TaxTMI 
TaxTMI 
TaxTMI 
2009 (8) TMI 840
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessment order. (2) Whether the Ld. CIT erred in holding that pledging of shares of Reliance Infocom Limited (RIL) amounts to transfer of such shares as envisaged under section 2(47) of the Act and that the fair value of the shares so pledged is the "consideration" for such alleged "transfer". (3) Whether on the facts and circumstances of the case and in law, the Ld. CIT erred in directing the Assessing Officer to assess amount of Rs. 2,974.50 crores as income of the assessee on account of Indefeasible Right of Connectivity (IRC) fees on the alleged ground that such said income accrued in assessment year 2004-05 as the assessee follows Mercantile System of Accounting. (4) Whether the Ld. CIT erred in circumscribing the power of the Assessing Officer to pass a fresh assessment order by directing that such fresh assessment order shall be in line with the directions contained in the impugned order of the Ld. CIT. 2. The facts pertaining to the issue before us are as under : The assessee-company has built-up a nationwide network of multiple conduit, terrestrial fibre optic cable, connecting Long Distance Calling Area (LDCA), Short Distance Calling Area (SDCA), Telecom for the Ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evidences it was found that the market value of shares was Rs. 53.71 per share as against the face value of Re. 1. The claim of Shri Mukesh D. Ambani, who is also Managing Director and a related person as defined under section 40, that the shares were pledged to him against a loan of Rs. 50 crores extended to you was rejected. 3. In the case of pledge of an asset, the ownership of the asset remains with the pledgee and the physical possession of the asset is transferred to the person through during the period of 'trust' till the obligation is discharged. This is the basic difference between pledge and sale/transfer of an asset. In this particular case, it is undisputed that the shares of RIL had been Dematerialized and transferred from a/c of RCIL to the account of having client ID No. 42646206 held under HDFC Bank Ltd., Lower Parel, Mumbai. Since there was dematerialisation of shares, the transfer of the asset/title took place during the period relevant to assessment year 2004-05 and accordingly, the transaction attracts short-term capital gains in your hands. Failure to include the same as in your total income for the assessment year 2004-05 rendered the assessment order dated 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Income in the books, as per the terms of the said agreement dated 30-4-2003. In the said letter you have also stated that IRU rights were used by the RIL for a period of 5 months (November to March 2004) for which a sum of Rs. 63,28,72,917 is credited to fees for IRU account, leaving the balance Rs. 29,74,50,27,083 in Advance Income Account, to be utilized over the remaining tenure of the agreement (19 years and 7 months). However, it is found that, this is not as per the agreement mentioned above. As per the agreement dated 23-4-2003 entered into between you and Reliance Infocomm Ltd., the IRC fees of Rs. 3,073.79 crores is the consideration for grant of exclusive IRC. As per Exhibit 'B' of the said agreement, IRC fee accrues on Acceptance of Customer System. There is no dispute that the customer system has been accepted during the previous year relevant to assessment year 2004-05. Hence, the IRC fee of Rs. 3,073.79 crores accrued during the previous year relevant to assessment year 2004-05 itself. You are following the Mercantile System of Accounting. Once the right to receive the income has occurred you cannot postpone or defer the accounting of income to a future date. Failure ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erm capital gain of Rs. 2,635 crores by considering the Market Value of Rs. 53.71 per share is not in accordance with the provisions of the Act. (d)Assuming that the aforesaid transaction amounts to sale of shares of Reliance Infocomm Ltd. by the Company to Mr. Mukesh Ambani, the capital gain will be Rs. NIL and not Rs. 2,635 crores as the cost of the shares is Rs. 50 crores (i.e., 50 crores Shares of Rupee 1 each) and the selling price (being the amount of Loan received) indicated in the Notice is also Rs. 50 crores only. In view of the above, we request your Honour to drop the proceedings under section 263 of the Act. 3. If our understanding of the legal position that the maximum capital gain that can be computed in the facts and circumstances of the case (and even accepting everything which is set out in the Notice under Reply) is "Nil", is in your Honour's opinion incorrect we shall be obliged if your Honour gives us an opportunity to discuss the issue so as to enable us to effectively respond to the Notice. 4.(a)Without prejudice to our request for dropping the proceedings as no case is made out by the Notice under reply, we have to state that we do not have the copy of Or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. This decision of the Income-tax Officer could not be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. (c)The above decision is referred to by Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. ( 243 ITR 83). In the said decision, it has been ruled that this provisions cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. It is only when the order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of Law or non-application of mind will satisfy the requirement of the order being erroneous. It was held that the phrase 'Prejudicial to the interest of the revenue' should be understood in its ordinary meaning; it is of wide import and is not confined to loss of tax. (d)In the case of Hind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....contended that as per the theory of the matching principles, the entire amount cannot be brought to tax in the assessment year 2004-05, as there is no accrual of the income to the extent of Rs. 3,037.70 crores, but the accrual of the income was to the extent of the five months during the period of which the RIL used the cable network. The Ld. CIT was not satisfied with the explanation given by the assessee and rejecting the same in respect of the first issue of the transfer of 50 crores shares to Shri Mukesh D. Ambani held that there was transfer of shares and the market value of the shares was Rs. 2,685 crores and same is to adopted as the full consideration to work out the 'Short Term Capital Gain' in place of the Rs. 50 crores shown by the assessee. The operative part of the reasons are as under- "I have considered the aforesaid submissions of the assessee's A.R. Firstly, it should be made clear that the issue as to whether pledge of 50 crores shares of RIL by the assessee at the face value to Shri Mukesh D. Ambani gave rise to a short term capital gains or not was not considered at all by the Assessing Officer at the assessment stage. I have perused the assessment records and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ty of entire amount of IRC fees, rejecting the contention of the assessee that on the matching principles, only the proportionate IRC fees should be brought to tax respective of the period covered in the assessment year 2004-05 and also further rejecting the plea of the assessee that as the said fees was for the period of 20 years, there was no accrual of the income for the entire fees in the assessment year 2004-05, held that in view of the spirit of the agreement entered into by the assessee with the RIL, it is an irrevocable agreement and therefore, the receipt therein, once having been accepted of the revenue nature, shall accrue at once. The reasons given by the Ld. CIT for coming to the said finding are as under :- "Accordingly, in the financial year 2003-04, IRU rights were granted to RIL for a distance of 44,723 Kms. for a consideration of Rs. 3,037.79 crores which is credited to Advance Income in the books of RCIL as per the terms of the said agreement. This issue was examined in-depth by the Assessing Officer during the assessment proceedings for the assessment year 2005-06 wherein similar receipt of IRC fees for the connectivity was involved. The assessee has granted In....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... electrical installation and office equipments. As against the same, the assessee has received Rs. 3,037.70 crores as IRC fees which nearly equal to the plant and machinery added during the year and in respect of which IRU right was granted. Thus, whereas the assessee has claimed depreciation on the entire addition as aforesaid at the rate of 25 per cent, the amount offered as IRC fees is only on the pro rata basis i.e., what is relatable to the period covered in the previous year relevant to the assessment year 2004-05. Another feature which is noted is the claim of depreciation at the rate of 25 per cent on intangible assets "on acquisition of Unit right of connectivity" of Rs. 46.89 crores during the relevant previous year. Since the assessee has claimed depreciation on the right of connectivity acquired as intangible assets, it was only logical that the entire amount received by way of IRC fees should have been offered as income during the assessment year 2004-05. (e)What is important is that the terms of agreement have relevance to see as to whether the entire IRC fee received has accrued as income at one go or not ? Under the agreement, as already stated, both the parties to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Ld. CIT before us. 10. The Ld. Senior Counsel Mr. S.E. Dastur has argued that there is no justification for the Ld. CIT to initiate the proceedings under section 263 in this case as the mandate of section 263 has not been not fulfilled. The Ld. Counsel gave the summary of the facts and submitted that the assessee company was in need of the funds and instead of borrowing the funds from outside source, it was decided to take the loan from Shri Mukesh D. Ambani, who was the Managing Director of the assessee and was ready to give the loan to the Company. It is argued that Mr. Mukesh D. Ambani advanced the loan which was required for the short period and as a security, shares of RIL held by the assessee were pledged with Shri Mukesh D. Ambani. The Ld. Counsel referred to the copies of Annual Account, more particularly, page No. 35 of P/B and submitted that the advance received from Shri Mukesh D. Ambani was shown as a "loan" and to that extent, the note was also made in the Annual Report. If there was a transfer of the shares, then at least, to that extent the true picture would, have been reflected. It is argued that nothing has been controverted by the Ld. CIT in respect of the fac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ailment is extended to be security for the debt. He, therefore, submitted that merely because shares are dematerialized from the account of the assessee to the account of Shri Mukesh D. Ambani, that ipso facto does not make the full-fledged transfer as a sale. It is argued that the conclusion drawn by the CIT that there was actual transfer of the shares is totally baseless as after some time, particularly in the month of December 2004, the loan was repaid to Mr. Mukesh D. Ambani. He, therefore, pleaded that there is no sale of the shares, but it was a transaction of a pledge. 11. In respect of the alternate findings of the Ld. CIT that there is a extinguishment of the assessee's right completely and hence, the assessee is liable for the capital gain. The Ld. Counsel referred to section 45 of the Act and argued that there must be gain on the transfer of capital asset and even by the extinguishment of the right which also amounts to transfer within the meaning of section 2(47) of the Act, the extinguishment must result into some gains. In this case, the assessee has received only Rs. 50 crores and being it is a case of the Department that there is an extinguishment, then there is a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s no concept of the 'market value' in respect of the sale consideration. It is argued that section 50C is brought on Statute Book for substituting the consideration declared by the assessee for that of the value adopted by the Registration authority, but it has got very limited application only in the cases of the capital asset being land or buildings. The Ld. Counsel has also referred to the decision of the Hon'ble Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 and submitted that as interpretation given by the Hon'ble Supreme Court to section 52, the said section never contemplated being income to accrue or to be received which, in fact, never accrued or was never received. It is argued that even for the sake of argument presuming there is a transfer of shares to Mr. Ambani but for the computation of the capital gain, at the most, the actual amount of Rs. 50 crores received by the assessee has only to be taken into account for the purpose of section 48. He, therefore, submitted that as the cost of acquisition of his share is Re. 1 per share and sale consideration is also Re. 1 per share and hence, capital gain is worked out at Nil. He, therefore, pleade....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... year 2004-05, that will give the distorted picture of the assessee's income which is against the norms prescribed by the ICAI. He further argued that the original assessment of the assessee is completed under section 143(3) and on the issue of taxability of IRC Fees, the Assessing Officer has raised the queries and the assessee had replied the queries of the Assessing Officer and as the Assessing Officer was satisfied on the replies given by the assessee, and merely because the view taken by the Assessing Officer is not acceptable to the Ld. CIT, that cannot be the ground for treating the assessment order as erroneous. The Ld. counsel also referred to the decision of the Hon'ble High Court of Delhi in the case of CIT v. Kelvinator India Ltd. [2002] 256 ITR 1 (FB) to support his plea that once the assessment under section 143(3) is made, then the presumption goes in favour of the assessee that the Assessing Officer has considered all issues while completing the assessment. The Ld. Counsel also assailed all the observations of the CIT in his order, more particularly, that the first hearing in this case was on 21-11-2006 and the last hearing took place on 22-12-2006 and hence, the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and argued that CIT has pin pointed how there was a failure on the part of the Assessing Officer to investigate the issue of transfer of shares as well as IRC Fees. The Assessing Officer should have examined in respect of all the issues of the transfer of the shares whether pledge or sale are involved, but there is no discussion in the assessment order and transaction shown by the assessee was accepted as it is. It is argued that in this case, it is not disputed that the shares were dematerialized from assessee's account to Shri Mukesh D. Ambani's account and that is sufficient to come to the conclusion that there was absolute transfer in respect of 50 crores shares of RIL. He further submitted that Shri Mukesh D. Ambani was a Managing Director of the Company and it was not necessary for him to take any security as he was well versed with the financial position of the assessee company. Hence, under the pretext of showing the loan and pledge of the shares, in fact, he has acquired the controlling interest in the assessee company. Hence, there was a transfer within the meaning of section 2(47) of the Income-tax Act and the CIT was right in directing the Assessing Officer to bring to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iven by him. The Ld. CIT initiated the proceedings under section 263 on the following two reasons : (1)The assessee has transferred 50 crores shares of Reliance Infocomm. Ltd. (RIL) to Shri Mukesh D. Ambani, then Managing Director for the consideration of Rs. 50 crores, when in fact, the market value of the said shares was to the extent of Rs. 2,685 crores and hence, to the extent of Rs. 2,635 crores, there is an under-assessment of income as Short Term Capital Gain. (2)The assessee had received Rs. 3,037.39 crores from the Reliance Infocomm. Ltd. (RIL) towards for granting Indefeasible Right of Connectivity (IRC) for a term of 20 years for using the nationwide network of multiple conduit, terrestrial fiber optical cable, LDCA, SDCA etc. through four pairs optical fiber and the assessee has offered only Rs. 63,28,70,917 as an income for the five months i.e., November 2003 to March 2004 in place of offering the entire IRC Fees which according to the Ld. CIT, accrued to the assessee in assessment year 2004-05. 17. We have already given the detailed facts herein above in respect of the controversy before us. The Ld. CIT has held that the assessment order passed by the Assessing Off....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he pledge of the shares as a security. 18. Before us, it was argued that as per the audited Statement of Account and Annual Report (Page Nos. 1 to 65 of P/B), the amount of Rs. 50 crores received from Shri Mukesh D. Ambani was shown as loan only and not as a sale consideration for sale or transfer of 50 crores shares. As per the copy of the balance sheet filed by the assessee in the compilation, it is seen that the amount of 50 crores, received from Shri Mukesh D. Ambani, Managing Director is shown as a loan. Moreover, as per the Balance Sheet of the Company, the unquoted shares of Reliance Infocomm. Ltd.(RIL) have been shown under the head 'Trade investment' (Page No. 17 of P/B). On the perusal of the order passed under section 263, it is seen that the Ld. CIT has not discussed at all the nature of the transaction reflected in the Audited Statement of accounts and Annual Report of the assessee in his order passed under section 263. The assessee has also filed the Balance Sheet for the assessment year 2005-06, for subsequent year, which is placed at page Nos. 28 to 65, and from which, it is seen that as per Schedule 'C', (page No. 35 of P/B), Rs. 50 crores are shown under the head....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of the assessee company to the Demat A/C of Shri Mukesh D. Ambani but, at the same time Balance Sheet, Annual Report etc. have not been considered at all. 20. The ld. Counsel argued that in case of a pledge, the property placed has to be actually or constructively delivered to the Pawnee. The pledge is the bailment of the goods by the debtor to his creditor to keep as a security till the debt is discharged. In case of a pledge, there is no passing of title in the goods in the creditor, but the creditor has right to re-take the possession till the payment is made by the debtor. Under the English common law as well as under section 172 of the Indian Contract Act, a bailment of the goods is a security for payment of the debt or performance of a promise is called a pledge. For determining the capital gain, it is mandate of section 45 of the Act that there must be transfer and the word 'transfer' has been defined in section 2(47) of the Income-tax Act which reads as under :- "2(47) "transfer", in relation to a capital asset, includes,- (i)the sale, exchange or relinquishment of the asset; or (ii)the extinguishment of any rights therein; or (iii)the compulsory acquisition thereof ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y : (i)expenditure incurred wholly and exclusively in connection with such transfer; (ii)the cost of acquisition of the asset and the cost of any improvement thereto : Provided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in, or debentures of, an Indian company : Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the consideration received or accruing". The expression 'full value of the consideration' is totally different than the concept of the "fair market value". Nothing is there in section 48 to suggest that the said expression i.e., full value of consideration, cannot be substituted for "market value", save as provided in section 50C of the Act. Section 50C has been brought on the Statute Book by the Finance Act, 2002 with effect from the assessment year 2003-04 and the said section is applicable only in respect of the capital assets which are land or building only. In that case, the consideration disclosed by the assessee on the transfer of any land or building or both is less than the value adopted or assessed by Stamp Valuation authority of the State Government, for the purpose of payment of the Stamp Duty, then subject to certain conditions, the values so adopted shall be deemed to be full value of the consideration received by the assessee. In the present case, the controversy is relating to the transfer of the shares and hence, section 50C is not applicable. For dealing with the cases of the under-statement, section 52 was on the Statute Book which was also omitted with effect fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... received by the transferor in exchange for the capital asset transferred by him. The consideration for the transfer is the thing received by the transferor in exchange for the asset transferred and it is not right to say that the asset transferred and parted with is itself the consideration for the transfer. The main part of section 12B(2) provides that the amount of a capital gain shall be computed after making certain deductions from the "full value of the consideration for which the sale, exchange or transfer of the capital asset is made". In case of a sale, the full value of the consideration is the full sale price actually paid. The Legislature had to use the words "full value of the consideration" because it was dealing not merely with sale but with other types of transfer, such as exchange, where the consideration would be other than money. If it is therefore held in the present case that the actual price received by the respondent was at the rate of Rs. 136 per share the full value of the consideration must be taken at the rate of Rs. 136 per share. The view that we have expressed as to the interpretation of the main part of section 12B(2) is borne out by the fact that in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ransfer." 24. In our opinion, as a provision of section 48 of the Act of 1961 is analogous to section 12B(2) of the Act of 1922 and hence, the interpretation given by their Lordships to the expression "full value of the consideration" is equally applicable to the expression appearing in section 48 of the Act of 1961. Even after giving anxious consideration to the scheme of computation of capital gain, it is seen that there is no provision to substitute sale consideration declared by the assessee with that of 'market value', save provision of section 50C which is only applicable to capital assets in the form of land or building. In the present case, there is no dispute about the fact that the assessee has received only Rs. 50 crores and it is also not the case of the Department that over and above Rs. 50 crores the assessee has received any amount, and hence, as the full value of the consideration is Rs. 50 crores as against the value of the shares of 50 crores, the capital gain worked out to be 'Nil' under section 48 of the Act. For the reasons given above, it cannot be said that Short-term Capital Gain as held by the ld. CIT in the order passed under section 263 has escaped asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d nowhere it is admitted that there was a transfer of the shares. Hence, in our opinion, the said statement of the ld. CIT is totally contrary to the fact. In the light of our detailed discussion in respect of the issue of the transfer of 50 crores shares, in our opinion, there is no mistake of law in the assessment order passed under section 143(3) by the Assessing Officer and hence, said order is not erroneous nor it is prejudicial to the interest of the Revenue, within the meaning of section 263 of the Act. 26. Now we will examine the second reason, that was in respect of the taxability of the amount of the IRC Fees received from RIL for grant of right to use nationwide network. We have already narrated the relevant facts herein-above. The assessee has developed the infrastructure for Telecommunication, Broad-band network and Internet services, which right of use for the period of 20 years was granted to Reliance Infocomm. Ltd. vide agreement dated 30-4-2003. As per the terms of the said agreement, the assessee received the advance IRC Fees to the extent of Rs. 3,037.79 crores. The assessee offered Rs. 63,28,00,917 as an income accrued for the period of the five months (Novembe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve indefeasible right of connectivity through the Connectivity Fiber located in the Reliance Network, as described in Exhibit A, and (ii) a non-exclusive indefeasible right of use in the Associated Properties for the Connectivity Fibers, as described in Exhibit A, subject to the terms, conditions, representations, warranties and covenants set forth herein (collectively, the "IRC"). The IRC does not include the right of Customer to own, control, maintain, modify or revise the Customer System or the right of physical access to, or the right to use of the Customer System, except as set forth herein. B. The consideration for the grant herein of the IRC in and to the Customer System shall be the IRC Fee. C. The Parties acknowledge and agree that any portion of the System Route that has not been finally installed and made available for commercial use, or with respect to which any necessary Underlying Rights have not been obtained as of the date hereof, is subject to final determination by Customer, based on specific engineering, right-of-way, local zoning, permit, authorization and other requirements. Any such portion of the System Route, as finally determined, shall include all of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st day of the Initial Term. D. Notwithstanding anything to the contrary contained in this section 3, upon the expiration or termination of any Underlying Right or Other Right that is necessary in order to grant, continue or maintain an IRC granted hereunder in accordance with the terms and conditions hereof, and so long as RCIL shall have fully observed and performed its obligations in accordance with this Section 3 with respect thereto, any Renewal Term granted hereunder shall automatically expire upon such expiration or termination of the Underlying Rights or Other Rights; provided that Customer receives written notice of the expiration no later than ninety (90) days prior to the expiration or termination of the Underlying Rights or Other Rights. E. In the event that, during the Initial Term, RCIL receives notice that (i) it has not obtained all necessary Underlying Rights and Other Rights required to complete the construction of a specified portion of the System Route, as initially contemplated or as reasonably modified in accordance with section 4 hereafter, (ii) the Underlying Rights and Other Rights do not include the rights, licenses, permits, authorizations, consents or a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....modify or limit any such Underlying Rights and Other Rights or would otherwise materially adversely impair or affect Customer's ability to exercise the IRC or otherwise operate the Customer System or to exercise Customer's rights with respect to the IRC, as provided and permitted hereunder. G. Throughout the term of each Underlying Right and Other Right, RCIL shall, at its reasonable cost and expense, defend and protect RCIL's rights in and interests under the Underlying Rights and Other Rights and Customer's Right to exercise the IRC or otherwise operate the Customer System as provided and permitted hereunder against interfering or infringing rights, interests, claims or actions of third parties. 5. IRC Fee : Maintenance Fee : Invoicing A. Upon Final Acceptance of Customer System and subject to the terms and conditions set forth herein, Customer shall pay to RCIL(i) an IRC Fee as set forth in Exhibit B, which amount shall be due and payable in accordance with the payment schedule set forth in Exhibit C, and (ii) a Maintenance Fee, for the maintenance of such Customer System, in the corresponding amount therefore set forth in Exhibit B, which amount shall be due and payable in a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nts or delays due to acts or omissions of RCIL), shall be sufficient and conclusive evidence of such abandonment and Customer's determination that the Connectivity Fibers have reached the end of their economic useful life; provided that RCIL notifies Customer in writing of its intention to treat the Connectivity Fibers as abandoned. Upon any such notice of termination or abandonment, (i) the current term of this Agreement shall expire, (ii) all rights to the Customer System shall cease, (iii) the same shall revert to RCIL without reimbursement of any fees or other payments previously made with respect thereto, and (iv) subject to the provisions of section 18 Customer shall have no further rights or obligations hereunder with respect to the Customer System. E. During the entire term and on expiry thereof the legal title and ownership to the Connectivity Fibers and the Associated Properties shall always remain with RCIL. F. Both Parties agree that the industry standard with respect to the useful life of the fibers in the Reliance Network is anticipated to be twenty-five (25) years, with reduction in the efficiency of such fibres over the anticipated useful life due to normal wear a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sions required to complete the construction of entire system. The agreement can be terminated at the sole discretion of the RIL as provided in clause 2E of the agreement and it is not the case that once the final acceptance of the system is given by the Reliance Infocomm. Ltd. (RIL), the assessee's responsibility is over. Even in respect of the maintenance and repairs of the network infrastructure, it still be the contractual obligation of the assessee to do so even if the clause of payment of maintenance fee is provided. The agreement entered into between the assessee and the Reliance Infocomm. Ltd., is in fact, an agreement like leasing right. 29. The ICAI has formulated Accounting Standards for different type of trade, business, profession etc., The Accounting Standard is policy statement or document framed by the Institute and establishes the rule relating to the recognition, measurement and disclosure thereby ensuring that all enterprises that follow them are comparable and that their financial statements are true and fair and transparent. The Accounting Standards (in short "AS") are based on number of accounting principles and also recognizes the matching principles of accou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....'taxable income'. Accounting income is the real income. Tax laws lay down rules for valuation of inventories, fixed assets, depreciation, bad debts, etc., based on artificial rules and not on the basis of accounting estimates, which results in mismatch between accounting and taxable incomes. For example, a fixed rate of depreciation may, for some companies, result in computing lower than the actual income if the actual erosion in the value of the asset is lower than the depreciation calculated at the fixed rate and higher than actual income for others where assets erode faster. Accounting income is normally used as a relevant measure by most stakeholders. However, on account of artificial set of rules used in computation of taxable income one finds that accounting income differs from taxable income. Looking to these problems, the evolution of Accounting Standards and their greater application is necessary as it results in reducing the need for tax laws to depend upon artificial rules. The object of Accounting Standards is, therefore, to standardize and to narrow down the options. The object of Accounting Standards is to evolve methods by which 'accounting income' is determined. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t, it was held that ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of the business must be allowed in its entirety in the year in which it is incurred. It cannot be considered over a number of years even if the assessee has written off in its books for a period of years. However, the facts may justify and the assessee who has incurred expenditure in a particular year, to spread and claim it over a period of ensuring years. Though the issue before the Hon'ble Supreme Court was of the permissibility of the spread over of the expenditure when it related to the substantial span, but the same principles can be applied even to the income also treating the entire IRC fees to spread over as income for entire term of agreement which otherwise relates to the period of 20 years and without spread over if entire IRC fees is brought to tax in the first year itself i.e., assessment year 2004-05, then it will give the distorted picture of the profits and on the theory of the matching principles in such cases, income has to be spread over to entire term of agreement and to offer accordingly year to year. Moreover, the theory of 'matching principles' has be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1). 7. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhov & Co. v. S.P. Jain [1957] 31 ITR 872 , the High Court of Karnataka in CIT v. T. Narayana Pai [1975] 98 ITR 422 , the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 203 ITR 208 and the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81 / 79 Taxman 184 treated loss of tax as prejudicial to the interests of the revenue. 8. ***....