2015 (12) TMI 1531 - AT - Income Tax

Tribunal: Deductions Eligible under Section 80IA for Telecom Services Business

Bharat Sanchar Nigam Ltd. Versus DCIT, New Delhi And Vica-Versa

Bharat Sanchar Nigam Ltd. Versus DCIT, New Delhi And Vica-Versa - TMI Issues Involved:1. Reimbursement of License Fee and Deduction under Section 80IA.2. Refund from Universal Service Fund and Deduction under Section 80IA.3. Interest from Others and Deduction under Section 80IA.4. Liquidated Damages and Deduction under Section 80IA.5. Excess Provision Written Back and Deduction under Section 80IA.6. Other Receipts and Deduction under Section 80IA.Detailed Analysis:1. Reimbursement of License Fee and Deduction under Section 80IA:The assessee argued that the reimbursement of the license fee should be considered as income derived from the business of providing telecommunication services and thus eligible for deduction under Section 80IA. The CIT(A) held that this income was ancillary and not allowable for deduction under Section 80IA. The Tribunal noted that the assessee's business involves providing telecommunication services, which includes the obligation to provide services in rural and backward areas, often at non-commercial rates. The reimbursement was considered a direct consequence of the business activities, and thus, it was held that it should be eligible for deduction under Section 80IA.2. Refund from Universal Service Fund and Deduction under Section 80IA:The CIT(A) held that the refund from the Universal Service Fund (USF) was not eligible for deduction under Section 80IA. The assessee argued that the USF was a statutory fund to compensate for the losses incurred in providing telecommunication services in rural areas. The Tribunal noted that the USF compensation was directly linked to the business operations of the assessee and should be considered as income derived from the eligible business of providing telecommunication services, thus qualifying for deduction under Section 80IA.3. Interest from Others and Deduction under Section 80IA:The CIT(A) held that interest income from advances given to employees and suppliers was not eligible for deduction under Section 80IA. The assessee contended that this interest income was part of the business operations. The Tribunal, however, upheld the CIT(A)'s decision, stating that such interest income does not have a direct nexus with the primary business operations of providing telecommunication services and thus is not eligible for deduction under Section 80IA.4. Liquidated Damages and Deduction under Section 80IA:The CIT(A) allowed the deduction for liquidated damages received by the assessee, considering it as income derived from the business. The Revenue challenged this, arguing that liquidated damages are ancillary and incidental to the business. The Tribunal upheld the CIT(A)'s decision, stating that the liquidated damages were directly related to the business operations and hence eligible for deduction under Section 80IA.5. Excess Provision Written Back and Deduction under Section 80IA:The CIT(A) allowed the deduction for the excess provision written back, considering it as income derived from the business. The Revenue argued that such write-backs are not directly derived from the business operations. The Tribunal upheld the CIT(A)'s decision, stating that the write-back of provisions is related to the business operations and should be considered as income derived from the business, thus eligible for deduction under Section 80IA.6. Other Receipts and Deduction under Section 80IA:The CIT(A) allowed the deduction for other receipts such as the sale of directories, publications, forms, and waste paper, considering them as income derived from the business. The Revenue argued that these receipts are ancillary and not directly derived from the business operations. The Tribunal upheld the CIT(A)'s decision, stating that these receipts are connected to the business operations and should be considered as income derived from the business, thus eligible for deduction under Section 80IA.Conclusion:The Tribunal concluded that the phrase 'profits and gains of the eligible business' in Section 80IA(2A) does not impose the same restrictions as 'profits and gains derived from' in Section 80IA(1). The Tribunal allowed the assessee's appeal on the preliminary issue, making the other grounds academic. The departmental appeal was dismissed, and the assessee's appeal was allowed to the extent mentioned.