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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI ARUN KHODPIA
(Assessment Year: 1999-2000) Tata Communications Limited Dy. CIT-1(3)(1) Videsh Sanchar Bhavan, Mumbai Vs. M. G. Road, Fort, Mumbai-400 001 PAN/GIR No. AAACV 2808 C (Appellant) : (Respondent) Appellant by : Shri J. D. Mistri Respondent by : Shri Ritesh Misra Date of Hearing : 25.09.2025 Date of Pronouncement : 22.10.2025 O R D E R Per Saktijit Dey, Vice President: Captioned appeal by the assessee, arises out of order dated 21.02.2024, passed by National Faceless Appeal Centre (‘NFAC’ for short), pertaining to assessment year (A.Y.) 1999-2000.
The sole controversy in the present appeal relates to disallowance of deduction claimed u/s. 80IA of the Act for an amount of Rs.99,39,44,246/-. Briefly stated, the relevant facts are that the assessee, erstwhile Videsh Sanchar Nigam Limited (‘VSNL’ for short) was a Public Sector Undertaking (PSU), wherein the Central Government held majority stake. As stated by the Assessing Officer (A.O. for short), the PSU was given monopolistic rights by the Government to provide overseas telecom services. For the assessment year under dispute, the assessee filed its return of income on 31.12.1999, declaring income of Rs.1439.82 crores. The return of income so filed by the assessee was selected for scrutiny.
(A.Y.1999-2000) Tata Communications Limited vs. Dy. CIT In course of assessment proceeding, the A.O., while verifying the return of income filed by the assessee, noticed that the assessee had claimed deduction of an amount of Rs.412,37,88,812/- u/s. 80IA of the Act. He further noticed that such deduction has been claimed in respect of profits derived from new earth stations installed by the assessee for providing telecommunication services at various places. It was claimed by the assessee that since the new earth stations are industrial undertaking under sub section (4C) of section 80IA of the Act and has started providing services after 01.04.1995, but before 31.03.2000, it is entitled for deduction. While examining assessee’s claim, the A.O. was of the view that new earth stations is not an industrial undertaking in terms with section 80IA of the Act, but is only one link in an integrated telecommunication system. Relying upon the decision of the co-ordinate bench in case of MTNL (in & 1618/Del/2000 for A.Ys. 1995-96 & 1996-97 vide order dated 10.12.2001), A.O. ultimately disallowed assessee’s claim of deduction u/s. 80IA of the Act.
Being aggrieved with such disallowance, the assessee preferred an appeal before ld. first appellate authority. However, the assessee was unsuccessful. Hence, went in further appeal before the ITAT. Before the ITAT, the assessee specifically pleaded that the disallowance made by the A.O. is unwarranted as it was under factual misconception that the entire deduction claimed u/s. 80IA of the Act is in respect of new earth stations. Whereas, a part of the deduction claimed u/s. 80IA of the Act is with regard to internet services, which qualifies as an undertaking u/s. 80IA(4C) of the Act. Since the departmental authorities had not examined this aspect, the Tribunal remitted the issue back to ld. first appellate authority for deciding afresh keeping in view the amended provisions of section 80IA of the Act. As a result of such restoration, ld. first appellate authority took (A.Y.1999-2000) Tata Communications Limited vs. Dy. CIT up the proceedings again and called upon the assessee to make its submissions. In response, the assessee made detailed submissions in support of its claim of deduction in respect of internet services. After considering the submissions of the assessee, in the context of the facts and materials on record and relying upon certain judicial precedents, ld. first appellate authority ultimately rejected assessee’s claim.
Being aggrieved the assessee is in appeal before us.
ld. Counsel appearing for the assessee submitted that the assessee through its internet undertaking had provided Electronic Data Interchange (‘EDI’ for short) services since August, 1995, which is a form of internet services. He submitted, EDI means exchange of data between two sets of computers through electronic mode. He submitted, in the initial days such transfer of data over internet was made through dial up connection. He submitted, with advancement in technology over the years internet service became much wider in its scope as through internet services not only data is exchanged but audio and video files are also exchanged. Thus, he submitted, with advancement in technology EDI got subsumed in internet. Drawing our attention to the provisions contained u/s. 80IA of the Act, applicable to assessment year under dispute, ld. Counsel submitted, under sub section (1) to section 80IA of the Act, provision of telecommunication services, whether basic or cellular, including radio paging, domestic satellite service or network of trunking and EDI services were also treated as eligible business for claiming deduction. He submitted, sub section (4C) of section 80IA of the Act applicable to the assessment year under dispute sets out the conditions for availing deduction u/s. 80IA of the Act in respect of an undertaking which starts providing telecommunication services whether basic or cellular including radio paging, domestic satellite service or network of trunking and (A.Y.1999-2000) Tata Communications Limited vs. Dy. CIT electronic data interchange services at any time on or after 1st day of April, 1995 but before the 31st day of March, 2000. He submitted, ld. first appellate authority has rejected assessee’s claim of deduction u/s. 80IA of the Act for two reasons. Firstly, the internet services provided by the assessee cannot be treated as an ‘undertaking’ as it is not capable of functioning independently of the old unit/units. He submitted, the fact that the assessee has started providing EDI/internet services since 15.08.1995 cannot be disputed as it is borne out from materials placed on record. In this context, he drew our attention to the following: Extract from Directors Report for the Financial Year 1995-96 Extract from the Chairman Speech for F.Y. 1995-96 regarding launch of internet Extract from DOT Indian Annual Report for F.Y. 2001-02 Extract from publication of TRAI captioned Review of Internet Services Extract from Press Information Bureau from GOI giving details about internet services in India 6. He submitted, the observation of ld. first appellate authority that since the internet undertaking is dependent upon to exchange, telephone or telecommunication network, fibre optic etc. it is not an undertaking, is fallacious. He submitted, for providing internet services on commercial basis, the assessee had made investments of about Rs.85 crores till 31.03.1999 in various equipment’s and infrastructure. He submitted, the equipment’s are required to be operated and maintained on a 24 x 7 basis by technically qualified personnel. For this purpose, the assessee has employed 157 personnel to provide the internet services. He submitted, in the year under consideration, the assessee had provided internet services to 2,13,045 customers. Thus, he submitted, providing services of such magnitude through various equipment’s certainly constitute an eligible undertaking. In this context, ld. Counsel drew our attention to certain photographs depicting the infrastructural facilities of the undertaking. He submitted, from provision of services during the year, the undertaking had generated profits of Rs.99.39 crores, which is a completely separate profit center.
(A.Y.1999-2000) Tata Communications Limited vs. Dy. CIT Whereas, the expenses incurred in relation to such services worked out to Rs.73.87 crores. In this context, he drew our attention to the profit and loss account, specifically provided for the internet undertaking. Thus, he submitted, these facts clearly demonstrate that internet services were provided through an independent undertaking in terms with section 80IA(4C) of the Act. He submitted, merely because while providing such services the existing telecommunication network and undersea cables were used it cannot be said that the internet undertaking is not an independent undertaking as it is dependent upon other existing units. He submitted, looking at the complex nature of internet services, it is impossible for any single internet service provider to provide end-to-end services. To demonstrate such fact, ld. Counsel drew our attention to the following pictorial chart:
He submitted, had it been the case that to become eligible for deduction u/s. 80IA(4C) of the Act, an undertaking has to provide end-to-end internet services, then no internet service provider would be eligible to avail deduction u/s. 80IA of the Act, as none of them can provide end-to-end services. To substantiate such submission, ld. Counsel (A.Y.1999-2000) Tata Communications Limited vs. Dy. CIT drew our attention to a list of internet service provider including Dishnet Dsl Ltd., who have availed some or other infrastructure facilities of the assessee including the telecommunication network, undersea cable etc. Thus, he submitted, the internet undertaking of the assessee has to be treated as an eligible undertaking in terms with section 80IA(4C) of the Act. Proceeding further, he submitted, even assuming that the internet undertaking is dependent upon the other existing/old units, still then eligibility for claim of deduction u/s. 80IA of the Act will not be hampered.
In support of such contention, he relied upon the decision of Hon’ble Gujarat High Court in case of Gujarat Alkalies & Chemicals Ltd. v. CIT (in Income Tax Reference No. 141 of 1991 vide order dated 12.03.2012). Insofar as the second reasoning of the ld. first appellate authority that in the year under consideration, EDI services was eligible for deduction whereas the assessee was providing internet services, which is different from EDI, ld. Counsel for the assessee submitted there cannot be any dispute that EDI is nothing but internet service as it involved transfer of data through computer using networks such as Value Added Networks (VANs) or the internet. He submitted, EDI means computer to computer interchange of strictly formatted messages that represent documents other than monetary instruments. He submitted, in the initial days of internet services this is how the data was exchanged between persons through computer network over internet. He submitted, with advancement in technology, the internet services became more broader and in addition to data various other materials could be exchanged between persons through computer network over internet such as texts, word files, audio, video, etc. Thus, he submitted, EDI ultimately was subsumed in the broader internet services. In support of such contention, ld. Counsel relied upon an opinion received from Department of (A.Y.1999-2000) Tata Communications Limited vs. Dy. CIT Computer Science & Engineering - Indian Institute of Technology, Madras. In this context, he also relied upon an opinion received from Dr. Kuldip Singh, Former Member TDSAT. Thus, he submitted, both the reasonings on which ld. first appellate authority rejected claim of deduction u/s. 80IA of the Act are untenable.
The ld. Departmental Representative strongly relied upon the observations of ld. first appellate authority.
We have considered rival submissions and perused the materials available on record. The only dispute is with regard to assessee’s claim of deduction u/s. 80IA of the Act in respect of profits derived from the business of providing EDI/internet services. Before we proceed to deal with the substantive issue, as to whether the assessee is entitled to claim deduction u/s. 80IA of the Act in respect of profits derived from EDI/internet service, it is necessary to deal with the relevant statutory provision. Section 80IA of the Act provides deduction in respect of profits and gains from industrial undertaking engaged in specific business such as industrial undertaking or a hotel or operation of ship or developing, maintaining and operating in infrastructure facilities or scientific or industrial research and development or providing telecommunication services whether basic or cellular. The aforesaid provision has been amended from time to time for widening its scope in respect of the eligible undertaking. Through one such amendment, by Finance (No. 2) Act, 1998, effective from 01.04.1999, the scope of telecommunication services whether basic or cellular was enlarged to include radio paging, domestic satellite service or network of trunking and electronic data interchange services. Thus, from 01.04.1999 applicable to A.Y. 1999-2000 in addition to telecommunication services whether basic or cellular, other services including radio paging, domestic satellite service or network of (A.Y.1999-2000) Tata Communications Limited vs. Dy. CIT trunking and electronic data interchange services were also included within the eligible business. Sub section (4C) to section 80IA of the Act sets out the conditions for eligibility of an undertaking providing telecommunication services whether basic or cellular including radio paging, domestic satellite service or network of trunking and electronic data interchange services which has communicated at any time on or after 1st day of April, 1995 but before the 31st day of March, 2000 to be eligible for claiming deduction u/s. 80IA of the Act. Thus, as could be seen from the relevant statutory provision, profits derived from EDI services would qualify for deduction u/s. 80IA of the Act subject to condition that such services have commenced after 01.04.1995 but before 31.03.2000. Undisputedly, in case of the assessee, the EDI/internet services has commenced on 15.08.1985, i.e, after 01.04.1995 and before 31.03.2000. Therefore, the condition of sub section (4C) of section 80IA of the Act is satisfied.
Keeping in perspective the relevant statutory provision as discussed above, we proceed to deal with the issue at hand. In the assessment year under dispute, the assessee had claimed deduction for an amount of Rs.99.39 crores, being the profit derived from EDI/internet undertaking. The ld. first appellate authority has rejected assessee’s claim of deduction broadly on the following reasons: i. The internet undertaking of the assessee is a combination of Routers, Switches and Mux kept in a room/hall, which are nothing but data switching or data transmission or data selection devices and are mere aids or components used for selection, switching or forwarding of data. Hence, they cannot by themselves be categorized and termed as ‘Internet Undertaking’. The internet services can be provided either through dial up connection or Integrated Services Digital Network (ISDN) which (A.Y.1999-2000) Tata Communications Limited vs. Dy. CIT are dependent on the existing telephone or telecommunication network. Telecommunication infrastructure includes telephone lines, fibre optic cables, undersea cables, etc. This infrastructure forms the backbone of the telecommunication network on which the provision of internet services is dependent. Since, these infrastructures have not been created by the so called ‘internet undertaking’ of the assessee, but were already in place and were a part of the existing undertaking of “VSNL” which was set up in 1986, it cannot be said that the internet undertaking is a functionally independent unit so as to entitle it for claim of deduction u/s. 80IA of the Act. Thus, he concluded that ‘internet services’ not being an undertaking, the assessee is not eligible to claim deduction u/s. 80IA of the Act. ii. Whether EDI can be equated with internet services: Referring to the definition of EDI as per Wikipedia website and another article by by John Schreibfeder dated 01.02.1999, ld. first appellate authority held that ‘EDI’ is a separate mode of data transfer which worked without internet services also. Whereas, ‘internet’ is a separate mode of electronic data transfer. EDI can be run or used on different computers through a software installed in those computers. It can work on “Intranet”. Thus, according to him, since EDI services are capable of being provided without internet, it cannot be equated with internet. According to ld. first appellate authority, since section 80IA of the Act applicable to A.Y. 1999-2000, did not provide deduction in case of internet services but provided only with regard to EDI, the assessee having provided internet services cannot claim deduction.
(A.Y.1999-2000) Tata Communications Limited vs. Dy. CIT 12. Keeping in perspective the reasoning of ld. first appellate authority, the first issue which needs to be addressed is ‘whether the EDI/internet services provided by the assessee can be treated as an undertaking for the purpose of section 80IA(4)(c) of the Act?’. For this purpose, it is necessary to look into the provisions of section 80IA(4C) of the Act as applicable to the assessment year under dispute: [(4C) This section applies to any undertaking which starts providing telecommunication services whether basic or cellular [including radoo paging, domestic satellite service or network of trunking and electronic data interchange services] at any time on or after the 1st day of April, 1995, but before the 31st day of March, 2000]. As could be seen from the aforesaid provision, any undertaking which starts providing telecommunication services whether basic or cellular, including radio paging, domestic satellite service or network of trunking and electronic data interchange services within the specified period can be treated as an eligible undertaking for the purpose of section 80IA of the Act. Thus, the basic qualifying condition for eligibility u/s.80IA of the Act is ‘the undertaking must provide telecommunication services or radio paging or domestic satellite service or network of trunking and electronic data interchange services between the period of 1st day of April, 1995 and 31st day of March, 2000’. The provision does not put any other condition as to whether it can provide end-to-end services or it provides such services by partially utilizing facilities of other service providers. It is the case of the department that since the EDI/internet services are provided by the assessee by utilizing the existing telecommunication network and undersea cables, the assessee not being functionally independent, cannot be treated as an undertaking. In our view, this line of reasoning of ld. first appellate authority is unacceptable. As could be seen from the pictorial chart describing end-to-end internet services, it is a complex activity in various stages involving sophisticated infrastructure facilities. A consumer sitting at his home or (A.Y.1999-2000) Tata Communications Limited vs. Dy. CIT office accesses the internet services through the modem and the data is transferred through the phone line maintained either by MTNL or DOT to the exchange from where it is transmitted through optic fibre maintained by MTNL or DOT, wherein various equipment or servers are installed by the internet service provider. From there the data is transferred through fibre lines maintained by MTNL or DOT to earth stations of the assessee located in India from where it is transmitted through satellite earth stations outside India of other operators from where the data is provided to international service provider’s nodes. This is how the end-to-end service is provided.
Thus, from the above, it can be well imagined that it is impossible for one internet service provider to provide end-to-end service starting from a consumer in India to a person located somewhere in USA, UK or anywhere in the world. Therefore, the internet service provider has to depend upon the infrastructure facilities of others to provide its services. Merely because the assessee has provided EDI/internet services by utilizing its existing telecommunication network and undersea cables, would not disqualify the internet undertaking as an eligible undertaking for the purpose of section 80IA of the Act. The materials submitted before the departmental authorities as well as before us demonstrate that the assessee has made huge investments in installing of equipment’s, machineries for providing internet services. It has employed huge number of technically qualified persons to maintain the equipment’s and provide services on a regular 24 x 7 basis. That being the factual position on record, it cannot be said that the undertaking created by the assessee for providing internet services is not an eligible undertaking merely because it is somehow dependent upon the existing facilities. In case of Gujarat Alkalies & Chemicals Ltd.
(A.Y.1999-2000) Tata Communications Limited vs. Dy. CIT (supra), the Hon’ble Gujarat High Court while dealing with the similar line of argument taken by the department has held as under: We are not able to understand the logic of the argument that the true test would be as to whether a new industrial undertaking can function independently of the existing industrial undertaking. If this argument of the Revenue is accepted, it will amount to adding a new clause in Section 80-1 of the Act. Assuming for the moment that the new unit is not capable of independently producing the goods without taking the assistance of the existing plant and machinery of the old unit is no ground to reject the claim under Section 80-1 of the Act. It all depends upon the mechanism and technology. As held by the Supreme Court in Textile Machinery Corporation (supra), such a new industrially recognizable unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business. For the purpose of Section 80-1 of the Act, the industrial units setup must be new in the sense that new plant and machinery are erected for producing either the same commodities or some distinct commodities. In order to deny the benefit of Section 80-1, the new undertaking must be formed by reconstruction of the old business. In the present case, there is no formation of any industrial undertaking out of the existing business since that can take place only when the assets of the old business are transferred substantially to the new undertaking. Just because the new undertaking is dependent to a certain extent on the existing undertaking should not deprive the new undertaking of the status of integrated unit by itself wherein articles are produced and atleast a minimum of 10 person with the aid of the power and a minimum of 20 persons without the aid of the power have been employed. This aspect has been well-explained by the Supreme Court in Textile Machinery Corporation (supra), laying down the requisite tests for an undertaking to be entitled to the benefit under Section 15C of the Act of 1922 (now Section 80- 1 of 1961). The Supreme Court has held that in order to be entitled to the benefit under Section 15C, the following facts have to be established by the assessee, subject always to time-schedule in the section:
1. 1. investment of substantial fresh capital in the industrial undertaking set up, 2. employment of requisite labour therein, 3. manufacture or production of articles in the said undertaking. 4. earning of profits clearly attributable to the said new undertaking, and 5. above all, a separate and distinct identity of the industrial unit set up. We are of the view that so far as the fifth test is concerned i.e. a separate and distinct identity, only because to a certain extent the new undertaking is dependent on the existing unit, will not deprive the new undertaking the status of a separate and distinct identity. It all depends on the nature of the technology and the mechanism of production. We cannot ignore the fact that new machinery and new plant have been installed at an investment of Rs.7 crore some time in the year 1982-83 i.e. almost three decades back and also the fact that the production has gone from 34000 M.Tonnes to almost 75000 M.Tonnes.
14. Thus, in view of the above, we hold that the undertaking created by the assessee for providing EDI/internet services is an eligible undertaking in terms with sub section (4C) of section 80IA of the Act.
(A.Y.1999-2000) Tata Communications Limited vs. Dy. CIT 15. Insofar as the second reasoning of ld. first appellate authority that EDI cannot be equated with internet services, we do not find much force in such line of reasoning of ld. first appellate authority. As discussed earlier, assessee’s claim of deduction u/s. 80IA of the Act was initially rejected by the A.O. on the reasoning that it is not available on earth stations. The same reasoning was also accepted by ld. first appellate authority in the first round. However, before the Tribunal, the assessee pleaded that in addition to deduction claimed in respect of earth stations, the assessee had also claimed deduction u/. 80IA of the Act in respect of internet services. On a perusal of the order dated 17.04.2013, passed by the co-ordinate bench in it is observed that before the Tribunal, the assessee had pleaded that as per the amended provisions of section 80IA of the Act digital data transfer is entitled for deduction u/s. 80IA of the Act. Based on such submission of the assessee, the co-ordinate bench restored the matter back to ld. first appellate authority since this aspect was never examined by the departmental authorities earlier. Thus, as could be seen from the above, assessee’s claim of deduction u/s. 80IA of the Act qua internet services was with regard to transmission of data through electronic mode.
Before the ld. first appellate authority, the assessee had specifically submitted that in the year under consideration, the internet services relating to electronic data transfer comes within the ambit of electronic data inter change (EDI) which is a qualified service eligible for deduction u/s. 80IA of the Act. In this context, the assessee has referred to the definition of EDI as per Webopedia which states that EDI means transfer of data between different companies such as VANs or the internet. In this context, it may be stated that as per materials placed before us, including the extract from Directors Report for the Financial (A.Y.1999-2000) Tata Communications Limited vs. Dy. CIT Year 1995-96, extract from the Chairman Speech for F.Y. 1995-96 regarding launch of internet, extract from DOT Indian Annual Report for F.Y. 2001-02, extract from publication of TRAI captioned Review of Internet Services and extract from Press Information Bureau of GOI giving details about internet services in India, it is noticed that prior to 1995, only limited access to internet was available for academic and research purpose through the ERNET (Education and Research Network). Internet access for public on commercial basis was started by the assessee on 15.08.1995. At the initial stage, only data could be transferred through internet. With advancement in technology, the concept of internet became much broader and in addition to data, audio and video files and many other activities such as browsing of websites, exchange of mail through email, web meetings, online transactions, e-commerce, etc. could be carried out. It will be pertinent to mention, after referring to the material collected from internet to differentiate between EDI and internet, ld. first appellate authority has made the following observations: “From the above, it is clear that EDI is a separate mode of electronic data transfer which can work without internet also. On the other hand, internet is a separate mode of electronic data transfer. EDI can be run or used through a different computers through a software installed in those computers. It can work on “Intranet” instead of internet. Data transfer through “Intranet” does not mean that “Intranet” is same as “Internet”. If so, it would render the use of different terms for both as otiose.”
From the aforesaid observations of ld. first appellate authority, two things become clear. Firstly, both EDI and internet are modes of electronic data transfer. EDI does not rule out transfer of data through internet. At this stage, we must also refer to the opinion obtained on 10.01.2015 by the assessee from the Department of Computer Science & Engineering - Indian Institute of Technology, Madras and submitted before ld. first appellate authority, which reads as under:
(A.Y.1999-2000) Tata Communications Limited vs. Dy. CIT 10.01.2005 Relationship between EDI and Internet Exchange of data between computers has been historically defined as electronic data interchange. Initially, the interchange constitutes the two electronic devices Over time, the electronic devices essentially become computer and the electronic data interchange became a computer-to-computer network The definition of EDI is as follows (as given in www.webopedia.com - the #1 online encyclopedia dedicated to computer technology). Short for Electronic Data Interchange, the transfer of data between different companies using nelworks, such as Internet As more and more companies get connected to the Internet, FDI is becoming increasingly important as an easy mechanism to buy, sell and trade information. Internet is a general purpose TOP/IP network that began with exchange of business documents between computers. As it grew a whole lot of additional services developer which were used on the Internet. Today, Internet includes business as were as personal communication in various forms like text, voice, video and also a combination of all of these. All of these services are essentially ways of exchanging of data electronically Over years, as Internet has evolved, the use of the term EDI is being replaced with Internet. In early stages, it was referred only as EDI
As could be seen from the opinion, there is no difference between EDI and internet. It has been very clearly mentioned in the said opinion that as internet has evolved over the years, the use of the term EDI has been replaced with internet. In earlier stages, it was referred to only as EDI. Another opinion obtained by the assessee from Dr. Kuldip Singh, Former Member of TDSAT is also in similar line. Thus, in our view, from the expert opinion available on record, it can be concluded that the actual services provided by the assessee at the initial stages between 15.08.1995 and 31.03.2000 was EDI services, as at that stage, internet as is existing in the present form has not evolved. That being the factual position, it needs to be examined what is the real nature of service provided by the assessee by applying the concept of substance over form. Thus, in our considered opinion, keeping in view the expert opinion and other facts and materials available on record, what the assessee provided in the impugned assessment year was EDI services. That being the case,
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 22.10.2025 Sd/- Sd/- (Arun Khodpia) (Saktijit Dey) Accountant Member Vice President Mumbai; Dated : 22.10.2025 Roshani, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,