TaxTMI 
TaxTMI 
2015 (12) TMI 1531
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....10.25 crores, is not eligible for deduction u/s 80IA of the I.T. Act, for the same reasons as have been applied, while denying deduction u/s 80IA to reimbursement of License fee. 3. That on the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in holding that the "interest from others" amounting to Rs. 11.79 crores (which includes interest on advances given to employees/suppliers) is not eligible for deduction u/s 80IA of the I.T. Act, 1961. 4. That the other passed by the CIT(A) is bad in law and contrary to the facts and circumstances of the case." ITA No. 3386/Del/2010 1. "The ld. CIT(A) has erred in law and on facts in holding that receipts amounting to Rs. 76,71,90,000/- on account of liquidated damages are entitled for deduction u/s 80IA of the I.T. Act ignoring the fact that it is necessary to prove that the receipt generated should be of first degree source of special activity, but not of ancillary and incidental activity of the undertaking. 2. The ld. CIT(A) has erred in law and on facts in holding that receipts amounting to Rs. 16,86,63,72,000/- on account of excess provision written back are entitled for d....
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.... hearing. Considering the fact that the Ld. Sr. Advocate in his opening arguments took the position that apart from the arguments based on the specific grounds raised in assessee's appeal and of course defending the relief granted in appeal by the CIT(A), he would first want the issue to be considered whether in terms of sub-section (2A) of section 80-IA the income of the assessee has correctly been computed or not. The Ld.AR stated that consideration of the relevant statutory provisions since these flow from the assessment itself thus the issue raised by way of a legal argument encompassing the entire issue addressing both the appeals should be first decided. Even otherwise when the merits of the additions sustained or deleted would necessarily be required to be considered on the touchstone of sub-section (2A) of section 80-IA. It was his stand that in the facts of the present case the tax authorities have ignored the impact of sub-section (2A) of section 80-IA which would govern the issues raised. Non-consideration of the said provision it was submitted would lead to a gross miscarriage of justice as the relevance and import of the specific sub-section has been lost sight of by t....
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....cy of the Government of India (National Telecom Policy, 1999) wherein the business of providing telecom services and operate the same through corporate entity was given to the assessee. The business was handed over by MOU on 30.09.2000 where the business was taken over by the assessee from the erstwhile Department of DTS and DTO with effect from 01.10.2000 on a going concern basis alongwith assets and all the contractual obligations. 6. The assessee thus is a fully owned Government of India enterprise and pursuant to the MOU dated 30.09.2000 and commenced its business activities from 01.10.2000. The first assessment year of the company was 2001-02 assessment year. No deductions were claimed by the assessee u/s 80IA on account of the returned loss in the first three years upto 2003-04 assessment year and the assessee had begun exercising its claim for deduction u/s 80IA for the first time in the year under consideration and onwards. The relevant extract of section 80-IA is reproduced hereunder :- 80-IA. (1) "Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4....
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....1. A perusal of the record shows that the AO in terms of the order u/s 263 show-caused the assessee to explain why the following items should not be excluded from the profits derived from the eligible business for the purposes of deduction u/s 80IA as although the receipts are attributable to the primary/preferred business, they could not be said to have been "derived from the business" of the industrial undertaking:- 1. Extra Ordinary Items 2300,00,00,000 2. Refund from Universal Service Fund 310,24,68,000 3. Interest from others 11,79,09,000 4. Liquidated Damages 76,71,90,000 5. Excess provision written back 1686,63,72,000 6. Others including sale of directories, publications, forms, waste paper, etc. 142,90,32,000 6.2. Not convinced with the explanation offered the additions were made in the computation of income made under the normal provisions of the Act. 7. Aggrieved the assessee went in appeal before the CIT(A). The CIT(A) set out the dispute for adjudication before him in para 2.9 of his order holding as under:- 2.9 "These items of income are shown in the P&L Account as extraordinary items, as reported by ....
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.... is duly reiterated in the synopsis dated 22.05.2015 also. The submission has been that sub-sections (1) & (2) of section 80IA of the Act are omnibus provisions which would cover all business including infrastructure undertaking under category (a) and section 80 IA (2A) would be exclusively applicable to the undertakings providing telecommunication services. Thus the benefit of the non-obstante clause would be available only to the category (b). 8.4. Carrying us through the relevant section, the Ld. AR submitted that on the one hand the provisions of sub-section (1) of section 80 IA provides that the deduction under the said section shall be available to an enterprise where its gross total income includes "profits derived from" any business (being eligible business) by an undertaking from an eligible business. On the other hand, the tele-communication services, it was submitted is governed by sub-section (2A) wherein the Legislature has consciously used the words "profits and gains of eligible business". Sub-section (2A) it was emphasized, starts with the nonobstante clause "notwithstanding anything in sub-section (1) or sub-section (2)" thereby specifically excluding all undert....
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.... and the Hon'ble Andhra Pradesh High Court in the case of Ashwini Kumar Ghosh vs Arabinda Bose [1953] SCR 1; and Parsuramaiya vs Lakshman AIR 1965 AP 220. In the said background it was submitted that the Legislature has provided for a specific over-ride in subsection (2A) of section 80IA of the Act over the provisions of sub-section (1) & (2) of section 80IA of the Act. It was submitted that it is not a mere general override and therefore, the provisions of sub-section (2A) should prevail over the sub-sections (1) & (2) of section 80IA. 8.6. Accordingly it was his submission that the enterprise engaged in the business of providing tele-communication services as per the legislative intent is entitled to the deduction u/s 80IA of the Act in respect of all profits and gains from tele-communication business regardless of its source and the deduction can not be restricted to profits directly "derived from" eligible business of telecommunication undertaking. 8.7. It was further submitted that had the legislature only meant to distinguish the rates of exemption allowed and the period of deduction to the companies providing tele-communication services as provided in sub-section (2A) ....
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.... only interpret the section, it cannot re-write, re-cast or re-design the section as the Court does not have the power to legislate. 8.13. The following decisions were relied upon so as to canvass that in the absence of any ambiguity/absurdity or conflict in the statutory language principle of literal interpretation should be applied to interpret the meaning and scope of the said section:- 1. Hirala Ratan STO AIR [1973] SC 1034; 2. Union of India & Others vs Deoki Nandan Aggarwal 922 Suppl. (1) SCC 323; 3. State of Kerala vs Mathai Verghese & Others [1986] 4 SCC 786. 8.14. Reliance was further placed upon Rishabh Agro Industries Services vs PNB Capital Services [2000] 5 SCC 515; and Padman Sundra Rao vs State of Tamil Nadu [2002] 255 ITR 147 (SC), for the proposition that it is one of the fundamental principles of interpretation of statute that omissions in statute as a general Rule cannot be supplied by construction. It was submitted that it is well-settled that while interpreting a provision a Court only interpret the law and cannot legislate. Even if a provision of law is misused and or is subjected to the abuse of the process of law it was submi....
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....ferent expressions have been used in different sections of the Statute they should be given a different meaning. Thus it was submitted that when the legislature has taken care of using different phrases in different section then normally different meaning is required to be assigned to the language used. Relying upon DLF Qutab Enclave Complex Educational Charitable Trust vs State of Haryana AIR [2003] SC 1648 and Oriental Insurance Company Ltd. vs Hansraj Bhai [2001] 5 SCL 175, it was submitted that it is well-settled that in relation to the same subject matter, if different words/terminology of different import are used in the same statute then there is a presumption that they are not used in the same sense. Thus the non-use of the term "derived from" in section 80IA (2A) it was submitted has to be given due weightage and the fact that the legislature was always aware of its implication is an undisputed fact. It was submitted that whenever intended the legislature has used the phrase "derived from" in the provision starting with non-obstante clause to carve out of different specified assessees. For the said purpose, attention was invited to section 80IB(II) which being a non-obstan....
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....he legislature had restricted the provision of section 80IA(1) of the Act twice i.e once by the Finance Act, 1999 then again by the Finance Act, 2001. Under both the Finance Act, it was submitted that the legislature has tried to expand or restructure and revamp the benefit and has not to sought to rectify any mischief. Hyden's Rule it was submitted prescribed that where there is a ambiguity in the language used the real meaning can be arrived at by finding out the aim, scope and object of the whole Act by considering the position of law before the Act was passed; the mischief or defect which the law had not prevented; what remedy the Parliament has provided and the reason for remedy. 8.21. Considering from the perspective of the Rule of beneficial construction and the Rule of harmonious construction also it was submitted that these principles prescribed that provisions must be so construed that the meaning of the provision must harmonious with the intention of the legislature behind the provision in particular and the enactment in general. 8.22. At the cost of reiteration it was submitted that if the intention of the legislature was only to provide an exception to the teleco....
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....sult of partial relief granted by the CIT(A) both the parties were in appeal before the ITAT the requirements of the tests judicially settled by Courts even for "derived from" would make the addition sustained bad in law. Referring to the record it is submitted that it is well accepted that the assessee has taken over the running business from the two Departments of the Ministry of Communication acting through Department of Telecom and Department of Telecom Operations. It was submitted that it is also not in doubt and is a well-accepted factual position that pursuant to the National Telecom Policy the assessee having taken over the erstwhile business from the Department of Telecom was required to be re-imbursed where the costs incurred were for ensuring last mile connectivity to the sparsely populated out lying areas of the country at times in difficult terrain etc. providing telephone services at affordable prices right upto the village panchayat levels. In order to achieve the socially desired aims and objects of the policy where no private player in the sector would want to invest as the costs vis-à-vis the profits are detrimental and not commercially viable. Thus these c....
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.... the accepted fact where as per the mandate from the Government of India the assessee was obligated to provide telecom services thus the compensation in the form of a refund from USO Fund is evidently income "derived from" the business of telecom undertaking of the assessee. 9.4. Addressing the issues of liquidity damages, excess provision written back agitated by the Revenue in their appeal and other miscellaneous income the submissions made before the CIT(A) and the decisions relied upon by the CIT(A) and before the CIT(A) as summarized in the written submissions dated 15.06.2015 was relied upon. The common stand being that each of the income considered by the AO sustained by the CIT(A) or deleted by the CIT(A) was on facts allowable even if considered by importing the play of sub-section (1) in section (2A) of section 80-IA by considering them in the light of the phrase derived from the business of telecom undertaking and thus even otherwise the additions have been rightly deleted by the CIT(A) dismissing the departmental grounds and is to be allowed by accepting the assessee's grounds. 9.5. However, consideration of these issues it was submitted would arise only if the as....
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...., reliance was also placed upon the decision of the Madras High Court in the case of CIT vs Gangotri Textile Ltd. [2013] 40 Taxmann.com 399 (Madras) [copy filed in the Court]. Attention was invited to the following head note of the said decision:- "Section 80IA of the Income tax Act, 1961 - Deductions - Profit and gains from infrastructure undertaking [Computation of deduction] - Assessment year 1998-99 - assessee suffered fire accident on 11.3.1996 - It subsequently made claim before insurance company and admittedly, same was compensated - assessee claimed that insurance money was paid to it for loss of production due to accident and, therefore, same would be considered for grant of relief u/s 80IA - Whether given fact that fire accident had taken place as early as 11.3.1996 and there being no nexus between claim before insurance company and subsequent loss arising out of industrial activity, compensation could be considered for purpose of granting relief u/s 80IA - Held, no [para 4] [In favour of revenue]." 10.2. Reliance was also placed upon the decision of the Mumbai Bench of the ITAT in the case of Essar Power Ltd. vs ACIT [2013] 32 taxmann.com 346 (Mumbai Trib.) c....
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....racts the incentives under Section 80-IA/80-IB is the generation of profits (operational profits). For example, an assessee company located in Mumbai may have a business of building housing projects or a ship in Nava Sheva. Ownership of a ship per se will not attract Section 80-1B (6). It is the profits arising from the business of a ship which attracts sub-section (6). In other words, deduction under subsection (6) at the specified rate has linkage to the profits derived from the shipping operations. This is what we mean in drawing the distinction between profit linked tax incentive and investment linked tax incentives. It is for this reason that Parliament has confined deduction to profits derived from eligible businesses mentioned in sub-sections(3) to (llA) [as they stood at the relevant time]. The phrase "Derived from" has been a very contentious issue while applying the provisions of Sections 80lA and 80lB of the Act and other similar provisions contain same phrase. The issue revolves around the contention whether deduction is applicable for all receipts/income of the ,assessee or is it restricted to profits and gains "derived from". The phrase derived from used in t....
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....ing of the assessee, so as to be eligible for deduction under section 80-IA of the Act. After giving a careful consideration to the relevant provision of the Act, facts of the case and judicial pronouncements, it is unambiguously clear that the incentive in the Act is meant for the eligible business and not for the source of income which has no direct nexus with the profit of the business of the undertaking, therefore the income shown as ancillary is not eligible for the deduction u/s 80IA of the Act." 10.5. The detailed arguments advanced by the assessee in support of its case that the additions sustained by the CIT(A) claimed to be derived from the eligible business was disputed by the Ld.CIT DR again relying upon Liberty Shoes and it was her argument that the relief granted is contrary to the said decision and the clear mandate of law. Reliance was also placed upon the assessment order. 10.6. Though the Ld.CIT DR had initially taken the stand in passing after advancing her arguments that the legal position was not canvassed by the assessee before the CIT(A) and thus in the absence of any discussion in the impugned order the issue may be sent back to the CIT(A). Ho....
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....re reading of para 6 of the said order would show that no facts were placed either before the ITAT or before the Hon'ble High Court and it is on this count that the finding of the ITAT was reversed. The issue therein it was submitted was the compensation received, stated to be from the business activities and for want of necessary supporting facts it was held that the compensation could not be held to be derived from the undertaking for the purposes of inclusion u/s 80IA of the Act. 11.2.1.Thus in the absence of relevant material the nexus was held to be not borne out from the record. The submission is found to be correct and is evident from the relevant extract reproduced hereunder for ready-reference:- 6. "As far as the Tribunal's order is concerned, reliance placed on the decision of the Delhi Bench of the Tribunal rendered in the case of Rollatainers Ltd. (supra) is totally misplaced, since, as is evident from the order of the Tribunal, the case dealt with by the Delhi Bench related to the compensation received on the goods damaged while in transit. As far as the present case is concerned, even though we directed the assessee to produce the details regarding the fir....
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....f the undertaking and be eligible for deduction. In other words, the above judicial precedents support the view that where the language employed does not include the phrase 'derived from' the same cannot be read into the provisions of the Act." 12. We have heard the rival submissions and perused the material available on record. It is seen that the Ld. AR in the course of his arguments, apart from addressing the specific grounds raised by the assessee and addressing the specific grounds raised by the Revenue has raised a preliminary objection to the maintainability of the additions based on the restrictions placed by sub-section (1) if section 80-IA. The objection has been raised on the ground that the restriction of "derived from" contained in sub-section (1) cannot be read into the provision of sub-section (2A) of section 80-IA. The argument has been that this issue which should have been addressed at the threshold as a preliminary issue has been left unaddressed. It has been submitted that none of the additions could have been made as the reasoning for sustaining the same by the CIT(A) is against the legislative intent as set out in sub-section (2A) of section 80IA. According....
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..... 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 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 r....
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.... 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 telecommunication 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 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 subI. section to be construed in the above manner. 13.5. ....
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....-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 ....
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....quirements 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 subsection (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 subsection (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 o....
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....peration. 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 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 wha....
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....dia (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). 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 ....
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....opping 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 subsection (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....
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....d in the decisions relied upon are not being separately addressed as in the facts of the present case, we find that the meaning of the statute does not lay itself open to any other meaning. Thus though reference is not being made to the decisions, we have given our careful consideration to the ratios of the decisions relied upon by the parties and the principles laid down in the two texts cited before us. We are indebted to the erudite and well-prepared effective representation made by both the sides. By way of greater caution, we have required the parties to address their respective stands by written submission and synopsis being conscious of the fact that the preliminary argument if allowed would address the issues raised in both the appeals and more so since these arguments admittedly on the legal issue were not so argued before the tax authorities. We record our appreciation for the confident and effective representation of Ld. CIT DR, Ms. A.Mishra. We also put on record our appreciation for the well-seasoned and tempered arguments advanced by Sr. Advocate, Mr. P. Pardiwala supported by the synopsis and updated synopsis prepared and filed by his team of lawyers. However having ....