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Income Tax Appellate Tribunal, “SPECIAL BENCH”, AHMEDABAD
PER RAJPAL YADAV, JUDICIAL MEMBER: Present Special Bench is constituted by the Hon’ble President to answer the following question: “Whether deduction under section 80IA(4)(ii) which is available to basic Telecom Services Providers is also available to franchisees of such basic service providers also, which is only putting EPEX system without creating infrastructure in the field of Telecom ?
Brief facts of the case are that the assessee filed its return of income electronically on 11.9.2009 declaring total income at Rs.1,07,79,550/-. This return was processed under section 143(3) of the Income Tax Act, 1961 on 8.2.2011 and returned income was accepted. Subsequently, the case of the
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2 assessee was selected for scrutiny assessment and notice under section 143(2) of the Act was issued and served on 26.8.2010 upon the assessee. On scrutiny of the accounts, it revealed to the AO that the assessee has claimed deduction of Rs.2,07,91,043/- under section 80IA of the Act. According to the assessee, it has shown income from telecommunication. It was submitted before the AO that in earlier years also such deduction was claimed by the assessee, it was disallowed by the AO. However, when dispute travelled to the Tribunal deduction was granted to the assessee. The ld.AO has observed that right from the Asstt.Years 1997-98 to 2001-02 such deduction was disallowed to the assessee, though ld.CIT(A) and ITAT has allowed the deduction to the assessee, but department has not accepted the order of the Tribunal and carried the matter before the Hon’ble Gujarat High Court. The AO has not pointed any disparity of facts, rather he did not accept the claim of the assessee, because in earlier year, department went in appeal before the Hon’ble High Court. Accordingly, the ld.AO disallowed the claim of the assessee.
Dissatisfied with the disallowance, the assessee carried the matter in appeal before the ld.CIT(A). The ld.CIT(A) after putting reliance upon the order of the ITAT passed in the Asstt.Year 2007-08 allowed the claim. Dissatisfied with the order of the ld.CIT(A), Revenue has come in appeal before the Tribunal. It has taken three grounds of appeal, out of which, ground nos.2 and 3 are general grounds of appeal which does not call for recording of any finding. In Ground no.1, Revenue has pleaded that the ld.CIT(A) has erred in law and on facts deleting the disallowance of Rs.2,07,91,043/-. When this matter was called for hearing, then it was contended on behalf of the department that section 80IA of the Act provides for deduction in respect of profits and gains from industrial undertaking or
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3 enterprises engaged in infrastructure development. According to the Revenue, the assessee has only erected an EPABX system which could not be construed as creation of infrastructure development. It was contended that ITAT, Chennai Bench in the case of ITO Vs. Smt. A. Jayalaxmi, 50 SOT 57 took a view that establishment of EPABX system does not amount to creation of an infrastructure which can enable an assessee to claim deduction under section 80IA. Since there were conflicting opinion at the end of the ITAT – one involved in the assessee’s own case and other rendered by the ITAT, Chennai Bench, the Bench which heard this appeal made a reference to the Hon’ble President for constitution of the Special Bench. In this way, a Special Bench has been constituted and above question was formulated for adjudication.
Before us, the ld.counsel for the assessee at the outset contended that deduction under section 80IA was allowed to the assessee by the Tribunal right from the Asstt.Year 1997-98 upto 2007-08. Orders of the Tribunal have been challenged by the Revenue before the Hon’ble High Court, and the Hon’ble High Court has decided all these appeals vide order/judgment dated 16.12.2014. He has placed on record copy of the Hon’ble High Court’s decision rendered in Tax Appeal Nos.1098 of 2005 and others. The question formulated by the Hon’ble High Court in assessee’s own case is,
“whether the Appellate Tribunal is right in law and on facts in holding that the assessees who are franchisees of BSNL and who have been permitted to install, maintain and operate in dialing EPABX under franchisee to support the department, can be treated to have provided “basic telephone services” entitling them for deduction under section 80IA ?.
He has placed on record copy of the judgment of the Hon’ble High Court. The Hon’ble High Court has replied the above question in favour of
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4 the assessee, and against the Revenue. The relevant discussion made in the judgment reads as under: “7. Having heard learned advocates appearing on behalf of the assessees and the revenue and the Question posed for consideration before us, we are of the opinion that the Tribunal is justified in directing the Assessing Officer to allow deduction u/s 80IA of the Act. The Tribunal has relied upon the decision of ITAT, Mumbai Bench in ITA No. 4355/Mum/03 for the assessment year 1998-99 rendered on 12.09.2003 as the terms and conditions of the assessees in the cases before it as well as that of the assessee in ITA No. 4355/Mum/03 were identical. The relevant portion of the order dated 12.09.2003 relied upon the Tribunal is reproduced hereunder:
"From the perusal of clause-1, it is evident that the EPABX owned by the assessee will provide direct in dialing services through the PSTN of the MTNL. Thus, the services provided by the assessee would come within the purview of basic telecommunication services as per the definition u/s. 2(c) of the Telecommunication Tariff Order, 1999. From the reading of above clauses of the agreement, it is evident that the assessee is not providing the services as a PCO. From clause 24 of the agreement, it is evident that the STD/PCO can be provided by the assessee i.e. one of the customers of the assessee, who can run the STD/PCO and to such STD/PCO commission will be paid by the assessee. Similarly, it is clear that the services provided By the assessee are not only the network of trunking as mentioned by the Ld. CIT(A). AS per clause 3 of the agreement, the assessee is responsible for installation, networking operation and maintenance of EPBX equipments, user terminal equipments, connected cables etc. As per clause, 4, the assessee is also responsible for treatment of 5 ITA No. 726/Ahd/2010 A.Yr. 2007-08 compliances, issue of bills, collection of bills etc. Therefore, in our opinion the assessee is providing basic telephone services through in association with MTNL. However, merely because the services are being provided in association with MTNL does not mean the assessee is not providing the basic telecommunication services. In view of the above, we hold
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5 that the assessee is providing the basic telecommunication services land accordingly, we direct the A.O. to allow deduction u/s. 80IA. 7.1 We are in complete agreement with the findings of fact arrived at by the Tribunal. The Tribunal has rightly relied upon the order dated 12.09.2003 passed by the Mumbai Bench. The assessees have made huge investment in setting up and maintaining the entire PABX. In view of the agreement between the parties which has been minutely considered by this Court, the services provided by the assessees shall fall within the definition of 'basic telephone service' and therefore they shall be entitled to deduction u/s 80IA of the Act. The Tribunal has not committed any error in reversing the orders passed by the Assessing Officer. The Tribunal had examined all the aspects of the case and concluded that the assessees were providing basic telecommunication service and were entitled to deduction under section 80IA(4)(ii).
In view of the above, we answer the question raised in the present appeals in the affirmative i.e. in favour of the assessees and against the revenue. We hold that the Tribunal is right in law and on facts in holding that the assessees who are franchisees of BSNL and who have been permitted to install, maintain and operate, in-dialing PABX under franchisee to support the department, can be treated to have provided "basic telephone services" entitling them for deduction u/s 80IA. Consequently, the impugned orders passed by the Tribunal are confirmed. Tax Appeals are accordingly dismissed.” 5. Hon’ble jurisdictional High Court has adjudicated this issue in favour of the assessee, wherein it has been held that the assessee who are franchisees of BSNL and who have been permitted to install, maintain and operate in dialing EPABX under the franchisees to support the department can be treated to have provided “basic telephone services. This would amount to creation of infrastructure entitling them for deduction under section 80IA. Relying on authoritative pronouncement of the Hon’ble jurisdictional High Court in the
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6 assessee’s own case, we are of the view that question referred to this Bench deserves to be answered in favour of the assessee, and against Revenue.
It is pertinent to observe that the appeal has also been transferred to the Special Bench, therefore, we proceed to deal with the appeal on merits. On perusal of the record would indicate that only substantial issue involved in this appeal is, whether deduction under section 80IA(4)(ii) is available to the assessee or not. Considering the opinion of Special Bench coupled with ratio laid down by the Hon’ble High Court in assessee’s own case, we are of the view that the assessee is entitled for deduction under section 80IA(4)(ii) of the Act. The ld.CIT(A) has rightly granted the same to the assessee. We do not find any merit in this appeal of the Revenue.
In the result, appeal of the Revenue is dismissed. Order pronounced in the Court on 25th February, 2019 at Ahmedabad.
Sd/- Sd/- Sd/- AMARJIT SINGH JUSTICE (SHRI) P.P.BHATT RAJPAL YADAV (ACCOUNTANT MEMBER) (PRESIDENT) (JUDICIAL MEMBER)
Ahmedabad; Dated 25/02/2019