TaxTMI 
TaxTMI 
2019 (11) TMI 168
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....98 OF 2016 CIVIL APPEAL NO .497 OF 2016 CIVIL APPEAL NO .493 OF 2016 CIVIL APPEAL NO .14624 OF 2015 CIVIL APPEAL NO .13550 OF 2015 CIVIL APPEAL NOS .1370513711 OF 2015 CIVIL APPEAL NO .13590 OF 2015 CIVIL APPEAL NO .13587 OF 2015 CIVIL APPEAL NO .13586 OF 2015 CIVIL APPEAL NO .13585 OF 2015 CIVIL APPEAL NO .13591 OF 2015 CIVIL APPEAL NO .13538 OF 2015 CIVIL APPEAL NO .13588 OF 2015 CIVIL APPEAL NO .13593 OF 2015 CIVIL APPEAL NOS .1359513596 OF 2015 CIVIL APPEAL NO .13584 OF 2015 CIVIL APPEAL NO .13574 OF 2015 CIVIL APPEAL NO .13681 OF 2015 CIVIL APPEAL NOS .1358113582 OF 2015, CIVIL APPEAL NO .13592 OF 2015 CIVIL APPEAL NO .13699 OF 2015 CIVIL APPEAL NO .13697 OF 2015 CIVIL APPEAL NO .13698 OF 2015 CIVIL APPEAL NO .13680 OF 2015 CIVIL APPEAL NOS .60226044 OF 2016 CIVIL APPEAL NO. 8275 OF 2019 @ SPECIAL LEAVE PETITION (C) NO.20219 OF 2016 And CIVIL APPEAL NOS .86468648 OF 2018 For The Parties : Mr. Ramji Srinivasan, Sr. Adv., Mr. Somiran Sharma, AOR, Ms. Manju Bajpai, Adv., Mr. Shashwat Bajpai, Adv., Mr. Vishnu Sharma, Adv., Mr. Tushar Bhardwaj, Adv., Mr. Biju P. Raman, Adv., Mr. Jagjeet Sahani, Adv., Mr. Palak Verma, Adv. Mr. Dhruv Tamta, Adv., Ms. Binu Tamta, Adv., Mr. Mohit D.....
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....t two decades, definition of gross revenue has been litigated upon, though the intendment was to keep it free from the same and various disputes. Notwithstanding the fact that disputes have been raised, and despite the fact what is the meaning to be given to gross revenue, was agreed upon between the parties. The telecom sector was liberalized under the National Telecom Policy, 1994 and various licenses were issued to companies under Section 4 of the Indian Telegraph Act, 1885. The licences granted to the service providers stipulated a fixed licence fee, which was payable by the service providers every year. 2. However, as the said fixed license fee was very high and the telecom service providers consistently defaulted in making the payments, the telecom service providers made a representation to the Government of India for relief against the steep license fee. The said representation was considered and keeping the interest of the country, and the telecom sector in mind, a new package, known as "the National Telecom Policy, 1999 Regime" giving an option to the licensees to migrate from fixed licence fee to revenue sharing fee was made applicable in the year 1999. The National Te....
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....ing with the exclusive privilege the Central Government had. ii. The Telecom Policy, 1999, was so designed that the Government becomes a partner or sharer of "gross revenue." iii. From out of money received under the head of "Adjusted Gross Revenue," the Central Government took a conscious decision to spend money to remote and uncovered areas, rural areas, tribal areas, and hilly areas to ensure maximum teleconnectivity. iv. The said objective was achieved, inter alia, by giving subsidies for the establishment of telecom infrastructure in such areas 5. Fifteen percent AGR was fixed as license fee under "revenue sharing," which was reduced to 13 percent and lastly to 8 percent in 2013. It appears that the "revenue sharing" package turned out to be very very beneficial to the telecom service providers, which is evident from the continuing rise in the gross revenue, which is as follows: Financial Year (ending in March) Gross Revenue earned by TSPs (in crores) 2004 4,855 2006 2,666 2007 89,108 2008 1,05,061 2009 1,43,044 2010 1,44,232 2011 1,60,251 2012 1,82,637 2013 2,04,221 2014 2,24,430 ....
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....nue to levy the license fee were as under: "For ascertaining the Revenue, income is proposed to be considered on an accrual basis while deductible expenses are proposed to be considered on an actual or passthrough basis. Also, logically, the LICENSEE should be required to pay license fee only on that income which he has actually obtained. In view of this, the above mode of revenue is inequitable. Hence, both the income as well as deductible expenses should be computed on actual basis to arrive at an equitable and fair figure of revenue on which the License Fee can be levied. Income from interest, dividend, etc. are also proposed to be included while computing the Revenue. Such income is purely nonoperational income as it is earned from sources other than the provision of SERVICE and is recognised to be so by all statutory authorities including the ICAI, SEBI and the Stock Exchanges. Hence, no license fee should be levied on such income, and accordingly, such income should not be included for computing the figure of REVENUE. All such deposits as are credited to the P&L Account are proposed to be covered in REVENUE. This is irrational since these ....... Fu....
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.... and C Circles respectively ought to be levied on the Basic Operators. 11. On merits and components of the AGR, the telecom operators submitted the following grounds: "48) BECAUSE logically the LICENSEE should be required to pay licence fee only on that income which he has actually obtained; 50) BECAUSE income from interest, dividend, etc., which are proposed to be included while computing the Revenue are purely nonoperational income as it is earned from sources other than the provision of SERVICE and is recognized to be so by all statutory authorities including the ICAI, SEBI and the Stock Exchange. 51) BECAUSE no licence fee should be levied on such income and accordingly such income should not be included for computing the figure of REVENUE; 52) BECAUSE all such deposits as are credited to the P&L Account are proposed to be covered in REVENUE which is irrational; 53) BECAUSE further, all bad debts recovered and writeback of provisions and other debits for earlier years are also proposed to be included in REVENUE; 54) BECAUSE no deduction on account of bad debts, provisions, etc. for the current year are allowed to be made ....
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....rections/hearing after the recommendations of the TRAI are received or in the first week of October 2006, whichever is earlier (Order dated 07.07.2006, Coram: Justice N. Santosh Hegde, Chairperson, and D.P. Sehgal, Member). 14. That in the order dated 07.07.2006, the Tribunal rejected the contentions of the UOI and held that under Section 4 of the Indian Telegraph Act, 1885, the Central Government can take percentage of the share of gross revenue of a licensee realised from activities of the licensee under the licence and therefore revenue received by a licensee from activities beyond licence activities would be outside the purview of Section 4 of the Telegraph Act. The Tribunal further held that Section 11(1)(a) of the TRAI Act mandates the Central Government to seek recommendations from the TRAI on the licence fee payable by the licensee and as the TRAI has made no effective consultation, the matter should be remitted to the TRAI and the TRAI can consider the issue and send its recommendations to the Tribunal. At this stage, it is required to be noted that the Union of India challenged the order dated 07.07.2006 of the Tribunal before this Court in Civil Appeal No. 84 of 2007 ....
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....Government in the gross revenue cannot be included in the adjusted gross revenue, but, interest on investment of funds received by a licensee by way of deposits from customers on account of security against charges and on account of concessions given in the charges payable for using the telecom services have to be included in the adjusted gross revenue as these are related to telecom service, which is part of the licensed activity. (iii) The Tribunal did not fully accept the recommendation of TRAI on capital gains and held that sale of assets of a licensee such as immovable properties, securities, warrants or debt instruments are not part of the licensed activity and, therefore, capital gains earned by a licensee on such sale of assets cannot form part of the adjusted gross revenue. (iv) The Tribunal accepted the recommendation of TRAI that gains from foreign exchange rate fluctuations are also not part of the licensed activity of telecom service providers and, therefore, cannot constitute part of the adjusted gross revenue. (v) The Tribunal did not fully accept the recommendation of TRAI on the reversal of provisions like bad debts, taxes and vendors'....
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....hat bad debts, waivers, and discounts should form part of the adjusted gross revenue and held that such losses incurred by a licensee should be excluded from the adjusted gross revenue. (xvi) The Tribunal accepted the recommendation of TRAI that service tax payable by the licensee should be included or excluded from the adjusted gross revenue on an accrual basis and also accepted the recommendation of TRAI that interconnection usage should also be included or excluded from the adjusted gross revenue on an accrual basis. (xvii) Tribunal did not accept recommendation of TRAI that its recommendations with regard to items, which are to be included or excluded from the gross revenue, should be effective from a prospective date and instead held that the findings of the Tribunal with regard to items, which are included or excluded from the adjusted gross revenue, will be effective from the date the licensee approached the Tribunal." 16. A fresh final order passed by the TDSAT dated 30.08.2007 was the subject matter of appeal before this Court in the case of Union of India and another v. Association of Unified Telecom Service Providers of India, (2011) 10 SCC 543. This....
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....e the correctness of terms of the licence which had been unconditionally accepted and acted upon by the licensees. 5. Because the TDSAT failed to appreciate that in fact, some licensees obtained a new licence which contains the definition of 'gross revenue' and 'adjusted gross revenue' which has been unconditionally accepted by the appellants (sic respondents). 6. Because the TDSAT failed to appreciate that under Section 4 of the Telegraph Act, 1885 it is the exclusive privilege of the Central Government to establish, maintain and work telegraph/telecom and this privilege can be given to the private parties by granting licences on such terms and conditions as the Central Government thinks fit and appropriate." 18. This Court specifically observed and held that the Union of India could urge before the Tribunal all contentions under the Grounds 1 to 6, extracted above, including the assertion that the definition of adjusted gross revenue "AGR" as given in the licence could not be challenged by the licensees before the Tribunal and will include all items of revenue mentioned in the definition of adjusted gross revenue in the licence. 19. While answering....
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.... to subsection (1) of Section 4 of the Telegraph Act. 41. Section 2(e) of the TRAI Act quoted above defines "licensee" to mean any person licensed under subsection (1) of Section 4 of the Telegraph Act for providing specified public telecommunication services and Section 2(ea) defines "licensor" to mean the Central Government or the telegraph authority who grants a licence under Section 4 of the Telegraph Act. Subsection 2(k) defines "telecommunication service" very widely so as to include all kinds of telecommunication activities. These provisions under the TRAI Act do not affect the exclusive privilege of the Central Government to carry on telecommunication activities nor do they alter the contractual nature of the licence granted under the proviso to subsection (1) of Section 4 of the Telegraph Act. 43. These provisions in the TRAI Act show that notwithstanding subsection (1) of Section 4 of the Telegraph Act vesting exclusive privilege in the Central Government in respect of telecommunication activities and notwithstanding the proviso to subsection (1) of Section 4 of the Telegraph Act vesting in the Central Government the power to decide on the conditions of ....
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....lauses (b), (c) and (d) of subsection (1) of Section 11 of the TRAI Act. TRAI being an expert body, the recommendations of TRAI under clause (a) of subsection (1) of Section 11 of the TRAI Act have to be given due weightage by the Central Government, but the recommendations of TRAI are not binding on the Central Government. On the other hand, the regulatory and other functions under clauses (b), (c) and (d) of subsection (1) of Section 11 of the TRAI Act have to be performed independent of the Central Government and are binding on the licensee subject to only appeal in accordance with the provisions of the TRAI Act. 46. A reading of Section 14(a)(i) of the TRAI Act would show that the Tribunal has the power to adjudicate any dispute between a licensor and a licensee. A licensor, as we have seen, has been defined under Section 2(ea) of the TRAI Act to mean the Central Government or the Telegraph Authority who grants a licence under Section 4 of the Telegraph Act and a licensee has been defined in Section 2(e) of the TRAI Act to mean any person licensed under subsection (1) of Section 4 of the Telegraph Act providing specified telecommunication services. The word "means" in ....
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....nal decision on the definition of adjusted gross revenue and incorporated the same in the licence agreement. Once the licensee had accepted Clause (iii) of the Letter dated 2271999 that the licence fee would be a percentage of the gross revenue which would be the total revenue of the licensee company and had also accepted that the Government would take a final decision not only with regard to the percentage of revenue share but also the definition of revenue for this purpose, the licensee could not have approached the Tribunal questioning the validity of the definition of adjusted gross revenue in the licence agreement on the ground that adjusted gross revenue cannot include revenue from activities beyond the licence. 49. If the wide definition of adjusted gross revenue so as to include revenue beyond the licence was in any way going to affect the licensee, it was open for the licensees not to undertake activities for which they do not require licence under Section 4 of the Telegraph Act and transfer these activities to any other person or firm or company. The incorporation of the definition of adjusted gross revenue in the licence agreement was part of the terms regarding....
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....such rates "as it thinks fit" and the only restriction is latent in the word "toll" itself. This was therefore not a case of a dispute between the Government and the contractor where the contractor had challenged a stipulation of the contract. In the present case, on the other hand, the licensees had accepted the terms of the licence and after having taken the benefits of the licence are now trying to wriggle out from the terms of the licence and in particular the definition of the adjusted gross revenue. 55. On the other hand, we find from the long line of decisions in Har Shankar v. Excise & Taxation Commr. [(1975) 1 SCC 737], Govt. of A.P. v. Anabeshahi Wine & Distilleries (P) Ltd. [(1988) 2 SCC 25 : 1988 SCC (Tax) 147], Excise Commr. v. Issac Peter [(1994) 4 SCC 104], State of Orissa v. Narain Prasad [(1996) 5 SCC 740], State of M.P. v. KCT Drinks Ltd. [(2003) 4 SCC 748], State of Punjab v. Devans Modern Breweries Ltd. [(2004) 11 SCC 26], Shyam Telelink Ltd. v. Union of India [(2010) 10 SCC 165 : (2010) 4 SCC (Civ) 99] and in Bharti Cellular Ltd. v. Union of India [(2010) 10 SCC 174 : (2010) 4 SCC (Civ) 108], that this Court has consistently taken a view that once a li....
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....erials on the basis of which the demand is raised and decide whether the demand is in accordance with the licence agreement and in particular the definition of adjusted gross revenue in the licence agreement and can also interpret the terms and conditions of the licence agreement. We, however, find from the order dated 772006 that instead of challenging any demands made on them, the licensees have questioned the validity of the definition of adjusted gross revenue in the licences given to them and the Tribunal has finally decided in its order dated 3082007 as to what items of revenue would be part of adjusted gross revenue and what items of revenue would not be part of adjusted gross revenue without going into the facts and materials relating to the demand on a particular licensee." 22. Ultimately, this Court allowed the appeals preferred by the Union of India and set aside the order dated 30.08.2007 passed by the TDSAT. Thereafter, in paragraph 67, this Court clarified as under: "67. We have delivered today the judgment in these cases (supra paras 166) and while answering the last substantial question of law, we have held that when a particular demand is raised on a li....
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....judicata because of the specific order of AUSPI (supra). 25. Various questions arise for consideration as under: (i) In re: Definition of gross revenue. (ii) In re: Discount and commissions. (iii) In re: Gains arising out of foreign exchange fluctuations. (iv) In re: Monetary gains on sale of shares. (v) In re: Insurance claim in respect of capital assets. (vi) In re: Amount of negative balance of prepaid customer. (vii) In re: Reimbursement of the infrastructure operating expenses. (viii) In re: Waiver of late fee. (ix) In re: Gains from roaming charges & PSTN passthrough charges. (x) In re: Nonrefundable deposits. (xi) In re: Licence fee demand where spectrum is not granted. (xii) In re: Income from interest & dividend. (xiii) In re: Baddebts written off. (xiv) In re: Liability written off. (xv) In re: Intercorporate loan. (xvi) In re: Revenue under IP1 Registration. (xvii) In re: Income from management consultancy services. (xviii) In re: Res Judicata. (xix) In re: Levy of interest, penalty and interest on p....
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....ge be deemed full and final settlement, and after that amendment to the license agreement has to be signed. Following stipulations were mentioned explicitly in the Migration Package: "2. Migration to the NTP99 on the conditions mentioned above will be permitted on the premise that the aforesaid conditions are accepted as a package in its entirety and simultaneously all legal proceedings in Courts, tribunals or in Arbitration instituted by the license and Associations of Cellular and Basic Service Operators (COAI) & ABTO) against DoT or UOI shall be withdrawn. Further, any dispute with regard to the license agreement for the period up to 31.07.1999 shall not be raised at any future date. The acceptance of the package will be deemed as full and final settlement of all existing disputes whatsoever irrespective of whether they are related with the present package or not. 3. After the terms and conditions of the package are accepted, amendments to the existing license agreement will be signed between the licensor and the licensee." 29. To avoid the accounting jugglery, the Department of Telecommunications (for short, 'the DoT') sought the advice of experts in th....
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....senting their annual accounts as well as periodical statements of revenue to be sent to the government supporting their payments." (emphasis supplied) 30. The definition of revenue has been taken in a broad, comprehensive, and inclusive manner to pose fewer problems of interpretation, and exclusion of certain items was avoided. 31. On 21.5.2001, the Government of India finalised the concept of gross revenue and AGR. 32. The format of the statement of revenue and license fee payable by the TSPs is appended to the license agreement, which reflected the various heads and components, including any other income/miscellaneous receipts from the wireline subscribers, which was to be included for the computation of AGR. Provision in Clause 20.2 was made for payment of license fee by the licensee on the basis of actual revenue (on accrual basis). The accrual was necessary irrespective of its realisation at a subsequent date or even its nonrealisation. 33. Shri Tushar Mehta, learned Solicitor General of India, appearing on behalf of Union of India submitted that the definition of gross revenue has to prevail over the mode of accounting. Under Clause 20.4 of the agreement,....
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....v. AUSPI (2011) held that Tribunal has no jurisdiction to exclude certain items of revenue, which were included in the definition of AGR. The licensee could not have approached the Tribunal for the alteration of the definition of AGR in the license agreement. TRAI and Tribunal had no jurisdiction to decide on the validity of the definition AGR in the licence agreement. The licensees are not only precluded to challenge the definition of gross revenue/AGR, but also by the meaning the Government may choose to put to the definition. The Tribunal has travelled beyond its jurisdiction to act contrary to the specific findings and decision in AUSPI v. Union of India. 36. Shri Arvind Datar, Shri C.A. Sundaram, Shri Shyam Divan, Shri Gopal Jain, Shri Ramji Srinivasan, Dr. Abhishek Manu Singhvi, Shri Kavin Gulati, Shri B. Adinaraynan Rao, Shri U. Hazarika, Shri Chetan Sharma and Shri Siddhartha Dave, learned senior counsel appearing on behalf of TSPs submitted that the meaning of gross revenue has to be determined in accordance with the provisions of AS9 which only includes gross inflow of cash, receivables that arise out of ordinary activities of the telecom companies. In the definition o....
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....al license agreement and this being a commercial contract and the accounting standards having been incorporated by reference in the license agreement as such the basis on which the license fee has to be decided, the same would prevail. 41. It is further submitted that all receipts would not form part of AGR. The use of the word inclusive under Clause 19.2 does not make the definition of AGR expansive though the definition is not exhaustive as the provision of valueadded services is different and provided in other clauses and service is to mean service in a licensed service area. Thus, license fee has to be confined in respect of business carried on to provide the services under the license. A single company may hold five licenses for five different service areas. The license fee at 10 percent cannot be levied on the same revenue cannot be charged to license fee more than once, as apparent from Clause 20.4 of the license read with Appendix-II to Annexure-II to it, which is the prescribed format by the licensor indicating the streams of revenue required by a licensee to be disclosed. The miscellaneous receipts provided under each head are not meant to include any and every receipt....
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....t about it that the accounts have to be maintained as per the AS9 regime prevalent at the relevant time. The definition of the contract has to prevail and not what is generally revenue, as defined in AS9. 46. The question as to what constitute Gross Revenue has been agitated, though concluded in earlier decision in 2011, by the TSPs. again by raising the submission that we have to follow the definition of revenue as defined in AS9, it would be the revenue as generated by activities under the licence; whereas the definition of gross revenue includes the income from nonlicensing activities also as part of the gross revenue, which we have to discard. 47. The definition of 'gross revenue' in clause 19.1 is inclusive, and it includes explicitly: (i) installation charges; (ii) Late fees; (iii) sale proceeds of handsets; (iv) sale proceeds of any other terminal equipment, etc. (v) revenue on account of interest; (vi) revenue on account of dividend; (vii) valueadded services; (viii) supplementary service as fixed charges; (ix) access or interconnection charges; (x) roaming charges; (xi)....
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.... company had accepted in the letter dated 22.7.1999 that the licence fee would be a percentage of the gross revenue, which should be the total revenue of the licensee company. The licensee agreed that the Government has to take a final decision not only concerning the percentage of revenue share but also the definition of revenue for this purpose. The licensee could not have approached the tribunal to question the validity of the definition of adjusted gross revenue in the licence agreement on the ground that the adjusted gross revenue cannot include revenue from activities beyond the licence. 52. It is submitted on behalf of the licensees that the term revenue has nowhere been defined under the licence. As such, it would be necessary to find out what is the meaning of revenue in AS9. The submission that revenue has to be related to the activities of the licensee company, a reference has been made to the definition of revenue as given in clause 4.1 of AS9, which reads as under: "4.1 Revenue is the gross inflow of cash, receivables, or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, from the rendering of servi....
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.... (including capital costs), revenue and financial position of the LICENSEE's business under the LICENCE including a reasonable assessment of the assets employed in and the liabilities attributable to the LICENSEE'S business, as well as, for the quantification of Revenue or any other purpose. b) Procure in respect of each of those accounting statements prepared in respect of a completed financial year, a report by the LICENSEE's Auditor in the format prescribed by the LICENSOR stating inter alia whether in his opinion the statement is adequate for the purpose of this condition and thereafter deliver to the LICENSOR a copy of each of the accounting statements not later than three months at the end of the accounting period to which they relate. c) Send to the LICENSOR a certified statement on an affidavit by authorised representative of the company, containing full account of Revenue as defined in condition 19 for each quarter separately along with the payment for the quarter. 22.3 (a) The LICENSOR or the TRAI, as the case may be, shall have a right to call for and the LICENSEE shall be obliged to supply and provide for examination any books of accounts that....
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....ion principles. They have relied upon the following observations: "124. On the other hand, fair valuation principles are important in the context of valuing derivatives and other investments. If one were to describe one single change in accounting practice over the last few years, it would be the use of fair valuation principles. Today, the object behind the enactment of AS, which are now made mandatory under Section 211(3A) of the Companies Act, is to shift from historical method of accounting to fair valuation. In the case of mergers and acquisitions, which is common today in the world of globalisation, fair valuation principles have important role to play. Mergers and acquisitions are sometimes undertaken to defer revenue expenditure over future years by invoking the matching concept, which results in putting fictitious assets on the balance sheet. This is one reason why fair valuation principles are accepted. 125. AS are established rules relating to recognition, measurement, and disclosures, thereby ensuring that all enterprises that follow them are comparable and that their financial statements are "true and fair." Measurements and disclosures based on fair ....
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.... instance of ellipsis, or reliance on implication. This principle is presumed to apply unless there is some contrary indication [see Glanville Williams, The Origins and Logical Implications of the Ejusdem Generis Rule, 7 Conv (NS) 119]." 59. Thus, as per licensees the miscellaneous revenue has to be revenue as defined in AS9. The miscellaneous revenue only serves the purpose of capturing such other revenue that satisfies common characteristics of the preceding word. 60. As per licensees, the revenue pertained only to the licensed activities and was specific to activities under the licensing agreement in the designated area on the services rendered to the customers. The rule of interpretation of a commercial contract is that when the provision is not exclusively defined, it is to look at how the parties would understand the same by their subsequent conduct as observed in Godhra Electricity Co. Ltd. v. State of Gujarat, (1975) 1 SCC 199 thus: "11. In the process of interpretation of the terms of a contract, the court can frequently get great assistance from the interpreting statements made by the parties themselves or from their conduct in rendering or in receiving per....
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....h excluded extrinsic evidence in the construction of a written contract. 16. We are not certain that if evidence of subsequent acting under a document is admissible, it might have the result that a contract would mean one thing on the day it is signed, but by reason of subsequent event, it would mean something a month or year later. Subsequent "interpreting" statements might not always change the meaning of a word or a phrase. A word or a phrase is not always crystal clear. When both parties subsequently say that by the word or phrase which, in the context, is ambiguous, they meant this, it only supplies a glossary as to the meaning of the word or phrase. After all, the inquiry is as to what the intention of the parties was from the language used. And, why is it that parties cannot clear the latent ambiguity in the language by a subsequent interpreting statement? If the meaning of the word or phrase or sentence is clear, extrinsic evidence is not admissible. It is only when there is latent ambiguity that extrinsic evidence in the shape of interpreting statement in which both parties have concurred should be admissible. The parties themselves might not have been clear as to the mean....
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....ognition is at "nominal" value; whereas IND AS18, the revenue recognition is at a "fair" value. The barter transactions are included in Ind AS18, whereas this aspect is not covered in AS9. In AS9 revenue recognition, interest income is recognised on a time proportion basis, whereas in Ind AS18, interest income is recognised using an effective interest rate method. AS9 recognises revenue as per the completed service method or percentage completion method, whereas Ind AS18 only recognises revenue as per the percentage of completion method. Thus, there is a fundamental difference. The fair value concept has no place in AS9 as per which the accounts are to be maintained and submitted for determination of gross revenue. AS9 revenue recognition regime states that the amount of revenue shall be measured by the gross inflow of cash, receivables, or other consideration received. There is no concept of fair valuation. Thus, the submission raised based on a fair valuation method based on the decision in J.K. Industries v. Union of India (supra) cannot be accepted as the decision is on consideration of different accounting standard which adopts fair valuation method i.e., Ind AS18 and not rele....
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....ce to be excluded from adjusted gross revenue in the licence agreement is without jurisdiction and is a nullity. The matter was sent back to TDSAT for computation of adjusted gross revenue. It was also observed if a dispute is raised that computation is not following licence agreement, the tribunal has to go into facts and material on which demand is raised and to decide demand is following the licence agreement and in particular, the definition of adjusted gross revenue. It can also interpret the terms and conditions of the licence agreement. The tribunal did not go into the facts and material relating to the demand as to the particular licence. The tribunal can go into the question of whether the demand is under the licence agreement and in particular, the definition of adjusted gross revenue. 64. Under clause 20.6, certification of accounts by auditors appointed under the Companies Act is stipulated under the licence. The preparation of accounts under clause 22 of the licence agreement is an independent head. The definition of gross revenue given under the agreement in Clause 19.1 and that is the total revenue. In our considered opinion, when there is a contractual definition....
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....attempts to depart from it. The plea is barred by res judicata, and on merits the objection is wholly untenable. The definition of revenue in clause 4.1 of AS9 provides that the revenue is the gross inflow of cash, receivables, or other consideration arising in the course of the ordinary activities. When the revenue in AS9 is the gross inflow of cash and the amount which is receivable, not the amount received, which is realised or other consideration arising, can also be taken into consideration as per accounting standard AS9. The definition of revenue in AS9 rather than supporting the cause of the licensees defeats the same. They cannot bank upon the expression in clause 4.1 in the course of ordinary activities of an enterprise is only to be included in gross revenue as that is what has been expressly negated in Union of India v. AUSPI (2011). Given the definition of gross revenue, the same includes revenue from activities beyond the licence. Explanation to clause 5 of AS9 also makes it clear that the agreement between the parties would determine the amount of revenue arising on a transaction. 67. Section 211 of the Companies Act, 1956 deals with the obligation of the company t....
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....er was also made to suitably modify the format of statement of gross revenue, adjusted gross revenue and licence fee in accordance with the correct definitions, and to strike down the definitions of gross revenue, and adjusted gross revenue contained in DOT's licence amendment dated 11.4.2001 as being unfair, unjust, unreasonable and arbitrary. 71. Thus, it is apparent that right from the beginning, the licensees were aware of the precise terms and conditions and their obligations as contained in the letter dated 26.7.2001and purport of the definitions of gross revenue and adjusted gross revenue. Notional revenue has to be charged. The order of TDSAT excluding certain items of revenue, which were included in the definition of AGR by declaring the definition of gross revenue to be invalid, was set aside by this Court in Union of India v. AUSPI (supra) and this Court held that items are to be included in definition of gross revenue. 72. The rule of interpretation of contra proferentum has also been pressed into service. As observed in United India Insurance Co. Ltd. v. Pushpalaya Printers, 2004 (3) SCC 694 thus: "6. ....If the word "impact" is interpreted narrowly, the....
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....ared it. MacGillivray on Insurance Law 1 LeghJones, Longmore et al (Eds.) MacGillivray on Insurance Law (9th Edn., Sweet and Maxwell, London 1997) at p.280. deals with the rule of contra proferentem as follows: "The contra proferentem rule of construction arises only where there is a wording employed by those drafting the clause which leaves the court unable to decide by ordinary principles of interpretation which of two meanings is the right one. 'One must not use the rule to create the ambiguity - one must find the ambiguity first.' The words should receive their ordinary and natural meaning unless that is displaced by a real ambiguity either appearing on the face of the policy or, possibly, by extrinsic evidence of surrounding circumstances." (footnotes omitted) 11. Colinvaux's Law of Insurance Robert and Merkin (Eds.), Colinvaux's Law of Insurance (6th Edn., 1990) at p.42. propounds the contra proferentem rule as under: "Quite apart from contradictory clauses in policies, ambiguities are common in them, and it is often very uncertain what the parties to them mean. In such cases, the rule is that the policy, being drafted in language chosen by the insu....
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.... the claim or compensation received from the insurance company would be attracted by the said section. The High Court has, however, missed the fact that the definition also mentions such transactions as sale, exchange etc. to which the word "transfer" would properly apply in its popular and natural import. Since those associated words and expressions imply the existence of the asset and of the transferee, according to the rule of noscitur a sociis, the expression "extinguishment of any rights therein" would take colour from the said associated words and expressions, and will have to be restricted to the sense analogous to them. If the legislature intended to extend the definition to any extinguishment of right, it would not have included the obvious instances of transfer, viz., sale, exchange etc. Hence the expression "extinguishment of any rights therein" will have to be confined to the extinguishment of rights on account of transfer and cannot be extended to mean any extinguishment of right independent of or otherwise than on account of transfer." (B) Swiss Ribbons v. Union of India, 2019 (4) SCC 17, "109. We are of the view that persons who act jointly or in co....
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....We may refer to the often quoted observation of Lord Watson in Dilworth v. Commissioner of Stamps that when the word "include" is used in interpretation clauses to enlarge the meaning of words or phrases in the statute "these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include." Thus where "includes" has an extending force, it adds to the word or phrase a meaning which does not naturally belong to it. It is difficult to agree that "includes" as used in the explanation to Entry 22 has that extending force. The explanation says that for the purpose of Entry 22, potteries industry includes the manufacture of the nine "articles of pottery" specified in the explanation. If the objects specified are also "articles of pottery", then these objects are already comprised in the expression "potteries industry". It hardly makes any sense to say that potteries industry includes the manufacture of articles of pottery, if the intention was to enlarge the meaning of potteries industry in any way. 4. We are also una....
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....Though "include" is generally used in interpretation clauses as a word of enlargement, in some cases the context might suggest a different intention. Pottery is an expression of very wide import, embracing all objects made of clay and hardened by heat. If it had been the legislature's intention to bring within the entry all possible articles of pottery, it was quite unnecessary to add an explanation. We have found that the explanation could not possibly have been introduced to extend the meaning of potteries industry or the articles listed therein added ex abundanti cautela. It seems to us therefore that the legislature did not intend everything that the potteries industry turns out to be covered by the entry. What then could be the purpose of the explanation. The explanation says that, for the purpose of Entry 22, potteries industry "includes" manufacture of the nine articles of pottery named therein. It seems to us that the word "includes" has been used here in the sense of 'means'; this is the only construction that the word can bear in the context. In that sense it is not a word of extension, but limitation; it is exhaustive of the meaning which must be given to potteries indus....
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....ersede it which is a general one. 77. The submission has been made that the accounting standards themselves make it clear what should be included as revenue and accounting standards have been incorporated in the agreement and incorporated by reference in the licence agreement. For this, reliance has been placed on General Assurance Society Ltd. v. Chandmull Jain, AIR 1966 SC 1644, wherein it is observed: "11. A contract of insurance is a species of commercial transactions, and there is a wellestablished commercial practice to send cover notes even prior to the completion of a proper proposal or while the proposal is being considered or a policy is in preparation for delivery. A cover note is a temporary and limited agreement. It may be selfcontained, or it may incorporate by reference the terms and conditions of the future policy. When the cover note incorporates the policy in this manner, it does not have to recite the term and conditions, but merely to refer to a particular standard policy. If the proposal is for a standard policy and the cover note refers to it, the assured is taken to have accepted the terms of that policy. The reference to the policy and its terms ....
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.... for fire and extended to cover flood, cyclone etc. had come into being." 78. In M.R. Engineers & Contractors Pvt. Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696, the Court held: "24. The scope and intent of Section 7(5) of the Act may therefore be summarised thus: (i) An arbitration clause in another document, would get incorporated into a contract by reference, if the following conditions are fulfilled: (1) the contract should contain a clear reference to the documents containing arbitration clause, (2) the reference to the other document should clearly indicate an intention to incorporate the arbitration clause into the contract, (3) the arbitration clause should be appropriate, that is capable of application in respect of disputes under the contract and should not be repugnant to any term of the contract. (ii) When the parties enter into a contract, making a general reference to another contract, such general reference would not have the effect of incorporating the arbitration clause from the referred document into the contract between the parties. The arbitration clause from another contract can be incorporated into th....
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....e a futile attempt to wriggle out of the definition in an indirect method, which was rejected directly in the decision of 2011 between the parties and it was held that these very heads form part of gross revenue. 80. The submission has been raised on the ground of approbation and reprobation relying on Suzuki Parasrampuria Suitings Private Limited v. Official Liquidator of Mahendra Petrochemicals Limited, (2018) 10 SCC 707. The observations made are extracted hereunder: "12. A litigant can take different stands at different times but cannot take contradictory stands in the same case. A party cannot be permitted to approbate and reprobate on the same facts and take inconsistent shifting stands. The untenability of an inconsistent stand in the same case was considered in Amar Singh v. Union of India, (2011) 7 SCC 69, observing as follows: (SCC p. 86, para 50) "50. This Court wants to make it clear that an action at law is not a game of chess. A litigant who comes to court and invokes its writ jurisdiction must come with clean hands. He cannot prevaricate and take inconsistent positions." 13. A similar view was taken in Joint Action Committee of Air Line ....
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....", within the meaning of Article 12 of the Constitution, which continues to subsist and therefore, it is not required that the new Government can plead contrary to the State action taken by the previous Government in respect of a particular subject. The State, being a continuing body can be stopped from changing its stand in a given case, but where after holding enquiry it came to the conclusion that action was not in conformity with law, the doctrine of estoppel would not apply. Thus, unless the act done by the previous Government is found to be contrary to the statutory provisions, unreasonable or against policy, the State should not change its stand merely because the other political party has come into power. "Political agenda of an individual or a political party should not be subversive of rule of law." The Government has to rise above the nexus of vested interest and nepotism, etc. as the principles of governance have to be tested on the touchstone of justice, equity and fair play. The decision must be taken in good faith and must be legitimate. (Vide Onkar Lal Bajaj v. Union of India, (2003) 2 SCC 673, State of Karnataka v. All India Manufacturers Organisation, (2006) 4 SCC....
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....ange the definition of gross revenue which is the meaning of revenue itself is apparent, same is gross inflow of the cash, and the amount which is receivable as provided in AS9 also. Thus, the submission raised that the definition is not wide, cannot be accepted, and stands repelled. Clauses 22.1, 22.2 and 22.3 cast obligation upon the licensee to draw, keep and furnish independent accounts for the service. Under clauses 22.1 and 22.2, the licensee has to maintain records quarterly. Accounts have to be audited and can be called for by the licensor or the TRAI, as provided in Clause 22.3. The format of gross revenue is supportive of definition of gross revenue as defined in the agreement. Clause 22 is a rider upon the licensee to maintain the records of activities and other matters such as financial position as enumerated therein. 85. Clause 18.1 of the agreement has also been pressed into service. The submission raised that a single company may hold 5 licences for 5 different service areas; the AGR as suggested by the DOT, cannot be followed as it may end up in paying the licence fee at the rate of 5 times. As the licence fee cannot be charged more than once, there is no room to....
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....an executive function. The correctness of its conclusion is not open to judicial review. We fail to see how the plea of contravention of Article 19(1)(g) or Article 14 can arise in these cases. The Government's power to sell the exclusive privileges set out in Section 22 was not denied. It was also not disputed that those privileges could be sold by public auction. Public auctions are held to get the best possible price. Once these aspects are recognised, there appears to be no basis for contending that the owner of the privileges in question who had offered to sell them cannot decline to accept the highest bid if he thinks that the price offered is inadequate. There is no concluded contract till the bid is accepted. Before there was a concluded contract, it was open to the bidders to withdraw their bids - see Union of India v. Bhimsen Walaiti Ram , (1970) 2 SCR 594. By merely giving bids, the bidders had not acquired any vested rights. The fact that the Government was the seller does not change the legal position once its exclusive right to deal with those privileges is conceded. If the Government is the exclusive owner of those privileges, reliance on Article 19(1) ( g ) or Artic....
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....cases) and the laws relating to contracts. It must be remembered that these contracts are entered into pursuant to public auction, floating of tenders or by negotiation. There is no compulsion on anyone to enter into these contracts. It is voluntary on both sides. There can be no question of the State power being involved in such contracts. It bears repetition to say that the State does not guarantee profit to the licensees in such contracts. There is no warranty against incurring losses. It is a business for the licensees. Whether they make a profit or incur a loss is no concern of the State. In law, it is entitled to its money under the contract. It is not as if the licensees are going to pay more to the State in case they make substantial profits. We reiterate that what we have said hereinabove is in the context of contracts entered into between the State and its citizens pursuant to public auction, floating of tenders or by negotiation. It is not necessary to say more than this for the purpose of these cases. What would be the position in the case of contracts entered into otherwise than by public auction, floating of tenders or negotiation, we need not express any opinion here....
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..... 28. For the reasons set out by us hereinabove, we have no hesitation in holding that the appellant was not entitled to question the terms of the migration package after unconditionally accepting and acting upon the same." 90. After the introduction of the migration package policy, 1999, there is an exponential growth of the telecom sector. In Bharti Cellular Ltd. v. Union of India, 2010 (10) SCC 174, this Court held that acceptance of benefits under the package precluded them from questioning the terms of the same. The Court observed: "8. There is, in our opinion, no legal infirmity in the view taken by the Tribunal. Once the appellantpetitioner had specifically and unconditionally agreed to accept the migration package and given up all disputes relating to licence agreement for the period up to 3171999, it was not open to it to turn around and agitate any such dispute after availing of the migration package. A party which has unconditionally accepted the package cannot after such acceptance reject the conditions subject to which the benefits were extended to it under the package. It cannot reject what is inconvenient and onerous while accepting what is benef....
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....e." 93. In R.N. Gosain v. Yashpal Dhir, AIR 1993 SC 352, it was held: "10. Law does not permit a person to both approbate and reprobate. This principle is based on the doctrine of election which postulates that no party can accept and reject the same instrument and that 'a person cannot say at one time that a transaction is valid and thereby obtain some advantage, to which he could only be entitled on the footing that it is valid, and then turn round and say it is void for the purpose of securing some other advantage'." 94. Submissions have been raised in respect of various revenue heads not being revenue cannot be included within the purview of gross revenue. We propose to deal with each of them under separate heads. In re: Discount and Commissions: 95. The Tribunal has dealt with discounts, and commissions under 3 heads : (i) discounts allowed on international roaming; (ii) commission and discount allowed to distributors on sale of prepaid vouchers; (iii) goodwill waiver, discount and rebates. 96. The Tribunal held with respect to discounts allowed on international roaming that if the discounts are in the form of reduced billing and the amount booked in th....
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.... It is further submitted on behalf of the licensees that as per binding and mandatory principle of AS9, the ICAI has declared discounts, rebates, deductions, lesser realisation of cost price are not to be treated as an expenditure. It is further submitted that an agreement between the parties determines the revenue arising on a transaction. It is measured at the fair value of the consideration received or receivable considering the amount of consideration. The amount of any discount or volumebased discount and volume rebates are not considered as revenue. 101. It is further submitted that the licensees have been given the discount that is transparently reflected in its invoice. The appellant only receives the discounted amount, which is the realised revenue or the cash inflow in their hands. The licence fee is paid on this realised amount. 102. It is further submitted that the licensees gives "trade discounts" and "subscriber's discount," and both are exempted from recognition as revenue for the reason that firstly as per AS9, trade discounts are not included within the definition of revenue since they represent a reduction of cost. Guidance Note 5 on terms used in financ....
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....es. As per definition of "gross revenue" in clause 19.1 of the agreement, it is not permissible to set off these volumebased discounts against the revenue as expenses are not permitted to be netted off, such amounts form part of revenue; otherwise, it would lead to accounting jugglery, which is very consciously avoided by purposefully drafting the AGR definition in "inclusive" terms. Otherwise, the discounts may be used by the company to reduce its costs, and the profitability of the company may remain unaffected, but the gross revenue for the computation of AGR may be reduced. As the company may make contracts with distributors and provide them with huge discounts in the form of reduced billing. To say this (i), the company may make contracts with the distributors to sell prepaid vouchers of Rs. 100 for Rs. 70. Against the discount, the company may make with the distributors further agreement reducing the company's cost, such as the supply of contractual workforce, the printing of paper vouchers, etc. Thus, it would cause evade of the licence fee without affecting the profitability of the company. The commissions thus form part of the income. The commission is nothing but "exp....
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....t while gross revenue has been defined in Clause 19.1 of agreement, revenue has not been defined in the licence agreement. What has been defined as gross revenue is in fact broader definition of revenue and has to be taken as definition of revenue for licence agreement. An attempt has made to wriggle out of the rigour of the definition of gross revenue by banking upon the definition of revenue in AS9 is to scuttle the effect of the previous decision in Union of India v. AUSPI (2011). Gross revenue as defined in agreement cannot be diluted in any manner whatsoever based on the submission mentioned above, as AS9 is only for method of accounting and specific definition of revenue i.e., gross revenue under the licence agreement has to prevail. In our considered opinion, 'gross revenue' is the revenue has been held in 2011 judgment finding is binding on parties for determination of license fees under the licence agreement and the definition of revenue in AS9 cannot govern. Reliance upon the affidavit filed on behalf of DOT is wholly misconceived. What is the meaning of the definition of gross revenue has been finally settled inter parties vide 2011 judgment. Thus, there is no scope to e....
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....ce allowed by the wholesaler to the retailer is not includible in the taxable turnover. Trade discount is distinct from cash discount. A cash discount is a discount granted in consideration of prompt payment. A trade discount is a deduction from the catalogue price of goods allowed by wholesalers to retailers engaged in the trade. Reliance has also been placed on the decision of Delhi High Court in M/s. United Exports v. Commissioner of Income Tax, Delhi (2009) SCC Online Del 2566 rendered in the context of the provisions of section 40A( 2)(b) of the Income-tax Act, 1961. Certain trade discount was given. The High Court held that the provision pertained to disallowance to an expenditure, an amount spent by the assessee as an expenditure. For that, actual payment must be made. There has to be an expenditure incurred before the provision can be said to be applicable. Trade discount was held not to be an expenditure as it is incurred for which allowance could have been claimed under section 40(A)(2). Above mentioned decisions are wholly inapplicable, given the definition of gross revenue and have been rendered in context of concerning provisions of different statutes. 111. Reliance....
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....to by the licensees also as that was beneficial to them as compared to the fixed fee regime which prevailed earlier. They have switched over to the new regime of sharing the revenue earned by them on a percentage basis. The definition of gross revenue has the purpose behind it and was the outcome of prolonged exercise and has already been upheld, and the question cannot be reopened once over again by an indirect method. 114. The trade discounts cannot be deducted from the gross revenue merely on the ground that they represent a reduction of cost. The reliance by the licensees on the Guidance Note filed that discounts are reduction granted by a supplier from the list price of goods or services is of no avail owing to the definition of the gross revenue. Set off of trade discounts is not permissible under Clause 19.1 of agreement against revenue as expenses are not permitted to be netted up. 115. Concerning cash discount, it is apparent that cash discount may be used in various methods. It is an incentive for customers. The customer makes payment after deducting amount of cash discount, if eligible for availing of the same as per the agreement between the entity and the custome....
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....ss revenue is apparent from the correspondence and letter dated 22.7.2001 and the ultimate definition mentioned in the licence agreement Clause 19.1 and rejection of TRAI's recommendations by the Government. 119. The TDSAT has erred in holding that if the discounts are in the form of reduced billing, no addition to be made in the gross revenue. It would mean violating the definition of gross revenue where no setoff is permitted. It is rightly submitted by DOT that discounts over and above the agreed charges are part of overall commercial strategy to enhance the business, and hence, these discounts are like expenses. Expenses are not permitted to be net off under clause 19.1 from the gross revenue under the licence agreement. Similarly, the TDSAT has erred in holding and giving a finding concerning commission and discounts if the invoice is at a discounted price, which is at Rs. 90 instead of Rs. 100. For the same reason, the finding of TDSAT is not sustainable. 120. The TDSAT has rejected the case of the licensees. Where the bill is for a higher amount and the discount is in the form of volume discount given separately, the billed amount should be taken as the revenue, an....
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....payment basis. Therefore, the difference between accrual and paid basis cannot be taken as revenue for AGR calculation, and in the second case, revenue is recorded on accrual basis. Any charges till payment is made, are notional income, which cannot be taken as revenue for AGR basis. On actual payment since no discount is given and the actual receipt is less, no licence fee should be charged if the same is more. Thus, any gain or loss due to foreign exchange fluctuations will have no bearing on the licence fee. 124. The DOT submits that the mandate of the definition of gross revenue has been ignored. The gain from foreign exchange fluctuation is to be taken into the calculation of adjusted gross revenue, the income is understood as an increase in economic benefits in the form of inflows from the enhancement of assets or decreases in liability that result in increase in equity. The definition of income covers both revenue and gains. The gains from foreign exchange fluctuations should be added without any net off against the losses, and these should be on accrual basis. 125. It is submitted on behalf of licensees that DOT is trying to confuse the revenue with income. The foreig....
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....ement. Unrealised gain or loss results when the invoice is settled, but in case the customer fails to pay the invoice by the close of the accounting period. The seller calculates the gains or losses that would be earned if the customer paid the invoice at the end of the accounting period. While preparing a financial statement, a transaction will be recorded as an unrealised loss of $100 in case the value of the invoice was $200. On the last date of the accounting period, the invoice is valued at $100. Thus, the unrealised loss will be of $100. The unrealised gain or loss is recorded in the balancesheet. When preparing the actual financial statement, companies are required to report the transaction in the home currency to make it easy to understand all the financial reports. It means that all transactions carried out in foreign currency must be converted to the home currency at the current exchange rate when the business recognises the transaction. The exchange difference which arises on reporting the mandatory items at the rate different from the ones at which they are recorded initially, must be recognised rate as an income or an expense. Thus, gain from foreign exchange fluctuati....
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....pital assets and receipt from the sale of scrap. The issue has arisen when an asset/scrap is sold for more than its book value, then the difference between net sale proceeds and book value is the amount of gain on sale of capital assets. Whether it has to form part of the gross revenue? The tribunal has held that capital gains are of two types. (i) Gain over and over the gross book value (cost) of the assets, that is when sale proceeds are more than the original purchase cost of the assets; and (ii) gain over and above the net book value, i.e. when the sale proceeds are less than the initial purchase cost but more than the net worth of the asset. The tribunal has held that the gain on sale of capital assets as per the first case, i.e., when the increase is over and above the book value of the asset, it will form part of calculation of gross revenue. 131. Given the definition of gross revenue in the licence agreement, every amount which is more than the book value of the current asset and comes to licensee company, has to be considered for calculation of gross revenue without netting off. Thus, the reasons given by the tribunal that any gain over and above the net book value, tha....
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.... initial cost is set aside. It has to be seen as book value as on date of sale. The stand of TDSAT is approved in this regard in regard to assets/scrap, shares etc. In re: Insurance claim in respect of capital assets: 133. Where an asset is destroyed, and the insurance claim is received for more than its book value. The difference between the insurance claim received and the book value is treated as revenue by the DOT for computing AGR. The dispute was not raised initially by the licensees, while the order in the year 2007 came to be passed. It has been raised after this Court has remitted the case to the TDSAT in the year 2011. The TDSAT has held that if the asset destroyed is replaced immediately and the claim received is more than the actual cost of replacing the equipment, the difference would be taken as income; and in a case where the asset destroyed is not replaced immediately, the gain to the extent more than the gross book value is considered as income. The asset has appreciated over time, then insurance claim received more than the total cost, though being real gain, is not treated as revenue for clause 19.1 of the licence agreement. 134. On behalf of DOT, it ....
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....ce claim over and above the book value is considered as revenue and not the value of the capital asset as there is an inflow of cash received. It is accounted for in the profit and loss account. It has to form part of the gross revenue as defined in clause 19.1. The artificial bifurcation of insurance claim made by the TDSAT cannot be accepted and is contrary to contractual definition of gross revenue. The finding of TDSAT to the extent it is contrary to revenue is set aside. In re: Amount of negative balance of prepaid customer: 137. The negative balance occurs when a prepaid customer exhausts the available talktime. TSPs as a matter of policy, sometimes provides the customer with a small amount of loan talktime as it may deem fit, say of the value of Rs. 10 or Rs. 20. The utilisation of this talktime results in negative balance in the account of the prepaid customer. The balance is recovered from the subsequent recharge made by the customer. In case where the customer fails to recharge the fresh topup amount, the balance remains negative in the prepaid account of the customer. The prepaid vouchers are sold for a price for which the customer gets a fixed duration of talkt....
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....t of adjusted gross revenue. It is also submitted that renting/leasing of dark fibre towers etc. is carried out by IP1 operators. These operators do not require any licence. It is a nonlicensed activity and should be out of the purview of adjusted gross revenue. 142. The TRAI recommended that renting and leasing of the passive infrastructures by service providers is a regular telecom activity and should, therefore, be part of AGR. 143. The TDSAT has observed that in case A has one tower at a particular building, the same tower can be permitted to be used by B. B would pay rent to A for the use of this tower. In case B pays Rs. 100 as rent to A, A will have to incur operating expenses for keeping the equipment in the tower, functional, which may inter alia, require diesel generator. If monthly expenses for such operating expenses is Rs. 10, then A and B would divide it in equal proportions. Thus, Rs. 5 paid by B to A would be a revenue for A (Airtel). The TDSAT has deducted Rs. 5 from the gross revenue on a notional logic that the rent of Rs. 100 should be treated as rent of Rs. 95 plus Rs. 5 towards reimbursement of expenditure. Thus, according to TDSAT, usage of facility lik....
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....AT in the impugned order passed in 2015 has held that the late fee is a penalty and the penalty that has been waived off, cannot be added to the revenue. In the first place, penalty cannot be said to be revenue, and if the penalty which is waived off, is added to revenue, it would be a case of notional income being subjected to charge. 148. DOT submits that if the operator bills the late fee, it would be taken as part of gross revenue, whether it is realised or not. 113 149. In case the late fee is attracted, it has to be counted towards gross revenue without setting off, and if the operator waives it off, it has the same effect of discount being given to the customer which cannot be allowed as no deduction (net off) is allowed under clause 19.1. When once the late fee amount is billed and the amount is not paid within the due date, and the late fee is attracted, merely nonrealisation of the same for any reason, cannot be excluded from the part of gross revenue as per its definition. Gross revenue has to be taken whether it is received or not, and netting off is not allowed under clause 19.1. Once the amount has been billed, it is for the licensee to realise it. There cannot ....
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.... that detailed call charges paid to other eligible telecommunication service providers within India shall be excluded from gross revenue. Similarly, roaming revenues passed on to other eligible/ineligible service providers are also excluded. In that case, they must be actually passed over to the licensees in different service areas. Only then it can be excluded from gross revenue and not otherwise. 155. Revenue from operating FCC 214 licence, USA, the problem arises in the case of Bharti BILGO which is an isolated case where it has a branch of Bharti Airtel in U.S. The submission of Bharti Airtel is that since the income generated by the branch is a separate income, it cannot be included in the income of Bharti Airtel in India. In the year 2007, the TDSAT has observed that the VSNL had the monopoly for ILD service before 1.4.2002. VSNL ceased to be a Governmentowned company. The old ILD licence permitted VSNL to carry both the activities, i.e., ILD service as well as TV uplinking. Under the new regime, a separate licence had to be obtained. Licence for TV uplinking service was obtained from the Ministry of Information and Broadcasting Ltd. while DOT issued the ILD licence. TV up....
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....ncome generated from such subsidiaries are not considered or included while computing the adjusted gross revenue of Bharti Airtel. Since BILGO is a branch of Bharti Airtel and not a separate legal entity, because of the previous decision of 2011, the business for which no licence is required, should be transferred to a separate legal entity to avoid computation of gross revenue, if not due it has to be part of gross revenue. 158. In our opinion, para 49 of the judgment of 2011 takes care of the submission. Once there is a branch, maybe based abroad, its income and the activity of the branch may not require any licence since licensee is undertaking the activity, and the definition of adjusted gross revenue activities includes revenue beyond the licence. The same has to be included in the gross revenue. The submission stands concluded by the previous decision, and we find no merit in the submission. 159. The finding recorded by the TDSAT, to the extent it is contrary to the DOT, based upon certain conditions, is set aside. In re: Nonrefundable Deposits 160. It is permissible for the licensee to accept deposits from its customers, which at times are nonrefundable but are u....
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....ing the period in question, the UAS licence came bundled with the spectrum, and it is evident that without a spectrum, the licensee could not work out the licence. The finding recorded by the TDSAT is appropriate. Once there is no activity under a licence, merely on the basis that the licence has been issued, no revenue earned, it cannot be shared. Still, there is no activity under the licence, i.e., based on nonlicensed activities, the revenue sharing could not have been asked. It would be an unreasonable and unconscionable bargain to pass on such a liability. We agree with finding recorded by TDSAT in the case of Videocon & S. Tel. In re: Income from interest and dividend 164. Argument has also been raised concerning interest income and dividend income. Since these items are expressly included in the definition of gross revenue in clause 19.1. There is no scope to entertain the submission concerning the exclusion of interest and dividend from gross revenue. Whatever, interest and dividend earned from the licensing and nonlicensing activities, have to form part of gross revenue for determination of licence fee. In re: Bad-debts written off 165. The bad debts written of....
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....jputana Trading Co. Ltd. v. Commissioner of Income Tax, West BengalI, (1982) 2 SCC 775, it has been observed that once liability is written off, it has to be added as income from the business under section 10(2A) and such income should be given some local habitation or name. 170. Hence, we hold that it is to be treated as an expense, and discount cannot be allowed for determining the licence fee. In re: Intercorporate loan 171. Certain licensees have raised the loan being holding companies for the subsidiaries from various banks and financial institutions. In turn, this amount is given to the subsidiaries for their daytoday operations. On this amount, the subsidiaries pay interest at the SBI Prime Lending Rates (PLR) every quarter, which in turn is paid by the holding company to the banks/financial institutions. DOT seeks to include the interest received from the subsidiaries companies in the revenue of the holding company. The TDSAT has included the income from interest on intercorporate loan as part of gross revenue. It is submitted on behalf of licensees that as the holding company only performs the function for the subsidiary company and the interest amount is only rei....
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.... could not form part of gross revenue, the definition so including them was ultra vires and illegal/invalid. The same heads are now sought to be excluded by taking the shelter that they do not form part of revenue under AS9. Though they form part of gross revenue under Clause 19.1. There is no scope left for this exercise. Though, we have examined every question raised on merit again as it was submitted that this Court had left the question open as to proper interpretation. This Court has held that TRAI and the TDSAT had no jurisdiction to decide on the validity of the definition of gross revenue and adjusted gross revenue in the licence agreement and to exclude items of revenue, which were included in the definition of gross revenue in the licence agreement, whether they are from nonlicencing activities. 178. Considering whether the licensee can challenge the computation of adjusted gross revenue and if so, at what stage and on what ground, this Court has observed that one such dispute can be that computation of adjusted gross revenue made by the licensor and the demand raised based on such computation is not following the licence agreement. The dispute can be raised after the ....
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....961. The process of computation would involve both inclusion and exclusion of items, which may possibly be regarded as falling within the expression "capital employed". The Central Board of Revenue may include some items and exclude some others while prescribing the manner of computation of the "capital employed". This is the sense in which the word "computed" has been consistently used by the legislature while enacting legislation of this kind. Turning to the earliest legislation where the word "computed" has been used in relation to the "capital employed", we find that in the Excess Profits Tax Act, 1940 for determining the standard profits, the statutory percentage was required to be applied to the average amount of capital employed as computed in accordance with the Second Schedule and the Second Schedule provided for inclusion of certain items and exclusion of certain others including borrowed moneys and debts. The legislature clearly, in this statute, regarded exclusion of borrowed moneys and debts as implicit in the process of computation of the "capital employed" or to put it differently, according to legislative usage, computation of the "capital employed" could legitimate....
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.... Tax Act, 1961, which lay down the manner of computation of the total income, it would be clear that the process of computation of total income involves both inclusion and exclusion of various items of income. Section 10 provides that in computing the total income of a previous year of any person, any income falling within any of the clauses of that section shall not be included in the total income, though such income which is required to be excluded is undoubtedly income and therefore part of total income according to the plain natural connotation of that expression. But it is required to be excluded in determining the charge of tax because "total income" is defined as total amount of income, "computed in the manner laid down in the Act". The same position obtains also in regard to Section 11 and it excludes certain categories of income in computation of the total income. Then, we may refer to Section 29 which provides that the income from profits and gains of business and profession shall be computed in accordance with the provisions contained in Sections 30 to 43A. These sections provide for inclusion and exclusion of various items in computing the total income. Sections 80A to ....
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....pital employed' in the industrial undertaking". So also Explanation 2 to the same subsection enacts in so many terms that in a case falling within its scope and ambit, "the total value of the machinery or plant or part so transferred shall not be taken into account in computing the 'capital employed' in the industrial undertaking". Then again, the Explanation to subsection (6) of Section 80J makes a similar provision for exclusion of "total value of the building machinery or plant or part so transferred" in computing the "capital employed" in the case of business of a hotel. It will thus be seen that, even according to these provisions in Section 80J, the process of computation of the "capital employed" can legitimately exclude item or items which are plainly and indubitably part of the "capital employed". Of course the exclusion enacted by these provisions is made by the legislature and not by the Rulemaking authority, but again, if we may emphasise, the point is not whether an exclusion is made by the legislature or by the Rulemaking authority but whether such exclusion is implicit in the process of computation so as to be comprised in it. And on this point not only the provision....
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.... Rate (PLR) of the State Bank of India. As per clauses 20.5 and 20.8, if the licensee does not pay the demand, consequences would follow. The clauses are extracted hereunder: "20.5 Any delay in payment of Licence Fee payable or any other dues payable under the LICENCE beyond the stipulated period will attract interest at a rate which will be 2% above the Prime Lending Rate (PLR) of State Bank of India existing as on the beginning of the Financial Year (namely 1st April) in respect of the licence fees pertaining to the said Financial Year. The interest shall be compounded monthly and a part of the month shall be reckoned as a full month for the purposes of calculation of interest. A month shall be reckoned as an English calendar month. 20.8 In case, the total amount paid as quarterly Licence Fee for the 4 (four) quarters of the financial year, falls short by more than 10% of the payable Licence Fee, it shall attract a penalty of 50% of the entire amount of short payment. However, if such short payment is made good within 60 days from the last day of the financial year, no penalty shall be imposed. The amount of penalty shall be payable within 15 days of the date of....
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....ty requires mens rea, contumacious conduct, or deliberate disregard of the person's statutory liability. Parties are in litigation since 2003. TDSAT decided on the validity of definition in the year 2007. After that, this Court passed judgment in 2011 and remitted the case to TDSAT. TDSAT has again decided concerning certain items in favour of the licensees, and throughout litigation, demands were stayed by this Court/TDSAT. Disputes are bona fide disputes. The licensees have paid about 80% of the demand raised by DOT, and the instant dispute pertains only to 20% of the demand on which stay was in operation. Under section 74 of the Indian Contract Act, compensation must be only reasonable compensation. DOT has also levied penalty and interest on penalty. In the absence of deliberate refusal to pay, no penal consequences like penalty can be imposed. It is also submitted that a fiscal contract/agreement is to be construed strictly, and if there is a doubt, the same needs to be interpreted in favour of the assessee. Nonpayment was neither deliberate nor under defiance of any law. The licensees have placed reliance on: A. Hindustan Steel Ltd. v. State of Orissa, 1969 (2) S....
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.... Engine Valves Ltd. v. Collector of Customs, (1984) 13 ELT 533 (CEGAT), Bombay and Madhusudan Gordhandas & Co. v. Collector of Customs, Bombay (1987) 29 ELT 904, wherein it has been held that in imposing penalty the requisite mens rea has to be established. It has also been observed in Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627, by this Court that: (SCR HN p. 753) "The discretion to impose a penalty must be exercised judicially. A penalty will ordinarily be imposed in cases where the party acts deliberately in defiance of law, or is guilty of contumacious or dishonest conduct, or acts in conscious disregard of its obligation; but not, in cases where there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute." 62. In the instant case, even if it is assumed for argument's sake that the stone slabs imported for home consumption are marble still in view of the finding arrived at by the Appellate Tribunal that the said product was imported on a bona fide belief that it was not marble, the imposition of such a heavy fine....
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....o the assessing authority. By the proviso the time can be extended by not more than 15 days. The requirement of Section 7(1) is undoubtedly a statutory requirement. The prescribed return must be accompanied by a receipt evidencing the deposit of full amount of 'tax due' in the State Government on the basis of the return. That is the requirement of Section 7(2). Section 7(2A), no doubt, permits payment of tax at shorter intervals but the ultimate requirement is deposit of the full amount of 'tax due' shown in the return. When Section 11B( a) uses the expression "tax payable under subsections (2) and (2A) of Section 7", that must be understood in the context of the aforesaid expressions employed in the two subsections. Therefore, the expression 'tax payable' under the said two subsections is the full amount of tax due and 'tax due' is that amount which becomes due ex hypothesi on the turnover and taxable turnover "shown in or based on the return". The word 'payable' is a descriptive word, which ordinarily means "that which must be paid or is due, or maybe paid" but its correct meaning can only be determined if the context in which it is used is kept in view. The word has been frequen....
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....ded. In the circumstances, it would therefore be correct to say that as earnest money is an amount to be paid in case of breach of contract and named in the contract as such, it would necessarily be covered by Section 74." (emphasis supplied) G. Central Bank of India v. Ravindra & Ors., (2002) 1 SCC 367, paras 38, 55 "38. However "penal interest" has to be distinguished from "interest". Penal interest is an extraordinary liability incurred by a debtor on account of his being a wrongdoer by having committed the wrong of not making the payment when it should have been made, in favour of the person wronged and it is neither related with nor limited to the damages suffered. Thus, while liability to pay interest is founded on the doctrine of compensation, penal interest is a penalty founded on the doctrine of penal action. Penal interest can be charged only once for one period of default and therefore cannot be permitted to be capitalised. 55. During the course of hearing it was brought to our notice that in view of several usury laws and debt relief laws in force in several States private moneylending has almost come to an end and needy borrowers by ....
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..... (2) Novation, that is, a debtor entering into a fresh agreement with a creditor undertaking payment of previously borrowed principal amount coupled with interest by treating the sum total as principal, any contract express or implied and an express acknowledgement of accounts, are the best evidence of capitalisation. Acquiescence in the method of accounting adopted by the creditor and brought to the knowledge of the debtor may also enable interest being converted into principal. A mere failure to protest is not acquiescence. (3) The prevalence of banking practice legitimatises stipulations as to interest on periodical rests and their capitalisation being incorporated in contracts. Such stipulations incorporated in contracts voluntarily entered into and binding on the parties shall govern the substantive rights and obligations of the parties as to recovery and payment of interest. (4) Capitalisation method is founded on the principle that the borrower failed to make payment though he could have made and thereby rendered himself a defaulter. To hold an amount debited to the account of the borrower capitalised it should appear that the borrower had an oppo....
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....d and/or excluded from capital sum and be treated only as interest and dealt with accordingly. (8) Award of interest pendente lite and postdecree is discretionary with the court as it is essentially governed by Section 34 CPC dehors the contract between the parties. In a given case if the court finds that in the principal sum adjudged on the date of the suit the component of interest is disproportionate with the component of the principal sum actually advanced the court may exercise its discretion in awarding interest pendente lite and postdecree interest at a lower rate or may even decline awarding such interest. The discretion shall be exercised fairly, judiciously and for reasons and not in an arbitrary or fanciful manner." 188. Before considering the applicability of the decisions above, the factual gamut of the case has to be considered. The demand was raised for the first time in the year 2003 despite the fact that the definition of gross revenue was clear, and as is apparent from the correspondence and the agreement reached between the parties, there was no doubt what constitutes gross revenue. Licensees were aware that these items concerning which they have rais....
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....bona fide at all. They were justified in order to delay the liability and the payment in accordance with the agreement. In this backdrop and what has been held by us, we have to consider whether the interest, penalty, and interest on penalty can be levied or not. Particularly since it is the revenue sharing regime and the Government has been deprived of the benefit of revenue which it would have earned but for granting the privilege which it has parted with in favour of the licensees. 190. In M/s. Everest Industrial Corporation & Ors. v. Gujarat State Financial Corporation, (1987) 3 SCC 597, this Court held that the rate of interest payable on the principal amount due under the court's order passed under section 32 of the State Financial Corporations Act, 1951 would be as stipulated in the contract as the provisions of section 34 CPC are not attracted, order under section 32 being not a decree, liability to pay contractual rate of interest cannot be disowned, merely because of absence of direction for payment of interest in order under section 32. This Court has held: "6. If as held by this Court the proceeding instituted under Section 31(1) of the Act is something akin....
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....ess the party obliged either acted deliberately in defiance of law or was guilty of conduct - contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty to be imposed is exercised by judicial discretion. The ratio of the case, it is not attracted for the reason that in the instant matter, it is the contractual rate of interest and penalty agreed to which cannot be said to be arduous in any manner. The rate of interest has been agreed to and particularly since it is a revenuesharing regime, and the licensees have acted in conscious disregard of their obligation. Thus, on the anvil of the decision above also, they are liable to pay the dues with interest and penalty. There is no discretion to vary the penalty. It is 50% of the amount which is in shortfall which cannot be said to be unreasonable and that too, two grace periods have been given in clause 20.8 to make payment of the same. As it is the agreed term and cannot be said to be arbitrary, the ratio of the decision is not attracted. Reliance has also been placed on Akbar Badrudin Giwani v. Collector of Customs (supra), wherein the dispute was bona fide. It was a case of exercise of power by the tribuna....
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....able compensation when the amount fixed in the contract is like a penalty; only reasonable compensation can be awarded. Whether or not actual damage or loss is proved, has to be considered. It is only in cases where it is possible to prove actual damage or loss, such proof is not to be dispensed. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract can be awarded. In the instant case, it is quite reasonable amount of the penalty in case of default in payment of the amount. The term cannot be said to be unconscionable. As the Government has been deprived of the revenue and the licensees have been benefited by revenue sharing regime, in spite of that, they have not shared the revenue. They are bound by the stipulation, which is found to be quite reasonable in the facts and circumstances of the case. 195. In Central Bank of India v. Ravindra, (supra), this Court considered the question of award of payment of interest and has held that there is nothing wrong with the party voluntarily entering into the transaction as to stipulation, for payment of compound interest ,at reasonable rates and authorising the credi....
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....g fallen due on that day. Nothing prevents the borrower from paying the amount of interest on the date it falls due. If the amount of interest is paid there will be no occasion for capitalising the amount of interest and converting it into principal. If the interest is not paid on the date due, from that date the creditor is deprived of the use of the money, and which it would have made if the debtor had paid the amount of interest on the date due, the creditor needs to be compensated for deprivation. As held in Pazhaniappa Mudaliar v. Narayana Ayyar, AIR 143 Mad 157, the fact situation is analogous to one as if the creditor has advanced money to the borrower equivalent to the amount of interest debited. We are, therefore, of the opinion that the expression "the principal sum adjudged" may include the amount of interest, charged on periodical rests, and capitalised with the principal sum actually advanced, so as to become an amalgam of principal in such cases where it is permissible or obligatory for the court to hold so. Where the principal sum (on the date of suit) has been so adjudged, the same shall be treated as "principal sum" for the purpose of "such principal sum" - the exp....