made in excess without any basis; if provisions are based on scientific basis and if working is robust, then the question of reversal in the subsequent year(s) may not arise in a significant way. 5.4 Further, the ld AO made the following observations as regards the quantification of SRO provisions:- -The assessee company has not provided any evidence in support of the estimate- consideration of base rate is arbitrary; -The change in base rate of SRO /ARO would be considered as error on account of significant variation and hence, effect is to be given retrospectively and excessive depreciation claimed earlier should be reversed and credited to Profit and Loss Account, -The assessee company has not discounted SRO /ARO to the date of their original capitalization. Had the assessee company considered the discounting, SRO/ARO of the assessee company would have been lower; -Only one sample agreement has been provided by the assessee. Considering the number of towers owned by the assessee, it is not established that SRO /ARO exists for all the tower sites; -The working/ method of computing SRO/ARO followed by the transferor companies have not been provided; -Base rate considered for SRO /ARO has continuously reduced over a period of 3 years which has resulted in significant reduction in SRO/ ARO in FYs 2009-10 and FY 2010-11 as compared to FY 2008-09 and 2009-10-estimate is thus not reliable. 5.5 The aforesaid disallowance made by the ld AO based on the observations and allegations reproduced supra were upheld by the ld CIT(A). We find that as per the lease agreement entered into by the assessee, the assessee is duly obligated to restore the premises/ site to its original condition. For this purpose, obviously the assessee had to incur expenses towards un-installation of the tower sites together with various other equipments and also had to incur expenses towards leveling, converting etc to restore the premises to its original condition. These expenses had to be obviously incurred by the assessee at the expiry of the lease period. Expiry date of the lease period is known from the lease agreement itself. Hence, on the date of entering the lease agreement itself, the assessee is very well aware about the date of expiry of agreement. Hence, the obligation on the part of the assessee to incur such expenses is crystallized on the date of entering lease agreement itself that there is expenditure towards SRO/ ARO which had to be incurred necessarily and positively by the assessee in future. Hence, the existence of such liability towards expenditure on account of SRO/ ARO is real and not contingent liability. We have gone through the workings made for provision on account of ARO/ SRO which are enclosed in pages 1457 to 1463 of Vol-III of Paper Book and find that the same is made on a scientific basis by the assessee by considering all the relevant documents including obtaining quotations from the 3rd party vendors for estimating the dismantling cost. It is not in dispute that the said lease agreement was entered during the course of regular business of the assessee and provisions made on account of SRO/ ARO is part of regular business activity of the assessee. Hence, the expenditure provided thereon becomes an expenditure wholly and exclusively for the purpose of business of the assessee. This issue was subject matter of consideration of the Hon‟ble Rajasthan High Court in the case of Udaipur Mineral Development Syndicate Pvt Ltd vs DCIT reported in 261 ITR 706 (Raj) wherein, the Hon'ble Court was dealing with the facts where there existed a clause in the agreement between the assessee and the state that the lessee (assessee) should restore the surface land so used to its original condition (in the similar nature of SRO). With regard to allowability of expenses, the Court held that very moment assessee dug pits, liability did arise, and it was entitled for deduction of expenses which it was supposed to incur for filling those pits, as it was following mercantile system of accounting. 5.6 Similarly the Hon‟ble Madras High Court in the case of Vedanta vs JCIT in Tax Case (Appeal) Nos. 2117 to 2119/2008 dated 23.01.2020 had held that the provision made by the assessee for site restoration cost under the contractual obligation by the assessee in the product sharing contract, made on scientific basis was squarely allowable business expenditure u/s 37(1) of the Act. The Hon‟ble Madras High Court while referring the same also relied on the decision of the Hon'ble Supreme Court Page | 38 in the case of Calcutta Discount Co Ltd wherein, it was held „expend‟ included „expendable in future‟ and accordingly making of a provision by an assessee is a matter of key business or commercial prudence and it is set apart fund computed on scientific basis to meet the expenditure to be incurred in future. 5.7 We hold that whenever the said provision exceeds the actual expenditure incurred at the time of expiry of lease period, excess provision, if any, would get reversed by credit to Profit and Loss account and consequentially becomes taxable u/s 41(1) of the Act. Hence, we have no hesitation to hold that the provision made for expenses on account of SRO/ ARO as an ascertained liability. Reliance is also placed on the decision of the Hon‟ble Supreme Court in the case of Rotork Constrols India (P) Ltd vs CIT reported in 314 ITR 62 (SC) and Bharat Earth Movers Ltd reported in 245 ITR 428 (SC). Hence, it become an allowable expenditure both under the normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act. Accordingly, Ground Nos. 4, 9, 11 and 12 raised by the assessee are hereby allowed.”

Operating expenses 343.30 crores Rate and taxes 19.57 crores Power and fuel 155.26 Total 518.83 cores. 6.3 It was submitted by the ld AR that while making the said disallowance, the ld CIT(A) failed to appreciate that out of closing provision of Rs. 831.89 crores (excluding closing provision for salary), amount of Rs. 501.28 crores (338.43+19.57+142.68) has been actualized/ reversed in subsequent years and therefore no disallowance was warranted to that extent. The ld AR drew our attention to the synopsis in pages 42 to 46 thereon to explain as to how each of the aforesaid category of expenses Page | 40 had indeed crystallized during the year on accrual basis and that how the same have been subsequently paid/ reversed in the books of account for each of the expenses. On perusal of the same, we are convinced that the said provision of expenses have been actually made by the assessee on scientific/ rational basis in consonance with the accrual system of accounting regularly employed by the assessee and in consonance with AS29 issued by ICAI. In our considered opinion, the said expenditure would have to be squarely allowed as deduction both under normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act as it falls under the category of ascertained liability. Accordingly, the Ground No. 5, 5.1, 9 and 13 raised by the assessee are allowed.”

29. Heard the parties. It is seen that the AO made the disallowance by holding the same as ascertained liability which were confirmed by the Ld. CIT(A). This issue is also settled in favour of the assessee by the Co-ordinate Bench in assessee’s own case for Page | 41 AY 2010-11 wherein the Co-ordinate Bench of Tribunal has observed in para 7.1 to 7.4 as under:- 7.1 “We have heard the rival submission and perused the material available on record. During the year under consideration, the assessee accounted for SLA provision of Rs. 133.36 crores and raised credit notes amounting to Rs. 68.67 crores. The closing balance of SLA provision amounting to Rs. 64.12 crores was reflected in the financial statements. The assessee enters into non-cancellable (long term) service arrangements, i.c., Master Service Agreement ('MSA'), with the telecom operators (customers) to provide Passive Infrastructure services. The MSA includes the terms for the minimum standards of operations and maintenance levels to be maintained which are defined in Schedule 2: Operation and Maintenance services of the MSA. The relevant clauses specify an expected uptime service level in each circle for each month at 99.95% across all sites (other than Strategic Sites) and at 99.99% for all strategic sites in that circle. Pursuing the relevant Schedule-2 of the MSA, the SLA (Service Level Agreement) credit is the amount of credit to be given to the operators on account of deficiency in the provision of services which become payable upon the settlement of the dispute with the operators. Since SLA credit is determined post raising of the invoice, the same is passed on to the telecom operator through subsequent credit notes. It is thus evidently clear that SLA credit is nothing but reversal of revenue owing to deficiency in the provision of services. Since SLA credit is determined post raising of the invoice, the same is passed on to the telecom operator through subsequent credit notes. 7.2 The ld AO treated the aforesaid provision for SLA credits as unascertained liability and proceeded to disallow the same both under normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act. The ld AR submitted that the aforesaid SLA provision is based on the automated report known as “downtime report” reflected from dedicated software and there is absolutely no manual intervention in generation of downtime report and the data time report and the data is self generated based on the actual outage. This report generates the frequency/ percentage of the downtime, basis which the deficiency levels in the provision of services that may have been experienced by the telecom operators is determined. Subsequently, as and when the telecom operators provide details of downtime/ service deficiency levels experienced by them as per their system, the assessee issues a credit note to the respective party post a final sign off. In case of failure of requisite uptime levels, the assessee is required to bear the penalties under the relevant clauses of the MSA as referred above. 7.3 The assessee has enclosed the workings for provision of SLA credit for various circles together with the credit notes issued thereon in pages 1964 to 1976 of the paper book Volume IV on sample basis. 7.4 Apart from that, the ld AR drew our attention to accounting policy qua SLA provision created on scientific basis which is enclosed in pages 1580 Page | 42 to 1594 of Vol –III of Paper Book; month-wise break up of provision along with details of actualization which are enclosed in pages 1963 to 1976 of Volume IV of Paper Book; sample credit notes together with the detailed workings and customers sign off of the same which are enclosed in pages 1977 to 1980 and 1984 to 2015 of Vol-IV of Paper Book. Hence, we find that the said provision of SLA credits made by the assessee is made on a scientific basis having proper rationale for the same as it is akin to provision made for warranty. In view of the decision of the Hon'ble Supreme Court in the case of Rotork Controls Pvt Ltd reported in 314 ITR 62 (SC), we hold that the aforesaid provision of SLA credit would have to be construed as an ascertained liability eligible for deduction both under normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act. Accordingly, ground No. 6 and 14 raised by the assessee are allowed.”

31. Grounds of appeal Nos.7 to 7.4 taken by the assessee related to the disallowance of claim of credit notes of INR 56.80 crores. The AO has disallowed the claim of the credit by observing that they are prior period expenses and credit notes relates to the invoices for preceding AYs. AO further observed that the assessee has not been able to establish the relatability of the same with its business. Ld.CIT(A) has confirmed the disallowance by holding the same as prior period expenses and further observed that it is not clear whether the income relating to the same was declared or not in the earlier years.

32. Before us, Ld.AR of the assessee submits that the assessee has issued credit notes totaling to INR 155.13 crores to various sharing operating on account of discrepancy in the service or towards wrong/excess billing/ double billing etc. During the year, the Revenue has appointed a special Auditor who has identified credit notes of INR 56.8 crores pertained to prior period. According to Ld. AR, based on the observations of the special Auditor, the disallowance was made by ignoring the fact that these credit notes were issued for defects in the services rendered and directly related to the business activity of this company. Since there were disputes between the assessee and the operators therefore, in earlier years, no expense was claimed on this account however, the Revenue on such claims was already offered for tax in the respective years. During the year under appeal, when the disputes were resolved with the respective parties, credit notes were issued. It is further submitted by Ld.AR that these credit notes are different from SLA credit which is granted in respect of specific deficiencies as provided in Schedule 3 of MSA. Ld.AR further submits that during the course of assessment proceedings, party-wise list of credit notes issued and the sample copies of the credit notes and MSA on sample basis were submitted which are available at pages 1934 to 2044 of the Paper Book filed by the assessee. It is further submitted by Ld.AR that no provisions for these claims were made in the books of accounts where the provisions were only made for ascertained liabilities and therefore, the allegation of Ld. CIT(A) that these were adjusted against the provisions is without any basis. He thus, requested for the deletion of the disallowance so made.

33. On the other hand, Ld.CIT DR for the Revenue vehemently supported the orders of the lower authorities and submits that the assessee has not provided the basis of issue of credit notes nor any documentary proof was filed with respect to the litigation carried on between the parties. It is further submitted that in this regard, SLAs were already provided where these expenses are allowed. Alternatively, it is submitted that the matter may be remand back to the file of the AO for necessary verification of the facts.

36. The AO has made disallowance of INR 91.80 crores by invoking the provision of section 36(1)(iii) by holding the interest expenditure is related to acquisition/construction of tower sites and thus is capital expenditure. Ld.CIT(A) though upheld the disallowance by following the order of CIT(A) however, remand back the matter for computation of amount of interest attributable to the construction of tower sites and direct the AO to allow the remaining amount of interest.

37. Before us, Ld.AR submits that this issue is covered in favour of the assessee in assessee’s own case for AY 2009-10 by the order of coordinate bench as reported in 110 taxmann.com 176 which order was confirmed by Hon’ble Jurisdictional High Court vide its order dated 31.10.2023 in ITA No.89/2020. It is further submitted by Ld.AR that this issue was also came up before the Tribunal in immediately preceding years i.e. in AY 2010-11 wherein by following the aforesaid judgement in AY 2009-10, the Co-ordinate Bench has Page | 46 allowed the claim of the assessee. Therefore, Ld.AR submits that the claim of the assessee deserves to be allowed.

38. On the other hand, Ld.CIT DR for the Revenue relied upon the orders of the lower authorities and requested for the confirmation of the order of the AO.

39. Heard the contentions of both the parties and perused the material available on record. At the outset, it is seen that this issue has been decided in favour of the assessee by the Co-ordinate Bench in AY 2009-10 which stood confirmed by the Hon’ble Delhi High Court by dismissing the appeal of the Revenue in vide order dated 31.102.2023. Further in AY 2010-11 in aforesaid ITA Nos., the Co-ordinate Bench has followed the order of the Hon’ble Delhi High Court and also of Hon’ble Supreme Court in the case of DCIT vs Core Healthcare Ltd. 167 taxmann.com 206 (SC) and deleted the disallowance so made. The relevant observations as contained in para 8.1 to 8.2 of the order are as under:- 8.1 “We have heard the rival submission and perused the material available on record. During the year under consideration, the assessee had incurred and claimed interest expenditure of Rs. 785,74,73,000/-. The assessee is engaged in the business of providing passive infrastructure telecommunication services to the telecom service providers in various circles. Even prior to the merger of the tower companies into the assessee, assessee was engaged in providing such passive infrastructure services. Out of the aforesaid interest expenditure, the ld AO disallowed a sum of Rs. 91,80,00,000/- (net of 15% depreciation) applying proviso to Section 36(1)(iii) of the Act holding that interest expenditure relates to acquisition/construction of tower sites and is therefore a capital expenditure. The said amount was computed by the ld AO by applying 12% interest on total borrowed capital utilized for capital expenditure for the period of 150 days (alleged to be average days for construction/ acquisition of tower sites). The ld CIT(A) held that the borrowed funds are Page | 47 utilized for construction of tower sites. For computation of the amount of interest attributable to construction of tower sites, the CIT(A) considered the amount of CWIP in excess of capex creditors; the said difference is held to be amount funded through borrowed funds. Applying the rate of 12% for 150 days, interest allegedly attributable to acquisition of tower sites is determined at Rs.4,10,87,293/-, which is held to be capitalized to cost of towers. After allowing 15% depreciation, amount of Rs. 3,74,56,978/- was disallowed applying proviso to section 36(1)(iii) of the Act. 8.2 We find in the instant case that there is no extension of existing business. The assessee has merely got new circles to render telecom services wherein towers are installed. Accordingly, in our considered opinion, proviso to section 36(1)(iii) of the Act per se is not applicable. Further, we find that the issue in dispute is covered in favour of the assessee by the decision of this Tribunal in assessee‟s own case for AY 2009-10 in and 1040/Del/2014 dated 07.06.2019. In any event, once it is held that borrowed capital has been utilized for the purpose of business of the assessee, the interest paid on such loan becomes an allowable deduction u/s 36(1)(iii) of the Act. Reliance in this regard has been rightly placed by the ld AR on the decision of Hon'ble Supreme Court in the case of DCIT Vs. Core Healthcare Ltd reported in 167 taxman 206 (SC). Further, we find that there is absolutely no basis for the lower authorities to arrive at the average credit period of 90 days obtained from the vendors or average period taken for installation/ construction of tower sites. In view of the aforesaid observations and respectfully following the judicial precedents relied upon herein above ground no. 7 raised by the assessee is hereby allowed.”

13.1 “We have heard the rival submissions and perused the materials available on record. During the year under consideration, the assessee has added to the cost of plant and machinery an amount of Rs. 170,31,70,112/- on account of provisional capitalization. The Learned AO in the assessment order proceeded to disallow 15% depreciation thereon aggregating to Rs. 25,54,75,517/- primarily alleging that the same does not constitute actual cost. The Learned AO held that provisional Page | 50 capitalization has been booked on the basis of standard cost which is impermissible for the purpose of allowance of depreciation. The Learned CITA deleted the aforesaid addition holding that the sites corresponding to the provisional capitalization were ready for use and the cost for acquisition / construction of asset has been incurred and accordingly the assessee is eligible for claim of depreciation on the cost capitalized. 13.2 The Learned DR vehemently relied on the order of the Learned AO. Per Contra, the learned AR before us explained the modus operandi adopted by the assessee with regard to the said provisional capitalization of assets by explaining as under:- -Whenever a telecom service provider wishes to avail passive infrastructure support services, it sends a request describing the tower location, tower specifications such as the angle or height required, latitude and longitude and equipment details (which would be kept on the tower site and connected to the passive infrastructure) etc. Post assessee's response, the assessee receives the order from customer and tower site is set-up for use by the customer. -Tower site requires installation of various complex and technical equipment (detailed in submissions) and requires services of highly technical personnel. -To foster the process, the assessee, as a policy, procures certain infrastructure/ regular items/ materials in bulk and stores them in its warehouses maintained at various locations. Items are then released from warehouse to tower sites as and when required. For other items and civil work, various vendors are identified who work on number of sites simultaneously in a particular geographical area and furnish their invoices for approval to the appellant on time-to- time basis. -The invoices are sent for approval by the relevant team and the same are then accounted and recorded under Capital Work in Progress ("CWIP') account. Therefore, on a need basis, the procured materials and engaged vendors are directed to the identified sites in order to set-up/ configure such sites. Such process of issuing of invoice by the vendors and subsequent accounting in books may extend up to a considerable period of time usually beyond date of completion of setting-up of tower site. -Once a tower site is set-up (i.e., all the necessary structure and equipment have been installed) and is 'ready to use', the same is capitalized from the Ready for Active Installation ('RFAI) notice generation date, i.e, transferred from CWIP account to fixed assets account and depreciation (i.e. book depreciation as well as tax depreciation) is claimed by the assessee from such date. When a tower site is set-up and ready to use, all the cost incurred in relation to various equipment such as tower structure, shelter, complex electrical fittings, civil work etc. is capitalized for accounts as well as tax purposes. -Considering that at the RFAI notice generation date or on the date of capitalization, it may not be possible to identify the exact materials/ components of tower-site used or the cost relating to such tower sites since - (1) some of the invoices may not be received; (ii) invoices are pending for approval; (iii) materials are identified subsequently, (iv) mapping within company between warehouse and tower site can eventually extend beyond RFAI date etc. -However, since the tower sites is ready to use, it is essential to capitalize the same with cost incurred on such date both from the perspective of accounts as well as tax. Therefore, the process of provisional capitalization followed by the assessee to record the cost of tower sites as under ✔The materials/vendor invoices to the extent available are mapped to the identified tower sites to determine the actual cost on such month end. ✓ The available actual cost of towers and civil works at the cut-off date is compared to the standard cost based on which provisional capitalization is done. ✔ Provisional capitalization is reversed on the first day of the succeeding month. ✔Provisional capitalization is made only for an asset which has already been put to use. -Accordingly, the assessee has resorted to a standard set of procedure to capitalize the cost of equipment or services (for which it has not received the invoice as on the date of capitalization or the cost of which cannot be accurately allocated on the date of capitalization) on the basis of purchase orders received and standard cost determined for setting-up of site. The said method of capitalization adopted by the assessee is termed 'provisional capitalization'. -Further, provisional capitalization made during each month of the year stands fully reversed during the same year itself and the only the amount of provisional capitalization created for the month of March thus appears as the closing balance at the year-end (i.e. year-end provisional capitalization). In addition, such year-end provisional capitalization is regularized basis actual invoices received in subsequent year. -Based on the above, book depreciation as well as tax depreciation is claimed on the (1) actual cost of the tower sites/assets (as appearing in the fixed asset register) as well as (ii) year-end provisional capitalization as on 31st March of the financial year. As against this provisional capitalization for 31st March of previous year, the actual cost is identified in next year and any excess or deficient cost as compared to provisional capitalization is adjusted in the tax fixed asset register of the next year.” Page | 52 13.3 Further it is pertinent to note in the special audit report issued for the assessment year 2010-11, the special auditor has categorically accepted the accounting policy/ basis adopted by the assessee and had specifically noted that provisional capitalization needs to be added to the cost base of tower site in order to measure the cost of fixed assets capitalized and depreciation there on. 13.4. In view of the modus operandi adopted by the assessee which stood uncontroverted by the revenue before us and in view of the report of the Special auditor, we hold that no fault could be attributed on the basis of derivation of provisional capitalization by the assessee as narrated and detailed supra. Accordingly, we hold that the depreciation on aforesaid provisional capitalization deserves to be allowed as the corresponding assets thereon are already ready for use. We find that the learned CIT(A) had duly appreciated this contention of the assessee and on which , we do not find any infirmity. Accordingly Ground No. 1 raised by the revenue is dismissed.”

52. Heard the contentions of both the parities and perused the material available on record. At the outset, it is seen that disallowance made by the AO was deleted by Ld.CIT(A) by following the order of the Co-ordinate Bench in the case of assessee for AY 2011-12 wherein Co-ordinate Bench in para 14.2 to 14.5 has observed as under- 14.2 “The Learned AO held that the RFAI notice generation date cannot be treated as date of ready to use/ put to use (i.e., date of capitalisation of asset) of tower site since(1) That the customer can use the tower site only with effect from "active installation" i.e installation of active infrastructure devices (Le. RFAI date); (ii) customer may point certain deficiency in such tower sites, which the assessee is obligated to rectify, thereby meaning that such tower sites were not ready for use on RFAI Notice Generation Date; and (iii) assessee is entitled to raise invoice for billing from RFAI date only considering that generally billing start date and RFAI date are same except in few cases of practical difficulties. The view of the AO is based on the observations of the Special Audit report for the subject years, viz., assessment year 2010-11. Accordingly, the AO has considered the RFAI date (which is normally after 14 days of RFAI notice generation date) as date of put to use of telecom tower and has disallowed an amount of Rs.17,78,55,500 (being the amount of depreciation calculated at half of applicable rate on the additions of Rs.1,77,62,29,934 made during 20.09.2009 to 02.10.2010 and depreciation claimed by the assessee at half of applicable rate on additions of Rs.93,87,48,394 made during 19.03.2011 to 31.03.2011. 14.3. The Learned CITA held that the passive infrastructure assets were ready for use on the RFAI notice generation date. Accordingly by following the various rulings of the Hon‟ble Jurisdictional High Court, the Learned CITA held that the assessee would be eligible to claim depreciation on such passive infrastructure assets and accordingly deleted the disallowance made by the Learned AO. We find that the RFAI notice generation date had to be considered as „put to use‟ date for claim of depreciation on tower sites. The revenue had contended that billing date should be the determinative factor and not the date when sites are ready for active installation of the assets to the customers and accordingly had denied depreciation. In our considered opinion, this view is based on the point of view of the sharing operator and not taken from the perspective of the assessee and hence liable to be ignored. In order to determine the date of „put to use‟ for the purpose of allowance of depreciation under Section 32 of the Act, the same needs to be considered from the perspective of the assessee i.e. whether the tower site is „ready for use‟ as per norms of the assessee and agreed with customers and has it been offered for testing and evaluation to the sharing operators. This view is no longer res integra in view of the decision of Hon‟ble Punjab and Haryana High Court in the case of CIT vs Piccadilly Agro Industries Limited reported in 311 ITR 24 (P&H) ; decision of Hon‟ble Bombay High Court in the case of Larsen and Toubro Limited vs PCIT reported in 403 ITR 248 (Bom). It is pertinent to note that the SLP preferred by the revenue against this decision was dismissed by the Hon‟ble Apex Court which is reported in 259 Taxman 79 (SC). 14.4. We find that the Hon‟ble Courts have already held that the term “use” as referred to in Section 32 of the Act is not restricted to „actual use‟, but also includes „passive use‟ i.e. assets kept „ready for use‟ which should also be considered for the purpose of claim of depreciation. Page | 54 Reliance in this regard has been rightly placed by the Learned AR on the decision of Hon‟ble Jurisdictional High Court in the case of CIT vs Refrigeration and Allied Industries Limited reported in 113 Taxman 103 (Del). In any event, the date on which the depreciation is being claimed by the assessee and the date for which depreciation is granted to the assessee by the revenue only results in a timing difference and effectively becomes revenue neutral and hence the revenue need not have any grievance on the same. Reliance in this regard has been rightly placed on the decision of Hon‟ble Jurisdictional High Court in the case of CIT vs Triveni Engineering and Industries Limited reported in 196 Taxman 94 (Del) and decision of Hon‟ble Supreme Court in the case of Excel Industries Limited reported in 358 ITR 295 (SC). 14.5. In view of the aforesaid observations and respectfully following the judicial precedents relied upon herein above, we hold that depreciation on tower sites are to be allowed from RFAI notice generation date. Hence, we do not find any infirmity in the order of the Learned CITA granting relief to the assessee. Accordingly, Ground No. 2 raised by the revenue is hereby dismissed.”

55. Heard the contentions of the parties and perused the material available on record. From the perusal of order of Ld. CIT(A), it is seen that Ld. CIT(A) had followed the order of Co-ordinate Bench in case of assessee itself for AY 2010-11 while deleting the disallowance made by the AO. The Co-ordinate Bench in AY 2010- 11 has dealt this issue at length and made following observations in para 15.1 to 15.3 of its order:- Page | 55 15.1 “We have heard the rival submissions and perused the materials available on record. During the year under consideration, the learned AO disallowed salary expenditure aggregating to Rs. 13,29,08,545/- relating to employees working for Supply Chain Management (SCM), Site Acquisition and Infra Quality teams of the assessee, treating the same to be capital expenditure. While holding the expenditure to be capital in nature, the learned AO observed as under: (a) That the functions performed by the staff engaged in SCM, Site Acquisition and Infra Quality teams form an integral part of setting up of towers and they are not related to day to day operations. (b) Since the cost of setting-up of towers is capitalised, the salary paid to the team of dedicated staff which has carried out this job should also be capitalised. (c) The assessee derives enduring benefits and therefore the salary expenditure of such staff should form part of cost of towers. Based on the above, the learned AO disallowed salary expenditure of SCM, site acquisition team and infra quality team amounting to Rs.13,29,08,545/-, i.e., actual salary of Rs. 14,94,18,079/- as reduced by depreciation of Rs. 1,65,09,534/-. The aforesaid depreciation is allowed by AO assuming that half of the aforesaid salary expenditure is attributable to assets put to use for more than 180 days and remaining half is attributable to assets put to use for less than 180 days. The Learned CITA deleted the addition by holding that salary expenses pertain to the three divisions mentioned supra of the assessee and are engaged in both pre as well as post commencement activities after the towers are set up. 15.2 The Learned DR vehemently relied on the orders of the Learned AO by arguing that the Learned AO was duly justified in capitalization of salary expenses and granting depreciation thereon in the facts and circumstances of the case. Per contra, the Learned AR before us duly placed on record the detailed work profile and scope of work undertaken by the employees in the aforesaid divisions in a tabular form which are reproduced here under:- Post capitalization Term Work profile Amount Allegations of functions actually AO performed Infra The team is responsible 1,18,22,646 The division Responsible for quality for managing big team of namely infra managing a big field support engineers quality is team of field who are responsible at doing only pre support engineers ground level for safe and capitalization who are continuous working of work. responsible at telecom towers sites and ground level for function on 24x7x365 safe and day basis. They also take continuous care of newer aspects working of which could be brought telecom towers in different aspects of sites and function tower site maintenance on 24x7x365 Page | 56 such as replacement of days parts, upgradation of basis. various equipment, • Responsible for tower design, etc. They tower site also work with external maintenance such agencies to ensure audits as replacement of of sites pre-delivery. The parts, etc. department ensures that • Responsible for right quality of site is upgradation of delivered to customers various as per their equipment, tower requirements. design, etc. Site It is responsible for 6,13,46,065 Moreover as • Responsible for acquisition servicing landlord the name maintaining community which is one suggests, the landlord of the most critical part land relations. of the business. In this acquisition • Responsible for regard, it is responsible division is also ensuring timely for ensuring timely undertaking payment to payment, updation & only landlords renewal of rental precapitalization throughout the life agreements, handling work of tower. issues such as property • Responsible for tax liabilities faced by the updation & landlords, the interface renewal of rental between landlords & agreements. site-maintenance • Responsible for department. The handling issues acquisition of new tower such as property site is just an incidental tax liabilities aspect of the faced department. Over the by the landlords. years, while the number of towers has increased, the number of telecom sites have come down but the strength of this department has gone up due to single reason as explained above, i.e., their involvement in current operations rather than one time nature of their task. Supply The department takes 7,62,49,368 Similar is the • Responsible for chain care of procurement case for SCM entire manage- function and make sure division procurement ment that there is no delay in function and setting-up of sites for effect want of materials. It is all commercial responsible for capex purchases for the (capital expenditure), company except opex (operating rental agreement. expenditure) • Responsible for management and buying/ procuring warehouse all the material/ management. The team's spares/ diesel for task is to effect all running the commercial purchases telecom tower for the company except sites rental agreement with • Responsible for the landlords. It is procurement of responsible for buying/ spares and procuring all the replacements material/ spares/ diesel such Page | 57 for running the telecom as battery bank, tower sites. The team DG sets, etc. also procures the capital • Responsible for goods for the company, interaction with however, it is only different service incidental to the overall vendors who work stream of the assist department and while the appellant in the new towers set-up upkeep and have substantially maintenance of reduced by FY 2011-12, the telecom tower the strength of this sites. department has increased since a lot of critical parts/ equipment require frequent replacement in the industry such as battery bank, DG sets, and interaction with different service vendors who assist the appellant in upkeep and maintenance of the telecom tower sites.

15.3 The above facts were not controverted by the revenue before us. We find that the employees are not only engaged in setting up of tower sites, rather majority of responsibilities relate to post setting up of tower sites and help in day to day operations of the assessee company. Hence it could be safely concluded that there is absolutely no basis for the Learned AO to even allege that these divisions perform only pre-capitalization work. We find that these salary expenditures are incurred in a routine course of business having direct nexus with the business operations of the assessee company and hence would be squarely allowable as deduction which fact has been duly appreciated by the Learned CITA while granting the relief to the assessee. Hence we do not find any infirmity in the order of the Learned CITA granting relief to the assessee. Accordingly, the Ground No. 3 raised by the revenue is hereby dismissed.”

61. Ground No.8 raised by the Revenue is with respect to the disallowance of upfront fees deleted by Ld.CIT(A).

Nos. 8 to 8.3 wherein we have already deleted the disallowances made by the Page |

60. AO by following the judgement of Co-ordinate Bench of the Tribunal for AY 2009-10 & 2010-11 and also of the Jurisdictional High Court, dismissing the appeal of the Revenue for AY 2009-10 thus, Ground No.9 raised by the Revenue with respect to the disallowance deleted by Ld.CIT(A) is hereby upheld. Accordingly, Ground No.9 raised by the Revenue is dismissed.

64. Ground No.10 is not pressed by the Revenue as Ld.CIT(A) has given the directions for verification of the re-conciliation made therefore, the same is hereby dismissed as not pressed.

65. Ground No.11 of the Revenue has challenged the deletion of addition of INR 4.40 crores made on account of payment made towards the salary of the seconded employee of Vodafone Group Services GmbH towards reimbursement of the salary cost. The assessee has made payment of INR 4.40 crores to Vodafone Group Services GmbH Group towards the reimbursement of salary one Mr.Stefan Georg Langkamp. In terms of the arrangement with Vodafone Group Services GmbH, the said company shall seconded one of its employees to the assessee for the year under consideration and it was agreed in terms of the agreement that Vodafone Group Services GmbH shall pay the salary and the assessee will reimburse the same without any markup. Accordingly, the payments were made of INR 4.40 crores to Vodafone Group Services GmbH who had made the payment directly to such employees. On such payment, the assessee has made TDS compliance u/s 192 of the Act however, the AO held that assessee has not withhold the tax at source u/s 195 at the Page | 61 time of making remittance and thus, invoked the provisions of section 40(a)(i) of the Act and disallowed the payment made.

66. In first appeal, Ld.CIT(A) held that the provision of section 195 are not applicable and since the assessee has made the compliance of section 192 of the Act therefore, no disallowance should be made.

67. At the outset, Ld.CIT DR vehemently supported the orders of the AO and submits that there is no agreement between the assessee and the person and no evidences were filed with regard to the payment made by the foreign company to such employee. It is not clear whether any intimation was made to the UK authorities in this regard. Ld.CIT DR further relied upon the judgment of Hon’ble Jurisdictional High Court in the case of Centrica India Offshore Pvt.Ltd. 364 ITR 336 (Delhi) and requested for the confirmation of the same.

68. On the other hand, Ld.AR for the assessee vehemently supported the order of the Ld.CIT(A) and submits that the assessee has made the payment in terms of the agreement between the assessee and Vodafone Group Services GmbH. He further submits that the detailed submissions was made before Ld.CIT(A) which is reproduced by Ld.CIT(A) in para 15.1 at pages 140 to 152 and after considering these submissions, Ld.CIT(A) has deleted the disallowance and therefore, such order deserves to be upheld. Ld.AR further filed detailed submissions before us which reads as under:-

“During the year under consideration, the assessee made payment of Rs.4.40 crores to M/s Vodafone Group Services GmbH ('Vodafone GmbH') towards reimbursement of the salary cost of its seconded employee, Mr. Stefan Georg Langkamp (PAN-ADRPL5204H). The details of payment alongwith with the ledger account and Form 16 are placed at pages 4536- 4550 of the PB Vol VII. In this regard, it is respectfully submitted that the assessee pursuant to arrangement with Vodafone GmbH wherein it was agreed that Vodafone GmbH shall second one of its employees to the assessee for the year under consideration. It was further agreed, for administrative convenience, that Vodafone GmbH shall pay the salary to the employee and the assessee shall merely reimburse the same to Vodafone GmbH without any mark-up. In line with the aforesaid arrangement, total salary of Rs.4,40,00,000 was paid to such seconded employees overseas by the Vodafone GmbH for the sake of administrative convenience, which was subsequently reimbursed by the assessee on a cost-to-cost basis to group companies without any mark-up. Also, it is pertinent to note that assessee has made appropriate TDS compliances under section 192 of the Act in respect of the salary paid to such seconded employees and paid such taxes to the Indian tax authorities. Case of AO In the assessment order, the AO invoked the provisions of section 40(a)(i) and disallowed of Rs.4.4 cores on the ground that the payments made to the Vodafone GmbH was towards Fee for Technical Services ('FTS') on which tax has not been withheld at source under section 195 of the Act at the time of making remittance. Case of CIT(A) The CIT(A), deleted the aforesaid addition holding that tax was not deductible under section 195 and has been rightly deducted under section 192 of the Act. Submissions: Re (i): Cost to Cost Reimbursements, not liable to withholding tax in India: In the instant case, it is respectfully submitted, the payments made by the assessee were in the nature of cost to cost reimbursements towards salary paid by the Vodafone GmbH to the seconded employees on behalf of the assessee and do not have any element of income embed therein [Refer CIT v. Tejaji Farasram Kharawalla Ltd.: 67 ITR 95 (SC)]. It is further respectfully submitted that the remittances made to Vodafone GmbH consist of actual salary cost of the seconded employees on which tax has been withheld under section 192 of the Act. The said salary, it is further submitted, is included in the total income of the respective seconded employees and is accordingly offered to tax.

In view of the above, it is respectfully submitted that the assessee has merely reimbursed the salary expenses initially paid by Vodafone GmbH on behalf of the assessee. There is, therefore, no payment of income to Vodafone GmbH which is chargeable to tax in India. In view of the aforesaid, the disallowance made by the AO in terms of section 40(a)(i) of the Act, in respect of the payment made by the assessee to Vodafone GmbH for reimbursement of salary, is not warranted on this ground itself. Re (ii): Taxes on salary paid to seconded employees duly deducted under section 192 of the Act: It is respectfully submitted that the taxes on salary of seconded employee have been duly deducted and deposited by the assessee under section 192 and thus any reimbursement of such payments, cannot be again taxed under Section 195 of the Act at the time of remittance of such amount. Attention in this regard is invited to CBDT Circular No. 720 dated 30.08.1995 clarifying that any sum payable shall be liable for deduction of tax only under one section. It is thus submitted that once tax has been withheld at source by the assessee on salary payments in terms of provisions of section 192 of the Act, it cannot be required to withhold tax at source on the same amount under section 195 of the Act while reimbursing the sum to the group companies. Your Honour's kind attention, in this regard, is further invited to the following decisions wherein the Courts held that where taxes have been deducted under section 192 then there is no requirement to withhold tax again under section 195 of the Act at the time of remittance of such amount. The Delhi Tribunal in the case of HCL Infosystems Ltd. vs. DCIT: 76 TTJ 505, held that payment made by the assessee company viz., HCL Infosys Systems Ltd. to HP, a foreign company, towards reimbursement of salary of the foreign technicians, being employees/personnel of the foreign company who were placed at the disposal of the assessee and rendering services fully at the discretion of the assessee, were liable to taxation under the head 'salaries' and the assessee was required to deduct tax there from under section 192 of the Act. The aforesaid decision of the Tribunal, it is respectfully submitted, has been affirmed by the Hon'ble Delhi High Court in the case of Director of Income-tax vs. HCL Infosystems Ltd: 274 ITR 261. Kind attention is drawn to the decision of the Delhi Bench of the Tribunal in the case of Dolphin Drilling Ltd. vs. ACIT: 121 TTJ 433, the assessee, a company incorporated in UK, entered into an agreement with ONGC for offshore drilling. For this purpose, it acquired a drilling ship in charter hire from DDL, a group company incorporated in Singapore. It also acquired crew members from another group company ACAS for drilling operations. It agreed to reimburse the salary of such crew to ACAS with five per cent Page | 64 handling fees. The assessee took crew of ACAS as its own staff. The payment of five per cent ACAS was for supply of crew and not for crew services. The Tribunal held that it was assessee's obligation to obtain work permits and security passes for the staff, and for providing housing etc. to such crew members. The payment made to ACAS as reimbursement of salary of its crew was not fees for technical services. The aforesaid case was subsequently affirmed by the Hon'ble Uttarakhand High Court in ITA No.38/2009. It was held likewise by the Bangalore Tribunal in the case of Abbey Business Services (India) Private Limited vs DCIT: 53 SOT 401, subsequently upheld by the Hon'ble Karnataka High Court in the case of DIT vs. Abbey Business Services India Pvt. Ltd.: of 2014 vide order dated 01.12.2020 wherein it was held as under: "11. Now we may advert to the facts of the case in hand. From a perusal of the relevant clauses of the agreement as well as the nature of services provided by the assessee under the agreement, it is evident that the assessee had entered into a secondment agreement for securing services to assist the assessee in its business. The expenses incurred by the seconded employees which were reimbursed by the assessee is not liable to deduction of tax at source and the aforesaid amount could not be considered as "fees for technical services". It is also pertinent to note that secondment agreement constitutes an independent contract of services in respect of employment with the assessee. From the perusal of the key features of the agreement, which have been reproduced by the Commissioner of Income tax (Appeals), it is evident that the seconded employees have to work at such place as the assessee may instruct and the employees have to function under the control, direction and supervision of the assessee and in accordance with the policies, rules and guidelines applicable to the employees of the assessee. The employees in their capacity as employees of the assessee had to control and supervise the activities of Msource India Pvt. Ltd. Therefore, the assessee for all practical purposes has to be treated as employer of the seconded employees. There is no obligation in law for deduction of tax at source on payments made for reimbursement of costs incurred by a non-resident enterprise and therefore, the amount paid by the assessee was not to suffer tax deducted at source under section 195 of the Act. Similar view has been taken by the High Court of Delhi in HCL Infosystem Ltd. (supra) in respect of salaries paid to foreign technicians on behalf of the assessee." (emphasis supplied) The Court, while factually distinguishing the decision of Delhi High Court in the case of Centrica India Offshore Pvt Ltd.: 364 ITR 336, held as under: "12. So far as reliance placed by learned counsel for the Revenue on the decision of Centrica India Offshore Pvt. Ltd. (supra) is concerned, Page | 65 from a perusal of paragraph 29 of the aforesaid decision, it is evident that the High Court of Delhi considered the issue whether the secondment of employees by BSTI, and DEML, the overseas entities fall within article 12 of India Canada and article 13 of India- UK DTAAs, which embody the concept of service permanent establishment. In the instant case, the issue of permanent establishment is not involved. Therefore, the aforesaid decision is not applicable to the fact situation of the case." Delhi Bench of Tribunal in the case of DDIT vs. M/s. Yum! Restaurants (Asia) Pte. Ltd.: examined the issue of taxability of reimbursement received by a foreign company towards salary of employees deputed in India and held that the salary reimbursements could not be taxed as FTS. Your Honours' attention is further invited to the decision of Delhi Bench of the Tribunal in the case of Boeing India Pvt. Ltd. vs. ACIT: wherein the Tribunal examined the controversy of withholding tax implications under section 195 of the Act in respect of payments made by the assessee towards reimbursement of salary paid by its overseas affiliate and held as under: "30. We have given thoughtful consideration to the orders of the authorities below. We have also carefully perused the salary reimbursement agreement, which is placed at pages 296 onwards of the paper book, and as per clause 1.1, it is provided that the secondees have expressed their willingness to be deputed to BIPICL [the applicant) and TBC [AE] have agreed to release these employees to BIPICL. It is provided that TBC will facilitate payment of salaries in secondees home country on behalf of BICIPL. Under the head employment status, it is provided that the secondees shall be working for BICIPL and will be under supervision, control and management of BICIPL as an employee of BICIPL.

31. The DRP has affirmed the decision of the AO by holding that the assessee has deducted withholding tax on substantial payments and yet argued that the tax is not deductible u/s 195 of the act and provision of section 40(a)(i) cannot be invoked in the case of said payment.

32. The Special Auditors in their Audit Report have worked out particulars of payments in respect of which no TDS was deducted u/s 40(a)(ia) of the Act. Consequently, an amount of Rs. 54,06,328/-was not to be allowed as expenditure."

- The employee proposed to be seconded by the Vodafone GmbH is subject to prior approval of the assessee - The seconded employee work under the supervision and control of assessee, who is responsible for defining roles, responsibilities, duties etc. of the seconded employee. The seconded employee worked as CFO of the company responsible for development of business strategies, performance of due diligence, identification of strategic investment opportunities etc. - The assessee is solely responsible for the work done by seconded employee - The reimbursement to the Vodafone GmbH consists of actual cost of salary and remuneration paid by it to the seconded employee, without any mark- up. Reliance, in this regard, is placed on the following judicial precedents, wherein Courts have held that mere reimbursement of salary by the Indian Company towards the expatriate cost does not give rise to any income in the hands of the recipient and thus is not liable to tax in India. The Bangalore Tribunal in the case of IDS Software Solutions (India) (P) Ltd vs. ITO: 122 TTJ 410 has held that although it might be true that IDS was the employer in a legal sense but since the services had been seconded to IDS India under the secondment agreement and further, since the IDS India was to reimburse the emoluments paid by IDS to him, it was IDS India which for all practical purposes was to be looked upon as the employer of secondee during the relevant period. Accordingly, reimbursement of bonus and out of pocket expenses incurred by IDS to the assessee company in India, which subject to TDS under section 192 and the assessee company was not liable to tax withholding under section 195 of the Act. The Mumbai Bench of the Tribunal in the case of Addl. DIT (IT) v. Mark & Spencer Reliance India (P) Ltd.: 147 ITD 83, following the decision of in IDS Software Solutions (supra) held that that the payments made by assessee towards part reimbursement of salary expenditure of the seconded employees amount to reimbursement of expenses. Further, since taxes had already been withheld on salary payments, there was no further withholding of taxes required when such an amount was reimbursed by the applicant. This case was subsequently affirmed by the Hon'ble Bombay High Court in of 2014, vide judgment dated 3rd May 2017. To the same effect are the following decisions: - Morgan Stanley Asia (Singapore) Pte. Ltd vs. DDIT (Intni Taxation): 95 taxmann.com 165 (Mumbai - Trib.) - ACIT vs Nagase India (P) Ltd: [2014] 66 SOT 152 (Mumbai Trib.) (URO) - Temasek Holdings Advisors (1) P. Ltd. Vs DCIT: 160 TTJ 556 (Mumbai Trib.) - Ariba Technologies India Pvt. Ltd ITA No.616/Bngl./2011 (Bang. Trib.) Page | 68 - DCIT vs. Mahanagar Gas Ltd.: 158 ITD 1016 (Mumbai Trib.) - ITO vs. AON Specialist Services (P.) Ltd.: [2014] 64 SOT 78 (Bang. Trib.) Re (iv): Decision relied upon by the assessing officer is distinguishable It is respectfully submitted that the AO, while making the aforesaid disallowance, has placed reliance on the decision of Hon'ble Delhi High Court in the case of Centrica India Offshore Pvt. Ltd. v. CIT: 364 ITR 336. It is respectfully submitted that in the aforesaid decision, the High Court held that the employees of foreign company were seconded to Indian company pursuant to an agreement for services entered between both the companies and, therefore, even if such employees were taken on pay roll by the Indian company, the substance of the arrangement was rendering of services by the foreign company to the Indian company. The High Court, thus, held that the employees seconded by overseas group entities to the resident assessee company did not become employees of the resident assessee, but continued to remain employees of the overseas entities during the secondment period and the secondment arrangement was for rendition of services, which resulted in service PE in India of the group entities under the applicable treaties. Further, it is submitted that the High Court held that the activities of the seconded employees were to 'transfer their technical ability to ensure quality control vis-à-vis the Indian vendors, or in other words, 'make available their technical expertise and know-how to the Indian entity for future consumption. The secondment actually lead to a benefit of transmission of knowledge possessed by seconded employees to regular employees and was hence, covered under the definition of 'fee for included service' under the India USA and India-Canada DTAA The Supreme Court has dismissed the special leave petition filed by the assessee against the adverse judgement of the Delhi High Court vide order dated October 14, 2014 reported as Centrica India Offshore Pvt Ltd. v.CIT: 227 Taxman 368 (SC). In this regard, it is respectfully submitted that the facts of the instant case are clearly distinguishable for the following reasons: - The assessee in Centrica's case, i.e. the Indian Company, was established to render office support functions to Centrica UK for which a separate service agreement was executed with Centrica UK. Pursuant to the aforesaid service agreement, certain employees were seconded to Centrica India to provide support during initial years of its operation. The assessee, on the other hand, is independently engaged in the business, inter alia, in providing extensive network of infrastructure to telecom operators and other wireless services providers across India. The business of the assessee is distinct from the services provided by Vodafone GmbH. Further, no services are provided by assessee to Vodafone GmbH. The seconded employee, therefore, were not required by the assessee to establish its business; - In Centrica's case, employees were seconded by the overseas entities to which Centrica provided support services. In the present case however, the assessee does not provide any services to Vodafone GmbH. The role of Vodafone GmbH was restricted to identification of the employee having necessary skill set to perform the functions/activities commensurate with the business requirements of the assessee and to provide any technical or managerial services to the assessee. Payments made by the assessee to Vodafone GmbH, therefore, cannot be termed as a service fee paid by the assessee; - In Centrica's case, salary cost of secondees were effectively borne by Centrica UK on account of Centrica India operating on cost plus 15% arrangement whereas in the instant case, the assessee is the economic employer of secondee and bears the economic burden of salary costs of such secondee. No cost plus arrangements have been entered into by the assessee with Vodafone GmbH. In view of the aforesaid, it is respectfully submitted that the observations and conclusions made by the Hon'ble Delhi High Court in case of Centrica India Offshore Pvt. Ltd. (supra) are not capable of universal application because of the peculiar facts involved therein and in case, the above noted peculiar facts are missing, the ratio of High Court ruling cannot be applied to the applicant's case. Kind attention is also invited to the decision of Delhi Bench of the Tribunal in the case of AT&T Communication Service v. DCIT: ITA No.354/Del/17. In this case this Hon'ble Tribunal ruled that reimbursement payments, for salary and other costs, made to US company for seconding employees to assessee company in India during assessment year 2011-12, does not constitute FTS in terms of Indo-US DTAA as well as under section 9(1)(vii) of the Act, and therefore, provisions of section 195 of the Act shall not apply on the reimbursements. The Tribunal has noted that the international assignees were working as the employees of assessee and were functioning solely under their control, direction and supervision. After distinguishing the ruling of Delhi High Court in Centrica India (supra), the Tribunal has observed that the employees seconded cannot be said to be rendering services on behalf of the US company. The Tribunal further held that since the salary was subject to TDS under section 192, provisions of section 195 of the Act are not applicable. Attention is further invited to the Special Bench of Delhi Tribunal in the case of Nokia Networks OΥ vs. Joint Commissioner of Income Tax: 194 TTJ 137 wherein the special bench of this Hon'ble Tribunal vide majority judgment held in para 45 that the expatriate employee assigned to the Indian company was working under the control of the Indian company notwithstanding that the assigned employee had lien on the of employment with the foreign assignor company. Attention is also invited to the decision of Delhi Bench of Tribunal in the case of Johnson Matthey Public Ltd. Company v. DCIT (International Taxation): 191 TTJ 1 wherein it was held that the ratio of the decision of Delhi High Court in case of Centrica India (supra) is fact specific that is to Page | 70 be independently tested in facts and circumstances of each case. The applicability of Centrica's case, it has further been observed, is to be determined with reference to the functions performed and the conduct of the duty of the seconded employee with reference to the business of the foreign as well as the Indian entity. Re (v): Without prejudice, payment made by assessee to Vodafone GmbH is not in the nature of FTS Without prejudice to the fact that the aforesaid expenses were in the nature of reimbursement and not liable to tax withholding in India, it is respectfully submitted that the seconded employee was acting as CFO of the company responsible for development of business strategies, performance of due diligence, identification of strategic investment opportunities etc. Thus, seconded employee was working on a regular basis and there was no imparting of any technical knowledge, skill or know-how by such seconded employee to the assessee. The allegation of the AO that the payment has been made by the applicant for FTS in terms of section 9(l)(vii) is therefore erroneous. In this regard, it is respectfully submitted that Explanation 2 to section 9(1)(vii) of the Act defines FTS to mean payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel. In the present case, Vodafone GmbH has not rendered any managerial, technical or consultancy services to the assessee through the seconded employee and therefore, reimbursement of salary made by the assessee does not constitute FTS. In fact, Explanation 2 to section 9(1)(vii) of the Act specifically excludes from its scope, payment of amounts that are chargeable to tax under the head 'salaries', as is the case of the assessee. Kind attention in this regard is invited to the decision of Pune Bench of the Tribunal in the case of M/s. Faurecia Automotive Holding vs. DCIT (International Taxation): ITA No.784/PUN/2015. In this case, the assessee, a tax resident of France, had seconded an employee (Mr. Franck) to the Indian entity, Faurecia India. Mr. Franck was appointed as CEO of Faurecia India. A sum of Rs.47.30 lakh from his salary was paid in France directly by the assessee company, which was later on reimbursed by the Indian entity without any mark up. The assessing officer held that the assessee provided technical services through its employee and hence, the amount was liable to be taxed as FTS in terms of section 9(1)(vii) of the Act, which was upheld by the DRP. On appeal, the Hon'ble Tribunal held that since the amount in question was already assessed to tax under the head "Salaries" in the hands of expatriate employee, the amount could not be assessed as FTS in hands of the assessee in view of exception provided in Explanation 2 to section 9(1)(vii) of the Act. In the present case too, it is respectfully submitted, the Vodafone GmbH has not rendered any managerial, technical or consultancy services to the Page | 71 assessee through the seconded employee. Therefore, reimbursement of salary made by the assessee does not constitute FTS in terms of Explanation 2 to section 9(1)(vii) of the Act which specifically excludes from its scope, payment of amounts that are chargeable to tax under the head 'salaries', in the hands of the recipient. Reliance can also be placed on the decision of Delhi Tribunal in the case of United Hotels Ltd v ITO: 93 TTJ 822 (Delhi Trib.) wherein, amount was stated to have been paid to Taj Palace Hotel and Taj Mahal Hotel as reimbursement towards the salaries of certain personnel of those hotels who were deputed in the hotel of the assessee to render certain services. The AO was of the view that by deputing these personnel, the two hotels had rendered professional and technical services to the Assessee. According to him, such services fell within the definition of "professional and technical services". However, the Hon'ble ITAT held that the amount was income chargeable under the head "salary" and therefore, it cannot be termed as "fees for technical services". Similar view was expressed by Delhi Tribunal in the case of DLF Projects Ltd.: ITA No. 5178/Del/2014. In view of the aforesaid, it is respectfully submitted that the assessee was not required to deduct tax at source under section 195 on the subject payments since the same were in the nature of reimbursement of cost and do not fall within the purview of FTS in terms of the exception provided in Explanation 2 to section 9(1)(vii) of the Act.”

25.1 “Aggrieved by the disallowance, the appellant stated as follows: "17.2 Our Submission. 17.2.1 During the year, the appellant company made reimbursement of the cost of salary given to Mr. Stefan Georg Langkamp, who was a seconded employee of the appellant. As evident from Form 16, Mr Stefan Geotrg Langkamp acted as the Chief Financial Officer ('CFO') of the appellant. During such appointment, Mr Stefan Georg Langkamp, being the CFO was responsible for leading the development of passive infrastructure services opportunities for the appellant, development of business strategies, identification of strategic investment opportunities and performance of due diligence to ensure ability to achieve business objectives. 17.2.2 The seconded employee, Le. Mr Stefan Georg Langkamp, was therefore, responsible for performance of critical functions towards the business operations of the appellant and was not working to facilitate the business of Vodafone GmbH. The seconded employee was not required to and did not provide any training or guidance or undertake knowledge transfer to the employees of the appellant on behalf of Vodafone GmbH. It is pertinent here to highlight that since the seconded employee was working as employee of the appellant, the appellant duly deducted tax at source under section 192 of the Act from salary payments made to Mr Stefan Georg Langkamp (copies of Form 16 already attached as Annexure 178). We now proceed with our submission as to why reimbursement of salary made to Vodafone GmbH was not subject to tax deduction at source under section 195 of the Act.

A. Reimbursement made by the appellant to Vodafone GmbH cannot be classified as Fee for Technical Services ('FTS') under the India - Germany Double Tax Avoidance Agreement (DTAA') or the provisions of the Act. Position under India Germany DTAA 17.2.3 Without prejudice to the basic, and fundamental submission of the appellant that no services per se were rendered by Vodafone GmbH to the appellant company, it was submitted that, having regard to the restricted definition of Fees for Technical services ('FTS") under the India-Germany DTAA, the impugned amount cannot be subject to withholding tax under the provisions of section 195 of the Act for the following reasons: Article 12(4) of the India-Germany DTAA defines the term FTS inter-alia as follows: "4. The term "fees for technical services" as used in this Article means payments of any amount in consideration for the services of managerial, technical or consultancy nature, including the provision of services by technical or other personnel, but does not include payments for services mentioned in Article 15 of this Agreement." In fact Article 15 of the India -Germany DTAA specifically mentions that salary payments made to personnel will be taxable only in the contracting state where the employment is exercised. "Article 15: Dependent Personal Services 1. Subject to the provisions of Articles 16, 18, 19 and 20, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable in the other Contracting State only the employment is exercised there.

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first mentioned State if: (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate, 183 days in the fiscal year concerned, and (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and (c)the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State. 7.2.2 From a holistic reading of Article 12 and Article 15 of the India- Germany DTAA, it may well be concluded that the salary payments made to the seconded employee by the appellant will be taxable in India as has been done in the present case. It may be noted that Vodafone GmbH is not providing any services to the appellant The role of Vodafone GmbH was restricted to identification of the employee having necessary skill set to perform the functions/ activities that were commensurate with the business requirements of the appellant and not to provide any technical or managerial services to appellant. Payments made by the appellant to Page | 74 Vodafone GmbH towards reimbursement of salary payments made to the seconded employee, therefore, cannot be termed as a service fee paid by appellant to Vodafone GmbH in the absence of flow of service per se from Vodafone GmbH to the appellant much less any technical services and / or included services as envisaged by section 9(1)(vii) of the Act read with Article 12(4) of the India-Germany DTAA. 7.2.3 To elaborate/substantiate the above averment, we wish to provide an example of Indian Government services wherein an employee on the payroll of Department of Revenue ('DoR') is transferred/ seconded to any other Ministry, say Department of Economic Affairs ('DoEA') and salary paid to such employee directly by DoR is reimbursed by DoEA. In such scenario, it is undisputed that DoR is not rendering any services to DoEA through the seconded employee posted in DoEA. Further, the salary of such employee reimbursed by DoEA to DoR would not convert into FTS depending upon the qualification of the employee so seconded. Hence, what flows is that in the absence of a service provider and service recipient relationship, the transaction of reimbursement of salary cannot be characterized as a 'service' per se and hence, also does not qualify to be in the nature of FTS. Further, the fact that upon the successful completion of the secondment term, where the employment with Dor is reinstated is irrelevant factor to determine the characterization of such payment as technical services. 17.2.4 Similarly, in the case of the appellant as well, since employee required by the appellant was merely provided by Vodafone GmbH, it cannot be said that Vodafone GmbH is rendering any service to the appellant. It is a generally accepted principle that FTS is considered as an active stream of income, Le. the service provider is required to carry on certain activities which are managerial, consulting or technical in nature that are commensurate with the service charges paid. In the absence of any income element, there exists no obligation to deduct any TDS under section 195 of the Act. 17.2.5 The above position is further fortified by the fact that the appellant has withheld taxes on the salaries paid to such seconded employee, Le to Mr. Stefan Georg Langkamp which makes it clear that the seconded employee, although seconded from Vodafone GmbH, should be treated as employees of the appellant. Position under the Act 17.2.6 At this juncture, it is worthwhile to reproduce Explanation 2 to Section 9(1)(vii) of the Act, which is as below: "Explanation 2.-For the purposes of this clause, fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries"" Page | 75 From the above, it is evident that the definition of the term FTS does not include within its ambit consideration which would be taxable as income chargeable under the head "salaries". As mentioned above, the entire income/remuneration paid to the seconded employee has been charged to tax under the head "salaries" in the hands of such employee and taxes have been deducted at source under section 192. Thus, on this account, it is not possible to hold any component of the same as FTS in the hands of Vodafone GmbH and again make it liable to tax. 17.2.7 Further, section 195(1) of the Act also provides for a corresponding exclusion of amounts payable to non-residents which are deductible under the head salaries and hence, no tax is deductible. Reference in this regard is drawn to the provisions of Section 195 which clearly states that if a payment made to a non-resident is of the nature of "salary" payable by the payer, the payer company does not have any tax withholding obligations under section 195. The relevant extract of Section- 195 is reproduced below: "Other sums. 195. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force….” Therefore, the section itself makes it clear that a payer is not obligated to deduct tax at source under section 195 of the Act on payments, which are in the nature of salary pay-outs or reimbursement of salary payments made by a non-resident to the employee of the payer. 17.2.8 In this regard, reliance is placed on the decision of Hon'ble jurisdictional High Court in the case of CIT vs Karl Storz Endoscopy India (P) Ltd. (ITA No 13 of 2008) (order dated 13.9.2010) (Delhi IIC), wherein, the Hon'ble jurisdictional High Court held that Explanation 2 to Section 9(1)(vii) gives the meaning of the expression fees for technical services" as per which, inter alia, where any consideration would be income of the recipient chargeable under the head "salaries", such payment will not be considered as fees for technical services. Thus, even as per the provisions of the Act, the payment in question cannot be treated as fees for technical services. Relevant extract of the judgment is reproduced below: "10. The foreign company had deputed one of its employees to look after the affairs of the Indian Company. The salary payable to this employee was to be borne by the foreign company. The Indian company was to reimburse this salary at cost; Le. without any mark-up. Thus, it was merely the question of payment of salary to Mr. Peter Laser. There is no question of any technical fees being paid to the foreign company. Assuming for the sake of argument that it was in the nature of technical Page | 76 fees paid to the foreign company, then, as rightly pointed out by the learned counsel, Article 12.4 was applicable and not Article 13,4 as contended by the learned DR. Even if Article 12.4 was applicable, the said Article specifically excludes payments mentioned in Article 15. Article 15 states that salaries, wages and other similar remuneration derived by a resident of a Contracting State (Germany) in respect of an employment shall be taxable in the other Contracting State (Indian) only if the employment is exercised there. In other words, salaries paid to such personnel like Mr. Laser are taxable in India and they cannot be considered to be fees for technical services. Further, even as per Section 9 of the Act, the payment cannot be treated as fees for technical service. Explanation 2 to Section 9(1)(vii) gives the meaning of the expression "fees for technical services" as per which, inter alia, any consideration which would be income of the recipient chargeable under the head "salaries", then such payment will not be considered as fees for technical services. Thus, even as per the provisions of the Act; the payment in question cannot be treated as fees for technical services. Moreover, since it is paid as salary to Mr. Laser, tax has been deducted under Section 192 of the Act." In view of the above, Hon'ble High Court held that no substantial question of law arises from the facts and appeal of the department was dismissed. 17.2.9 Further, the appellant wishes to place reliance on the Hon'ble jurisdictional High Court in the case of DIT vs HCL infosystems Limited [2005] 274 ITR 261 (Delhi), wherein the Hon'ble jurisdictional High Court, while confirming the decision of the Delhi Tribunal, held that remittances made to a US entity towards reimbursement of salary paid by the US entity to technicians deputed to India and placed at the disposal of the Indian entity during the period of deputation cannot be considered as fee for technical services. Relevant extract of the said decision is reproduced below for ease of reference: "As pointed out by the Tribunal, the IT Department after a lapse of six years issued notices requiring the assessed to show cause why the remittances made by it to Hewlett Packard (USA) in respect of salaries paid by HP (USA) on behalf of the assessee to four "foreign technicians"/expatriates, be not treated as 'fee for technical services' and why the assessee should not be treated as an assessee-in-default for not deducting tax from the said payment under Section 195 of the IT Act. Considering the documents placed on record and various other documents, the Tribunal has arrived at a conclusion that the remittances were by way of 'salaries' and were not fee for technical services as claimed by the Revenue. It is specifically observed by the Tribunal that the presumption raised by the learned CIT(A) cannot be sustained in view of the fact that insofar as HP (USA) is concerned, the fee for technology transfer and for the transfer of know-how by HP (USA) to HP (India) has already been quantified and separately received. The technicians were deputed and the services were placed at the disposal of the assessee during the deputation period. The assessee is not only liable to pay the salary but to pay the tax, thereon. The Tribunal expressed the opinion on the facts that the payment has rightly been treated as salary borne by the assessed on which tax Page | 77 had been correctly deducted at source under Section 192 of the IT Act, 1961, Reliance is also placed on the letter of CBDT and a letter addressed by Asstt. CIT (Special), Circle 30(1), New Delhi. Our attention was drawn to various documents at pp. 127, 130, 138, 144, 145, 162, 163, 169 and 175, The Tribunal relying on material evidence, has held that the assesses has rightly considered the payment as salary and has rightly deducted tax at source under Section 192 of the IT Act. 17.2.10 It is further submitted that ITAT Special Bench in Mahindra & Mahindra Ltd v. DCIT [2009] 313 ITR 263, has decided similar issue of taxability of reimbursement and has held as under: "when a particular amount of expenditure is incurred and that sum is reimbursed as such, that cannot be considered as having any part of it in the nature of income. Any payment, in order to be brought within the scope of income by way of fees for technical services under section 9(1)(vii), should be or have atleast some element of income in it. Such payment should involve some compensation for the rendering of any services, which can be described as income in the hands of the recipient. In other words the component of income must be present in the total amount of fees paid for technical services to constitute as an item falling under section 9(1)(vii). When the expenditure incurred is reimbursed as such without having any element of income in the hands of the recipient, it cannot assume the character of income deemed to accrue or arise in India" 17.2.11 Further reliance in this regard is placed on the following decisions: Decision of the Mumbai Tribunal in the case of Tekmark Global Solutions LLC [2010] 3 taxmann.com 38 (Mum. ITAT) wherein it has been held that deputation cannot be treated as part of any technical services to be rendered by the assessee to the Indian company. Decision of the Bangalore Tribunal in the case of IDS Software Solutions India Private Limited 122 TTJ 410 wherein the appellant, an Indian company, entered into a secondment agreement with its group company, IDS Inc., USA for the secondment of one of its employees as a managing director with the appellant and reimbursed IDS Inc. USA the salary, bonus costs and all other out-of pocket expenses paid by it to the Secondee on a cost-to-cost basis. Basis the terms and conditions governing the secondment of the employee to the appellant, the Bangalore Tribunal held that the appellant is the "economic employer of the Secondee and the Secondment agreement constituted an independent contract of service in respect of the employment of the Secondee even though the it was per se between the appellant and IDS Inc. USA. Therefore, the amount representing reimbursement. of salary costs was not to suffer withholding of tax at the time of remittance to IDS Inc. USA since this amount had been subject to tax in the hands of the secondee i.e. subject to personal tax. On the issue as to whether IDS Inc. USA was rendering technical services to the appellant, the ITAT held that the Secondee was working as an employee of the appellant and, hence, not rendering any technical services. Page | 78 Ruling by Authority for Advance ruling in the case of Cholamandalam MS General Insurance Co. Ltd 309 ITR 356, where certain expatriates were seconded by a Korean entity to the applicant. A part of the salary paid by the Korean entity was being reimbursed at cost by the applicant. On the question as to whether the payments made by the applicant to the Korean entity were in the nature of Fees for technical services, the AAR held as under:- "In the light of the above discussion, there can be no serious controversy that HMFICL, Korea did provide the services of technical personnel, being the seconded employee at the request of the applicant. From that, however, it does not automatically follow that the payments made by the applicant to HMPICL are to be treated as FTS. The more serious question that still remains to be addressed is whether the amounts paid from time to time to HMFICI. in terms of the secondment agreement have to be construed as the 'consideration' for the provision of services of technical personnel The crucial question to be asked and answered is whether the applicant has paid any fee to HMFICL for the service of deputing its own employee having technical knowledge to work with the applicant for a specified period? Whether the part reimbursement of salary of secondee by the applicant shall be construed as consideration for rendering the service of the kind covered by FTS clause? Does it partake the character of income? In our considered view, the answer must be in the negative and the amount paid by the applicant cannot be said to be in the nature of a consideration for offering the services of the seconded employee." Similar observation has been made by the Delhi Tribunal in the case of Dolphin Drilling Limited 121 TTJ 433 and United Hotels Ltd 93 TTJ 822. B. Taxes have been withheld by the appellant under section 192 of the Act 17.2.12 As submitted above, the appellant has duly deducted tax at source under section 192 of the Act from salary payments made by Vodafone GmbH to the seconded employee (which was reimbursed by appellant). Copy of Form 16 issued to Mr Stefan Georg Lagkamp and Form 15CA/CB evidencing remittances made to Vodafone GmbH is already attached as Annexure 17B and 17C respectively. 17.2.13 Therefore, without prejudice to our above submissions on the characterisation of the impugned payments, it is respectfully submitted that once the appellant has deducted taxes under section 192 of the Act on salary payments made to the seconded employees, reimbursement of such salary payments to Vodafone GmbH cannot again be subjected to tax deduction at source under section 195 of the Act. This would result in double taxation of the same payment, which is untenable under the law. C. Reimbursements are not taxable as the same are on a 'cost to cost basis' 17.2.14 In light of the above factual background, it is submitted that reimbursements cannot partake the character of income as the same are on a 'cost to cost basis' and hence, cannot be said to be chargeable to tax under the provisions of the India-Germany DTAA. 17.2.15 In this regard, we wish to submit that it has been held in various judicial precedents that pure reimbursement on 'cost to cost basis' do not constitute Income' in the hands of the recipient. In the case of CIT v. Tejaji Farasram Khanwala Ltd [1968] 67 ITR 95 (SC), the Hon'ble Apex Court held that to the extent the receipt represented reimbursement of expenses, the same was not taxable, it is only when there was a surplus, that this surplus should be taxed. This decision of the Hon'ble Apex Court laid down the position of law that reimbursement of expenses does not constitute income in the hands of the payee. 17.2.16 In the present case, the company has merely reimbursed the salary cost paid by Vodafone GmbH to the seconded employee against the services provided by the employee in its due course of employment without any mark-up component and hence, did not constitute income in its hands. And given that no additional income arises to Vodafone GmbH, the question of withholding tax thereon under section 195 of the Act did not arise basis the ruling of the Apex court in Tejaji Farasram Khanwala(supra). 17.2.17 We may re-iterate here the provisions of Section-195 which states that withholding tax implications under the said section arises only when "sum is chargeable under the provisions of this Act". In the case of reimbursement of cost, since no element of income is comprised in the amount of remittance, the question of applicability of Section-195 does not arise. Reliance is placed on the judgement of Hon'ble Supreme Court in GE India Technology Centre Put Ltd. Vs CIT (Civil Appeal No. 7541-7542 of 2010), wherein the court has elaborately discussed the provisions of Section-195 and held that, Section 195 falls in Chapter XVII which deals with collection and recovery. Chapter XVII-B deals with deduction at source by the payer. On analysis of various provisions of Chapter XVII one finds use of different expressions, however, the expression "sum chargeable under the provisions of the Act" is used only in Section 195. For example, Section 194C casts an obligation to deduct TAS. in respect of "any sum paid to any resident". Similarly, Sections 194EE and 194F inter alia provide for deduction of tax in respect of any amount referred to in the specified provisions. In none of the provisions we find the expression "sum chargeable under the provisions of the Act. which as stated above, is an expression used only in Section 195(1). Therefore, this Court is required to give meaning and effect to the said expression. It follows, therefore, that the obligation to deduct TAS arises only when there is a sum chargeable under the Act. Section 195(2) is not merely a provision to provide information to the ITO(TDS). It is a provision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a non-resident. Therefore, Section 195 has to be read in conformity with the charging provisions, i.e., Sections 4, 5 Page | 80 and 9. This reasoning flows from the words "sum chargeable under the provisions of the Act" in Section 195(1)..........." 17.2.18 Reliance in this regard is also placed on the decision of Ahmedabad Tribunal in the case of Burt Hill Design Pvt Ltd Vs Deputy Director of Income Tax [ITA No 314, 315, 316 and 317/Ahd/2014] wherein the hon’ble tribunal held that: "...... Be that as it may, in any event, when undisputedly the payments are in the nature of the reimbursements, and, particularly when even the income embedded in these payments has already been brought to tax in India in the hands of ultimate beneficiaries t.e. the seconded employees, there cannot be any tax withholding obligations under section 195. It is only elementary that the tax deduction source liability under Section 195 is a vicarious liability in the sense that it's survival in the hands of tax-deductor is wholly dependent on existence of tax liability in the hands of recipient of income. When a payment made by, an Indian resident, to a non- resident, does not trigger the taxability of that income in the hands of recipient, the tax deduction liability does not come into play at all. This scheme of the Act is implicit from the wordings of Section 195 (1) which refer to "any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries")" When income embedded in a payment is not taxable under the Income Tax Act, 1961, the tax withholding liability does not get triggered at all......". 17.2.19 Decision of the Hon'ble Bombay High Court in the case of M/s Marks & Spencers Reliance India Pvt Ltd [ITA No. 893 of 2014] is also noteworthy, which is on the same fact pattern as that of the appellant and wherein it was held that "The finding of fact of the Tribunal is that the Commissioner was right that the assessee paid sum of Rs.4866187/- to M/s. Marks & Spencer PLC towards salary expenditure of four employees deputed to the assessee for providing assistance in the area of management, to setting up of business, property selection and retail operations etc. There was a service agreement drawn up and for providing such assistance between these two companies. It was essentially a joint venture. Having noted all the clauses in the agreement, the Tribunal rendered a finding of fact that there is no rendering of service within the meaning of the double tax avoidance treaty. This was a clear case of deputing the officials / employees for the promotion of the business of the assessee which is Indian arm of M/s. Marks & Spencer PLC, UK. Since the said payment to the employees is already subjected to tax in India, therefore there is no question of treating the assessee in default for non deduction of tax at sources. Once the facts were clear, as these, there was no illegality in the order of the Commissioner of Income Tax (Appeals) which was maintained by the Tribunal. The appeal of the Revenue was rightly dismissed by the Tribunal."

17.2.20 Reliance in this regard can be placed on the following judicial precedents: CIT us, Industrial Engineering Products Put Ltd. (1992) 202 ITR 1014 (Delhi HC); CIT vs. Dunlop Rubber Co. Ltd. (142 ITR 493) (1982) (Calcutta HC); Rolls Royce India Ltd vs Income Tax Officer (25 ITD 136) (1987) (ITAT Delhi); SedcoForex International Drilling Inc. us. Dy Commissioner of Income Tax (72 ITD 415) (1999) (ITAT Delhi); ITO us Vidogum & Chemicals Limited (23 ITD 255) (1987) (ITAT Delhi); Clifford Chance, United Kingdom us. DCIT (82 ITD 106) (2001) (Mumbai ПАТ); Mahindra & Mahindra Ltd vs. DCIT - [2005] 1 SOT 896 (Mumbai ITAT) Accordingly, in the present factual matrix and taking cognizance with the principles laid down various judicial precedents including jurisdictional High Court, the reimbursement of personnel costs made by appellant cannot be deemed to be income in the hands of Vodafone GmbH and hence, not liable to tax deduction under section 195 of the Act. 17.2.21 Copy of Form 15CB obtained from Chartered Accountant along with the copy of Form 15CA submitted to the Income Tax department is enclosed as Annexure 17C, wherein it has been clearly certified that the payment is in the nature of reimbursement. D. Reliance of the Ld. AD on the decision of the Delhi High Court in the case of Centrica India Offshore P Ltd us CIT (364 ITR 336)- 'Centrica' 17.2.22 The Id. AO, without appreciating the facts and merits of the case has merely placed reliance on the decision of the Hon'ble Delhi High Court in the case of Centrica. However, Centrica's case is distinguishable from the case of the appellant. Our detailed submission in this regard is as below: Facts before the Hon'ble High Court in the case of Centrica India Offshore Private Limited ('Centrica'): 17.2.23 Centrica was a wholly-owned subsidiary of Centrica Plc, UK ('CPU'), a company incorporated in United Kingdom (UK). CPU had two other subsidiaries in UK and Canada, British Gas Trading Limited ('BGTL) and Director Energy Marketing Limited ('DEML) respectively (CPU, BGTL and DEML hereinafter collectively referred to as "overseas entities"), which were engaged in the business of supplying gas and electricity to consumers across UK and Canada. 17.2.24 The overseas entities had outsourced their back office support functions (such as consumers' billings/ debt collections/ monthly job reporting) to third party service providers ('vendors') in India. In order to ensure that the Indian vendors comply with quality guidelines, Centrica was established in 2008 to act as a service provider to the overseas Page | 82 entities and a service agreement was entered among them to this effect. In terms of the agreement, Centrica was compensated at full costs plus mark- up of 15%. 17.2.25 Since Centrica was newly incorporated, it needed the knowledge of processes and practices of the overseas entities to successfully fulfil its role under the service agreement. To seek support during its initial years of operation, Centrica sought some employees on secondment from the overseas entities. For this purpose, it entered into an agreement with the overseas entities in which the latter seconded some employees for fixed tenure. In terms of the secondment agreement, the employees so seconded worked under Centrica's direct control and supervision 17.2.26 The seconded. employees continued to remain on the payroll of the overseas entities, which used to pay and disburse the salaries. Centrica reimbursed such salary costs to the overseas employers. 17.2.27 Other pertinent facts recorded by the Hon'ble High Court while holding that the reimbursements made by Centrica to the overseas entities (towards salary payments made to seconded employees) are as under: The overseas entity has created an Indian company (i.e. Centrica) as its subsidiary for ensuring that the services to be rendered to it by various Indian vendors are properly coordinated. The overseas entity wanted their services to be consistent with its business and policies and Centrica having been newly constituted, was presumably not in a position, to render help to the various vendors in the matter of fulfilling their obligations or in the matter of ensuring compliance with the processes and practices employed by the overseas entities Some of the employees qualified in the processes and procedures of the overseas entity are lent to Centrica, to perform the functions envisaged for it. The persons well versed in the processes and procedures of are sent to Centrica to enable it to perform the work for which it was created in accordance with the processes and procedures of the original employer. Hon'ble High Court's ruling on nature of reimbursement of salary costs by Centrica to overseas entities. 17.2.28 The Hon'ble High Court held that the overseas entities were rendering services to Centrica through the assigned employees. Reimbursement made by Centrica to the overseas entities towards salary payments made to the assigned employees were held as FTS under the India-UK tax treaty and Fees for Included Services (FIS") under the India- Canada tax treaty, 17.2.29 Reasons provided by Hon'ble High Court to support the above ruling are summarized below in brief: India-UK tax treaty and India-Canada tax treaty cover "provision of services of technical or other personnel. Secondment of technical personnel amounts to provision of technical services through Assignees. Page | 83 Meaning of technical services should not be restricted to technological services but it extends to knowhow, techniques and technical knowledge. Assignees imported their skills and know-how to the other employees of Centrica so that going forward such employees could render the services without recourse to the assignees. This satisfied the 'make available' condition under the India-Canada tax treaty. FTS/ FIS definition under the tax treaty contemplates not just formal transfer of intellectual property but also other techniques and skills (which can be called soft intellectual property). Our submission to distinguish the High Court's ruling: Facts distinguishable from the facts of the present case 17.2.30 Without prejudice to our contention that the ruling given by Hon'ble High Court does not lay down correct principles of law, we wish to submit that facts in the case of the appellant are distinguishable from the facts in the case of Centrica 17.2.31 In the case of Centrica, it was an undisputed fact that the Indian company Le. Centrica was established only to provide services to the overseas entity to ensure that the services to be rendered to the overseas entities by the Indian vendors are properly coordinated. The High Court had observed that the secondees are not only providing services to Centrica, but rather tiding Centrica through the initial period, and ensuring that going forward, the skill set of Centrica's other employees is built and these services may be continued by them without assistance. It has been noted by the High Court that "indeed, it is admitted by CIOP that the reason for the secondment agreement was to provide support for the initial years of operation, till the necessary skill-set is acquired by the resident employee group. The activity of the secondees is thus to transfer their technical ability to ensure quality control vis-à-vis the Indian vendors, or in other words, make avaliable' their know-how of the field to CIOP for future consumption." In the present case, the business of the appellant is distinct from the services provided by Vodafone GmbH and is limited to provision of passive infrastructure services in the Indian business environment. Further, no services are provided by Indus to Vodafone GmbH. The seconded employee, therefore, were not required by the appellant to establish its business. 17.2.32 in the case of Centrica, employees were seconded by the overseas entitles to which Centrica provided support services. In the present case, however, the appellant does not provide any services to Vodafone GmbH. The role of Vodafone GmbH was restricted to identification of the employee having necessary skill set to perform the functions/ activities commensurate with the business requirements of the appellant and not to provide any technical or managerial services to the appellant Payments made by the appellant to Vodafone GmbH, therefore, cannot be termed as a service fee paid by the appellant. The above position is further fortified by the fact that the appellant has withheld taxes on the salaries paid by Vodafone GmbH to such seconded employees which makes it clear that the seconded employees, although legally employed by Vodafone GmbH, should be treated as employees of the appellant as they work under the control, supervision and direction of the appellant. In this regard, we wish to place reliance on the Hon'ble jurisdictional High Court in the case of HCL Infosystems Limited (supra), wherein the Hon'ble High Court, confirming the decision of the Tribunal, has held that remittances made to a US entity towards reimbursement of salary paid by the US entity to technicians deputed to India and placed at the disposal of the Indian entity during the period of deputation cannot be considered as fee for technical services. Notwithstanding the above submission, we wish to submit that the ruling of the Hon'ble Delhi High Court does not lay down the correct principles of law to the extent it has been held that reimbursement mode by the Indian company to the overseas entity towards salary payments made to seconded employees qualifies as fee for technical/ included services. Given the distinct fact pattern in the present case, the decision in case of Centrica cannot be applied on the appellant. In view of the above, the appellant humbly wishes to submit that it was not under any obligation to deduct tax at source under section 195 of the Income Tax Act in respect of the reimbursements made to Vodafone GmbH. Hence, your office is requested to kindly reverse the addition made by the Ld. AO. The appellant wishes to submit that it reserves the right to file an additional submission before your office during the course of the hearings, contesting each of the allegations made by the LA.AO." 25.2 I have considered the facts of the case and submissions of the appellant. The employee seconded by Vodafone GmbH rendered services for the assessee' during the year and the assessee has simply reimbursed his salary costs to Vodafone GmbH. It is pertinent here to highlight that since the seconded employee was working as employee of the appellant, the appellant duly deducted tax at source under section 192 of the Act from salary payments made to Mr Stefan Georg Langkamp. Copies of Form 16 submitted in this regard show that tax was deducted on the amount of Rs.4,40,00,000 u/s 192 considering the payment as taxable salary in the hands of the employee. At this juncture, it is worthwhile to reproduce Explanation 2 to Section 9(1)(vii) of the Act, which is as below: "Explanation 2.-For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not Page | 85 include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries." 25.3 From the above, it is evident that the definition of the term FTS does not include within its ambit consideration which would be taxable as income chargeable under the head "salaries". As mentioned above, the entire income/ remuneration paid to the seconded employee has been charged to tax under the head "salaries" in the hands of such employee and taxes have been deducted at source under section 192. Thus, on this account, it is not possible to hold any component of the same as FTS in the hands of Vodafone GmbH and again make it liable to tax. 25.4 Further, section 195(1) of the Act also provides for a corresponding exclusion of amounts payable to non-residents which are deductible under the head salaries and hence, no tax is deductible. 25.5 Reference in this regard is drawn to the provisions of Section 195 which clearly states that if a payment made to a non-resident is of the nature of "salary" payable by the payer, the payer company does not have any tax withholding obligations under section 195. The relevant extract of Section-195 is reproduced below: "Other sums, 195. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force........... 25.6 Therefore, the section itself makes it clear that a payer is not obligated to deduct tax at source under section 195 of the Act on payments, which are in the nature of salary, pay-outs or reimbursement of salary payments made by a non-resident to the employee of the payer. 25.7 In this regard, reliance is placed on the decision of Hon'ble jurisdictional High Court in the case of CIT vs Karl Storz Endoscopy India (P) Ltd. (ITA No 13 of 2008) (order dated 13.9.2010) (Delhi HC), wherein, the Hon'ble jurisdictional High Court held that Explanation 2 to Section 9(1)(vii) gives the meaning of the expression "fees for technical services" as per which, inter alia, where any consideration would be income of the recipient chargeable under the head "salaries", such payment will not be considered as fees for technical services. Thus, even as per the provisions of the Act, the payment in question cannot be treated as fees for technical services. Relevant extract of the judgment is reproduced below: "10. The foreign company had deputed one of its employees to look after the affairs of the Indian Company. The salary payable to this employee was to be borne by the foreign company. The Indian company was to Page | 86 reimburse this salary at cost, Le. without any mark-up. Thus, it was merely the question of payment of salary to Mr. Peter Laser. There is no question of any technical fees being paid to the foreign company. Assuming for the sake of argument that it was in the nature of technical fees paid to the foreign company: then, as rightly pointed out by the learned counsel, Article 12.4 was applicable and not Article 13,4 as contended by the learned DR. Even if Article 12.4 was applicable, the said Article specifically excludes payments mentioned in Article 15. Article 15 states that salaries, wages and other similar remuneration derived by a resident of a Contracting State (Germany) in respect of an employment shall be taxable in the other Contracting State (Indian) only if the employment is exercised there. In other words, salaries paid to such personnel like Mr. Laser are taxable in India and they cannot be considered to be fees for technical services. Further, even as per Section 9 of the Act, the payment cannot be treated as fees for technical service. Explanation 2 to Section 9(1)(vii) gives the meaning of the expression "fees for technical services" as per which, inter alia, any consideration which would be income of the recipient chargeable under the head "salaries", then such payment will not be considered as fees for technical services. Thus, even as per the provisions of the Act; the payment in question cannot be treated as fees for technical services. Moreover, since it is paid as salary to Mr. Laser, tax has been deducted under Section 192 of the Act." 25.8 Further, the case of the assessee is distinguishable from the case of Centrica(supra) on which AO has relied. In the case of Centrica, it was an undisputed fact that the Indian company i.é. Centrica was established only to provide services to the overseas entity to ensure that the services to be rendered to the overseas entities by the Indian vendors are properly coordinated. The High Court had observed that the secondees are not only providing services to Centrica, but rather tiding Centrica through the initial period, and ensuring that going forward, the skill set of Centrica's other employees is built and these services may be continued by them without assistance. It has been noted by the High Court that "indeed, it is admitted by CIOP that the reason for the secondment agreement was to provide support for the initial years of operation, till the necessary skill-set is acquired by the resident employee group. The activity of the secondees is thus to transfer their technical ability to ensure quality control vis-à-vis the Indian vendors, or in other words, 'make available' their know-how of the field to CIOP for future consumption." 25.9 in the present case, the business of the appellant is distinct from the services provided by Vodafone GmbH and is limited to provision of passive infrastructure services in the Indian business environment. Further, no services are provided by Indus to Vodafone GmbH. The seconded employee. therefore, was not required by the appellant to establish its business. 25.10 In the case of Centrica, employees were seconded by the overseas entities to which Centrica provided support services.

25.11 In the present case, however, the appellant does not provide any services to Vodafone GmbH. The role of Vodafone GmbH was restricted to identification of the employee having necessary skill set to perform the functions/ activities commensurate with the business requirements of the appellant and not to provide any technical or managerial services to the appellant. Payments made by the appellant to Vodafone GmbH, therefore, cannot be termed as a service fee paid by the appellant. 25.12 The above position is further fortified by the fact that the appellant has withheld taxes on the salaries paid by Vodafone GmbH to such seconded employees which makes it clear that the seconded employees, although legally employed by Vodafone GmbH, should be treated as employees of the appellant as they work under the control, supervision and direction of the appellant. In this regard, it is also relevant to quote the judgement of Delhi High Court in the case of PCIT v Boeing India Pvt. Ltd.[2023] 146 taxmann.com 131 (Del.) wherein it is held as follows: "As far as disallowance under section Ujajjial of the Act is concerned, this Court finds that there is no dispute that the assessee has deducted tax at source under section 192 of the Act. This Court is in agreement with the opinion of the ITAT that Section 195 of the Act has no application once the nature of payment is determined as salary and deduction has been made under section 192 of the Act. This Court is further of the view that the judgement in Centrica India Offshore (P) Ltd. (supra) has no application to the present case as the ITAT has returned a finding that the real employer of the seconded employees continues to be the Indian entity and not the overseas entity". 25.13 Since facts in the case of the assessee are similar, it is held that tax was not deductible in this case u/s 195 and has been rightly deducted u/s 192. Accordingly, the disallowance of Rs.4,40,00,000/- is hereby deleted. Ground no.17 is allowed.”

ITA 72. In the final result, appeal of the assessee in No.2607/Del/2023 [Assessment Year 2011-12] is partly allowed and appeal of the Revenue in [Assessment Year 2011-12] is dismissed.