TELENOR (INDIA) COMMUNICATIONS PVT. LTD.,NEW DELHI vs. ACIT, CIRCLE- 25(1), NEW DELHI

PER AMIT SHUKLA, J.M.:

The aforesaid appeal has been filed by the appellant assessee against impugned order dated, 30.11.2017, passed by Ld. CIT (Appeals)-23, New Delhi for the quantum of assessment passed u/ 143(3) for the Y 2014-15.

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1558.57 crore made on account of short term capital gain; and of Rs. 220.80 crore on account of unearned revenue for the AY 2014-15.

3.1 The assessee company was incorporated on 24.02.2012 as, “M/s Telewings Communications Services Pvt. Ltd.” which is a part of Telenor Group. The appellant was engaged in the business of providing telecommunication services. The assessee is a subsidiary of Telenor South which held 74% of shareholding of in the assessee company. The appellant and M/s Unitech Wireless (Tamilnadu) Private Limited are group companies of the foreign parent company namely, Telenor ASA (in which Government of Norway held majority shares) (‘Telenor Group’). M/s Unitech Wireless (Tamilnadu) Private Limited (herein after referred to as ‘UW’), an Indian company, was engaged in the business of providing telecom services in India. It had been stated that the majority shares of UW were held by Telenor Group which is a Norway based company engaged in the telecommunication business. In the year 2008, “UW” and its affiliates had been granted 22 unified access service licenses (‘UASL’) by Department of Telecommunications (‘DoT’) in 22 circles against a payment of 2

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one-time non-refundable entry fee of Rs. 1658.57 crores. In respect to the licenses as aforesaid granted, agreements had been entered between UW and its affiliate companies on one hand and President of India (acting through DoT) on the other hand. The licenses had been granted as per Indian Telegraph Act, 1885 in 22 circles were for a period of 20 years.

3.2 Thereafter, the Hon’ble Supreme Court of India in a Public Interest Litigation, vide its judgment dated 02.02.2012 quashed all of the 122 licenses granted by the Government of India in 2008, including 22 licenses as had been granted to UW. The Apex Court, however, by its subsequent orders, had allowed the operation of such licenses till February 15, 2013 by passing interim orders in the interest of subscribers/customers and directed TRAI to make recommendations for the grant of fresh licenses and allocation of spectrum in 2G Band in 22 service areas by auction as was done in allocation of spectrum in 3G band. It had further directed the Central Government to consider the recommendations of TRAI and take appropriate action within next one month and fresh licenses be granted by auction.

3.3 After the licenses were quashed, the Telenor Group participated in the fresh auction initiated as per the directions of Hon’ble Supreme Court through its affiliate, the appellant company, which had been incorporated on 24.2.2012. In pursuance to the directions issued by the Apex Court dated 02.02.2012, the Government of India, through DoT issued a public Notice Inviting Applications (NIA) for the grant of fresh licenses to eligible telecom operators through an auction. In the 3

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aforesaid auction, the appellant participated and became successful bidder when its bid amount was accepted in 6 circles for an adequate consideration of Rs. 4018 crores. On being successful bidder, it claimed a set off of Rs 1657.58 crores which represented the sum paid by UW for obtaining licenses in 22 circles as non-refundable entry fee in the year 2008. The appellant thus made a claim of a set-off of the said sum. This set- off was made in view of a response to a query no. 74 published by the Government of India on 12.10.2012 in respect of the fresh auction so initiated. The query and response thereto as placed before us in the paper book and also extensively referred to is extracted here below:-

Query Response

The original entry level Pan India A set off is allowed against the license fee of Rs. 1506.82 crore (along Earnest Money and the payment with interest from the date of due in the event of spectrum payment of such license fee) which being won in this auction. The was paid for acquiring the licenses, total amount of such set off shall which are quashed by the Hon’ble be limited to the total entry fee Supreme Court for no reason paid by the entity for all its attributable to a licensee, should be licenses which have been allowed to be set off against the quashed by the Supreme Court. earnest money required to be paid for No interest will be due on this participating in the new auction and amount. against the successful bid amount in the event of a successful bid. In the event there would be any shortfall in the money required to be paid by xxx on successful bid and the license fee

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Query Response

already paid to you in respect of the quashed 21 UASL, xxx shall obviously pay such additionally.

3.4 It was pointed out before us that, earlier to the fresh auction, the appellant and Telenor Group also addressed several letters to DoT seeking clarification in respect of the transfer of business of UW to the appellant and also seeking a set-off of non- refundable entry fees paid by UW to the appellant, in the event of the appellant being successful in obtaining the licenses under the fresh auction. On 05.11.2012, DOT in response, modifying its earlier clarification dated 12.10.2012, observed that group companies are eligible to participate in auction and would be considered for transfer of the business of cancelled licensees, if they become successful in obtaining licenses under fresh auction. The relevant extract of the aforesaid communication was as under: “Upon completion of transfer of business from a holder of quashed license to a winning bidder in accordance with extant law, the response to query No. 23 will be applicable to the transfer to such winning bidder provided that holder of quashed License and winning bidder are controlled by a common entity with not less than 26% shareholding in both entities directly or indirectly, provided that such transfer is in accordance with law and in line of Supreme Court Order in 2G case”

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3.5 On 14.11.2012, the Appellant Company participated online in the fresh auction and became successful in obtaining spectrum licenses in respect of six circles for an aggregate consideration of Rs. 4018.20 crores. Pursuant to such an auction, the appellant was to make an upfront payment of Rs. 1326.03 crores by 01.12.2012 to DoT in respect of such six spectrum licenses and the remaining sum was to be paid subsequently in instalments. The appellant by its letter dated 23.11.2012 requested DoT to set-off of non-refundable one-time entry fee of Rs. 1658.57 crores paid by UW against the upfront fee so payable and adjust the balance amount against the subsequent instalments. However, there had been no response from DoT on the aforesaid request made by the appellant. The appellant however made a payment of on 01.12.12012 of upfront fee of Rs. 1326.03 crores, under protest with a request to DoT, to allow the set off of the entry fee paid by UW and refund of the excess amount to appellant. After obtaining the licenses under fresh auction, appellant however entered into two agreements on 06.12.2012 with UW for acquiring the business of UW as a going concern, i.e., (i) Business Transfer Agreement (BTA); and (ii) Actionable Claim Agreement. Under the business transfer agreement, the appellant acquired the entire right, risk and interest of UW in its business as a going concern, other than “excluded assets” and “excluded liabilities”. “Excluded Assets and liabilities” were defined in the BTA. ‘Excluded assets’ did not include all the UASLs etc. which were either incapable of being transferred or which may be transferred with consent, but such

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consent had not been received on or before the completion date. The relevant extract of the agreement was as under: “(a) All the UASLs, ILD license, NLD license and any other statutory license acquired by the seller in the due course of business which are either (i) incapable of being transferred, or (ii) which may be transferred with consent, but such consent has not been received on or before the Completion Date. (b) Spectrum allotted to the seller by the DoT in each circle; *** (e) all causes of action (including counterclaims) and defences against third parties relating to any of the Excluded Assets or the Excluded Liabilities as well as any books, records and privileged information relating exclusively thereto (the Excluded Claims).”

3.6 The appellant, as noted above had also entered into another agreement namely, “Actionable claim agreement”, wherein UW had agreed to transfer actionable claims, i.e. including the set off of the license fee, which in principle, was expected to be allowed by DoT to cancelled license holder entities who acquired licenses in the fresh auction conducted in November 2012. The queries of the appellant to DoT with respect to the eligibility of the set off of license fee remain unanswered by DoT and thus, in the preamble to the actionable claim agreement, the same has been recorded by the parties. Relevant extract form the preamble to the actionable claim agreement reads as under:- “(D) The DoT has in the document entitled queries and responses dated 12 October, 2012 to the Notice Inviting Applications dated 28 September, 2012 (NIA), permitted a 7

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set off of the license fee paid by entities whose UASLs stand quashed pursuant to the Supreme Court Orders, against the earnest money and the payments due in the event of spectrum being won in the recently concluded 2G auction (Spectrum Auction). Further, the DoT has, by way of an amendment dated 18 October, 2012 to the NIA, prescribed the format in which details of the license fee paid by entities whose UASLs stand quashed are to be specified in the application form for participating in the Spectrum Auction. **** (F) Unitech Wireless did not participate in the Spectrum Auction and will have no future operations effective 18 January 2013 as a result of which Unitech Wireless will not be able to claim the benefit of the set off of License Fee which has been permitted by the DoT. Further, the business of Unitech Wireless to be transferred to Telewings as a result of which Telewings will be entitled to claim set off of the License Fee against payments being made it to the DoT (Set Off). The parties have agreed that Telewings shall pay fair consideration, which has been computed on an arm’s length basis to Unitech Wireless for facilitating such entitlement and the parities. Therefore, wish to execute this agreement to record the terms thereof”

3.7 Under the actionable claim agreement, UW transferred all the rights, claims, demands, cause of action or all other rights against the DoT (including the payment of license fee) to the Appellant. The relevant part of the agreement reads as under:-

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“All claims judgments, demands, lawsuits, causes of action, choses in action, rights of recovery and other rights of Unitech Wireless, whether arising under tort or contract, arising under or in connection with all warranties and representations , implied or express, all actions , indemnities and guarantees against the DoT relating to the grant by the DoT of the UASLs to Unitech Wireless and the payment of the License Fee for the UASLs granted to Unitech Wireless by the DoT in 2008 shall together constitute Actionable”

3.8 The consideration for transfer of such actionable claim had been agreed at 50% of the amount of set off allowed to appellant. It was also stated in the said agreement that, if the DoT rejects or fails to provide its approval on the set off of license fee to the appellant by 18.01.2013, the Actionable Claims shall be transferred back to UW and the agreement shall expire. On 06.12.2012, the appellant intimated the DoT about the execution of the BTA and Actionable claim agreements and requested DOT to grant an approval for the implementation of business transfer and also to allow a set-off of entry fee paid by UW to the appellant it being successor-in-interest of UW. On 11.11.2013, DoT addressed a letter directing the appellant and UW to provide an indemnity bond and undertakings for approval of business transfer agreement. The DoT specifically sought an undertaking by the aforesaid communication that, with respect to licenses quashed by the order of Hon’ble Supreme Court, all the dues of DoT would be paid and cleared in terms the licenses and all undischarged liabilities of UW shall be discharged / paid by the appellant. Both the parties, as had been directed, furnished the 9

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undertakings and the indemnity bonds as per the directions of DoT and on 27.11.2013, DoT granted the approval for transfer of UW business to appellant. DoT, however, did not respond in respect of the set off of licenses fee paid by UW.

3.9 One important fact as which is quite pertinent is that, parties having given their undertakings as aforesaid, both the parties decided to revive the actionable claim agreement, which had expired since DoT had not allowed the set off of license fee to appellant. The parties amended the actionable claim agreement by way of a letter dated 30.12.2013 on account of additional liabilities assumed by the Appellant and duly recorded the same. Pursuant to the same, the consideration for transfer of actionable claim was reduced to partially offset the additional liabilities assumed by the appellant. Under the revised agreement, the consideration was modified as 50% of the amount of set off allowed or Rs. 100 crores whichever is less.

3.10 On 31.03.2014, after protracted communications between the appellant and DOT, Ministry of Communication and IT, it was intimated to the appellant that the entry fee paid by M/s Unitech Wireless (Tamilnadu) Pvt. Ltd. has been set off against the payable bid amount for winning spectrum by M/s. Telewings Communications Services Private Limited. The appellant in its books of accounts prepared under the Companies Act had reflected the amount of set off as a capital reserve. However, for the purposes of computing income under the Income tax Act, the amount by which the license fee had been set off had been reduced from the cost of licenses allotted to it. On the said 10

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reduced cost, the appellant had claimed depreciation. One of the appellant’s submission both before the Ld. Assessing Officer as well as before the Ld. CIT (A) was that, by the amount of set off, the license fee payable by it stood reduced which had reduced the cost of licenses. The appellant further contended that the set off was allowed to it not because it had any right in it but on the principle of equal restitution when the Government took a policy decision. This contention of the assessee had been supported by “Report No. 55 of 2015” of the Comptroller and Auditor General of India which had been tabled before both the Houses of Parliament. In the said report, it was submitted before us that in the said report CAG had itself held that M/s Telewings Communications Services Private Limited had no right on set-off from the earlier licence paid which was cancelled by the Hon’ble Supreme Court. The appellant’s alternative submission before the AO was, the amount of set off was a capital receipt since the set off allowed, was in the nature of concession and had not resulted by way of independent business transaction.

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payment to be made to DoT for acquiring spectrum in an auction conducted in November 2012. It was held by him that any right acquired under the agreement constitutes a ‘capital asset’ within the meaning of section 2(14) of the Act. He thus held that the appellant company had acquired a right to set off of the entry fee paid of Rs. 1658.57 crores, by UW to DoT, against any payment to be made by it upon its being successful bidder in the auction conducted in November 2012. He further held that the aforesaid capital asset, i.e., right had been acquired by the appellant on 06.12.2012 for a consideration of Rs. 100 crores or 50% of the value of set off permitted by the DoT. Having held that the appellant had acquired a capital asset, he further held that the said right to set off was exercised by the assessee company on 31.03.2014 being the date, under which the set off was allowed by DoT. Consequently, he held that consequent to the set off, capital asset acquired by the appellant was extinguished and thus there was a ‘transfer’ of a capital asset within the meaning of section 2(47) of the Act. In view thereof, he held that since the asset acquired by the assessee, before it got extinguished, which asset had been held by it for a period less than 36 months, and that the said capital asset constituted a short term capital asset within the meaning of section 2(14) of the Act. AO held that the difference between the cost of acquisition and the full value of consideration constituted capital gain liable to be assessed in the hand of the assessee.

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negated the various contentions raised by the appellant before him and held that the approach of the AO to bring to tax the aforesaid sum being in accordance with law, there is no infirmity in his order. However, he held that for the purposes of calculating depreciation, the AO had erred in not adopting the cost of acquisition at Rs. 4018.20 crores instead of the sum considered by the appellant which was a sum after reducing the cost of acquisition by the amount of set off allowed to it by DoT. He further in the alternative also held that the acquisition of right to set off of the license fee and subsequent set off allowed by the DoT against the license fee payable for fresh licenses, is adventure in the nature of trade and commerce and it is covered u/s 28 of the Act and as such is taxable under the head profits and gains from business and profession.

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(b) That the appellant on 06.12.2012 had entered into two agreements. Under the business transfer agreement, it had acquired the business operations of UW as an ongoing concern and the amount of set off arose on acquisition of business and has no separate, independent existence. It was however explained that the amount of set off was not granted to it by way of any right, title and interest therein but on the principles of restitution and as such the finding that the appellant had acquired any right of set off itself is misconceived. (c) Thirdly, it was contended that the alleged right of set off could not be termed as either short term capital asset or a business receipt since the set off of the license fee was allowed by way of policy decision of the Government of India and was based on the principles of right to equal restitution. (d) The next submission of his was that, the actionable claim agreement had only permitted it to exercise its legal remedy for enforcement of claims and counter claims with DoT. In such event the appellant had merely acquired right which is in the nature of right to ‘sue’ and no more. It was further submitted that right to sue is not a capital asset and as such there being no right which could be regarded in the nature of capital asset. (e) It was further submitted by him that even assuming and without admitting that the same agreement namely Actionable Claim Agreement, is an independent contract, in that event also amount of set off allowed could not be taxed 14

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in the year under consideration since the agreement had not been culminated in as much as only one of the transaction has been completed and other remains yet to be settled between the DoT and the appellant. It was further submitted that the final taxability of gain or loss, if any, could be considered in the year in which all the claims and counter claims are settled by the DoT and not in the piecemeal manner. It was further submitted that the exercise of alleged right of set off of license fee is not in the nature of extinguishment which constituted transfer within the meaning of section 2(47) of the Act. (f) He also brought to our notice, the report No. 55 of 2015 of CAG which had been tabled before the Parliament wherein it had been stated by the CAG that no set off of non- refundable entry fee was permissible to the appellant on the grounds that the setoff would be permitted only to the quashed license holder participating in the auction and since the appellant was not the quashed license holder, set off of entry fee paid by UW (quashed license holder) against the payment due from the appellant was not as per approval of empowered group of Ministers. (g) It was further contended by him that the appellant had not acquired any right to claim a set off which right of set off could only be acquired by it from the Government which alone was capable to grant such a set off had been allowed. (h) That the amount stated to have been set off was an amount waived off by the Government in part and not that the 15

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appellant had acquired any right in capital asset which could have been transferred by it. (i) The learned Counsel further submitted that in the absence of any enforceable right in law to claim refund or set off being in existence been with UW, no capital asset much less stated to have been held by the UW, it could not have been held by the revenue, that the assessee had acquired any right of set off. He had emphasized that the right must be such a right which is enforceable in law. He contended that there being no enforceable right of set off with UW, in law, as such set off allowed in any case cannot be equated with any right which was in the nature of capital asset held by UW and was acquired by the appellant under an actionable claim agreement. (j) It was next contended by him that UW had ceased to have any proprietary right upon cancellation of the licenses by the Supreme Court on 02.02.2012 and that the license holders were not owners but merely held licenses to exploit the same and ownership remains with DoT. This submission was supported by the provisions contained in Section 4(1) of Indian Telegraph Act, 1885 under which the licenses were granted in the year 2008. In view thereof the agreement entered by it on 06.12.2012 between the appellant and UW, there was no capital asset held by UW which could be regarded as an actionable claim. (k) Further, the actual cost of license fee borne by the appellant was as a result of unilateral action of DoT, when DoT 16

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bestowed the said set off in favour of the appellant and as such set off could only reduce the amount of license fee paid. In support he cited the judgment of the High Court of Delhi in the case of Steel Authority of India vs. CIT, reported in 348 ITR 150.

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Apex Court, the licenses allotted to UW in 2008 stood quashed and all the rights, title and interest in the said licenses were terminated. As per the terms of the agreement between UW and DOT, the one-time entry fee paid by UW in respect of such licenses was non-refundable. Further, there being no provision, under the agreement, for claiming of a refund or set off of such entry fee. It could not been held that there was any vested right with the license holders to seek either a set off or a refund thereof. Accordingly, there being no right with UW to claim a set off or refund of such entry fee from DOT, which could be stated to be enforceable in law. The Hon'ble Supreme Court in its order dated 02.02.2012 had neither dealt with issue of the Entry Fee paid to Government of India by those 122 License holders nor it had dealt with process of claiming the refund of such amount or adjustment, if any, which is to be made in future in respect of spectrum fee deposited by license holders. Further, it is evident from the various press releases, notifications issued by the DOT that no party had any inherent or vested right to seek refund or set off of entry/spectrum fee of quashed licenses.

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that UW had no right of a claim of refund of the one-time non- refundable entry fee paid in respect of the 22 licenses. Accordingly, it was submitted by him that it cannot be contended by the Revenue that UW had any right, which was enforceable in law whatsoever in the entry fee paid by it and as such, it had transferred such an alleged right of set off to the appellant under the actionable claim agreement.

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The intent of the parties was that entire business, customers, employees etc. of UW including claims and counter claims of third parties and DoT for the period in which the cancelled licenses are in operation to be acquired by the appellant with approval of DoT. Due to regulatory norms and commercial reasons, the part of the DoT's claims over UW and UW's claim over DoT were kept under the agreement of actionable claims though the same were part of the overall business operations which had been transferred to the appellant. In effect, both the agreements were composite and integral to each other which relates to the transfer of business with lock, stock and barrel including contingent assets and liabilities of UW. Accordingly, the set off allowed by DoT to the appellant is part of the overall transaction of acquisition of business of UW and was not a separate independent transaction which was in the nature of acquisition of any capital asset.

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successful bidders including cancelled license holders if they eventually succeed in fresh auction for those areas. The DoT further issued clarification regarding participation of group companies if they are held by the same parent company, directly or indirectly. He had further contended that DOT at the time of initiating fresh auction had not even assured the license holders whose licenses were quashed, that they will be eligible for a refund or set off of the license fee paid by them. Even the NIA also did not so stated that any set off is allowable to the cancelled license holders or any other group entity in the event, such companies are successful in fresh auction. Subsequently, a policy decision was taken by the Empowered Group of Ministers (EGoM) in October 2012 based on which the DoT issued clarification that the set off of the earlier license fees paid by the entities would be adjusted against the earnest money and subsequent payment due, if the same entities participate and are successful in the auction. The amount will be limited to the total licenses fees paid by the entities for UASLs that were quashed by the Hon'ble Supreme Court. It was contended by him that UW did not participate in the fresh auction. In fact it was submitted by him that there was no clarity as regards to the amount of the license fees paid by the license holders. The entities whose licenses were cancelled and who successfully bid for the fresh licenses, got the set off allowed from the government as a policy decision taken by it. No refund of licenses fees has been granted to any other entities whose licenses were cancelled and who have not participated in the fresh spectrum auction. Considering that a new entity (i.e. appellant) participated and won spectrum for 21

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Telenor Group, both UW as well as Telenor group represented before DoT for allowing the set off to appellant. However, this was completely contingent upon the final decision of DoT. In fact CAG Report states that on February 23, 2013 a decision was taken by the DoT that no set-off of this non-refundable spectrum fee would be given to appellant. However, subsequently in the meeting convened by the EGoM in March, 2013, a decision was taken to permit the set off to the appellant. Therefore, in substance, the set off was allowed to appellant not by virtue of the agreement it entered with UW, but as per the policy decision of Government of India. Accordingly, the amount of set off bestowed upon the appellant by the Government of India is not in the nature of a capital asset which could be transferred by UW or acquired by the appellant under an agreement.

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appellant had rightly reduced the same from the cost of fresh spectrum fee.

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the loan amounted to the meeting of a portion of the cost of the assets under the main provisions of Section 43(1) of the Act. The waiver of the loan is not a mere quantification of a subsidy granted generally for industrial growth. It was granted specifically to the assessee and the assessee in its books of accounts reduced the cost of the assets by the amount waived. This reflected a contemporaneous understanding of the purpose of the grant of the loan on the part of the assessee. As already mentioned earlier, the assessee is a public sector undertaking and the loan and the later waiver were from the Government of India. The loans under the SDF were specifically for meeting the capital cost of the assets, on which depreciation was being claimed."

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the tax purposes deserves to be accepted as proper and valid. His submission was that the set off has been bestowed upon the appellant by the Government of India as a policy decision taken on the basis of principle of equal restitution and accordingly, the same cannot be considered as a right acquired by the appellant through an agreement which is in the nature of a capital asset. The learned Senior Counsel has submitted that in case if it is held that in the quashed licenses, UW had any such right then such right was only right to sue and to seek damages by civil suit which obviously was not an actionable claim. It was thus stated by him that it is not correct to contend, as has been held by AO and upheld by CIT (A) that the appellant had acquired any right from UW which was separate and independent right under the Actionable claim agreement. Accordingly, the submission of the Senior Counsel was that there is no capital asset in the nature of right to claim refund or set off which can be transferred by UW to the appellant under BTA or the actionable claim agreement.

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the said sum of set off has not resulted into any business transaction entered by it with DoT. The said sum of set off so allowed was in the nature of mere waiver or concession from the license fee payable and cannot be held to be an income much less business income. The assumption of the revenue that the assessee had carried on any activity which had resulted into earning of income is highly hypothetical and illusory. In the instant case the assessee has received no sum directly or indirectly. It had not entered into business transaction or any transaction with DoT in respect of such amount so waived and had been set off by DoT on the principle of equal restitution.

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field and that is allowed by the Government voluntary by taking policy decision.

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UW had any right, title or interest in the said license fee paid nor it could have transferred the same to the appellant. Therefore, the appellant had not acquired any right to set off the license fee paid by UW under the actionable claim agreement which is in the nature of a capital asset as per the provisions of the Act. Reference was also made by him to Section 3 of Transfer of Property Act, 1882 (T.P. Act), which defines actionable claim as under: "actionable claim" means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent."

It was contended that, since the amount paid by the UW was non-refundable as such, same does not bear the character of debt, and hence the sum paid by the UW to DoT would not be actionable claim. Also, UW had no beneficial interest in movable property and the amount paid by it to DoT was non-refundable and on the quashing of the licenses, the said fee paid became non-existing asset and was thus not transferrable. As such in the absence of UW had any interest in a movable property, there could have been no agreement of transfer and any such agreement was void. The mere fact that there was some

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negotiation going on between the appellant and UW and possibility of Government decision on said issue, there exist no right which was transferrable and as such in the absence of any right being in existence there could have been no right acquired by the appellant nor could there have been any transfer made by UW. The letter dated 31.03.2014 merely shows that DoT on its own volition had set off the entry fee paid by UW against the payable bid amount by the appellant company when it directed the appellant that, the amount equated annual installment of Rs. 200,45,84,952/- will be paid. It was a mere concession given by the Government and there was no right, title or interest had been acquired by it from UW as an asset which was transferrable. In short, the learned Senior Counsel for the appellant contended that the amount of non –refundable sum as a license fee paid by UW to DOT was not a debt owed by DOT towards UW.

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the right to seek legal remedy for compensation/refund/set off of one time spectrum fee paid by UW based on the principle of Restitution as well specific performance. The sequence of events stated also highlighted that due to intervention of the Court, the licenses allotted by DoT were cancelled and DoT/Government of India failed to fulfil its obligation to allow the access of spectrum licenses for 20 years. The remedy available with the appellant is a legal remedy which can be exercised within the framework of law which includes right to sue for compensation/damages against the DoT in appropriate Court.

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'property' is used in its widest and most generic legal sense so as to include all actionable claims. Section 6 states that property of any kind may be transferred, except as otherwise provided by the TP Act or by any other law in force for the time being. Clauses (a) to (i) which immediately follow enumerate what cannot be transferred. Clause (e), with which is relevant in the given case, states that 'a mere right to sue cannot be transferred'. Accordingly, in the given case, upon termination of contract between UW and DoT, the only right which survived with UW was a right to sue for damages/compensation on breach of contract. This right was not an actionable claim within the meaning of section 3 of the TP Act, since it could `not be said to be a debt or a beneficial interest in movable property not in the possession of UW. It was a mere right to sue which could not be transferred by virtue of section 6(e) of the TP Act. In view of the aforesaid, the appellant has neither acquired any capital asset within the meaning of Section 2(14) of the Act under the aforesaid actionable claim agreement from UW nor there was any transfer as envisaged in Section 2 (47) of the Act.

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settlement of all claims arising ex-contracts on account of the breach of the contract. The assessee claimed that the impugned receipt was a non-recurring capital receipt and being casual, was not liable to tax. The ITO while agreeing that it was in the nature of capital receipt, held that the payment resulted in extinguishment of the assessee's right to acquire the subject- matter in intangible asset, and was, therefore, covered by section 2(47), read with section 45, and was liable to tax as short-term capital gain. The Tribunal upheld the ITO's order. On appeal, the Hon'ble Court held as under: "Once there is a breach of contract and the defaulting party not only refuses to perform his part of the contract but also disposes of the subject-matter, the injured party has nothing left in the contract except the right to sue for damages. After the amendment of section 6(e) of the Transfer of Property Act a mere right to sue, whether arising out of tortuous act or ex- contract, is not transferable. The word 'mere' indicates that if the right to sue is accompanied with any other right under the contract, it would not be hit by section 6(e). In the instant case, there was a total cessation of the contract and the only right which survived in the assessee was a right to sue the defaulting party which could not be transferred. Further, both sections 45 and 48 postulate the existence of a capital asset and the consideration received on transfer thereof. If the transfer takes effect on extinguishment of a right in the capital asset, there must be receipt of consideration for such extinguishment to attract liability to tax. Now in legal parlance the terms 'consideration' and 32

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'compensation' or 'damages' have distinct connotations. The former in the context of sections 45 and 48 would connote payment of a sum of money to secure transfer of a capital asset; the latter would suggest payment to make amends for loss. But once there was a breach of contract by one party and the other party did not keep it alive but acquiesces in the breach and decides to receive compensation thereof, the injured party could not have any right in the capital asset which could be transferred by extinguishment to the defaulter for valuable consideration. That was because a right to sue for damages not being an actionable claim, a capital asset, there could be no question of transfer by extinguishment of the assessee's rights therein since such a transfer would be hit by section 6(e). In any view of the matter, the impugned sum received by way of compensation by the assessee was not consideration for the transfer of a capital asset. Moreover, if the revenue fails to show that the assessee had incurred a cost as in the present case, it would be impossible to compute the income chargeable to tax under the head 'Capital gains' and what the revenue would be charging would be the capital value of the asset and not any profit or gain. Accordingly, the sum received as compensation was not liable to capital gains tax."

In light of the above, it was contended by him that it is evident on the facts of the case that, UW has merely transferred its right to sue, if any for compensation /damages or to enforce legal remedy in favour of the appellant under the actionable claim agreement

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which cannot be termed as a capital asset under section 2(14) of the Act.

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said liabilities before appropriate forums. Sample copies of show cause notices amounting to Rs. 970.56 Cr were submitted by the appellant to the AO at assessment stage. Further, it was submitted that the appellant may receive more notices in future as well. Accordingly, it was argued that the amount of set off allowed could not be taxed in the year under consideration since the agreement for acquisition of actionable claim had not been culminated in as much as only one to the transaction has been completed and other remains yet to be settled between the DoT and the appellant. It had been submitted that at best, the amount allowed to be set off by DoT was mere advance of money to appellant and could not be termed as transfer of capital asset namely alleged set off of spectrum fee. As per the actionable claim agreement, bunch of assets and liabilities had been acquired by appellant from UW. As a precondition for approving the BTA, DoT sought an undertaking from the appellant, where it was required to assume various contingent liabilities of UW, including dues owed to the DoT. The appellant recorded the said fact in the amendment agreement dated 30.12.2013 that the consideration for transfer of actionable claim was revised due to various liabilities assumed by the Appellant by way of giving undertaking to DoT for the cancelled licenses. Accordingly, the payment of Rs. 100 crores was merely a part payment for actionable claims and the remaining amount shall be payable to DoT as and when it was demanded instead of UW on account of undertaking given to DoT. Also, it was stated that there is defined procedure laid down in TP Act that how the assignment of actionable claim would be effected between the parties including 35

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assignor, assignee and other person. It was submitted that Section 132 of the TP Act states that the transferee (i.e. Appellant) of an actionable claim shall take it subject to all the liabilities and equities and to which the transferor (i.e. UW) was subject in respect thereof at the date of the transfer. The transferee of actionable claim is subject to meet all obligations of the transferor i.e. the transferor if had any liabilities against such actionable those were also to be assumed by the transferee and he had no option whatsoever selectively take liabilities of the transferor in respect of such actionable claim. It is a general rule that the assignee will not get a better title than the assignor. Accordingly, a transferee of a claim is only entitled to get what transferor is eligible to receive. If the debtor has a right to receive some amount from the assignor, then he has the right to set off such amount against the payment to be made to the assignee.

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loss has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipts is deducted therefrom irrespective of whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date. Thus, he submitted that the cost of acquisition was indeterminate in the given case and the same was supported by the provisions of TP Act. Accordingly, the capital gains cannot be computed and taxable in the year under consideration. The final taxability of gain or loss, if any, could be considered in the year in which all the claims and counter claims are settled by the DoT and not in the piecemeal manner.

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alleged capital asset i.e. right to set off the license fee itself has been destroyed. Where asset is extinguished by its destruction, there can be no transfer of the asset. It has been contended that there was no extinguishment of any right. Since, the alleged right came to end as soon as the amount had been set off by DoT on its own volition and as such the same cannot be regarded as extinguishment of any right therein as envisaged in Section 2(47) of the Act. The said proposition was being upheld by the Judgement of Hon'ble Madras High Court in the case of Neelamalai Agro Industries Ltd. v. Commissioner of Income-tax (2002) 259 ITR 651 (Madras HC) wherein the court held as under: "18. In the case of Mrs. Grace Collis (supra), the Court did not have occasion to go into the question as to whether the destruction of a capital asset which as a consequence brings about the extinguishment of the rights of the assessee-owner in such asset, would amount to transfer. The Court did not hold that Vania Silk Mills (P.) Ltd.'s case (supra) was wrongly decided, or that the definition of 'transfer' in section 2(47), particularly, the use of the words 'extinguishment of any rights therein' would cover cases of destruction of the capital asset. Cases such as the destruction of the capital asset in a fire, or its complete loss as in the case of sinking of a vessel in the sea, cannot be regarded as having been brought within the fold of definition of 'transfer' in section 2(47), by reason of what has been said and laid down in the case of Mrs. Grace Collis (supra).

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Contention Raised by Ld. CIT-DR on behalf of the Revenue.

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(c) His further contention was that the reliance placed by the appellant on CAG’s report that the same was tabled before the Parliament on 11.03.2016 and was thus not available upto the date of filing of return which is subsequent event and cannot be affect taxability of the amount in the year under consideration. It was stated by him that subsequent report cannot be stated to be that the amount was contingent liability on the date of filing of return of income. In support of his contention that the exercise of the right of set off of the license fee was not in the nature of extinguishment which constitutes transfer u/s 2(47) of the Act, he read the findings of the CIT(A) in paras 5.3 to 5.5.4. It was held that set off of refund was a capital asset as per the provisions of section 2(14) of the Act. (d) He further submitted that the right of set off constituted transfer as defined in section 2(47) of the Act. (e) The learned CIT DR had further submitted that the cost of acquisition as required u/s 48 of the Act cannot be regarded as indeterminate for the reasons stated by the CIT(A) in his order in paras 5.1 to 5.7.4. (f) He further supported the findings of the CIT(A) wherein it had been held that the assessee in the alternative earned income by way of profits and gains from the business and relied on the following judgments: (i) CIT vs. Kasturi Estates Pvt. Ltd., 62 ITR 578 (Mad.) (ii) M. Raman Pillai vs. CIT, 51 ITR 829 (Ker.) (iii) CIT vs. P.K.N. Co. Ltd., 80 ITR 65(SC) 40

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(iv) R. Dalmia vs. CIT, 137 ITR 665 (Del.) (v) Lakshminarayan Ram Gopal & Son Limited vs. Government of Hyderabad, 25 ITR 449 (SC) (vi) Dalhousie Investment Trust Co. Ltd. vs. CIT, 68 ITR 486 (SC). (g) He had objected to the admission of additional evidence furnished, without stating which of the evidence furnished by the assessee, was additional evidence.

REJOINDER BY APPELLANT

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allowed to the appellant merely by way of a policy decision of Government of India and based on right to equal restitution. The relevant quote of the report of the CAG was extensively relied upon by him to supports the said view. Also, the Ld. CIT (DR) also not disputed the finding of the CAG and DoT stated in the CAG Report. Also, the contention of the Ld. CIT(DR) that there is no agreement between UW and Government of India was factually incorrect and devoid of any merit as the Government of India through DoT had entered into an agreement with UW vide agreement dated 29.02.2008 which constituted a valid contract as per the provisions of Indian Contract Act, 1872 which was placed on record by the appellant. Further, the Ld. CIT(A) failed to appreciate that UW had no other right except right to sue Government of India for breach of contract. Even such rights have been invoked by other persons, though not successfully. The appellant placed the judgement of TDSAT in the case of Loop Telecoms on record. The submission of the Ld. CIT (DR) that CAG Report has been tabled subsequently and was not available up to the date of filing of return of income had no relevance and completely misconceived. In respect to the same, the Senior Counsel submitted that the report of the CAG has been tabled much before the completion of the assessment proceedings and it was not the case where the assessee had withdrawn its claim on account of the aforesaid report. On the contrary, it was a case, where the Assessee argued that the sum was not chargeable to tax as capital gains and in support of this, the factual analysis given by a constitutional body i.e. CAG was placed on record. The Ld. CIT (DR) had placed reliance on the order of Ld. CIT(A) to 42

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argue that the right of set off of refund was a capital asset as per section 2(14) of the Act and it was transferred by UW to the assessee as per section 2(47) of the Act. The Senior Counsel submitted that the Ld. CIT(A) failed to appreciate that the term ‘right’ is not used in the definition of ‘Capital Asset’ in section 2(14) of the Act. The Ld. CIT(A) drew analogy from section 55 of the Act and right in itself could be ‘Capital Asset’, but failed to appreciate on the facts of the case that rights which are held as capital asset are capable of transfer and identifiable and not inchoate or contingent right in the form of ‘right to sue’ as in the present case. The Ld. CIT (DR) erred in contending that the exercise of right by the Appellant resulted in relinquishment of the asset or the extinguishment of any right therein which was to be considered as transfer as per section 2(47) of the Act. The Senior Counsel submitted that once the set off has been allowed by DoT, the asset itself has been destroyed. Where asset is extinguished by its destruction, there can be no transfer of the asset. Further, it had been contended that there was no extinguishment of any right. Since, the alleged right came to end as soon as the amount had been set off by DoT on its own volition and as such the same cannot be regarded as extinguishment of any right therein as envisaged in Section 2(47) of the Act. The Senior Counsel placed reliance on the judgement of Hon’ble Madras High Court in the case of Neelamalai Agro Industries Ltd. v. Commissioner of Income-tax (2002) 259 ITR 651 (Madras HC). It was also contended by the Ld. CIT(DR) that the Assessee had made an application to DoT seeking a set off of spectrum fee paid by UW wherein it had never been contended by 43

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it that it would sue the DoT if the set off was not granted. The contention of the Ld. CIT (DR) that since there was no notice issued of threat to sue it amounts to acceptance/admission on the part of the Assessee that it had a right to seek a set off of the spectrum fee paid by UW. It was submitted by Senior Counsel that on the face of it such a contention was fanciful. It was submitted that by making an application with DoT, the Assessee had not get vested with the right to set off. The Assessee could not adopt two course of action, one by threatening to sue and other by seeking benevolence. The all what assessee did was seeking a benevolence which benevolence was in the nature of waiver or concession in the amount of spectrum fee payable to DoT in respect to the fresh licenses.

Decision 29. We have considered the rival submissions, perused the relevant material placed on record including the written submissions filed by both the parties and the orders of the lower authorities. The first issue before us, is about the taxability of Rs 1658.57 crores under section 45 of IT Act in respect of an amount, allowed to the appellant on 31.03.2014 “without prejudice”, as a set off being non-refundable entry fee paid by the UW to DOT in the year 2008 against the allocation of licenses to the appellant against the fresh spectrum fee payable in respect of the newly acquired spectrum of six circles in an auction conducted on 14.11.2012. Thus, the core/issue, which needs to be examined is, whether the appellant had acquired any such

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‘capital asset’, in the form of a right to set off, under an agreement of actionable claim dated 06.12.2012 from the UW.

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Further, it is also evident from the judgement of the Hon’ble Apex Court that, no directions had been made, regarding the amount paid as one time non-refundable entry paid by various operators. iv. The appellant placed on record the report of CAG which was tabled before the Parliament on 11.03.2016 in support of its contention that the “non-refundable entry fee” paid by the telecom companies which is not liable to be transferred or refundable in any circumstances. v. That under the terms of the contracts of allotment of licenses in 2008 the same did not provide for any refund of the entry fee paid by the operator DOT as the same were non-refundable even in the case of surrender of licenses. vi. The appellant company was incorporated on 24.02.2012 in which the Telenor Group held 74% equity and remaining shares was held by an Indian Company, Lakshyadeep Investment & Finance Limited. vii. That the appellant had been incorporated to act as telecom operator in India with intention to provide telecommunication services in India. viii. That on the directives of the Hon’ble Apex Court, DOT had issued a Notice Inviting Applications (NIA) in public domain on 28.09.2012 and further it had subsequently published responses to the Queries to NIA on 12.10.2012 of the telecom companies who had desired to participate in the fresh auction. Such responses made by DOT were broadly, to decide the issue, namely eligibility of the participant’s 46

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technical and financial qualification bidder and with respect telecom operator whose licenses were quashed by the Apex Court. (query no. 23) Further also, the transfer of business of quashed licenses in case to successful bidder including in favour having group entities (Query No. 31 to 35 and clarification dated 12.10.2012 issued by DOT in respect of Query 31) was responded. Finally, the Set off one time non- refundable fee paid by quashed license holder in 2008 (query no. 74) was also explained. ix. In addition to above, the appellant has placed on record all communications and letters addressed by the appellant, UW, and Telenor Group to DOT and the responses in respect thereof.

x. The significant communications before the appellant became successful bidder in fresh auction are:- a) 04.10.2012: The appellant sought clarification/permission from DOT for transfer of business of UW as an ongoing concern basis. b) 15.10.2012: UW based upon clarification issued on NIA sought refund of entry fee paid in 2008, as it had been decided by UW that they would not participate in fresh auction to be conducted in November 2008. c) 17.10.2012: Telenor Group intended to participate in fresh auction through appellant and communicated its desire for the transfer of UW telecom business to appellant as on going concern upon the appellant being successful bidder in

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fresh auction. It is also communicated that the UW would not participate in fresh auction and requested to DoT to consider the set off of entry fee paid by UW as part of overall transfer of telecom business in accordance then existing policy. d) The appellant being declared successful bidder on 14.11.2012 in fresh auction in respect of 6 circles became liable to pay Rs. 4018.20 Crores as spectrum fee. e) Subsequently on 06.12.2012, the agreement for business transfer as well as actionable claim were entered by the appellant with UW. f) Thereafter, the appellant made other several representations to DOT for approval of business transfer of UW as well as set off of entry fee against the spectrum fee payable in respect of the fresh licenses acquired by the appellant and in furtherance of the approval of business transfer granted by the DOT. The appellant submitted undertakings and indemnities with respect to the liabilities of UW in respect of the quashed licenses. g) Finally, on 31.3.2014, the DOT allowed the set off of Rs. 1658.57 crores to appellant on without prejudice basis.

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receipt. It is undisputed fact that the assessee had been allowed a set off of Rs. 1658.57 crores by DoT on 31.03.2014 and was without prejudice basis. The aforesaid sum has been brought to tax as short term capital gain. In order to attract the provisions of section 45 of the Act, it is axiomatic that there has to be an income derived by the assessee on transfer of a ‘capital asset’. In the instant case in our opinion the appellant had not acquired any capital asset from UW under an agreement dated 06.12.2012, since UW had no such asset held by it at any point of time. The ‘asset’ in the instant case, is stated to be a ‘right’ in a property. There is no dispute that right in a property is an asset u/s 2(14) of the Act. However in the instant case, UW had no such right, title, interest in the amount of non-refundable entry fee paid by it to DoT in the year 2008. In fact, UW had exploited said licenses from the year 2008 till the date when said licenses were quashed, i.e., for a period of 4 years. In such circumstances, one time non-refundable entry fee, after the licenses were exploited by it, UW had been left with no right, title, interest in the amount paid as license fee paid to DoT. Further, having gone through the agreement entered by UW with DoT, we find there is no provision of refund of any sum paid as entry fee. In fact it is also not a case, where DoT had failed to perform its obligations to UW; and therefore, ostensible conclusion is that UW had no right, title or interest under the said agreement. Further statutorily too, under the provisions of ‘Indian Telegraph Act’ there was no provision seeking refund of the onetime entry fee paid by the license holders. In such circumstances, we do not find any justification to hold that the appellant had acquired any 49

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right from UW, when in our opinion UW itself had no right, title, interest in the amount of non-refundable entry fee paid by it. In our opinion it is not any and every ‘right’ which can be regarded as a capital asset. ‘Right’ must be such a right which is enforceable in law either under a statute or under binding contractual agreement. In view thereof, in our opinion since UW had been left with no right, title, interest in the amount of entry fee paid in the year 2008 in respect of the licenses granted to UW, it cannot be validly held that UW held any capital asset, which capital asset could be stated to have been acquired by the appellant from UW under an actionable claim agreement dated 06.12.2012. We have also noticed that under the aforesaid agreement, the appellant had paid Rs. 100 crores to acquire such an alleged right. Be that as it may, the mere fact that the appellant had paid Rs. 100 crores against such an alleged right, will not be a decisive factor to the nature of the asset alleged to have been acquired by it. The relevant clauses of the agreement entered between the assessee and UW under which theappellant had paid Rs. 100 crore are extracted herein below: “…. (F) Unitech Wireless did not participate in the Spectrum Auction and will have no future operations effective 18 January 2013 as a result of which Unitech Wireless will not be able to claim the benefit of the set off of License Fee which has been permitted by the DoT. Further, the business of Unitech Wireless to be transferred to Telewings as a result of which Telewings will be entitled to claim set off of the License Fee against payments being made it to the DoT (Set Off). The 50

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parties have agreed that Telewings shall pay fair consideration, which has been computed on an arm’s length basis to Unitech Wireless for facilitating such entitlement and the parities. Therefore, wish to execute this agreement to record the terms thereof. …. TRANSFER OF ACTIONABLE CLAIMS …. “1.2 All claims judgments, demands, lawsuits, causes of action, choses in action, rights of recovery and other rights of Unitech Wireless, whether arising under tort or contract, arising under or in connection with all warranties and representations , implied or express, all actions , indemnities and guarantees against the DoT relating to the grant by the DoT of the UASLs to Unitech Wireless and the payment of the License Fee for the UASLs granted to Unitech Wireless by the DoT in 2008 shall together constitute Actionable Claims. … 2. CONSIDERATION ….. 2.2 The consideration has been computed on the basis that Unitech Wireless which shall cease to have any business operations effective from 18 January, 2013, will not have any opportunity to claim the set off of License Fee and the process involved in seeking the set off will be preliminary driven by the efforts of Telewings”

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In view of the above, the consideration agreed in the actionable claim agreement had also been modified in the said amendment letter which is as under: “8. In view of the above, the Parties have agreed to revive the Agreement and agree to the following amendments: (a) The Parties agree that as on the date of this letter, clause 2.1 of the Agreement shall be deleted and replaced with the following clause 2.1: “In consideration of the transfer of Actionable Claims from Unitech Wireless to Telewings, Telewings shall make a payment of Unitech Wireless which is the lower of: (a) INR 100 crore; or (b) 50% of the value of the Set Off permitted by the DoT. Which the parties agree would be the fair value for the Actionable Claims (Consideration)”

(b) The Parties agree that as on the date of this letter, clauses 4.1(a) and 4.1(b) of the Agreement will stand deleted in their entirety.”

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right so as to enable the appellant to acquire such an alleged right.

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• NIA stipulated that the companies/licensees whose licenses were slated to be quashed as per the directions of the Supreme Court would be treated as ‘New Entrant’. This meant that they had to deposit the full auction fee without any linkage to entry fee paid for their quashed licenses.

• Further the Hon’ble Supreme Court had not made any distinction amongst the licensees while quashing the 122 licenses of the nine operators. But DoT on the plea of the operators that their licenses were cancelled for no fault of theirs, created two categories of quashed licensees-licensees whose licenses were cancelled due to their fault and licensees whose licenses were quashed without their fault and allowed set-off on the principle of equal restitution. …… • It was also pointed out by the Comptroller and Auditor General of India in his Performance Audit Report No.19 of 2010-11, that VTL and Unitech were ab-initio ineligible to obtain the UAS licenses. …… • M/s. TCSPL requested (October 2012) DoT for allowing set-off of the onetime entry fee of ` 1658.57 crore paid by M/s. Unitech in 2008 for obtaining 22 UAS licenses which was cancelled by the Hon’ble Supreme Court. On 23 February 2013, a decision had been taken by the DoT that no set-off of the non-refundable entry fee was permissible to TCSPL on the grounds that set-off would be permitted only to the quashed license holder

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participating in the auction and since M/s TCSPL was not a quashed license holder, set-off of entry fee paid by Unitech (quashed license holder) against the payment due from TCSPL (participating entity), was not as per approval of EGoM. On 05 March 2013, TCSPL again requested DoT that though they were separate entity, DoT should set-off the one-time entry fee paid by the Unitech group against the payment due from them. On the same date (i.e. on 05 March 2013) a note for the EGoM was prepared and the same was approved in the meeting of the EGoM held on 06 March 2013. Audit observed that the ‘supplementary note’ to EGoM prepared on 05 March 2013 did not include the facts regarding suppression of vital information at the time of submission of their application, submission of false certificate and misrepresentation of facts, etc. by Unitech group though these were brought out by the C&AG in Report No. 19 of 2010-11 and also the decision taken by the DoT that no set- off of the non-refundable entry fee was permissible to TCSPL. Further, TCSPL was incorporated on 24 February 2012 only, well after the decision of Hon’ble Supreme Court of India (02 February 2012) on cancellation of UAS licenses. On this being pointed out, the DoT replied (October 2013) that, • The CAG cannot comment on and object to the matter of policy.

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• As regards the criminal liability of the M/s Unitech Wireless, the matter is still pending before the various courts, without establishing the same there is no legal basis for taking civil action. Besides, in the operative part of its order, the Hon’ble Supreme Court did not make any such distinction between operators while allowing the operators to continue operations as well as to participate in the auction of spectrum process. • Set-off allowed was not in the nature of refund of entry fee and not allowed to any of the quashed license holders that did not participate and win spectrum in auction. • The decision to allow set-off was taken by the EGoM in the light of the various representations and submissions by the stakeholders and guided by the principle of equal restitution. • Set-off was taken as full up-front payment and no set-off was allowed to be carried forward against future instalments. • The request of the Telenor Group was not acceded to by the DoT in accordance with the then extant policy/guidelines on the issue and therefore it was decided by the competent authority to refer the matter to EGoM and the decision to allow set-off was an administrative decision taken by the EGoM on 06 March 2013. …….. The replies of the DoT are not acceptable as: • Audit has not questioned the policy of the Government per-se. Audit has commented on the incompleteness and inadequacy of information submitted to EGoM.

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• Decision on Show-cause Notices issued by DoT to VTL and Unitech group relating to their eligibility as on date of submission of application for UAS licenses was pending with DoT at the time of submission of note to the EGoM for set-off. This fact was also not brought to the notice of EGoM by DoT in its note. Further, despite DoT’s awareness regarding pendency of the matters pertaining to criminal liability of the M/s Unitech Wireless before the various courts, DoT neither brought it to the notice of EGoM in its note nor waited till finalization of these matters and allowed set-off of one time entry fee paid by M/s Unitech against the auction price payable by M/s TCSPL. • Since TCSPL was a separate legal entity and a new company incorporated (24 February 2012) after the Hon’ble Supreme Court judgment (02 February 2012), it was not eligible for set- off against payment made by another legal entity. DoT had not initially allowed the proposal of set-off on this ground, but subsequently referred the request for set-off to EGoM, which was approved by EGoM on 06 March 2013. • Since the one-time entry fee paid by the operators was non- refundable as per the license agreement, the question of the claim for refund with interest for the pro-rata amount for the balance period as stated by the DoT does not arise. • Even the revenue of ` 7741.65 crores earned by these companies from the quashed licenses since 2008 was not considered by DoT while preparing the note for EGoM for set- off of non-refundable entry fee. In this way the licensees appear to have been rewarded for losing their licenses, as for 58

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the period of operation of the license (2008-12), no entry fee was levied on the licensees due to set-off allowed. Thus, set-off of the non-refundable entry fee of ` 5476.30 crore, paid by licensees whose license was declared illegal and quashed by the Hon’ble Supreme Court, against the auction price payable for spectrum in 1800 MHz/800 MHz held in November 2012 / March 2013 was inappropriate and deprived the Government of the revenue to that extent.

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requested DoT that though they were a separate entity, DoT should set-off the one-time entry fee paid by the Unitech group against the payment due from the appellant. On the same date (i.e. on 05.03.2013), a note for the EGoM was prepared and the same was approved in the meeting of the EGoM held on 06.03.2013 which shows that the set off was granted not by way of any right but on the basis of principle of equal restitution. v. DOT responded on October 2013 to CAG, (i.e. much prior to actual set off allowed to appellant on 31.03.2014), where DOT itself stated that set off of entry fee was allowed as a policy decision guided by the principle of equal restitution. vi. With respect of the set off of entry fee allowed to the appellant, it was confirmed that the decision to allow set- off was an administrative decision taken by the EGoM on 06.03.2013 and initially the request of the Telenor Group was not acceded to by the DoT in accordance with the then existing policy/guidelines on the issue.

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constitutional body, in its Report prepared under Article 151 of the Constitutionand tabled before the Parliament, is binding in nature which deserves to be taken into consideration to decide the present issue, especially when it dealt with the controversy arising on account set off of non refundable entry fee to various telecom operators. He further submitted that the Article 151 of Constitution of India is binding on all executive and statutory authorities and thus revenue’s stand is contrary to the report of the CAG which is impermissible both on facts and in law.

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and license holder merely get the right to exploit the licenses. In our opinion the set off had been granted from the license fee payable by it to DoT and the said sum of set off has not resulted into any business transaction entered by it with DoT. The said sum of set off so allowed was in the nature of mere waiver or concession from the license fee payable and cannot be held to be an income much less business income. In the instant case the assessee has received no sum directly or indirectly. It had not entered into business transaction or any transaction with DoT in respect of such amount so waived and such sum had been set off by DoT on the principle of equal restitution. Also, we find that the appellant is not in the business of trading of UASL. Further, the DoT guidelines applicable, at that time did not permit trading/sharing of spectrum. It was privy only to the Appellant and the Appellant alone could use it to render permitted telecom services. Thus, the set off against the spectrum fees cannot, by any stretch of imagination, be construed in the revenue field or a sum chargeable to tax under the head profit and gains from business and profession.

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appellant also succeed on this count. In view of the above, the ground nos. 2 to 4 are allowed.

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keep on providing services. Also, he held that there is no ambiguity regarding the quantum and collection of revenue and that there is no further obligation of the appellant, to refund the money to the subscribers. The Ld. CIT (A) has confirmed the order of AO.

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revenue, whether used or not. The said treatment is in conformity with AS-9 on Revenue Recognition which is duly disclosed in Notes to Accounts and has been consistently followed by the Appellant. For revenue from rendering of services, the AS-9 provides that revenue from services should be recognised when all of the following criteria are satisfied:- • Performance has been achieved; • Revenue is measurable, i.e., no significant uncertainty exists regarding the amount of the consideration that will be derived from rendering the service; • It is not be unreasonable to expect the ultimate collection.

As all the above conditions are to be met cumulatively, thus revenue could not be recognised until the performance of service has been achieved. Since, the appellant is yet to provide the services in respect to the unutilised talktime of the customers, the revenue in respect to the same was not booked in the financial statements as income and recorded as unearned revenue in the Balance Sheet. The appellant has placed reliance on decision of Hon'ble Delhi High court in the case of CIT v Dinesh Kumar Goel [2011] 331 ITR 10 (Delhi) where it is specifically held that under AS-9 revenue is recognized only when the services are actually rendered. If the services are rendered partially, revenue is to be shown proportionate with the degree of completion of the services. Also, the Appellant had placed reliance on the decision of this Tribunal in the case of ACIT vs. Shyam Telelinks Limited (2013) (151 TTJ 464) wherein on the

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identical facts, the additions made by the AO on account of unearned revenue is deleted by the Tribunal.

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Teleservices Ltd. (ITA No. 3926/Del/2014). In addition to this, it was submitted that the appellant has duly recognised such amount as income in the next financial year (i.e. FY 2014-15) and offered the same to tax in the relevant assessment year. Therefore, the said additions only resulted in a timing difference and the overall taxable income remains the same and as such, there is no loss to the Revenue. The CIT (DR) relied upon the order of AO and Ld. CIT (A) based on the contention that the amount had accrued to the appellant in the captioned year and the AO had rightly brought to tax the same in the hands of the Company. We find that the facts of the present case are identical to the facts and circumstances of the case of ACIT vs. Shyam Telelinks Limited (Supra) and is squarely covered by the decision of this Tribunal wherein on the basis of identical facts the ITAT deleted the additions made by the AO. The relevant paras of the order of ITAT are reproduced as below: “The very premise on which the Assessing Officer has proceeded in making the addition is not correct. The fundamental principle is that income is to be recognized when it accrues to assessee, whereas expenditure is to be charged the moment liability gets crystallized. The two aspects cannot be mingled and have to be considered separately. [Para 14]”

“There is no gainsaying that receipt of amount and accrual of income are entirely two different concepts. Every receipt of amount cannot be treated as income and only that part of receipt can be treated as income which can be legally appropriated by the receiver in his own right to the exclusion of its giver. As long as the payer has some right over the amount it has paid to the payee, it cannot be said that income has accrued to the payee. A legal right to appropriate the amount should 70

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have accrued in favour of the payee for recognizing the sum as income. Unless debt has accrued in favour of payee, it cannot be said that income had accrued to the payee. [Para 15]” “In the present case, the main dispute is regarding revenue recognition relating to unused talk time remaining available as at the end of the year. As noted earlier, there is no dispute that company had to provide talk time to its subscriber till the expiry of the period of card or till complete utilization of talk time, whichever is earlier. As long as assessee is under obligation to provide talk time, it cannot be said that a debt has accrued in favour of assessee-company against the subscriber. The assessee cannot appropriate the charges relating to available talk time to the exclusion of subscriber as long as it is under obligation to provide the said services. Therefore, the Commissioner (Appeals) in principle has rightly accepted the mode of revenue recognition by assessee. The department has submitted that from the system followed by the assessee, there is every likelihood of revenue leakage. In this regard it was submitted that the matter can be restored to the file of Assessing Officer for verification of this aspect only. Therefore, the matter is restored to the file of the Assessing Officer for the limited purpose of verification whether in the subsequent year the assessee has declared the revenue in respect of expired prepaid cards or not. In case no discrepancy is found in this regard, no adjustment is called for with the assessee's mode of revenue recognition. [Para 16]”

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Order Pronounced in the open Court on 26th November, 2018.

Sd/- Sd/- [PRASHANT MAHARISHI] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER

DATED: 26th November, 2018