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Income Tax Appellate Tribunal, BENGALURU BENCH B, BENGALURU
Before: SHRI. A. K. GARODIA
PER BENCH :
These are seven appeals arising out of separate orders of the CIT (A), dt.27.11.2012, for AYs.2001-02, 2003-04, 2005-06, and orders dt.30.11.2012, for AYs.2002-03, 2004-05, 2006-07 and 2007-08, respectively.
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The common grounds of appeal raised by the assessee, are as under :
The assessee has also raised additional grounds as under :
The Ld. AR had submitted before us that this is the second round of litigation and has submitted that the Honourable High Court vide its order in I.T.A. No.2775/2005, dated 12.04.2010, in para 9 to 11, reproduced hereinbelow, had remanded the matter
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back to the AO for deciding this issue in terms of the observation made by the Honourable High Court : 9. Further the question as to whether the services rendered by the assessee comes within the definition of ‘telecommunication service' has also not been taken into consideration in its proper perspective and it has been answered that the assessee's service does not come within the scope of telecommunication service. Though the Income Tax Act does not define as to what telecommunication service, nevertheless, it would be appropriate to ref er to the definition of telecommunication service as contained in section 2(k) of the Telecom Regulatory Authority of India Act, 1997. As the said Act directly deals with telecommunication and other such allied matters, the said definition can be referred to for the purpose of interpreting telecommunication service within the meaning of section 80-IA(4)(il) of the Act. The definition of telecommunication services under the said Act, reads as follows: "Section 2(k) "telecommunication service" means service of any description (including electronic mail, voice mail, data services, audit text services, video text services, radio paging and cellular mobile telephone services) which is made available to users by means of any transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature, by wire, radio, visual or other electro- magnetic means but shall not include broadcasting services. Provided that the central government may notify other service to be telecommunication service including broad casting services." 10. It is necessary to note that while the definition of telecommunication service under sec.2(k) of Telecom Regulatory Authority of India Act, 1997 is an exhaustive definition, it expressly includes electronic voice mail, data service, audit text services video text services also. Under sec.80-IA(4)(ji) of the Income Tax Act, the definition is an inclusive definition without specifying the aforesaid services. Therefore on a conspectus reading of both the definition under Telecom Regulatory Authority of India Act as well as sec.80-IA(4)(ii) of the Income Tax Act, the question as to whether the service rendered by the appellant comes within the
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meaning of telecommunication service has to be determined by taking into consideration the nature of the service rendered by the assessee. 11. Therefore, we deem it proper to remand the matter to the Assessing Officer to consider the entire issue in the light of the aforesaid observation and give a finding as to whether the appellant-assessee is an undertaking within the meaning of section 80-IA(4)(ii) of the Act and also to decide as to whether the nature of service rendered by the assessee comes within the meaning of telecommunication service.
It was the contention of the ld. AR that despite the specific direction issued by the Honourable High Court neither the AO nor the CIT (A) have decided the specific issue which was remanded by High Court to the AO. The ld. AR has drawn our specific attention to para 9, 9.1, 9.2, 10,11, 12, 13, 19, 20 & 22 of order passed by the AO on 27.11.2012 .We are reproducing here in below para 22 which is final finding of the AO :
The telecommunication services defined under TRAI Act is no doubt exhaustive, But, there was a lot of difference between exhaustive / sofiscated technology service and basic infrastructure service under the provision of income tax. Therefore, the nature of services required to be rendered under the two Acts cannot regarded as one for the same purpose. If the intention of the legislature was to provide incentive to the undertaking for all types of telephonic services which includes sofiscated technology service, it would have viden the meaning governed by under the I. T. Act. Therefore, the services to get incentives was to provide services as per the meaning given under the I. T. Act only. Further the ld AR has drawn our attention to para 5.2 to 5.7 of CIT(A) to the following effect : 5.2. I have carefully considered the grounds raised by the are covered by that definition when Section 801A requires that the claimant be involved in providing
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infrastructural appellant. The only issue for determination is whether the AO was correct in not considering the meaning of the term "telecommunication services" by recognizing the provisions of the TRAI Act in addition to Section 801A of the Income Tax Act, as per the specific directions of the Ld. High Court. I note that at para-23 of the assessment order, the AO concludes that the nature of telecommunication services rendered by the assessee as per the definition of TRAI Act cannot be regarded as telecommunication services under the provisions of the Income Tax Act. The AO has come to this conclusion after discussing at length the nature of the services rendered and technology used by the appellant, and the foundation of his argument has been that the nature of the services rendered by the appellant cannot be regarded as a basic telecom service. Hence, the AO's conclusion is that after considering the definition under the TRAI. Act, it cannot be held that the services of the appellant services. As such, I am not in agreement with the appellant's contention that the AO had not followed the directions of the Ld High Court since the 'conspectus reading" of the TRPJ Act and Income Tax Act as required had been duly undertaken by the AO before he came to his final conclusion, and this fact is apparent from Paras 9.1 to 23 of the assessment order. 5.3. Before me, the appellant has argued that it being engaged in services such as voice mail, and audio-to-text service, and teleconferencing services to corporate clients through the use of high-end net working equipment and computer software, it is fully covered by the definition u/s 2(k) of the TRAI Act. Accordingly, it is argued that since it qualifies to be providing "telecommunication services" under the TRAI Act, it is eligible for deduction for such services u/s 801A of the Income Tax Act. 5.4. I have considered the argument of the appellant. The first point to be noted is that the Ld. High Court has not specified that the definition of “telecommunication services" under the TRAI Act be interposed in toto into Section 80IA(2A). Rather, the Court has found that u/s 80IA(4)(ii) of the Income Tax Act, the definition is an inclusive definition without specifying the exact services.
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Therefore, the direction of the court to the AO was to examine the service rendered by the appellant and determine its fitment to the meaning of 'telecommunication service both under the TRAI Act and the Income Tax Act considered on a "conspectus reading". Thus the c&e issue to be considered is as to the nature of the services rendered by the appellant company. 5.5. The appellant company states that it is engaged in voice mail, audio-to-text and teleconference services to corporate clients. For this purpose, it uses sophisticated net working equipments and computer software. In fact, I note that the market image of the appellant company is that of a provider of web conferencing services and platforms for online meetings. For this purpose, the Department of Telecom [DOT] has granted it a licence to make use of certain bandwidth within the telecom infrastructure operated by the DOT. The appellant company itself does not own any of the basic telephone infrastructure, but it has leased some gateways and bandwidth from the DOT within which it runs its specialized software for web conferencing / meetings among clients who are subscribers to its services. The appellant company provides such services to educational companies, financial services companies, non-profit organizations and professional services and also offers the facilities for recording of events and meetings for on-demand viewing at a later time. The platform is provided over the Internet and online events are capable of being organized with a large number of attendees participating at a time. 5.6. From the above services rendered by the appellant, it is apparent to me that the appellant is not engaged in providing infrastructural telecommunication services, "whether basic or cellular", as required under Section 8OIA. Though the appellant has argued that some of its activities such as voice mail and audito-tex services entitle it to be considered as rendering telecommunication services u/s 2(k) of the TRAI Act, it is clear from the nature of the appellant's business model that actually the services P. it are also of the nature of data "broadcast services", such services being specifically excluded from the definition of telecommunication services under Section 2(k) of
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the TRAI Act. The appellant is only providing a broadcasted service for teleconferencing within bandwidth purchased from the DOT infrastructure by means of a license to provide such value added services. This is the basic and primary service rendered by the appellant, dated 20-10-1997 are inclusive of telemarketing, tele-complaint, tele-booking, teleconferencing, fax on demand. Therefore in my view, the services provided do not fall either meaning the ambit of telecommunication services as per the TRAI definition or serve to make them eligible as a provider of telecommunication infrastructural services [whether basic or cellular] as per the definition of Section 801A(4)(ii). The Ld. Court has noted that the definition in the Income Tax Act is an inclusive the. However, the inclusions as specified in the law viz radio-paging, domestic satellite service, net work of trunking broad-band net work and internet services do not cover the services of teleconferencing and providing platforms for online meetings as rendered by the appellant company. I also note that the AO's reliance on the case law of VSNL already referred to in this order is relevant since the Ld. Mumbai ITAT has elaborated the scope of the word "basic" telecommunication services as follows:
In order to encourage the investment by the private sector, the Legislature amended the provisions of section 80- 1A. Knowing well that the expression 'telecommunication services' is of wide amplitude, the Legislature, while amending the provisions of section 80-IA, qualified this expression by the words 'whether basic or cellular'. This clearly shows that the Legislature has restricted the scope of the expression 'telecommunication services'. The word 'cellular' undisputedly refers to voice communication through mobile phone based on the new technology. The word 'basic' is a general word, It is well-settled legal position that when general word is used along with a specific word, then the general word is to be understood in the sense in which specific word is used. Word 'basic' would, therefore, mean voice communication through the existing system prior to the introduction of the cellular technology. Thus, the word 'basic' used in section 80-/A would only mean voice communication through conventional system, i.e., through cable technology, which is popularly known as communication through landline phones. Thus, the words 'basic or cellular' would mean voice communication either
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through land/me system or through cellular system. The other systems, even for voice communication were, therefore, not intended by the Legislature while amending the provisions of section 80-I by the Finance Act, 1995. [Para 91]. Therefore, voice communication through satellite, based on latest technology, was outside the scope of the expression telecommunication whether basic or cellular used in section 80-IA. The earth station is part of the system of voice communication through satellite. Earth station and satellite are supplementary to each other. This system is entirely distinct and different from the cable or cellular system. This view is also fortified by the subsequent amendment, in section 80-IA by the Finance (No. 2) Act, 1996 effective from the assessment year 1997-98. Had the Legislature intended to give the wider meaning to the expression 'telecommunication services', it would not have restricted the meaning of such expression by using the words 'whether basic or cellular' and subsequently enlarged the scope by including other modes of communication. Service through satellite was included only with effect from the assessment year 1997-98, which also means that the Legislature did not intend to give the benefit of section 80-IA to telecommunication services through satellite or earth station for the assessment year 1996-97. The Legislature was competent to attend the provisions retrospectively, i.e., from the assessment year 1996-97, but intentionally made the amendment effective from the assessment year 1997-98 only. Therefore, the telecommunication services through earth station set up by the assessee could not be characterized either basic or cellular and, therefore, the assessee would not be entitled to deduction under section 80-IA for the year under consideration. [Para 92] …….. The meaning of basic telecommunication services has to be understood in its normal commercial sense as understood by an ordinary user of telecommunication services. The meaning of the expression "basic telecom Services" is also to be understood in its contextual meaning,' it/s relative. In the context of an ordinary user, basic telecommunication services means the services provided directly to an end
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customer. Traditionally speaking such services could be provided through the connectivity of a landline. Now with the advent of new technology, the connectivity could be even wireless. But anyhow, it should connect to an ultimate customer. It should satisfy the basic needs of an ultimate customer in telecommunications. 5.7. Though the ITAT order was with reference to telecommunication services through satellite or earth station, the ratio of the judgement is equally applicable to the facts of this appeal. I also note that the Chennai ITAT in the case of ITO Vs. Smt. A Jayalakshmi has found that "where an assessee was carrying on a purely commercial function which had nothing to do with development of telecom infrastructure", such activities cannot qualify for the deduction u/s 801A. The Ld. AR submitted that despite the specific direction by the Honourable High Court to consider the definition provided with respect to telecommunication services under TRAI Act, these aspects had not been considered by the Lower Authority, and the claim of the assessee was denied merely based on the definition mentioned in section 80IA(4) of the Act.
Per contra the ld. DR has submitted that Services rendered by the assessee are required to be infrastructure, telecommunication services etc., and the assessee failed to establish with cogent evidence that the assessee was rendering the basic telecommunication services as contended by the assessee before the Tribunal and no evidence or material was filed before the lower authorities to substantiate the above.
The Ld. DR had further submitted that there was no violation of the order passed by the Hon’ble High Court (supra) by the AO or by
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the CIT (A) by not interpolating the definition provided under the TRAI Act under section 80IA of the IT Act. Had it been so easy or obvious then the Hon’ble High Court could have done it on its own and should not have remanded back the matter to AO . To buttress his arguments on this point he had submitted that the assessee was having licence under the TRAI Act for the telecommunication services and therefore there was no necessity to remand the matter back to the AO to examine afresh, as the relief could had been granted at the High Court level only. It was further submitted that the real intention and purpose of the directions of the Hon’ble High Court was to examine both the definitions under the two Acts and compare them keep in mind the object and purpose for which both the Acts were in existence . It was further submitted that definition u/s.80IA is an inclusive definition and therefore the expandable meaning could not be given to the telecommunication under section 80 IA of the Act as sought to be canvassed by the Ld. AR for the assessee. If the definition of telecommunication is transposed / interpolated under the definition of 80IA, then it would result in absurdity, which cannot be the intention of the High Court.
He relied upon Commissioner of Customs vs. Dilip Kumar [(2018) 9 SCC 1, at para 40 to 45] and also the decision of the Hon’ble Supreme Court in the matter of Macquarie bank v. Shilpi Cable Technology (CA No.15135 of 2017, dt.15.12.2017). It was submitted that analysis of 80IA only shows that the basic / cellular services are required to be included and after subsequent amendments u/s.80IA, various attributes of value added
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services, internet services, pager services etc., were brought into the four corners of 80IA, though the said services were not the basic services . Had the Parliament intended that the services rendered by the assessee (call transfer, conference, etc.,) are required to be included then the Parliament would have provided the same by way of an amendment in the statute. Further it was submitted that the basic services are required to be read as basic and not as value added services. All the services provided under the TRAI Act which comes under telecommunication can be said to be telecommunication services but those services can not be termed as basic telecommunication services within the meaning of section 80IA of the Act.
The Ld. AR in rebuttal relies on the decision of the honourable Supreme Court in the matter of Pr CIT vs. M/s. Aarham Softronics (civil appeal number 1784/ 2019).
We have heard the rival contentions and perused the material on record. We find force in the argument of both the parties before us as we feel that both the parties are right in their own submissions ,in para 9, 10 and 11 of High Court order (supra) it is clear that the definition of telecommunication services under the TRAI Act is vast and encompasses various activities. However the definition provided under the IT act under section 80(4) is restrictive and an inclusive definition. However in para 9 the honourable High Court has given a fresh indication to lower authorities to consider the wider definition as provided under the TRAI Act for the purpose of concluding whether the activities of the assessee fall within the four
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corners of telecommunication services as mentioned under section 80IA of the Act. However the submissions of the DR is also correct that, that direction cannot be interpreted as a direction to the AO to replace the definition of telecommunication services under section 80 IA with the definition of TRAI.
We find that the authorities below though had referred both the provisions of TRAI Act as well as IT Act, but it failed to give the cogent elaborate reasons for not giving the benefit of 80IA. Undoubtedly the Revenue authorities have failed to give cogent and detailed reasons for denying the benefit of section 80IA to the assessee. However the buck does not stop here, in our view, the Assessee who is in custody of specific knowledge and facts had also failed to fulfilled its preliminary obligation / onus of proving that the assessee is into basic telecommunication services. The assessee has not provided the details of the equipment installed by it for the purpose of telecommunication services for which the assessee is claiming deduction under section 80IA of the Act and how installation had given impetus to growth of basic telecommunication services. During the course of argument, the ld AR had submitted that the revenue has granted depreciation on the capital assets installed by the assessee. In fact we may notice that the grant of depreciation at the rate of 60% by the revenue is has nothing to do with grant of deduction under section 80IA. Even the computer used for office in entitled to depreciation at the rate of 60%. However if the same computer is used for telecommunication basic services then the assessee is entitled to
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deduction under section 80IA. It is for the assessee to prove with the help of the investment and technical specifications that the installation made by the assessee was an integral and inquisite part of the basic telecommunication network which were installed by it to promote and to lay down the footprints in the field of telecommunication services.
In these facts and circumstances we had sought response from both the parties as to whether the matter can be remanded back to the CIT (A) for fresh consideration, to which both the parties fairly agreed. In view of the above, we deem it appropriate that these appeals are sent back to the file of the CIT (A) with the following directions :
i) That the CIT (A) shall issue notice of hearing to the assessee within 15 days of receipt of the present order, asking the assessee to furnish all the details of basic telecommunication services,
ii) After receipt of the notice, the assessee shall file reply along with documents within thirty days to the CIT (A),
iii) After receipt of the information / reply along with documents CIT (A) shall call upon the AO to file the remand report within maximum period of 30 days thereafter .
iv) CIT(A) shall ask the assessee to file response to remand report if any within a period of 15 days thereafter ,
v) CIT(A) after receipt of the objections, remand report and the rebuttal in the above noted time bound manner shall decide the
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matter in accordance with the directions issued by the honourable High Court in ITA No. 2275/2005, dt.12.04.2010 (supra) within a maximum period of six months.
While deciding the above said issue, the CIT(A) shall also take into account the terms and conditions as mentioned in the licence agreement, the provisions of the TRAI Act, the submissions of ld DR (para3-4 supra) and also the law laid down by the Honourable Supreme Court in the matter of Commissioner of Customs vs. Dilip Kumar [(2018) 9 SCC 1, at para 40 to 45] and also the decision of the honourable Supreme Court in the matter of Pr CIT vs. M/s. Aarham Softronics (C A No.1784/ 2019) and also the decision of the Hon’ble Supreme Court in the matter of Macquarie bank v. Shilpi Cable Technology (CA No.15135 of 2017, dt.15.12.2017).
The above said exercises shall be completed by the CIT (A) within a period of six months from the date of receipt of response from the assessee.
In the result, all the seven appeals of the assessee are allowed for statistical purpose.
Order pronounced in the open court on 27th day of March, 2019.
Sd/- Sd/- (A. K. GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Bengaluru Dated : 27.03.2019 MCN*
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Copy to: 1. The assessee 2. The Assessing Officer 3. The Commissioner of Income-tax 4. Commissioner of Income-tax(A) 5. DR 6. GF, ITAT, Bangalore By order Assistant Registrar, ITAT, Bengaluru