BHARAT SANCHAR NIGAM LTD.,NEW DELHI vs. DCIT, NEW DELHI

PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER I.T.A. Nos. 2196 and 2799 pertain to assessment year

2005-06. I.T.A. No. 2196 has been preferred by the assessee

against the order dated 14.3.2012 passed by the Ld. CIT(A)-V,

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

New Delhi, partly confirming the penalty imposed u/s 271(1)(c) of

the Income Tax Act, 1961 (hereinafter called ‘the Act’) whereas

I.T.A. No. 2799 has been preferred by the Department as a cross

appeal for partly allowing the assessee’s appeal challenging the

imposition of penalty u/s 271(1)(c) of the Act.

1.1 I.T.A. Nos. 5916/Del/2012 and 6459/Del/2012 are again

cross appeals by the Department and the assessee respectively

and pertain to assessment year 2009-10, challenging the findings

and adjudication of the Ld. CIT(A)-V, New Delhi vide order dated

24.09.2012.

1.2 All these appeals were heard together and they are being

disposed of through this common order. Now we take up these

appeals one by one.

I.T.A. Nos. 2196 & 2799/2012

8656,56,00,000/- was filed on 31.10.2005. The Net income after

the claim of deduction under the provisions of chapter VI-A of the

Act was Rs. 787,37,00,000/- and the taxable book profit u/s

115JB of the Act was calculated at Rs. 10145,50,00,000/-

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

subject to tax @7.5%. Subsequently, the income was assessed at

Rs.4389,77,00,000/- under the normal provisions of the Act and

the book profit was assessed at Rs.15334,02,00,000/- vide order

dated 27.12.2007 passed u/s 143(3) of the Act. Later on, penalty

proceedings were initiated and a penalty of Rs. 1153,15,65,282/-

u/s 271(1)( c) of the Act was imposed. The penalty was imposed

with respect to the following additions/disallowances:-

(i) Depreciation Rs.2268,05,00,000/-

disallowed

(ii) Disallowance of 1,00,000/- assets written off (iii) Disallowance of deduction u/s 80IA on the following items of income:- Rs.13,15,00,00/- 1. Interest from others Rs.147,86,00,000 2. Liquidated damages 3.Excess provision written back Rs.395,32,00,000 4. Rent on staff quarters Rs. 10,97,00,000

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

(iv) Adjustment of both profits on account of provision for bad and doubtful Rs.718,01,00,000/- debts

disallowance pertaining to depreciation, disallowance of assets

written off, denial of deduction us/ 80IA for liquidated damages,

denial of deduction u/s 80IA for excess provision written back,

denial of deduction u/s 80IA on sale of scrap, denial of deduction

u/s 80IA on other income and on disallowance pertaining to

adjustment of book profits on account of provision for bad and

doubtful debts. Thus, in effect, the imposition of penalty was

confirmed by the Ld. CIT (A) on the disallowance of deductions

u/s 80IA on account of Interest from others and Rent of staff

quarters. Aggrieved, the assessee is before us challenging the

imposition of penalty on these two issues. The Department is in

appeal challenging the deletion of the penalty on all the issues on

which relief has been granted by the Ld. CIT (A).

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

depreciation allowance of Rs. 2268,05,00,000/- has been deleted

in the quantum appeals by the ITAT ‘A’ Bench in I.T.A. Nos.

2162/Del/2007 and 2176/Del/2008 vide order dated 22.01.16.

On the issue of write off of assets, it was submitted that the issue

has been restored to the file of the Assessing Officer for fresh

examination by the ITAT in the quantum appeals (supra). On the

issue of additions on account of denial of deduction u/s 80IA, the

Ld. AR submitted that the ITAT’s order in the quantum appeals

(supra), has allowed the deduction u/s 80IA on all disputed items

by holding that in terms of the non-obstante clause used in

section 80IA (2A), deduction for an undertaking engaged in

provision of telecommunication services will be available in

respect of ‘profit of eligible business’ and was not to be restricted

to ‘profits derived from eligible business’ and, accordingly, the

disallowances had been deleted. As far as the remaining issue of

disallowance/adjustment of book profits on account of provision

for bad and doubtful debts was concerned, the Ld. AR submitted

that Finance Act, 2009 had made a retrospective amendment in

section 115JB w.e.f. 1st April, 2001 inserting clause (i) in

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

Explanation 1 to section 115JB and considering this

retrospective amendment, the assessee had not pressed the

ground in the quantum proceedings but in view of the order

passed by ITAT Delhi in the case of Escorts Construction

Equipment (I.T.A Nos. 5313 & 5314/Del/2012), the penalty

ought not to have been imposed wherein it has been held that

penalty u/s 271(1)(c) of the Act was not imposable on claims

made but negated by a subsequent amendment.

Officer and submitted that the penalty had been imposed

correctly.

material on record. As far as the penalty on the issue of

disallowance of depreciation is concerned, we find that the

quantum has been deleted by the ITAT in I.T.A. Nos.

2162/Del/2007 and 2176/Del/2008 by following the judgment of

the Hon'ble Delhi High Court in the assessee’s own case for

assessment year 2001-02 and reported in 355 ITR 188 (Del).

Accordingly, penalty is not imposable on this issue and ground

no. 1 of Department’s appeal is dismissed. Since the issue of 6

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

write off of the assets has been restored to the file of the

Assessing Officer for fresh examination, penalty is not imposable

on this issue also. Accordingly, ground no. 2 of the Department’s

appeal is also dismissed. As far as the ground of

sustenance/deletion of penalty on 80IA deduction is concerned,

this issue is again covered in favour of the assessee in the

quantum appeals for assessment year 2005-06 by the ITAT and

accordingly, the issue is decided in favour of the assessee and

against the Department. Accordingly, Ground no. 2 of the

assessee’s appeal is allowed and ground no. 3 of the

Department’s appeal is dismissed. The last remaining ground for

adjudication is Department’s appeal’s ground no.5 challenging

the deletion of penalty levied on account of disallowance of

provision for bad and doubtful debts for the purpose of

computation of book profits u/s 115JB of the Act. It is seen from

the penalty order that the penalty has been imposed by the

Assessing Officer by applying clause (i) of Explanation (1) to

section 115JB of the Act. The said clause was retrospectively

inserted w.e.f. 1.4.2001 by the Finance (No.2) Act, 2009. On

perusal of the assessment order as well as the penalty order, it is

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

seen that it is not the case of the Assessing Officer that the

assessee had furnished any incorrect particulars or had

concealed any material fact. Penalty cannot be levied on the

basis of subsequent retrospective amendments in law. When the

return of income was filed by the assessee, the retrospective

amendment to section 115JB regarding provision for bad and

doubtful debts (amount set aside towards provision of diminution

in the value of assets) was not in the Statute and, therefore, we

do not see any infirmity in the order passed by the Ld. CIT (A) on

this issue and decline to interfere. Accordingly, drawing support

from the order passed by ITAT Delhi in the case of Escorts

Construction Equipment (I.T.A Nos. 5313 & 5314/Del/2012),

ground no. 4 of the Department’s appeal is dismissed.

is allowed and I.T.A. No. 2799/Del/2012 filed by the Department

is dismissed.

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

I.T.A. Nos. 5916/Del/2012 & 6459/Del/2012

assessee respectively and pertain to assessment year 2009-10.

The grounds of appeal raised by the Department are as under:-

“1. The Ld. CIT(A) has erred on facts and in law in directing the AO to treat the following receipts as eligible profits for the purpose of deduction u1s 801A of the IT Act:

(a) Liquidated damages amounting to Rs. 215,37,00,000/-. (b) Excess provision written back of Rs. 1170,14,00,000/- (c) Rent of Quarters amounting to Rs. 12,96,00,000/-. (d) Sale of Scrap amounting to Rs. 43,39,00,0001-. (e) Other receipts including. sale of directories, publications, forms, waste paper, etc. of Rs. 188,40,00,000/-. “(i) The Ld. CIT (A) has erred on facts and in law in holding that the aforementioned receipts as eligible profits for deduction for deduction u/s 80IA of the Act as the Hon'ble Supreme Court in the case of Liberty India Ltd., 317 ITR 218 has held that it is necessary to prove that the receipt generated should be of first degree source special activity, but not of ancillary and incidental activity of the undertaking. Merely crediting certain sum as revenue receipt cannot ipso facto be eligible for deduction u/s 801A the Act. 2 The Ld. CIT (A) has erred on facts and in law in deleting the disallowance of Rs.169,51,78,618/- made on account of write off of losses ignoring that the assessee company failed to point out the individual items of suo- moto disallowance vis-a-vis the items related to claim of the assessee company in respect of write of assets of Rs.169,52,00,000/- a:d debits in the profit and loss account in this regard were capital in nature.”

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

“1. That on the facts and circumstances of the case and in law the learned CIT (A) has erred in holding that the subsidy of Rs. 1407.61 Crores received from DOT for rural telephony is not eligible for deduction u/s 80-IA of the I.T. Act, 1961. 2. That on the facts and circumstances of the case and in law the learned CIT(A) erred in holding that the subsidy received by the appellant from Universal Service Fund of Rs. 667.28 Crores is an ancillary income and hence is not eligible for deduction u/s 80-IA of the Income Tax Act. 3. That on the facts and circumstances of the case and in law the learned CIT (A) has erred in holding that the “Interest from Others” amounting to Rs. 39.99 Crores is not eligible for deduction u/s 80-IA of the I.T. Act, 1961. 4. That on the facts and circumstances of the case and in law the learned CIT (A) has erred in holding that the “Rent of Staff quarters” amounting to Rs. 12.96 Crores is not eligible for deduction u/s 80-IA of the I.T. Act, 1961. 5. That on the facts and circumstances of the case and in law the learned CIT (A) has erred in holding that the “Misc Income from USO Toners." amounting to Rs. 6.40 Crores is not eligible for deduction u/s 80-IA of the I.T.Act, 1961. 6. That the learned CIT (A) erred, on the facts & circumstances of the case and in law in confirming the disallowance of depreciation claimed for the current year to the extent of Rs.674.65 crores, whereas the disallowance had been made by the A.O. on the basis of re-assessment proceedings of A.Y. 2001-02, which itself has not got finality and is pending for decision before Hon’ble Delhi High Court in a writ petition filed by the assessee. 7. That on the facts and circumstances of the case and in law the learned CIT(A) erred in confirming the disallowance to the extent of Rs. 396.95 crores, as estimated by the assessing officer, at 15%, of the total 10

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

expenses of Rs. 2646.35 Crores .incurred on account of license fees and spectrum charges. 8. That on the facts and circumstances of the case and in law the learned CIT (A) has erred in not accepting the contention of the appellant that the interest allowed earlier to the appellant u/s 244A had been wrongly withdrawn and interest u/s 234D has been wrongly charged. 9. That the order passed by CIT (A) is bad in Law and contrary to the facts & circumstances of the case.”

by the decision of the ITAT ‘A’ Bench, New Delhi in assessee’s

own case in I.T.A. Nos. 3304 & 3386/Del/2010 for assessment

year 2004-05. He submitted that in terms of the non-obstante

clause used in section 80IA(2A), deduction for

telecommunication services is available in respect of ‘profits of

eligible business’ and is not restricted to ‘profits derived from

eligible business’ as mentioned in section 80IA. He submitted

that ground nos. 1 and 1.1 of the Department’s appeal are also

covered by the decision of the ITAT (supra). The ld. AR further

submitted that ground no. 6 of the assessee’s appeal pertaining

to disallowance of depreciation is also covered in assessee’s

favour by the judgment of the Hon'ble Delhi High Court in

assessee’s own case for assessment year 2001-02 and as 11

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

reported in 355 ITR 188 (Del). The Ld. AR also submitted that

ground no. 7 of assessee’s appeal pertaining to disallowance

@15% of license and spectrum fees is also covered in favour of

the assessee in assessee’s own case for assessment years 2003-

04 to 2008-09 by the decision of ITAT, Delhi vide order dated

22.1.2016.

10.1 Regarding ground no. 2 of the Department’s appeal, the

Ld. AR submitted that the issue of write off of assets has also

been decided in favour of the assessee by the ITAT, ‘A’ Bench,

New Delhi in assessment years 2006-07 to 2008-09. He

submitted that in view of all the issues being covered in favour of

the assessee in assessee’s own cases for earlier years, the

assessee’s appeal should be allowed and that of the Department

dismissed.

order of the Assessing Officer.

material on record. As far as ground nos. 1 to 5 of assessee’s

appeal and ground nos. 1 & 1.1 of Department’s appeal are

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

concerned, we concur with the submissions of the Ld. AR that

they are covered in favour of the assessee by the order of the

ITAT Delhi ‘A’ Bench in the assessee’s own case in I.T.A. Nos.

3304 & 3386/Del/2010 for assessment year 2004-05 wherein

the coordinate bench has discussed the issue at length. It will be

worthwhile to reproduce paras 13 to 13.18 for a ready reference:-

“13. Having so held, we now propose to examine the relevant provisions of Section 80-IA of the Income Tax Act in order to decide whether the legislature intended that the words “derived from” should be read into sub- section (2A) or not. While so deciding, we are guided by the following observations of justice Gajendragadkar “the first and primary rule of construction is that the intention of the legislature must be found in the words used by the legislature itself” in Re Kanailal Sur vs. Paramnidhi Sadhukhar 1958 SCR 360. The primary test and the fundamental principle of interpretation is therefore to examine the language employed in the Act and where the words are clear and plain, the Court is bound to accept the expressed intention of the legislature. Hence we need to examine the scheme of the relevant Section in order to determine the true meaning of the words used in any one or more of the sub-sections. The provisions cannot be taken in an isolated or detached manner dissociated from the context where the “referents” i.e. the business undertakings or enterprises to whom it is said provisions are to be applied are clearly specified and distinguishable from one another. Yet, it is necessary to determine first whether the language used is plain or ambiguous for which purpose the provisions of section 80-IA would be required to be read as a whole. Ambiguity could be said to arise only where a provision

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

contains a word or phrase which, in the particulars context, is capable of having more than one meaning.

13.1. We find from the submissions of the parties that both the sides have canvassed that the intention of the legislature is very clear on a literal reading of the Section, though both the parties have taken a contrary view on the manner in which the words used in the provision are to be construed in the context for imposition of tax or allow deduction.

13.2. On a reading of sub-section (1) of section 80-IA, we find that the legislature specifically uses the words meaning and import of which is plain and unambiguous in the context it is to be construed. Deduction under section 80-IA in terms of sub-section (1) is available to “gross total income” of an assessee where “gross total income” is restricted to “profits and gains derived by........ from any business referred to in sub-section (4)”. The deduction is available of an amount equal to hundred percent of the profits and gains derived from such business for ten consecutive assessment years” subject to the provisions of the section. The meaning and intention of the legislature has been legally settled and well understood to mean that only those profits come under the ambit which can be said to be “derived from” such business. The intention of the legislature on a plain reading of the said sub-section is loud and clear. Reference to the decisions which establish a nexus of the first degree at this stage is refrained from as the position is well-settled legally and at this stage is not an issue for consideration in the present proceedings as both the parties agree that sub-section (1) of section 80-IA envisages only first degree nexus for the purposes of claiming deduction. The fact that deduction is available to hundred percent of the profits for a period of ten consecutive years is also not an issue under debate and even otherwise we find that the above provision in the said extent is clear and unambiguous.

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

13.3. What we may take note of is that on reading of only this sub-section in isolation what emanates clearly is that the deduction is applicable to any undertaking or an enterprise from any business referred to in sub- section (4) of section 80-IA which the legislature describes as “eligible business”. The said sub-section sets out in unequivocal terms that the deduction is available to the gross total income of such undertaking/enterprise which “includes” “profits and gains derived from” such business. The meaning and limits of first degree nexus of the said phrase is well- understood by the tax payer, the tax collector and the Legislature. The said sub-section also sets out the period and extent of deduction available as hundred percent for ten years.

13.4. Proceeding to a perusal of sub-clause (2) of section 80-IA it is seen that the said sub-section gives the assessee the option that the profits so computed complying with the mandate of sub-section (1) of section 80-IA may be claimed for ten consecutive assessment years out of fifteen years beginning from the first year in the case of the defined enterprise/undertakings etc. It is relevant to note that the restrictive meaning put to the available profits as only those profits which come under the ambit of first degree nexus continues to remain in play as is evident from the opening line itself. The said sub-section retains hundred percent deduction for a period of ten years but provides an option to claim the deduction for ten consecutive years from the expanded period of 15 years beginning from the year in the case of enterprises and undertaking develops and begins to operate any infrastructure facility or starts providing tele-communication service or develops an industrial park or develops a special economic zone etc. Upto this stage, we find that there is no ambiguity as the legislature giving due weightage to the long gestation periods, for certain infrastructural activities where profits available for deduction may not be there in the initial 5 years also permits the option to claim deduction 15

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

for the period of ten consecutive years from the first 15 years. Thus full play of the restriction placed on the profits available for deduction has been permitted and upto this stage both the parties have no objection to the literal meaning of the said sub-section to be construed in the above manner.

13.5. It is seen that the Legislature by the Finance Act, 2001 w.e.f 01.04.2005 substituted the original proviso to sub-section (2) by inserting the following proviso, the same is again extracted hereunder for ready-reference:- 80-IA. (1) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (2) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Provided that where the assessee develops or operates and maintains or develops, operates and maintains any infrastructure facility referred to in clause (a) or clause (b) or clause (c) of the Explanation to clause (i) of sub- section (4), the provisions of this sub-section shall have effect as if for the words "fifteen years", the words "twenty years" had been substituted.

13.6. A plain reading of the above proviso to sub-section (2) of section 80-IA shows that the legislature further carves yet another exception for such an assessee who develops or operates and maintains any infrastructural facility referred to in clause (a); (b) or (c) of Explanation to clause (i) of sub-section (4) of section 80-IA. For these undertakings the legislature has extended the period during which deduction can be claimed from fifteen years to twenty years. The fact that the restrictions placed on the eligible business by sub-section (1) of section 80-IA shall continue to be read into sub-section (2) of section 80-IA is made clear in the opening words of sub-section (2) itself and as observed in the earlier part of this order is not in doubt and the restrictions of “derived from” have not been diluted either in sub- section (2) or in the proviso to sub-section (2) of section 16

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

80-IA. Accordingly it is seen that the “referent business” i.e. the undertakings or enterprises covered under the proviso, have been enabled to exercise their option for claiming deductions for ten consecutive years from a period of twenty years.

13.7. Thus, we find that the meaning and intent of sub- section (1); (2) and the proviso to sub-section (2) of section 80-IA is clear and unambiguous. It is seen that the legislature having set out the referent enterprise/undertaking as developing/starting infrastructure, telecommunication or industrial park/ SEZ etc. the duration in sub-section (2) for the purposes of deduction for ten years is retained at hundred percent for those profits of eligible business as could show first degree nexus. The existence of the said requirement is well-understood by one and all and there is no ambiguity arising on a reading of the above as the profits and gains contemplated for deduction are “derived from” as the clear reference to sub-section (1) in the very first line makes it clear. The intention that the deduction can be claimed for ten consecutive years from the first fifteen years depending upon the referred to enterprises/undertaking falling under sub-section (2) and for 20 years for those undertaking/enterprise falling under the proviso to sub-section (2) is well understood. The purpose may have been guided by the fact that certain enterprise/undertaking may show profits after a considerably longer time is also plainly clear.

13.8. A plain reading of sub-section (2A), it is seen shows that it starts by giving effect to the legislative intent by inserting the well understood word “Notwithstanding”. The meaning and the consequent legislative intent can clearly be understood by the subsequent words used “anything contained in ……….”. Thus as literally as it can be read the legislative intent of “Notwithstanding” “anything contained in sub-section (1) or sub-section (2)” is plain and clear. The clear meaning of this non-obstante clause, which is reflected 17

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

upto this stage is that whatever may have been contained in sub-section (1) or sub-section (2) of section 80-IA is to be excluded. This position is fortified by the conscious inclusion of the word “anything contained in” which qualifies “notwithstanding”. The meaning and import of the term “notwithstanding” is well-settled and understood and by itself cannot be said to be leading to any ambiguity. The said term by itself would have been sufficient and complete to convey the legislative intent that whatever may have been said in sub-section (1) and (2) but the legislature has not rested there and has taken care to qualify the word with the all encompassing, all inclusive, well understood word “anything” contained in sub-section (1) or (2). The meaning, use and import of the said word does not lead to any confusion or ambiguity. Thus prima-facie to our understanding when considering the para phrasing used by the legislature in its plain and literal meaning there cannot be any doubt about what the intention of the legislature is as it is loud and clear in stating that while considering and deciding the intent of sub-section (2A) the mandate of sub- sections (1) and Sub-section (2) are not required to be imported in respect of the referent undertaking or enterprises providing telecommunication services.

13.9. A further reading of the said sub-section makes it clear that the deduction in computing the total income is available only to an undertaking which is providing telecommunication services and that too which have been specified in clause (ii) of sub-section (4). Thus by virtue of this sub-section, a specified class of undertakings have been identified and the fact that the assessee falls under this category is an accepted fact and thus not an issue in the present proceedings. Reverting back to the said sub-section it is seen that the legislature sets out that the deduction is to be allowed at hundred percent of the profits and gains “of the eligible business” for a period of five years as opposed to the enterprise/undertakings in sub-section (1) and (2) wherein hundred percent of deduction is available for 18

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

ten consecutive years. The deduction after five years in the case of an assessee in section (2A) is to be for the remaining five years upto 30 percent of the amount available for deduction. Having over-ridden the requirements of sub-section (1) and (2) by use of the words “profits and gains of eligible business” in sub- section (2A) and not “profit and gains derived by an undertaking or an enterprise from” as used in unequivocal terms in sub-section (1) and (2) the legislature makes its intention known loud and clear. The fact that after specifying the period and apportionment of the profits available for deduction as hundred percent in the first five assessment years and thereafter thirty percent for the next five assessment years it is seen that the legislature also alive to the nature and extent of deductions wanted to give to specified enterprise or undertaking therefore makes a conscious reference to the ousted sub-section (2) in the opening lines for the purposes of bringing into play the extended timeline of 15 years for exercising the option contained in sub-section (2) by making a specific reference to it. Thus conscious of the fact that sub- section (1) and (2) had completely been over-ridden for an assessee falling in section (2A) reference to sub- section (2) is made only for the purposes of increasing the timeline from which the assessee could opt for selecting ten consecutive years out of the total 15 years.

13.10. Thus the dispute of bringing sub-section (1) into play for a tax payer falling in sub-section (2A) of section 80-IA to our minds cannot arise. According to the assessee sub-section (2A) does not put the restriction contemplated in sub-section (1) of section 80-IA in the face of the non-obstante clause coupled with the specific omission to use the well understood term “derived from”. This argument is notwithstanding the argument that considering the assessee’s nature of business the direct nexus presumed by sub-section (1) of section 80-IA is also fulfilled. On a careful reading of the above provisions, we find that the legislature has left no 19

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

ambiguity in the wording of the sub-section (2A). Having started with the non-obstante clause in sub-section (2A) which over-rides the mandate of sub-section (1) and (2), the legislature is well aware that the phrase “derived from” has been used only in sub-section (1). The meaning of the said terms is judicially well-accepted and understood and it is not the case of that Revenue that the legislature was not conscious of the said term. It is seen that the import of this term continues to exist for an assessee covered under sub-section (2) of section 80-IA. The legislature has consciously retained it for enterprise/undertaking falling in sub-section (2) and the proviso thereto only keeping in mind the nature of the enterprises/undertakings contemplated under sub- section (2) the option of claiming deduction in any ten consecutive years is given to be claimed from the first fifteen years of beginning operation is given.

13.11. Thus, we find that the legislature being alive to providing tax deductions to business enterprises and undertakings, wherever it wanted to curtail the time line during which deduction can be claimed and also addressing the extent upto which it can be claimed has consciously carved out an exception to specified undertakings/enterprises whose needs and priorities differ has taken care to expand the time line for claiming deductions. It has consciously enabled those undertakings/enterprise who fall under sub-section (2A) to claim 100% deduction of profits and gains of eligible business for the first five years and upto 30% for the remaining five years in the ten consecutive assessment years out of the fifteen years starting from the time the enterprise started its operation. The legislature having ousted applicability of sub-section (1) and (2) in the opening sentence brought in for the purposes of time line sub-section (2) into play but made no efforts whatsoever to put the assessee under sub-section (2A) to meet the stringent requirements that the profits so contemplated were to be “derived from”. The requirements of the first

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

degree nexus of the profits from the eligible business has not been brought into play.

13.12. The cardinal Rule of Interpretation is that the statute must be construed according to its plain language. Neither should anything be added nor anything be subtracted therefrom unless there are adequate grounds to justify the inference that the Legislature clearly so intended. It is also well settled that in a taxing statute one has to look merely at what is clearly stated. The meaning and extent of the statute must be collected from the plain and unambiguous expression used therein rather than from any notions which may be considered to be just or expedient. To put in the words Rowlatt J. as held in Cape Brandy Syndicate vs Commissioners of Inland Revenue [(1921) 1 KB 64, 71]. In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”

13.13. Interpretation postulates the search for the true meaning of the words used in the statutes as a medium of expression to communicate a particular thought. The task is not easy as the language used even in ordinary conversation or correspondence is capable of being mis- understood, however in such cases the person using the language can be approached for a clarification. The language used in a statute till it is amended, repealed or modified remains static as the Legislature cannot be approached for clarification. After having enacted a law or an act, the legislature becomes functus officio as far as the particular Act is concerned and it cannot itself thereafter interpret it. Though the Legislature retains the power to amend or repeal the law so made and can also declare its meaning but this can be done only by making another law or statute after undertaking the whole process of law making once again. Accordingly 21

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

statutory interpretation requires the Courts to seek, ascertain the meaning of the words used by the legislature through the medium of authoritative forms in which it is expressed. Interpretation differs from construction, whereas interpretation is finding out the true sense of any form, construction would mean drawing of a conclusion in respect of subjects that lie beyond the direct expression of the text.

13.14. It is well understood that the Court only interprets the law and cannot legislate. Even if a provision of law is presumed to be misused and subjected to the abuse of the process of law, it is for the legislature to amend, modify or repeal it, if deemed necessary as held in Padma Sundara Rao vs State of Tamil Nadu (2002) 255 ITR 147 at pages 154 to 155 (SC); Prakash Nath Khanna vs CIT (2004) 266 ITR 1 at page 9 [SC]; Union of India vs Rajeev Kumar AIR (2003) SC 2917 at 2923. Courts cannot reframe the words used by the legislature as they have no powers to legislate. A matter which, for the sake of an argument, should have been provided for in a statute cannot be supplied by the Courts as to do so will be an act of legislation and not of interpretation. Reliance may be placed on Smt. Kanta Devi vs Union of India (2003) 4 SCC 753 & 757.

13.15. A legal fiction treating something not done as done, requires legislative authority and without it, it can neither be indulged in by Courts not it can be created by an administrative order. No doubt, it is the bounden duty and obligation of the Court to interpret the statute but the duty is to interpret, the statute as it is and not by adding or supplying words to it. It is contrary to all rules of construction to read words into statute which the legislature in its wisdom has deliberately not incorporated as held in CIT vs Tara Agency [2007] 292 ITR 444 at 464 (SC).

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

13.16. The true function of the Court is to interpret the law not to make it. It is well-settled that even if the legislature falls short of the mark, the Court can do nothing more than declare it be thus, giving its reasons, so that the Legislature may take notice and promptly remedy the situation. Reliance can be placed on Standard Chartered Bank vs Directorate of Enforcement [2005] 275 ITR 81 at page 86 (SC).

13.17. The settled principles of interpretation are that the Court must proceed on the assumption that the legislature did not make a mistake and that it did what it intended to do. The Court must, as far as possible, adopt a construction which will carry out the obvious intention of the Legislature. Undoubtedly, if there is a defect or an omission in the words used by the Legislature, the Court would not go to its aid to correct or make up the deficiency. The Court could not add words to statutes or read words into it which are not there, especially when the literal reading produces intelligible results. Reference may be made to Dadi Jaganath Dham vs Jammullu Ramulu AIR [2001] (SC) 2699 at 2703. Any presumption to the contrary in the absence of any ambiguity would be contrary to the settled legal position as the legislature as far as possible is presumed to know what it intends to stay.

13.18. Thus reverting again to considering the words use in sub-section (2) the proviso thereto and sub-section (2A) it is seen that whereas in sub-section (2) and the proviso thereto the restrictions on the profits as set out in sub-section (1) is retained and intended businesses are given to option of any ten years from fifteen years the proviso introduced to sub-section (2) of section 80-IA, it is seen that for an assessee who is developing or operating and maintaining infrastructure referred to in clause (a) or clause (b) or clause (c) of Explanation to clause (i) of sub- section (4) is given a further leeway of exercising its option in any of the ten consecutive years from the first twenty years instead of fifteen years as contemplated 23

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

under sub-section (2) of section 80-IA from the beginning developing or operation and maintaining the infrastructure facility. Thus the legislature in its wisdom giving due consideration to still longer gestation periods which may be required by such high investment infrastructure related enterprises which may need more time for generating profits. However, the requirements of “derived from” as set out in sub-section (1) has not been done away with. When juxta-posed with this the language used in sub-section (2A) is considered the legislature has been very clear in its mandate and has consciously used not only the well- accepted and judicially well-settled phrase of “Notwithstanding” but has also underlined the import and extent of the over-ride provided by adding the word “anything contained in sub-section (1) or sub-section (2)” in its opening lines thereby removing all doubts. There was nothing stopping the legislature to use the term “notwithstanding sub-section (1) or sub-section (2)” and proceeded to lay down the period and apportion the percentages to the extent of which deduction was to be allowed. The use of the term “anything contained in” pre-fixed by notwithstanding by the legislature makes the meaning and intention of the legislature crystal clear. The arguments to the contrary advanced by the Revenue relying on case laws based on different sets of provisions is of no help as the clear meaning of the words used by the legislature leads to only one conclusion namely that sub-section (1) and (2) of section 80-IA for the purposes of an undertaking providing telecommunication services which are covered under clause (ii) of sub-section (4) have to be ignored and have no play. There is no doubt that the assessee falls under clause (ii) of sub-section (4) and is such an enterprise providing telecommunication services. After having over- ridden the requirements of sub-section (1) and (2) completely the legislature in its wisdom has directed that hundred percent “of the profits and gains of the eligible business” and not “the profits and gains derived from” can be claimed as a deduction in the first five 24

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

assessment years by such an enterprise commencing at any time during the periods as specified in sub-section (2) and thereafter thirty percent of “such profits” for further five assessment years. Thus giving due recognition for the peculiarities of the telecommunication services where heavy investment costs in the initial years are a necessity they have been allowed to be recovered by way of profits to the extent of hundred percent from that activity in the first five years and thereafter the allowable deduction is substantially reduced to thirty percent in the next five years presuming that by then the heavy infrastructural costs would have been recovered and/or the objectives of the governmental policy would have been attained. Keeping in mind the services and functions performed by such an assessee towards the aims of the government policy wherein gestation period necessarily looking at the nature of the undertaking is very long. Thus, for the purposes of the time frame the legislature has given the timeline of fifteen years from which ten consecutive years could be opted. The fact remains that the legislature aware of the differences in the use of terms used consciously ensures that “profits and gains derived from” used in sub-section (1) is not used in sub-section (2A). Instead in sub-section (2A) the term used is “profits and gains of eligible business” juxta posed with the glaring fact that the sub-section (2A) starts with a non-obstante clause namely “Notwithstanding” qualified further by the use of the words “anything contained in”. In the face of the clear and unambiguous statutory provisions we find ourselves unable to agree with the arguments advanced by the Ld. CIT DR however valiantly as what the law is has very clearly been enunciated and set out in the relevant provision giving cause to no debate whatsoever.” (Emphasis supplied)

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

ITAT, Delhi in assessment years 2003-04 to 2008-09 also.

Consistent with the view taken therein, we direct the Assessing

Officer to allow the claim of the assessee and allow ground nos. 1

to 5 of the assessee’s appeal and dismiss ground nos. 1 and 1.1

of the Department’s appeal. As far as ground no. 6 of assessee’s

appeal is concerned, it is seen that this issue is covered by the

judgment of the Hon'ble Delhi High Court in assessee’s own case

for assessment year 2001-02 (reported in 355 ITR 188 (Del). This

judgment has attained finality as the Department has not

approached the Apex Court against this judgment. The relevant

paragraphs of the judgment of the Hon'ble Delhi High Court are

paragraphs 23 to 25 and the same are being reproduced below

for ready reference:-

“23. In view of our decision above, it is not necessary to examine the question whether the configuration of the capital structure of the petitioner could by itself provide a reason for the Assessing Officer to believe that provisions of Explanation 10 to Section 43(1) of the Act were applicable and the book value at which the assets were vested with the petitioner were required to be reduced to the extent of the reserves of the company. However, having heard the counsel for the parties on this issue, it is apposite that we consider the same.

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

“Explanation 10. - Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee:

Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee.”

The Assessing Officer erred in completely ignoring that reserves and surpluses of a company are a part of shareholders funds and the book value of equity share consists of not only the paid up capital but also the reserves and surpluses of the company. The format of 27

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

the balance sheet as prescribed under Schedule VI of the Companies Act, 1956 also clearly indicates that reserves and surpluses are a part of shareholders fund. The balance sheet of the petitioners company also reflects the reserves and surpluses as a part of shareholders’ funds. The relevant portion of the balance sheet of the petitioner company as on 31.03.2001 is quoted below:-

"Shareholders' Funds

Capital A 50,000,000

Preference Capital pending allotment (Refer Note 2.3 on T) 75,000,000

Reserves & Surplus B 339,079,523

Loan Funds Secured Loan C 5,100,000

Unsecured Loans D 107,983,258

Total 577,162,781"

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

assets to the petitioner company at their book value i.e., the value at which thesaid assets are reflected in the books of DTS and DTO and the book value of the Government of India’s holding in the petitioner company as shareholder and a creditor aggregates the book value of the assets transferred. The configuration of the capital structure of the petitioner has no impact on the value of the Government’s holding in the petitioner company as reserves of a company are subsumed in the book value of its capital. We find no basis, at all, for the Assessing Officer to surmise that reserves represent a subsidy, grant or reimbursement from which the cost of assets of the petitioner company are met and the whole consideration received by the Government of India for transfer of business is limited to the value of loans and the face value of the shares issued to the Government of India. A reserve represents the shareholders’ fund and may be utilized in various ways including to declare dividends or for issuing bonus shares. There is no plausible reason to assume that the value of shareholders’ holding in a company is limited to the face value of the issued and paid up share-capital and the reserves represent a subsidy or a grant or a reimbursement by the shareholders from which directly or indirectly the cost of the assets in the hands of a company are met.” 14. Hence, in view of the judgment of the Hon'ble Delhi High

Court in the assessee’s own case as aforesaid, we allow ground

no. 6 of assessee’s appeal.

no. 7 of assessee’s appeal pertaining to disallowance @15% of

Licence and Spectrum fees. It is seen that this issue is also 29

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

covered in favour of the assessee by the order of ITAT, Delhi

Bench in assessee’s own case for assessment years 2003-04 to

2008-09. The relevant paras are 4 to 4.8 and they are being

reproduced below for ready reference:-

“4. Allowability of License Fee: We first take up the assessee’s ground which is against the disallowance of license fees and spectrum charges by the A.O. 4.1. This issue arises in the assessee’s appeal as ground no.2 for the A.Y. 2003-04 and as ground no.1 for the A.Y. 2005-06 to 2007-08, as ground no.4 for the A.Y. 2008-09. This issie also arises in the revenue’s appeals. 4.2. The A.O. disallowed the amount on the ground that the expenditure incurred on license fee was not allowable u/s 37 of the Act. He noted that for the earlier years the Ld. CIT (A) allowed the claim of the assessee on the basis of an ITAT decision in the case of MTNL, but as the Revenue has not accepted this decision, the addition is being made. Alternatively he held that license fee and spectrum fee were statutory liabilities and had to be paid by the assessee without any option before the due date specified for such payment. He held that the amount cannot be allowed in view of S.43B of the Act, for the reason that, the amount of Rs.1,332.05 crores was paid after the due date of filing of the return and as a difference of Rs.85.05 crores remained unpaid. 4.3. On appeal the First Appellate Authority held that as far as spectrum charges and national long distance license fee are concerned, there is a categorical qualification made by the auditors of the assessee company in their audited report, that the amount in question was not in line with the agreement and that the effect there of could not be determined and that such claim ;was made merely based on estimates without any specific scientific method adopted by the assessee

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

and therefore in view of these facts and in the absence of such details, the claim of the assessee that the entire amount should be allowed as deduction cannot be accepted. He further held that the assessee company does not have specific details by which deviation of estimated license fee in respect of NLD could be determined with reference to the actual amount of license fee available and that it is not possible to determine the NLD revenues earned during the year, which forms part of the AGR. He restricted the disallowance to 15% of the total amount claimed under this head on adhoc basis. On the alternative ground of disallowance made by the AO u/s 43B of the Act, he followed the decision of Hon’ble Calcutta High Court in the case of CIT vs. Vares International Pvt. Ltd. 225 ITR 831 and held that, the license fee in question cannot be treated as tax, duty, cess or fees as has been envisaged u/s 43B of the Act and hence a disallowance cannot be made under this Section. Aggrieved with this order both the assessee as well as the Revenue have filed appeals. 4.4. After hearing rival contentions we find that the issue in question is no more res integra. The ITAT Mumbai “D” Bench in the case of Videsh Sanchar Nigam Ltd. vs. JCIT (2002) reported in 81 ITD 456 (Mumbai) vide order dt. 14th September, 2000 held as follows. “Section 37(1) of the Income-tax Act, 1961 - Business - expenditure - Allowable as - Assessment year 1995-96 - Assessee, a Government-company, was incorporated in 1986 for entire management, control, operation and maintenance of overseas communication service of Department of Telecommunications (DOT) – Nominal license fee and DOT levy paid by assessee were initially allowed as deduction in .assessment years 1988-89 to 1991-92 - In assessment years 1992-93 and 1993-94 CBDT opined that DOT levy was not revenue expenditure which assessee accepted and filed revised returns - From assessment year 1994-95, DOT levy was 31

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

abolished and licence fee was substantially increased linking it to business done – Rs.282.60 crores paid by assessee as licence fee in assessment year under consideration and debited to profit and loss account was disallowed by Assessing Officer holding that it was nothing but -substitute of DOT levy in revised revenue sharing formula – Whether payment made by assessee, by whatever name called, was for making use of network owned by DOT and for services utilised for purpose of business and, hence, could never be considered as non-business expenditure - Held, yes - Whether, therefore, DOT levy, irrespective of opinion of CBDT, was allowable and rightly allowed in assessment years 1988-89 to 1991-92 as business expenditure - Held, yes - Whether, similarly, licence fee was undisputedly paid for use of facilities provided by DOT and payment was inextricably bound up with very business of assessee and directly related to actual utilisation of network facilities and, therefore, licence fee paid by assessee was anallowable expenditure under section 37(1) - Held, yes 4.5. The above decision has been followed by Delhi F Bench of ITAT in the case of MTNL vs. JCIT in ITA No.377/Del/2001 for the A.Y. 1997-98 and in ITA Nos. 3448, 3449 and 3450/Del/2003 and 2919/Del/2004 for the AY 1998-99 to 2002-03 vide order dt. 3rd Feb., 2006. 4.6. Further the AO himself for the A.Y. 2004-05 did not make any disallowance of licence fee paid by following the opinion given by the Attorney General of India who had given an opinion in favour of the assessee. 4.7. The contentions of the Ld.D.R. that he amount of license fee is not ascertainable has been answered by the assessee by giving an affidavit before this Bench, wherein it is stated that the amount paid to the government as license fee and debited by the BSNL in its Profit and Loss a/c has not been disputed till date and

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

that the quantification by B.S.N.L. has been accepted by the government. When a particular amount of license fee is calculated and paid as a full and final payment by the assessee to the government and when the government has not disputed the same till date, the question of holding that the amount is not ascertainable at this length of timedoes not arise. As regards invoking the provisions of S.43B of the Act, we uphold the findings of the First Appellate Authority. The quantum of the license fee paid is neither tax, duty, cess or fees. The Ld. CIT(A) has rightly relied on the decision of Hon’ble Calcutta High Court in the case of CIT vs. Varas International Pvt. Ltd. reported in 225 ITR 831. The ‘license fees’ being a charge received by the government for parting with rights, is neither a tax, nor a duty, nor a fees, nor a cess within the meaning of S.43B of the Act. Hence this Sec.43B cannot be applied. 4.8. In view of the above discussion we allow the appeal of the assessee and dismiss the appeal of the Revenue on this issue. As we have held so, the alternative contentions raised by the assessee need not be adjudicated as it would be an academic exercise.

we allow ground no. 7 of assessee’s appeal.

of the Department’s appeal wherein the Department is

challenging the deletion of disallowance of Rs. 169,51,78,618/-

made on account of write off of losses. This issue has been

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

discussed by the Ld. CIT (A) in para 6 (page 15) of the impugned

order as under:-

“On this issue finding for the AY 2008-09 is reproduced as under " I have examined the contentions of the appellant with regard to their complaint of ''double disallowance", once through writing back in the computation of Income of the Provisions made for asset write-offs, and then again if the same were to be disallowed separately by the A.O. The accounting entries passed in this regard are consistently being followed from year to year. It appears that the full accounting implication of this item of 'Write off of Assets' in light of the corresponding 'Provision accounts' for 'Decommissioned Assets has not been fully understood. The A.O's step of disallowing these expense does result in a double disallowance of the same expenditure, which is being Credited to the Provision Account, and the Provision Account itself being written back. I therefore direct the deletion of this addition erroneously made by the learned A.O upon a mis-reading of the facts and accounting involved. Appellant gets a relief of Rs. 353.75 crores."

Following the same, the appellant is allowed relief on this item of Rs. 169.52.”

of the Ld. CIT (A) and demonstrate that the factual finding by the

Ld. CIT (A) was erroneous. Hence, we refuse to interfere with the

findings of the Ld. CIT (A) on this issue and dismiss ground no. 2

of Department’s appeal.

I.T.A.Nos. 2196, 6459/D/2012 5916, 6549/D/2012 Assessment Years: 2005-06, 2009-10

and the appeals of the Department are dismissed.

Order pronounced in the Open Court on 13.05.2016.

Sd/- Sd/- (S.V. MEHROTRA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: the 13th of May, 2016 ‘GS’