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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI BHAVNESH SAINI & SHRI N.K. BILLAIYA
ORDER PER SHRI N.K. BILLAIYA, A.M.
This appeal by the assessee is preferred against the order of the CIT(A)-29, New Delhi dated 31.08.2016 pertaining to AY 2007- 08.
The solitary grievance of the assessee is that the CIT(A) erred in confirming the action of the AO in excluding income from sale of V-SAT equipments amounting to Rs. 3,62,19,389/- for the purpose of deduction u/s 80IA of the Act.
At the very outset, the Counsel for the assessee stated that an identical issue arose in AY 2005-06 and the matter travelled upto the Hon’ble Delhi High Court and the Hon’ble Delhi High Court vide order dated 17.05.2012 in has remanded the issue back to the ITAT which further remanded back the entire issue to the files of the AO and the AO after verification of the facts as per the directions of the Hon’ble High Court of Delhi has recomputed the deduction u/s 80IA of the Act.
The DR fairly stated that since the Hon’ble Jurisdictional High Court has decided the issue, the same should be followed.
We have carefully considered the orders of the authorities below. The relevant findings of the Hon’ble High Court of Delhi read as under:
“10. The question raised in ITA 284/2011 again requires an order or remit. The Assessing Officer noticed that the assessee had shown sales of Rs. 2,12,28,512/-. On scrutiny of details, it was noticed that major sales were in respect of Antenna, RFT and other miscellaneous items, which included computer printer, UPS, CTV, air conditioner, hand camera, generator sets, telephone instruments, video conferencing systems, monitor etc. He held that the said equipments could be bought and procured from the Original Equipment Manufacturers (OEMS, for short) including the foreign vendors. Accordingly, Rs. 50,42,717/- was excluded from the deduction claimed u/s 80IA of the Act as income not derived from specified services, after noticing that the cost of material was Rs. 1,61,85,795/-. The CIT(A) upheld the said addition holding that this was income derived from trading in goods. The Tribunal has deleted the said addition, inter alia, holding: - “11. Let us have a look on the nature of equipments. We have perused pages number 29-40 of the paper book. On page 29-31 the copy of the import license for import of C bank redundant 1:1 Up Converter and Down Converter have been placed on record. These are the technical device. Similarly, on page 32-33 are the import license on page 34 is the description of the items which are to be imported. At page 34 of the description of the items is Codan 40 Wku Bank BUC. According to the assessee these equipments are essential equipments for enabling, assessee to the telecommunication services. The Govt. has put up various restrictions on import of such items because of security reasons. If the assessee is unable to provide these items to its customer then it might not be possible for it to provide telecommunication services. It was pointed out at the time of hearing that these equipments cannot be used for availing the services from any other service provider. The customer has to avail the telecommunication services through these items necessarily from the assessee only. Considering the nature of equipments and their relation to the nature of services provided by the assessee, in our opinion the receipt received by the assessee for supply of these items is inextricably links to the business of its telecommunication services. The AO is not justified in excluding these receipts. Therefore, we direct the AO to include the receipt of Rs. 50,42,717/- representing income from sale of equipment in the eligible receipt for grant of deduction u/s 80IA.”
Ld. Counsel for the Revenue, during the course of hearing before us, has drawn our attention to the assessment order and the stand taken by the assessee. It was submitted that the assessee had stated and accepted that the customers could buy the equipment from them or from third parties and had pleaded that entire income, which was inextricably related to business of telecommunication and was exempt. Sale of equipment etc., had close and direct nexus with profit and gains of the stipulated industrial undertaking.
The legal contention of assessee is substantially correct. However, what was relevant and required examination was the contracts under which the sales were made. Sale of TV Camera, Air Conditioner, generator sets per se or on standalone basis would not qualify for deduction 80IA read with sub-section (4) clause (ii). On the other hand, in case the assessee has been awarded a contract for providing telecommunication service, network of trunking and broad bank/internet services and while for executing the said contract, generator sets, air conditioner etc. were sold as a part of a complete package, then the income earned may qualify for deduction u/s 80IA. Therefore, each contract and nature thereof has to be examined. It has to be ascertained whether it was a case of supply of goods or it was a case where the assessee was providing qualifying services which mandated and required inextricably or as an necessary requirement, (under the same contract or under a different contract), sale/supply goods to operationalize and use/provide the telecommunication services. In case, the sale of goods was inextricably linked, had nexus and was connected with the primary purpose of providing or starting telecommunication services, the assessee will be entitled to benefit u/s 80IA. Otherwise, the assessee will not be entitled to exemption u/s 80IA on the transaction. Whether the commodities/goods could have been also purchased from a third party may not relevant and the determinative factor in many a case. It is the predominant or primary reason or purpose why the contract was entered into and whether it has direct nexus and is inextricably linked with providing the qualifying activities, is and would be the determinative factor. The substantial question of law is accordingly answered. An order of remit is passed, with a direction to the Tribunal to decide the issue/question afresh in the light of the above observation/ratio.”
The Tribunal in has held as under:
5. We have heard both the parties and perused the records and have carefully gone through the order of the Hon’ble High Court in assessee’s own case for AY 2005-06 which is the relevant assessment year before us. In the interest of justice, we remit this issue back to the file of AO to be decided as directed by the Hon’ble High Court in para 12 (supra), after giving opportunity to the assessee.
Respectfully following the directions of the Hon’ble High Court of Delhi viz-a-viz the directions of the Coordinate Bench, we restored the issue to the files of the AO. The AO is directed to decide this issue afresh in the light of the directions given by the Hon’ble High Court of Delhi in AY 2005-06 after giving a reasonable and sufficient opportunity of being heard to the assessee.
In the result, the appeal filed by the assessee is treated as allowed for statistical purpose.
Order pronounced in the open Court.