2014 (4) TMI 1194 - HC - Income Tax

Court Upholds ITAT's Order on Tax Payment & Corporate Securities, Emphasizes Need for Thorough Consideration

Vodafone India Limited Versus Union of India through the Secretary (Ministry of Finance) New Delhi, Income Tax Appellate Tribunal (Mumbai), Deputy Commissioner of Income Tax, Commissioner of Income Tax, Circle 7 (3), Mumbai

The court upheld the ITAT's order directing the petitioner to pay Rs. 80 crores and furnish corporate securities for the remaining tax demand. It found ... Deduction u/s 80-IA denied - Revenue contended that the petitioner had commenced business prior to 1st April, 1995 and, therefore, the petitioner was not entitled to the benefit of section 80-IA - alternative stand of the Revenue was that even assuming section 80-IA is applicable, it would operate as it stood on 1st April, 1995, and not as amended in the year 2000 - directing to pay a sum of ₹ 80 crores and to furnish corporate securities for the remaining demand of tax and interest thereon Held that:- DRP observed that the petitioner had filed a copy of the assessment orders of M/s. Hutchison Max Telecom Private Limited whose licence the petitioner had purchased for the assessment years 1995-96 and 1996-1997 wherein it stated that the cellular services were started by the assessee on 16th November, 1995. The DRP also referred to copies of letters from the Ministry of Communication dated 30th October, 1995 and 20th October, 1995, which, according to the DRP, indicate that Hutchison Max Telecom Private Limited could commence operations once final clearance obtained from the DoT has been filed. The DRP held that these facts indicate that the cellular services were started in the assessment year 1996-97 i.e. after 1st April, 1995. The objection in that regard was, therefore, allowed. As we mentioned earlier, the DRP, Delhi has taken a view contrary to the one taken by the DRP in the present case. Mr. Ahuja also relied upon the fact that the petitioner had itself contended that radio paging services is not the same as cellular pagers. The issue regarding appreciation of evidence does arise viz. whether from the sale of pagers, it can be inferred that paging services were in place and had commenced. We do not suggest that the petitioner would be unable to establish it's case. Indeed, the assessment order in respect of the assessment year 2005-06 is strong evidence in favour of the petitioner's case. After examining the facts, the earlier assessment order noted that the petitioner had started providing paging services also only in May, 1995 and cellular services in November, 1995 and accordingly, the question of the petitioner commencing the provision of telecommunication services during the period prior to 1st April, 1995 does not arise. Mr. Ahuja also invited our attention to the fact that an article published in the Indian Express news quoted the Associate Vice President of the petitioner having stated that the paging services were launched in the year 1994. The petitioner's explanation to the same is that he was not its authorized spokesperson and that the term 'launch of services' does not imply the commencement of such services. There are also disputed facts which will require consideration by the ITAT. The fact, therefore, remains that this is not an open and shut case. It is indeed a strong prima facie case, but not an open and shut case. There is much to be said in favour of and against both the parties. - Decided in favour of assessee. In Assistant Commissioner of Income-tax v. Vodafone Essar Gujarat Limited [2010 (1) TMI 941 - ITAT, Ahmedabad ], the Tribunal held that the amended provisions of section 80-IA would be available to all undertakings set up after 1st April, 1995, but before 31st March, 2000 and will also include undertakings set up after 31st March, 2000. The Tribunal referred to the circular No.14 of 2001 issued by the CBDT to this effect. Looking at the entire matter before the Tribunal, the scales are definitely tipped in favour of the petitioner. However, there is something to be said about the respondent's case on the first issue. This is especially in view of the directions passed by the DRP in New Delhi. Although these directions are contrary to the order of the DRP, the issue is at large before the Tribunal. In these circumstances, we do not find the impugned order to be unjust or perverse for it requires the petitioner to deposit only about 20% of the tax demanded and accepts a mere corporate guarantee for the balance amount of over ₹ 275 crores. Issues Involved:1. The validity of the ITAT's order directing the petitioner to pay Rs. 80 crores and furnish corporate securities for the remaining tax demand.2. The applicability of Section 80-IA of the Income Tax Act, 1961, and whether the petitioner commenced business before or after 1st April 1995.3. The applicability of the amended provisions of Section 80-IA from the year 2000.Issue-wise Detailed Analysis:1. Validity of the ITAT's Order:The petitioner sought a writ of certiorari to set aside the ITAT's order dated 14th March 2014, which directed the petitioner to pay Rs. 80 crores and furnish corporate securities for the remaining tax demand of Rs. 238.70 crores and interest of Rs. 128.20 crores for the assessment year 2009-10. The petitioner also sought a stay of the entire demand pending its appeal before the ITAT. The court noted that the ITAT considered the financial hardship and liquidity position of the petitioner before issuing the order. The court found the ITAT's order reasonable, as it required the petitioner to deposit only about 20% of the tax demanded and furnish a corporate guarantee for the balance amount.2. Applicability of Section 80-IA and Business Commencement Date:The main controversy centered around the petitioner's claim under Section 80-IA, which allows a deduction of 100% of profits and gains derived from eligible businesses for ten consecutive assessment years. The petitioner claimed the deduction for the first time in the assessment year 2005-06, which was initially accepted but later denied from the assessment year 2006-07. The Revenue contended that the petitioner commenced business before 1st April 1995, making it ineligible for the deduction. The DRP in Mumbai observed that the petitioner commenced business after 1st April 1995, based on various documents, including assessment orders of Hutchison Max Telecom Private Limited and letters from the Ministry of Communication. However, the DRP in Delhi took a different view, citing evidence such as audit reports and letters indicating that the petitioner started providing services before 1st April 1995. The court acknowledged that this issue involved disputed facts and required consideration by the ITAT.3. Applicability of Amended Provisions of Section 80-IA from the Year 2000:The DRP held that the petitioner was not eligible for the deduction under the amended Section 80-IA for the assessment year 2009-10, as the ten-year limit for claiming the deduction had expired by the assessment year 2005-06. The petitioner argued that the amended provisions should apply, supported by decisions from the ITAT at Ahmedabad and Calcutta, which held that the amended provisions were available to undertakings set up after 1st April 1995. The court noted that the ITAT at Ahmedabad's decision was in favor of the petitioner, but appeals were pending before the Gujarat High Court. The court indicated that this issue was debatable and required consideration by the ITAT.Conclusion:The court found that the petitioner had a strong prima facie case but not an open and shut case. It dismissed the petition, finding the ITAT's order reasonable and not warranting interference. The court emphasized that the issues involved were debatable and required thorough consideration by the ITAT. The petitioner's appeal before the ITAT would address both the commencement date of the business and the applicability of the amended provisions of Section 80-IA.