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Before: SHRI J. SUDHAKAR REDDY & SMT SUCHITRA KAMBLE
These appeals are filed against the order dated 5/5/2010 passed by CIT(A)- LTU, New Delhi.
The grounds of appeal are as under: ( ) “1. On the facts and circumstances of the case, the order passed by Commissioner of Income Tax (Appeals) is bad both in the eye of law and on facts.
2(i) On the facts and circumstances of the case, the CIT(A) has erred both on facts and in law in restricting the deduction u/s 80IA of the Act to the extent of 75% of the eligible income despite holding that the assessee fulfils the conditions stipulated in Section 80IA (4) of the Act and is eligible for the exemption.
(ii). On the facts and circumstances of the case, the CIT(A) has erred both on facts and in law in so restricting the deduction u/s 80IA to the extent of 75% rejecting the contention of the appellant that there is no such provision of part deduction under the Act and the same has to be allowed at 100% of the profits and gains of the eligible business.
(iii). On the facts and circumstances of the case, the CIT(A) has erred both on facts and in law in ignoring the contention of the appellant that there being no such condition in clause (ii) of Section 80IA (4) applicable to telecommunication services that such undertaking should not use old plant and machinery as is the case for availing exemption in respect of industrial undertaking, hotel, ship, etc. the deduction under the section has to be allowed in full and cannot be restricted to 75%.
“1. Whether on the facts and in the circumstances of the case the CIT(A) is justified in holding that the assessee is eligible for deduction u/s 80IA on 75% of the income which is attributable to new exchanges installed after 1/4/1995.
MTNL is a public sector undertaking registered under the Indian Companies Act, 1956. The assessee is engaged in the business of providing telecommunication services within the territorial jurisdiction of the state of Delhi and areas covered by the Municipal Corporation of Bombay, New Bombay and Thane, which is as per the license issued by the Telegraph Authority in the Department of Telecom, Government of India. The Provisions of Section 80IA were made applicable to the Telecommunication industry by the Finance Act, 1997 with retrospective effect from 01.04.1996 i.e. Assessment Year 1996-97.
The assessee company filed the return of income on 31.10.2001 showing the income at Rs.165,12,177/-. The assessee was issued a notice under Section 143(2) dated 03.09.2002. Subsequently, the assessee filed a revised return on 11.09.2002 declaring an income of Rs.166,20,12,405/-. The assessment was completed under Section 143(3) of the Income Tax Act, 1961 on 31.01.2003 on total assessed income of Rs. 24,31,25,69,035/-. The Assessee claimed 100% deduction under Section 80IA of the Act, on the ground that the new undertaking on the whole and it is entitled for deduction for 100% of its profits as per Section 80IA of the Act.
The Assessing Officer held that the assessee would be eligible for the deduction under Section 80IA of the Act only on proportionate basis for the exchanges set up after 01.04.1995. Thus disallowed the claim of the assessee. Being aggrieved the assessee filed appeal before the CIT(A). The CIT(A) confirmed the order of the Assessing Officer.
The Ld. AR submitted that in the earlier assessment years, the Revenue was in appeal before the Hon'ble High Court and the same was dismissed. Therefore, the appeal of the revenue has to be dismissed and the cross appeal of the assessee also be disposed off accordingly.
The Ld. DR relied upon the order of the Assessing Officer and also that of order of CIT(A). The Ld. DR further submitted that the the assessee would be eligible for the deduction under Section 80IA of the Act only on proportionate basis for the exchanges set up after 01.04.1995.
We have heard both the parties and perused the ITAT order in assessee’s own case in to 2211 & 2700/DEL/2007 order dated 11.03.2010. The extract of the order is as follows:
“35. We have considered the rival contentions and gone through the orders of the authorities below. From the record, we found that the assessee is a government of India undertaking engaged in providing telecommunication services. In respect of its income from providing telecommunication services, it claimed deduction u/s 80IA which was declined by the AO and CIT(A) confirmed the AO’s action. In an appeal filed before the Tribunal, after appreciating the correct provisions of the law as it stood at the relevant point of time, the matter was restored back to the AO for deciding the issue afresh as per law. While giving effect to the order of the Tribunal, the AO has accepted the assessee’s eligibility for claim of deduction u/s 80IA however the quantum of deduction was restricted to the number of exchanges installed after 1995. Sub-section (4C) deals with allowability of claim of deduction u/s 80IA in respect of assessee engaged in providing telecommunication services which reads as under:-
“(4C). This section applied to any undertaking which starts providing telecommunication services, whether basic or cellular including radio- paging, domestic satellite services or network of trunking and electronic data interchange services at any time on or after the 1st April, 1995 but before the 31st day of March, 2000.”
A plain reading of the above Section makes it clear that unlike provisions of sub-section 2 of Section 80IA in respect of industrial undertaking which imposes a condition that it should be a new undertaking and that it should not be formed by splitting up or reconstruction of a business already in existence, nor there is any condition that it should not be formed by transfer to a new business of machinery or plant previously used for any purpose. After analyzing all these eligibility criteria, the AO has reached to the conclusion that assessee is eligible for deduction u/s 80IA (4C) of the Income Tax Act. Now, we have to see whether AO was justified in restricting claim of deduction with reference to exchanges installed after 1995. It is pertinent to mention here that deduction u/s 80IA is to be computed on the profits of the eligible business and not on the basis of amount invested in plant & machinery in the form of telephone exchanges. Therefore, the profit accruing from telecommunication services is required to be taken into
account while granting claim of deduction u/s 80IA. In this regard, we found that after 1995, there is a complete revolution in telecommunication industry and old exchanges, if any, had been totally revamped. It was not merely addition of the new exchanges but there was entire change in the set up, technology, instruments and equipments. The exchanges which were earlier operating on old technology whereby there was use of big cross bar exchanges with large telephone instruments of dialing numbers mechanically by rotating the dial. Since this technology has been totally abandoned and revamped, replacing the old, most of the income generated is attributable to such new technology exchanges. Merely on the number of old exchanges which were not in operation at all or had undergone totally revamped, income cannot be attributable to such old exchanges, we found that the new technology and the new exchanges made possible a multitude of new intelligent network services which are like cellular services, virtually calling card services, premium rate services, ISDN, calling line identification, call forward on busy and free lines, credit card payment scheme, tele-mart interactive voice response services, directory on CD-Rom etc. Various add on services such as Datacom, Inet, DID PABX, voice mail, Radio paging and ISDN has been started after 1.4.1995. In addition to this phone plus facilities like dynamic locking, call waiting/call transfer, hot lines etc. has been extended to valued customers. Further in order to minimize human re-interface, important operator based special services have been automated with IVRS (Interactive Voice Response Systems). We also found that the assessee MTNL started providing several other advanced and other add on services such as virtual card/account card calling, free phone, virtual private network, premium rate service, telewaiting etc. A new technique named DLC (digital loop carrier system) has also been established. Thus, 1995 onwards the assessee’s industry has underwent a tremendous revolution resulting from the possibilities opened up by introduction of totally different facilities. It has inducted de novo systems and technology in place of outmode and antiquated system and technology. In view of the above discussion, it is crystal clear that merely on the basis of attributing the income in the ratio of telephone exchanges not proper, but we have to see the various services rendered by MTNL after 1995 which were actually generating income. Since the deduction is to be allowed in respect of income generated by all these facilities, we are required to compute deduction as per these host of services being rendered by MTNL. The lower authorities have also nowhere declined the very fact of old exchanges totally being revamped, most of which were non-operating and under discarded position. As the income generated through so many services being rendered by the new exchanges which is eligible for claim of deduction u/s 80IA, we cannot restrict the claim in respect of the nominal income if any generated out of the old exchanges. Keeping in view of the totality of facts and circumstances of the case, we direct the AO to attribute 75% (seventy five percent) of the income from various services enumerated above as having been carried out only by virtue of new exchanges having been installed. 25% of the income may be attributed to the old exchanges. Accordingly, the matter is restored back to the file of the AO for recomputing the claim of deduction u/s 80IA with reference to 75% of the income being eligible for deduction, whereas balance 25% is not eligible for deduction in all the years under consideration. We direct accordingly.”
In the present appeal the order of the CIT(A) which is under challenge has followed the order of the ITAT mentioned hereinabove, and rightly directed the Assessing Officer to that effect. There is no need to interfere with the same.
In the result, the appeals of the Assessee and the Revenue are dismissed.
The order is pronounced in the open court on 17th of November, 2016.