TaxTMI 
TaxTMI 
2018 (12) TMI 400
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....riate to consider and adjudicate the said controversy first. The background and facts in brief leading to making of an addition of the aforesaid sum by way of short term capital gains are being recapitulated here as under: 3.1 The assessee company was incorporated on 24.02.2012 as, "M/s Telewings Communications Services Pvt. Ltd." which is a part of Telenor Group. The appellant was engaged in the business of providing telecommunication services. The assessee is a subsidiary of Telenor South which held 74% of shareholding of in the assessee company. The appellant and M/s Unitech Wireless (Tamilnadu) Private Limited are group companies of the foreign parent company namely, Telenor ASA (in which Government of Norway held majority shares) ('Telenor Group'). M/s Unitech Wireless (Tamilnadu) Private Limited (herein after referred to as 'UW'), an Indian company, was engaged in the business of providing telecom services in India. It had been stated that the majority shares of UW were held by Telenor Group which is a Norway based company engaged in the telecommunication business. In the year 2008, "UW" and its affiliates had been granted 22 unified access service licenses ('UASL') by Dep....
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....d to is extracted here below:- Query Response The original entry level Pan India license fee of Rs. 1506.82 crore (along with interest from the date of payment of such license fee) which was paid for acquiring the licenses, which are quashed by the Hon'ble Supreme Court for no reason attributable to a licensee, should be allowed to be set off against the earnest money required to be paid for participating in the new auction and against the successful bid amount in the event of a successful bid. In the event there would be any shortfall in the money required to be paid by xxx on successful bid and the license fee already paid to you in respect of the quashed 21 UASL, xxx shall obviously pay such additionally. A set off is allowed against the Earnest Money and the payment due in the event of spectrum being won in this auction. The total amount of such set off shall be limited to the total entry fee paid by the entity for all its licenses which have been quashed by the Supreme Court. No interest will be due on this amount. 3.4 It was pointed out before us that, earlier to the fresh auction, the appellant and Telenor Group also addressed several letters to DoT seeking cl....
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....eement, the appellant acquired the entire right, risk and interest of UW in its business as a going concern, other than "excluded assets" and "excluded liabilities". "Excluded Assets and liabilities" were defined in the BTA. 'Excluded assets' did not include all the UASLs etc. which were either incapable of being transferred or which may be transferred with consent, but such consent had not been received on or before the completion date. The relevant extract of the agreement was as under: "(a) All the UASLs, ILD license, NLD license and any other statutory license acquired by the seller in the due course of business which are either (i) incapable of being transferred, or (ii) which may be transferred with consent, but such consent has not been received on or before the Completion Date. (b) Spectrum allotted to the seller by the DoT in each circle; *** (e) all causes of action (including counterclaims) and defences against third parties relating to any of the Excluded Assets or the Excluded Liabilities as well as any books, records and privileged information relating exclusively thereto (the Excluded Claims)." 3.6 The appel....
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....ms judgments, demands, lawsuits, causes of action, choses in action, rights of recovery and other rights of Unitech Wireless, whether arising under tort or contract, arising under or in connection with all warranties and representations , implied or express, all actions , indemnities and guarantees against the DoT relating to the grant by the DoT of the UASLs to Unitech Wireless and the payment of the License Fee for the UASLs granted to Unitech Wireless by the DoT in 2008 shall together constitute Actionable" 3.8 The consideration for transfer of such actionable claim had been agreed at 50% of the amount of set off allowed to appellant. It was also stated in the said agreement that, if the DoT rejects or fails to provide its approval on the set off of license fee to the appellant by 18.01.2013, the Actionable Claims shall be transferred back to UW and the agreement shall expire. On 06.12.2012, the appellant intimated the DoT about the execution of the BTA and Actionable claim agreements and requested DOT to grant an approval for the implementation of business transfer and also to allow a set-off of entry fee paid by UW to the appellant it being successor-in-interest of UW. O....
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.... stood reduced which had reduced the cost of licenses. The appellant further contended that the set off was allowed to it not because it had any right in it but on the principle of equal restitution when the Government took a policy decision. This contention of the assessee had been supported by "Report No. 55 of 2015" of the Comptroller and Auditor General of India which had been tabled before both the Houses of Parliament. In the said report, it was submitted before us that in the said report CAG had itself held that M/s Telewings Communications Services Private Limited had no right on set-off from the earlier licence paid which was cancelled by the Hon'ble Supreme Court. The appellant's alternative submission before the AO was, the amount of set off was a capital receipt since the set off allowed, was in the nature of concession and had not resulted by way of independent business transaction. 4. The learned AO however held that on the execution of business transfer agreement, does not give rise to a taxable event during the year in the hands of the assessee company but execution of the actionable claim agreement gave a rise to a taxable event. He held, that the appellant had ....
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....ng the cost of acquisition by the amount of set off allowed to it by DoT. He further in the alternative also held that the acquisition of right to set off of the license fee and subsequent set off allowed by the DoT against the license fee payable for fresh licenses, is adventure in the nature of trade and commerce and it is covered u/s 28 of the Act and as such is taxable under the head profits and gains from business and profession. 6. Before us, learned Senior Counsel Mr. C. S. Aggarwal ahd not argued the case at length not only orally but also in writing which briefly are set out as below:- (a) There existed no right of set off with UW. It had been submitted that UW had in the year 2008 paid onetime nonrefundable entry fee and soon the licenses got cancelled, all rights, title and interest in the said licenses got terminated with no right of refund to it. This is well demonstrated from the agreement entered into by the appellant with DoT. He contended that the learned CIT (A) has erred in his order when he observed that there was no agreement entered into between UW and Government of India, which is factually incorrect. (b) That the appellant on 06.12.2012 ....
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....tted only to the quashed license holder participating in the auction and since the appellant was not the quashed license holder, set off of entry fee paid by UW (quashed license holder) against the payment due from the appellant was not as per approval of empowered group of Ministers. (g) It was further contended by him that the appellant had not acquired any right to claim a set off which right of set off could only be acquired by it from the Government which alone was capable to grant such a set off had been allowed. (h) That the amount stated to have been set off was an amount waived off by the Government in part and not that the appellant had acquired any right in capital asset which could have been transferred by it. (i) The learned Counsel further submitted that in the absence of any enforceable right in law to claim refund or set off being in existence been with UW, no capital asset much less stated to have been held by the UW, it could not have been held by the revenue, that the assessee had acquired any right of set off. He had emphasized that the right must be such a right which is enforceable in law. He contended that there being no enforceable....
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....t had acquired any capital asset when there existed no capital asset with UW. 8. Elaborating its first contention, the ld. Senior Counsel submitted that upon cancellation of the licenses by the order of Apex Court, the licenses allotted to UW in 2008 stood quashed and all the rights, title and interest in the said licenses were terminated. As per the terms of the agreement between UW and DOT, the one-time entry fee paid by UW in respect of such licenses was non-refundable. Further, there being no provision, under the agreement, for claiming of a refund or set off of such entry fee. It could not been held that there was any vested right with the license holders to seek either a set off or a refund thereof. Accordingly, there being no right with UW to claim a set off or refund of such entry fee from DOT, which could be stated to be enforceable in law. The Hon'ble Supreme Court in its order dated 02.02.2012 had neither dealt with issue of the Entry Fee paid to Government of India by those 122 License holders nor it had dealt with process of claiming the refund of such amount or adjustment, if any, which is to be made in future in respect of spectrum fee deposited by license hol....
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....e parties was that entire business, customers, employees etc. of UW including claims and counter claims of third parties and DoT for the period in which the cancelled licenses are in operation to be acquired by the appellant with approval of DoT. Due to regulatory norms and commercial reasons, the part of the DoT's claims over UW and UW's claim over DoT were kept under the agreement of actionable claims though the same were part of the overall business operations which had been transferred to the appellant. In effect, both the agreements were composite and integral to each other which relates to the transfer of business with lock, stock and barrel including contingent assets and liabilities of UW. Accordingly, the set off allowed by DoT to the appellant is part of the overall transaction of acquisition of business of UW and was not a separate independent transaction which was in the nature of acquisition of any capital asset. 12. The learned Senior Counsel had emphasized that the such a set off was allowed by DoT to the appellant not by virtue of the agreement entered with UW but as per the policy decision taken by the Empowered Group of Ministers (EGoM) based on the pri....
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....rt states that on February 23, 2013 a decision was taken by the DoT that no set-off of this non-refundable spectrum fee would be given to appellant. However, subsequently in the meeting convened by the EGoM in March, 2013, a decision was taken to permit the set off to the appellant. Therefore, in substance, the set off was allowed to appellant not by virtue of the agreement it entered with UW, but as per the policy decision of Government of India. Accordingly, the amount of set off bestowed upon the appellant by the Government of India is not in the nature of a capital asset which could be transferred by UW or acquired by the appellant under an agreement. 13. The Senior Counsel further submitted that the amount of set off allowed by the DoT to appellant against the fresh spectrum fee is not chargeable to tax as the same arose in the capital field and on account of the reason that the appellant being successorin-interest in the business of quashed licenses of UW which had been statutorily recognised by the DoT and Government of India. Therefore, the amount of set off of Rs. 1,658.57 crores from the license fee payable by the appellant to DoT, was on account of spectrum fee can....
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....a public sector undertaking and the loan and the later waiver were from the Government of India. The loans under the SDF were specifically for meeting the capital cost of the assets, on which depreciation was being claimed." 15. Accordingly, it had been submitted by him that the amount allowed by the DoT to be set off with fresh spectrum fee only had an effect to reduce the cost of spectrum allotted in fresh auction, which resulted into reduction in the cost of spectrum cost eligible for depreciation under section 32 of the Act. Thus, the effect of the completion of the transactions under the Business Transfer Agreement and Actionable Claim Agreement that both had become part of the single transaction i.e. transfer of the business of UW in favour of the appellant on going concern basis. It had been further submitted that the appellant has already reduced the amount of set off by claiming depreciation on lower value and hence the amount in question cannot be held chargeable to tax either as short capital gain or as an income from business and the treatment accorded by the appellant for the tax purposes deserves to be accepted as proper and valid. His submission was that the set o....
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..... Further, the DoT guidelines applicable at that time did not permit trading/sharing of spectrum with pre-approval from DoT. It was privy only to the Appellant and the Appellant alone could use it to render permitted telecom services. Thus, the right of set off against the spectrum fees cannot, by any stretch of imagination, be construed in the revenue field or sum chargeable to tax under the head PBGBP. It has been held by the Apex court in number of cases that to determine the nature of receipt (i.e. either capital or revenue), it is important to carry out a purpose test i.e. a purpose for which the amount is being received by an assessee. The Learned Senior Counsel placed reliance on the case of CIT v. Ponni Sugars & Chemicals Ltd. [2008] 306 ITR 392 (SC). The purpose of such set off is merely to obtain benefit in the capital field and that is allowed by the Government voluntary by taking policy decision. 18. The proposition that, whether the sum is receipt in the nature of capital or revenue is well defined, i.e., as a general rule, a receipt is capital in nature when it is relatable to fixed capital and on the other hand, revenue receipt is a receipt when it is relatable to....
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.... property and the amount paid by it to DoT was non-refundable and on the quashing of the licenses, the said fee paid became non-existing asset and was thus not transferrable. As such in the absence of UW had any interest in a movable property, there could have been no agreement of transfer and any such agreement was void. The mere fact that there was some negotiation going on between the appellant and UW and possibility of Government decision on said issue, there exist no right which was transferrable and as such in the absence of any right being in existence there could have been no right acquired by the appellant nor could there have been any transfer made by UW. The letter dated 31.03.2014 merely shows that DoT on its own volition had set off the entry fee paid by UW against the payable bid amount by the appellant company when it directed the appellant that, the amount equated annual installment of Rs. 200,45,84,952/- will be paid. It was a mere concession given by the Government and there was no right, title or interest had been acquired by it from UW as an asset which was transferrable. In short, the learned Senior Counsel for the appellant contended that the amount of non -re....
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....tion 5 of the TP Act defines the expression 'transfer of property' without attempting to define the term 'property'. It would, however, suffice to say that the term 'property' is used in its widest and most generic legal sense so as to include all actionable claims. Section 6 states that property of any kind may be transferred, except as otherwise provided by the TP Act or by any other law in force for the time being. Clauses (a) to (i) which immediately follow enumerate what cannot be transferred. Clause (e), with which is relevant in the given case, states that 'a mere right to sue cannot be transferred'. Accordingly, in the given case, upon termination of contract between UW and DoT, the only right which survived with UW was a right to sue for damages/compensation on breach of contract. This right was not an actionable claim within the meaning of section 3 of the TP Act, since it could `not be said to be a debt or a beneficial interest in movable property not in the possession of UW. It was a mere right to sue which could not be transferred by virtue of section 6(e) of the TP Act. In view of the aforesaid, the appellant has neither acquired ....
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....rms 'consideration' and 'compensation' or 'damages' have distinct connotations. The former in the context of sections 45 and 48 would connote payment of a sum of money to secure transfer of a capital asset; the latter would suggest payment to make amends for loss. But once there was a breach of contract by one party and the other party did not keep it alive but acquiesces in the breach and decides to receive compensation thereof, the injured party could not have any right in the capital asset which could be transferred by extinguishment to the defaulter for valuable consideration. That was because a right to sue for damages not being an actionable claim, a capital asset, there could be no question of transfer by extinguishment of the assessee's rights therein since such a transfer would be hit by section 6(e). In any view of the matter, the impugned sum received by way of compensation by the assessee was not consideration for the transfer of a capital asset. Moreover, if the revenue fails to show that the assessee had incurred a cost as in the present case, it would be impossible to compute the income chargeable to tax under the head 'Capital gains&#....
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.... was argued that the amount of set off allowed could not be taxed in the year under consideration since the agreement for acquisition of actionable claim had not been culminated in as much as only one to the transaction has been completed and other remains yet to be settled between the DoT and the appellant. It had been submitted that at best, the amount allowed to be set off by DoT was mere advance of money to appellant and could not be termed as transfer of capital asset namely alleged set off of spectrum fee. As per the actionable claim agreement, bunch of assets and liabilities had been acquired by appellant from UW. As a precondition for approving the BTA, DoT sought an undertaking from the appellant, where it was required to assume various contingent liabilities of UW, including dues owed to the DoT. The appellant recorded the said fact in the amendment agreement dated 30.12.2013 that the consideration for transfer of actionable claim was revised due to various liabilities assumed by the Appellant by way of giving undertaking to DoT for the cancelled licenses. Accordingly, the payment of Rs. 100 crores was merely a part payment for actionable claims and the remaining amount s....
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..... Thus, he submitted that the cost of acquisition was indeterminate in the given case and the same was supported by the provisions of TP Act. Accordingly, the capital gains cannot be computed and taxable in the year under consideration. The final taxability of gain or loss, if any, could be considered in the year in which all the claims and counter claims are settled by the DoT and not in the piecemeal manner. 25. With respect to the last contention that there is no transfer of any asset as envisaged under section 2(47) of the Act, the appellant contended that the AO and the Ld. CIT (A) were incorrect in making a finding that upon exercise of right to set off by the appellant on 31.03.2014, the capital asset acquired from UW under the actionable claim agreement was extinguished which constituted as transfer as per section 2(47) of the Act. On this his submission was that the appellant had exercised such right by way of surrender as per the contractual and policy decision of the Government of India, and thus, could not be termed as extinguishment of rights therein or exchange as alleged by the AO and Ld. CIT(A). Surrender of rights does not amount to 'transfer' within the....
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....s independent right and was not a part of business transfer agreement. (b) It was next submitted by him that the set off of refund of Rs. 1558.70 crores to UW can be said to be amount received by it, based upon the right of equal restitution. However he submitted that the transfer of his right of the set off from UW to the assessee is not based on right to equal restitution. He stated that the transaction entered by the assessee was commercial transaction based upon the payment of Rs. 100 crores to UW. He further submitted that the appellant is trying to push the non-existing fact, there was a contract between UW and Government of India as per Indian Contract Act 1872 and what was transferred by UW to the appellant was a right to set off of refund and not any right to sue. (c) His further contention was that the reliance placed by the appellant on CAG's report that the same was tabled before the Parliament on 11.03.2016 and was thus not available upto the date of filing of return which is subsequent event and cannot be affect taxability of the amount in the year under consideration. It was stated by him that subsequent report cannot be stated to be that the amount....
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....sition and documents were placed on records which are completely disregarded and misconceived. The two agreements were made because of the no clear guidelines issued for transfer of business of UW. In respect to the second contention, the Senior Counsel Appellant relied on its earlier submission that the set off was allowed to the appellant merely by way of a policy decision of Government of India and based on right to equal restitution. The relevant quote of the report of the CAG was extensively relied upon by him to supports the said view. Also, the Ld. CIT (DR) also not disputed the finding of the CAG and DoT stated in the CAG Report. Also, the contention of the Ld. CIT(DR) that there is no agreement between UW and Government of India was factually incorrect and devoid of any merit as the Government of India through DoT had entered into an agreement with UW vide agreement dated 29.02.2008 which constituted a valid contract as per the provisions of Indian Contract Act, 1872 which was placed on record by the appellant. Further, the Ld. CIT(A) failed to appreciate that UW had no other right except right to sue Government of India for breach of contract. Even such rights have been i....
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....ies Ltd. v. Commissioner of Income-tax (2002) 259 ITR 651 (Madras HC). It was also contended by the Ld. CIT(DR) that the Assessee had made an application to DoT seeking a set off of spectrum fee paid by UW wherein it had never been contended by it that it would sue the DoT if the set off was not granted. The contention of the Ld. CIT (DR) that since there was no notice issued of threat to sue it amounts to acceptance/admission on the part of the Assessee that it had a right to seek a set off of the spectrum fee paid by UW. It was submitted by Senior Counsel that on the face of it such a contention was fanciful. It was submitted that by making an application with DoT, the Assessee had not get vested with the right to set off. The Assessee could not adopt two course of action, one by threatening to sue and other by seeking benevolence. The all what assessee did was seeking a benevolence which benevolence was in the nature of waiver or concession in the amount of spectrum fee payable to DoT in respect to the fresh licenses. Decision 29. We have considered the rival submissions, perused the relevant material placed on record including the written submissions filed by both the par....
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....llant placed on record the report of CAG which was tabled before the Parliament on 11.03.2016 in support of its contention that the "non-refundable entry fee" paid by the telecom companies which is not liable to be transferred or refundable in any circumstances. v. That under the terms of the contracts of allotment of licenses in 2008 the same did not provide for any refund of the entry fee paid by the operator DOT as the same were non-refundable even in the case of surrender of licenses. vi. The appellant company was incorporated on 24.02.2012 in which the Telenor Group held 74% equity and remaining shares was held by an Indian Company, Lakshyadeep Investment & Finance Limited. vii. That the appellant had been incorporated to act as telecom operator in India with intention to provide telecommunication services in India. viii. That on the directives of the Hon'ble Apex Court, DOT had issued a Notice Inviting Applications (NIA) in public domain on 28.09.2012 and further it had subsequently published responses to the Queries to NIA on 12.10.2012 of the telecom companies who had desired to participate in the fresh auction. Such responses made by DOT....
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.... and indemnities with respect to the liabilities of UW in respect of the quashed licenses. g) Finally, on 31.3.2014, the DOT allowed the set off of Rs. 1658.57 crores to appellant on without prejudice basis. 30. The above facts are demonstrated from the records placed before us. Considering the aforesaid fact and having heard the contentions of both the parties in respect of the taxability of a sum of Rs. 1658.57 crores under the head capital gain, it is necessary for us to render our findings about the nature of the receipt. It is undisputed fact that the assessee had been allowed a set off of Rs. 1658.57 crores by DoT on 31.03.2014 and was without prejudice basis. The aforesaid sum has been brought to tax as short term capital gain. In order to attract the provisions of section 45 of the Act, it is axiomatic that there has to be an income derived by the assessee on transfer of a 'capital asset'. In the instant case in our opinion the appellant had not acquired any capital asset from UW under an agreement dated 06.12.2012, since UW had no such asset held by it at any point of time. The 'asset' in the instant case, is stated to be a 'right' in a property. There is no di....
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....trum Auction and will have no future operations effective 18 January 2013 as a result of which Unitech Wireless will not be able to claim the benefit of the set off of License Fee which has been permitted by the DoT. Further, the business of Unitech Wireless to be transferred to Telewings as a result of which Telewings will be entitled to claim set off of the License Fee against payments being made it to the DoT (Set Off). The parties have agreed that Telewings shall pay fair consideration, which has been computed on an arm's length basis to Unitech Wireless for facilitating such entitlement and the parities. Therefore, wish to execute this agreement to record the terms thereof. .... TRANSFER OF ACTIONABLE CLAIMS .... "1.2 All claims judgments, demands, lawsuits, causes of action, choses in action, rights of recovery and other rights of Unitech Wireless, whether arising under tort or contract, arising under or in connection with all warranties and representations , implied or express, all actions , indemnities and guarantees against the DoT relating to the grant by the DoT of the UASLs to Unitech Wireless and the payment of the License Fee for the UASLs g....
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....fer of Actionable Claims from Unitech Wireless to Telewings, Telewings shall make a payment of Unitech Wireless which is the lower of: (a) INR 100 crore; or (b) 50% of the value of the Set Off permitted by the DoT. Which the parties agree would be the fair value for the Actionable Claims (Consideration)" (b) The Parties agree that as on the date of this letter, clauses 4.1(a) and 4.1(b) of the Agreement will stand deleted in their entirety." 32. In view thereof, we are of the considered opinion that UW had no enforceable legal right, title, interest in the amount of non-refundable entry fee paid by UW to DoT. Once we conclude that, there was no right, title, interest which was enforceable in law, the answer to the issue involved, in our opinion is that, since UW had no right, title, interest in the said non-refundable entry fee or it was not entitle to make any claim from DoT for set off of the said license fee, UW could have not transferred any such right so as to enable the appellant to acquire such an alleged right. 33. Further, the fact that the appellant had paid Rs. 100 crores to acquire such a right, under the actionable claim agreem....
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....012) DoT for allowing set-off of the onetime entry fee of ` 1658.57 crore paid by M/s. Unitech in 2008 for obtaining 22 UAS licenses which was cancelled by the Hon'ble Supreme Court. On 23 February 2013, a decision had been taken by the DoT that no set-off of the non-refundable entry fee was permissible to TCSPL on the grounds that set-off would be permitted only to the quashed license holder participating in the auction and since M/s TCSPL was not a quashed license holder, set-off of entry fee paid by Unitech (quashed license holder) against the payment due from TCSPL (participating entity), was not as per approval of EGoM. On 05 March 2013, TCSPL again requested DoT that though they were separate entity, DoT should set-off the one-time entry fee paid by the Unitech group against the payment due from them. On the same date (i.e. on 05 March 2013) a note for the EGoM was prepared and the same was approved in the meeting of the EGoM held on 06 March 2013. Audit observed that the 'supplementary note' to EGoM prepared on 05 March 2013 did not include the facts regarding suppression of vital information at the time of submission of their application, submission of false certif....
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....T in its note. Further, despite DoT's awareness regarding pendency of the matters pertaining to criminal liability of the M/s Unitech Wireless before the various courts, DoT neither brought it to the notice of EGoM in its note nor waited till finalization of these matters and allowed set-off of one time entry fee paid by M/s Unitech against the auction price payable by M/s TCSPL. * Since TCSPL was a separate legal entity and a new company incorporated (24 February 2012) after the Hon'ble Supreme Court judgment (02 February 2012), it was not eligible for setoff against payment made by another legal entity. DoT had not initially allowed the proposal of set-off on this ground, but subsequently referred the request for set-off to EGoM, which was approved by EGoM on 06 March 2013. * Since the one-time entry fee paid by the operators was nonrefundable as per the license agreement, the question of the claim for refund with interest for the pro-rata amount for the balance period as stated by the DoT does not arise. * Even the revenue of ` 7741.65 crores earned by these companies from the quashed licenses since 2008 was not considered by DoT while preparing the no....
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....ion to allow setoff was an administrative decision taken by the EGoM on 06.03.2013 and initially the request of the Telenor Group was not acceded to by the DoT in accordance with the then existing policy/guidelines on the issue. 35. From the perusal of the aforesaid report and as observed above, it is evident that CAG was also of the considered opinion that UW had no right, title, interest to claim any set off and so far as the appellant is concerned, in any case, the appellant had no legal enforceable right to seek a set off and has been also stated in the aforesaid report of CAG, as being not allowable to the appellant. On the issue of nature and effect of CAG report, it was submitted by the learned Senior Counsel that CAG, which is a constitutional body, in its Report prepared under Article 151 of the Constitutionand tabled before the Parliament, is binding in nature which deserves to be taken into consideration to decide the present issue, especially when it dealt with the controversy arising on account set off of non refundable entry fee to various telecom operators. He further submitted that the Article 151 of Constitution of India is binding on all executive and statutory....
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.... were linked with overall business operations of UW which were acquired by the appellant as a going concern. The submission of Mr. Aggarwal that, on account intention of the appellant to be treated as successor-in-interest of the business UW and subsequently agreed to take excluded liabilities of UW towards DOT, clearly shows that the transaction of set off entry fee is not independent transaction but composite transaction in respect of acquiring the business of UW with all assets and liabilities are acceptable, and is thus accepted. 38. In view of our finding in preceding paras, that alleged right to set off is not a capital asset in the hands of the appellant on account of set off by DOT on 31.3.2014, otherwise also, we hold that, the appellant had not acquired any capital asset and as such no asset was transferred by it by way of alleged extinguishment. Thus, the other contentions raised in the course of hearing by the parties were mere academic in nature and do not require separate adjudication. Accordingly, the action of the AO and Ld. CIT (A) is reversed on this count. 39. Having dealt with chargeability of such amount as short term capital gain, we are left with the al....
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.... and not by way of adventure in nature of trade. The CIT (A) in its order placed reliance in the case Of CIT vs. Kasturi Estates reported in 62 ITR 578 which is clearly distinguishable as the issue in the said case was whether the sale and purchase of land would fall under capital field or revenue field. Accordingly, the appellant also succeed on this count. In view of the above, the ground nos. 2 to 4 are allowed. 41. The second issue involved in this appeal is in respect of the taxability of unearned revenue of Rs. 220.80 crores in the current year i.e. AY 2014-15. 42. As discussed above, the Appellant is engaged in the business of providing telecom services and only operates on the Pre-Paid business model. The Appellant does not provide Post Paid mobile services. The main revenue of the Appellant comprises of subscription revenue from Pre-Paid plans in the form of talk-time and revenue from Interconnect Usage charges are received from other telecom operators. During the year under consideration, the Appellant had reported a revenue from operations amounting to INR 1,263.4 crores in its audited financials. The subscription received which remained unutilised at year end amou....
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.... whether used or not. The said treatment is in conformity with AS-9 on Revenue Recognition which is duly disclosed in Notes to Accounts and has been consistently followed by the Appellant. For revenue from rendering of services, the AS-9 provides that revenue from services should be recognised when all of the following criteria are satisfied:- * Performance has been achieved; * Revenue is measurable, i.e., no significant uncertainty exists regarding the amount of the consideration that will be derived from rendering the service; * It is not be unreasonable to expect the ultimate collection. As all the above conditions are to be met cumulatively, thus revenue could not be recognised until the performance of service has been achieved. Since, the appellant is yet to provide the services in respect to the unutilised talktime of the customers, the revenue in respect to the same was not booked in the financial statements as income and recorded as unearned revenue in the Balance Sheet. The appellant has placed reliance on decision of Hon'ble Delhi High court in the case of CIT v Dinesh Kumar Goel [2011] 331 ITR 10 (Delhi) where it is specifically held tha....
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.... 45. The learned CIT (DR) placed reliance on the order of AO and CIT(A) and argued that the income is accrued to the appellant in the current year as all the conditions as per AS-9 are already met and no further efforts are required from the appellant in future. Further, it was submitted by him that the appellant is under no obligation to refund the unused amount of talk time to the customers. He further contended that the decision of this Tribunal in the case of Shyam Telelinks Limited (Supra) deals with the method of accounting followed by the assessee. As this is the first year of operations of the appellant, there is no precedent in the case of appellant regarding the method accounting. 46. We have heard the rival submissions of both parties, perused the material placed on record and the orders of the lower authorities. The contention of Mr. Aggarwal is that the amount of unearned revenue has not accrued to the appellant during the captioned assessment year and accordingly, not taxable in given year. He has placed reliance on the decision of this Tribunal in the case of ACIT vs. Shyam Telelinks Limited (Supra) which was subsequently followed in the case of DCIT vs. Sis....
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....ver is earlier. As long as assessee is under obligation to provide talk time, it cannot be said that a debt has accrued in favour of assessee-company against the subscriber. The assessee cannot appropriate the charges relating to available talk time to the exclusion of subscriber as long as it is under obligation to provide the said services. Therefore, the Commissioner (Appeals) in principle has rightly accepted the mode of revenue recognition by assessee. The department has submitted that from the system followed by the assessee, there is every likelihood of revenue leakage. In this regard it was submitted that the matter can be restored to the file of Assessing Officer for verification of this aspect only. Therefore, the matter is restored to the file of the Assessing Officer for the limited purpose of verification whether in the subsequent year the assessee has declared the revenue in respect of expired prepaid cards or not. In case no discrepancy is found in this regard, no adjustment is called for with the assessee's mode of revenue recognition. [Para 16]" 47. The aforesaid approach had also subsequently been followed by the Tribunal in the case of DCIT vs. Sistema Shy....