TaxTMI 
TaxTMI 
2015 (11) TMI 106
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....1994. By the impugned order the Commissioner has confirmed the demand for Rs. 598,98,62,000/- for the period 1.4.2008 to 31.3.2013 with penalty of the like amount under section 78 of the Act and further penalty of Rs. 5,000/- and Rs. 10,000/- for the Financial Years 2008-11, 2011-13 respectively under Section 77 of the Act. 2. The background in which the present case has arisen is as under- 2.1 The Appellant is engaged in the business of providing 'passive wireless telecom infrastructure'. The appellant builds, owns and operates telecommunication towers, optic fibre cable network and related assets. The business of appellant was demerged out of M/s Reliance Communications Ltd. (RCOM). Post the demerger, all the assets in relat....
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.... of the Income Tax Act, 1961. At the same time, in terms of AS-19, the appellant has shown an amount under the head "lease rent advance/lease rent equalisation' which is a notional figure to comply with the requirements of double entry book keeping since the cost of the assets is amortized and treated as an expense. Hence, according to the appellant, AS-19 requires reflection of lease rent income on a straight line over the period of the lease which is neither the amount receivable under the MOU, nor actual liability on RCOM to pay the same. In this factual background the appellant paid Service Tax on the amount of rent actually received during each financial year from 2008 to 2013 and have continued to pay Service Tax on the higher amo....
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....r agreements. Our attention was drawn to the relevant paragraph dealing with operating leases in AS19 which reads as under- "Operating Leases 39. The lessor should present an asset given under operating lease in its balance sheet under fixed assets. 40. Lease income from operating leases should be recognized in the statement of profit and loss on a straight line basis over the lease term, unless another systematic basis is more representative of the time pattern in which benefit derived from the use of the leased asset is diminished. 41. Costs, including depreciation, incurred in earning the lease income are recognized as an expense. Lease income (excluding receipts for services provided such as insurance and maintenance) is rec....
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....accounting principles, on behalf of the appellants it was submitted that the lease rent equalisation is not an income for the appellants and therefore does not constitute 'gross consideration' within the meaning of section 67(1) of the Act. It was emphasized that before applying the definition of 'gross amount charged' in explanation (c) to Section 67, it is first necessary to ascertain whether the same constitutes consideration under explanation (a). Consequently it is contended that no service tax is payable on the notional lease rent equalisation. It was alternatively submitted that with effect from 2013-14, Service Tax has been paid and would be payable on the higher amount and therefore there was no loss of Revenue sinc....
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.... and there is no room for intendment. He also relies on the decision of the Hon'ble Tribunal in CCE vs Steel Industries Kerala Ltd., 2005 (188) ELT 33, to support his submission that disclosure in the balance sheet cannot impute knowledge to the department, therefore extended period of limitation can be invoked. 7. We have carefully considered the submissions made by both sides and perused the records. It is admitted that in this case, the appellant and RCOM are associated enterprises. The general rule in case of associated enterprises is that even a book adjustment or any credit or debit entry in any account by whatever name called in the books of accounts of the Service Provider is equated with receipt of 'the gross amount char....
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....me Court in Dai-Ichi Karkaria (supra) and Association of Leasing and Financial Service Co vs Union of India (supra). The department has not been able to show us any contrary decision or furnish any reasons why we should not follow AS19. The audit report relied upon by the Ld. Sp. Counsel and the Commissioner concludes that the lease rent equalisation is an 'income', and chargeable to service tax as the gross amount received by the appellants. We are unable to accept the conclusion of the audit report which is directly in teeth of AS19 and the principle laid down in the decision of Dy. CIT vs. Nagarjuna Investment Trust Ltd. (supra), in which it is held that such a notional amount which is actually a balancing factor since expenses o....