TaxTMI 
TaxTMI 
2019 (11) TMI 168
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....016 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. Ram, AOR, Mr. Abhijat P. Medh, AOR, ....
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....ue 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 Telecom Policy, 1999 was devised after hold....
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....9, 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 2015 2,37,676 6. However, the telecom service providers in spite of the financial benefits of the package started to ensure that they do not....
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....al 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 ....... Further, all bad debts recovered and writeback of provisions and other debits for earlier years are also proposed to be included in REVENUE. However, no deduction on account of bad debts provisions, etc. for the current....
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....ed 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 while computing REVENUE; 57) BECAUSE the definition should be a comprehensive one comprising an exhaustive (and not indicative) list of items which will be included in the expression REVENUE;" 12. It appears that no other grounds were raised. The telecom o....
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....ions 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 under Section 18 of the TRAI Act. During the pendency of the civil appeal, the TRAI sent its recommendations as to the AGR which have been sought by the Tribunal vide its order dated 07.07.2006. Therefore, when Civil Appeal No.84/2007 came up for hearing before this Court on 19.01.2007, this Court d....
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....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' credits and held that all these reversals have to be excluded from the adjusted gross revenue. (vi) The Tribunal also accepted the recommendation of TRAI that rent from property owned by the licensee should be excluded from the adjusted gross revenue, provided it is established that the property is not in any way connected w....
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....ecommendation 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 Court formulated the following substantial questions of law: "(i) Whether after dismissal of Civil Appeal No. 84 of 2007 of the Union of India against the order dated 772006 of the Tribunal, by this Court by order dated 1912007 [Union of India v. Assn. of Unified Telecom Service Providers of India, Civil Appeal No. 84 of 2007 decided on 1912007 (SC)] , the Union of India can agitate the question d....
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....raph 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 second substantial question of law, namely, whether TRAI and the Tribunal have the jurisdiction to decide the validity of the terms and conditions of the licence including the definition of adjusted gross revenue finalised by the Central Government and incorporated in the licence, this Court observed and held as under: "37. A bare perusal of subsection (1) of Section 4 of the Telegraph Act shows that the Central Government has the exclusive privilege of estab....
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....s 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 licence including the payment to be paid by the licensee for the licence, TRAI has been conferred with the statutory authority to make recommendations on the terms and conditions of the licence to a service provider and the Central Government was bound to seek the recommendations of TRAI on such terms and conditions at different stages, but the recommendations of TRAI are not binding on the Central Government, and the final decision on the terms and conditions of a licence to a service provid....
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....vernment 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 Sections 2(e) and 2(ea) of the TRAI Act indicates that the definitions of licensee and licensor in Sections 2(e) and 2(ea) of the TRAI Act are exhaustive and therefore would not have any other meaning. As Justice G.P. Singh puts it in his book Principles of Statutory Interpretation, 12th Edn., at pp. 17980: "... When a word is defined to 'mean' such and such, the definition is prima facie restrictive and exhaustive;" 47. A dispute between a licensor and a licensee referred to in Section 14(a)(i) of the T....
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....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 payment which had been decided upon by the Central Government as a consideration for parting with its rights of exclusive privilege in respect of telecommunication activities and having accepted the licence and availed the exclusive privilege of the Central Government to carry on telecommunication activities, the licensees could not have approached the Tribunal for an alteration of the definition of adjusted gross revenue in the licence agreement. 50. Regarding the recommendations of TRAI under Section 11(1)(a)(i) of the TRAI Act....
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....he 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 licensee has accepted the terms and conditions of a licence, he cannot question the validity of the terms and conditions of the licence before the court. We, therefore, hold that TRAI and the Tribunal had no jurisdiction to decide on the validity of the definition of adjusted gross revenue in the licence agreement and to exclude certain items of revenue which were included in the definition of adjusted gross revenue in the licence agreement between the licensor and the licensee." 20. While considering the substantial question of law no.3, this Court o....
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....at 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 licensee, the licensee can challenge the demand before the Tribunal and the Tribunal will have to go into the facts and materials 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." 23. After that, the respective telecom operators again approached the TDSAT challenging the demand notices/demand. The TDSAT by the impugned order has considered the specif....
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.... (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 penalty. In Re: Definition of Gross Revenue 26. A new package, namely "the National Telecom Policy 1999 Regime," gave an option to the licensees to migrate from fixed licence fee to revenue sharing fee, which was to the advantage of Telecom Service Providers (for short, 'the TSPs'). The objective of the Government was to achieve social and economic goals to provide the service to all uncovered area including rural areas, remote, hilly and tribal areas and to create an efficient infrastructure thereby propelling India into an IT superpower and to increase teledensity from 0.4 to 4 by the year 2010 and to provide internet access to all district Headquarters by the year 2000. Human resource development training, telecom equipment manufacturer, and remote area tel....
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....ll 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 the field of accountancy to decide upon the broad definition of the gross revenue. The relevant portion of the experts' opinion is extracted hereunder: "1.1 The question of what should constitute 'revenue' in the context of the 'revenue sharing' policy of the government is a vexed one. Accounting principles seek to measure economic transactions and events in a dynamic and open environment and, therefore, do not always provide as definitive guidance as one would wish. While keeping these inherent limitations of accounting as a measurement discipline in view, an attempt has been made in this note to articulate a basic set of propositions that may assist in dealing with the issue on hand. Needless to add, these propositions are presented only as a starting point for dis....
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....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, the licensee must state in the prescribed form as AnnexureII. The format is a part of the license under the title of "Format of Statement of Revenue and Licensee Fee." It has no connection with the accounting standards prescribed under the Companies Act. The format is the basis for the calculation of the license fee in revenue sharing. The licensees provide the details as per the format AnnexureII along with the certificate of Auditors. The TSP has to provide all the details of gross revenue as per the definition. The accounting standards deal with the broad principles to be followed while maintaining accounts and can never override the definition of gross revenue. Accounting Standard (AS9) deals with the definition of revenue, but that cannot prevail over the definition of Gross Revenue as defined in the agreem....
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....dinaraynan 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 of gross revenue, only revenue cash inflow as revenue can be included; not all the incomes which is recorded in profit and loss account and nonrevenue items cannot be included in the definition of gross revenue within the ambit of accounting standards. Clause 18.2 of the license agreement provides only license fee of 10 per cent of AGR excluding the spectrum charges. The gross revenue under Clause 19.1 is not gross income or gross inflow or gross receipts. 37. It is further submitted on behalf of the licensees that revenue has not been defined under the license. Clauses 20.6 and 22 of the license agreement provided as to how the licensees are obliged to prepare their accounts. Section 211(3A) read with Section 211(3C) of the Companies Act, 1956, casts an obligation on companies to maintain their books of account fo....
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....me 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 received by the company. 42. It should be held that such revenue from nonlicensed revenue was not part of AGR at all. Contra proferentum rule requires clauses 19.1 and 19.2 to be interpreted against the maker and to prefer the interpretation which is favourable to the licensees. 43. The service providers submitted that basic principles to decide what constitutes revenue have to be followed. The receipt must be having the nature of revenue, and it cannot be subjected to double charge. No one can generate revenue from oneself, and someone else's revenue cannot be treated as that of others. 44. When we consider the submissions as observed there was a paradigm shift in Telecom Policy of 1999 from the fixed licence fee to the revenue sharing basis regime, which was advantageous to the Telecom Service Providers. Unde....
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....; (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) revenue from permissible sharing of infrastructure; and (xii) any other miscellaneous revenue. 48. No setoff can be claimed for related items of expense etc. on any of the items mentioned above of the inclusive definition and on the miscellaneous revenue. 49. Clause 19.2 of the agreement excludes certain items from gross revenue to arrive at the figure of AGR, which are (a) PSTN/ PLMN related charges (access charges) actually paid to other eligible service providers within India; (b) roaming revenue passed on to the TSPs through service tax paid to the Government, if gross revenue had included the component of service tax and sales tax. 50. In Union of India v. AUSPI (2011), this Court has held that the terms and conditions of the licence, including the definition of gross revenue in the licence agreement, are part of the contract. The Central Government alone has the right to defin....
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.... 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 services, and from the use by others of enterprise resources yielding interest, royalties, and dividends. Revenue is measured by the charges made to customers or clients for goods supplied and services rendered to them and by the charges and rewards arising from the use of resources by them. In an agency relationship, the revenue is the amount of commission and not the gross inflow of cash, receivables, or other consideration." 53. The explanation contained in clause 5 of AS9 relating to revenue recognition is extracted hereunder: "Explanation Revenue recognition is mainly concerned with the timing of recognition of revenue in the statement of profit and loss of an enterprise. The amount of revenue arising on a transaction is usually determined by agreement between the parties involved in the transaction. When uncertainties exist regarding the determination of the amount or its associated costs, these unce....
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....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 the LICENSEE may maintain in respect of the business carried on to provide the service(s) under the Licence at any time without recording any reasons thereof. 22.3 (b) LICENSEE shall invariably preserve all billing and all other accounting records (electronic as well as hard copy for a period of THREE years from the date of publishing of duly audited & approved Accounts of the company and any dereliction thereof shall be treated as a material breach independent of any other breach, sufficient to give a cause for cancellation of the LICENCE. 22.4 The records of the LICENSEE will be subject to such scrutiny as may be prescribed by the LICENSOR so as to facilitate independent verification of the amount due to the LICENSOR as its share of the revenue. 22.5 The LICENSOR may, on forming an opinion that the statements or accounts submitted are inaccurate or misleading, order Audit of the accounts of the LICENSEE by appointing auditor at the cost of the LICENSEE and such auditor(....
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....nsuring that all enterprises that follow them are comparable and that their financial statements are "true and fair." Measurements and disclosures based on fair value are becoming increasingly important. Fair valuation is generally used in valuation and disclosure of financial instruments, derivatives, conversions, auctions in a bond, business combinations, impairment of assets, retirement obligations, transactions involving exchange of assets without monetary consideration, transfer pricing, etc." 56. The accounting standards are mandatory to be followed by the companies, and DOT has admitted in the counter affidavit of 11.7.2003 in Petition 7 of 2003 that the definition of the term revenue in the agreement is in line with AS9 under the accounting standards. Thus, they cannot approbate and reprobate. Thus, identification of revenue would come within the purview of gross revenue, is the sole test that it should conform with the definition of revenue as provided in AS9, and the golden thread is the phrase arising in the course of the ordinary activities of the enterprise. 57. Revenue is a 'Term of Art' as per Chapter 4.08 Kim Lewison, the Interpretation of Contract, Sweet & ....
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....at assistance from the interpreting statements made by the parties themselves or from their conduct in rendering or in receiving performances under it. Parties can, by mutual agreement, make their own contracts; they can also by mutual agreement remake them. The process of practical interpretation and application, however, is not regarded by the parties as a remaking of the contract; nor do the courts so regard it. Instead, it is merely a further expression by the parties of the meaning that they give and have given to the terms of their contract previously made. There is no good reason why the courts should not give great weight to these further expressions by the parties, in view of the fact that they still have the same freedom of contract that they had originally. The American Courts receive subsequent actings as admissible guides in interpretation. It is true that one party cannot build up his case by making an interpretation in his own favour. It is the concurrence therein that such a party can use against the other party. This concurrence may be evidence by the other party's express assent thereto, by his acting in accordance with it, by his receipt without objection of p....
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....parties have concurred should be admissible. The parties themselves might not have been clear as to the meaning of the word or phrase when they entered into the contract. Unanticipated situation might arise or come into the contemplation of the parties subsequently which would sharpen their focus and any statement by them which would illuminate the darkness arising out of the ambiguity of the language should not be shut out. In the case of an ambiguous instrument, there is no reason why subsequent interpreting statement should be inadmissible. "The question involved is this: Is the fact that the parties to a document, and particularly to a contract, have interpreted its terms in a particular way and have been in the habit of acting on the document in accordance with that interpretation, any admissible guide to the construction of the document? In the case of an unambiguous document, the answer is 'No.' (See Odgers' Construction of Deeds and Statutes, 5th Edn. by G. Dworkin, pp. 11819)." But, as we said, in the case of an ambiguous one, the answer must be "yes." In Lamb v. Goring Brick Co., a selling agency contract contained the words "the price shall be mutually agreed." Docume....
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....ferent accounting standard which adopts fair valuation method i.e., Ind AS18 and not relevant for the AS9 accounting standard. 62. The submission is wholly devoid of substance. It is not only barred by the principle of constructive res judicata but also indicates that the licensees are raising the similar objections which they have raised earlier and were not entertained by this Court and were rejected. Again precisely, the same attempt is made by submitting; revenue should be taken as defined in AS9, not in Clause 19.1 of the agreement, submission runs contrary to the decision of the Court, as held in para 48 of the 2011 judgment, which operates as res judicata inter se parties. The meaning of revenue is apparent that it has to be gross revenue, and the licence fee would be a percentage of the same. Thus, the licensees have made a futile attempt to submit that the revenue to be considered would be derived from the activities under the licence; whereas it has been held in 2011 that the revenue from activities beyond the licence have to be included in adjusted gross revenue, is binding. 63. Even otherwise, on merit, the submission raised is baseless. The contractual definition o....
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....s the total revenue. In our considered opinion, when there is a contractual definition as to what would be the gross revenue that would be the revenue and also the total revenue, the revenue as mentioned in the mode of accounting AS9 cannot govern the definition. The general definition of revenue in the mode of accounting cannot govern the contractual definition of gross revenue. 65. As per clause 20.4, a licensee must make quarterly payment in the prescribed format as AnnexureII showing the computation of revenue and licence fee payable. The Format is part of the licence and is independent of accounting standards and is in tune with the definition of gross revenue, and is the basis for the calculation of licence fee. It is only for uniformity that the account has to be maintained as per accounting standards AS9 which are prescribed from time to time. Once the licensee provides the details to the Government in format AnnexureII along with accounts certified by the auditor, the reconciliation has to take place. The accounting standard AS9 is relevant only for whether the figure given by the licensee as to gross revenue is maintained in proper manner once gross revenue is ascertain....
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..... Section 211 of the Companies Act, 1956 deals with the obligation of the company to comply with accounting standards. In case they do not comply, it has to be disclosed in its profit and loss account, the deviation, reasons for such deviation, and financial effect. Sections 211(3A) and 211(3B) are quoted hereunder: "211 (3A) Every profit and loss account and balancesheet of the company shall comply with the accounting standards. (3B) Whether the profit and loss account and the balancesheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account and balancesheet, the following, namely:- (a) the deviation from the accounting standards; (a) the reasons for such deviation; and (b) the financial effect, if any, arising due to such deviation." 68. Thus, it is apparent that accounting standard AS9 is a method to maintain accounts and, deviation if made, has to be reflected separately. 69. Prayer made in Petition No.7/2003 filed by AUSPI v. Union of India was to declare that 'gross revenue' can only relate to revenue directly arising out of telecom operations licensed under section 4 of the Indian Telegraph A....
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....f the word "impact" is interpreted narrowly, the question of impact by any rail would not arise as the question of a rail forcibly coming to the contact of a building or machinery would not arise. In the absence of specific exclusion and the word "impact" having more meanings in the context, it cannot be confined to forcible contact alone when it includes the meanings "to drive close", "effective action of one thing upon another" and "the effect of such action", it is reasonable and fair to hold in the context that the word "impact" contained in clause 5 of the insurance policy covers the case of the respondent to say that damage caused to the building and machinery on account of the bulldozer moving closely on the road was on account of its "impact". It is also settled position in law that if there is any ambiguity or a term is capable of two possible interpretations, one beneficial to the insured should be accepted consistent with the purpose for which the policy is taken, namely, to cover the risk on the happening of certain event. Although there is no ambiguity in the expression "impact," even otherwise applying the rule of contra preferentem, the use of the word "impact" in cl....
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....by the insurers, must be taken most strongly against them. It is construed contra proferentes, against those who offer it. In a doubtful case, the turn of the scale ought to be given against the speaker because he has not clearly and fully expressed himself. Nothing is easier than for the insurers to express themselves in plain terms. The assured cannot put his own meaning upon a policy, but, where it is ambiguous, it is to be construed in the sense in which he might reasonably have understood it. If the insurers wish to escape liability under given circumstances, they must use words admitting of no possible doubt. But a clause is only to be contra proferentes in cases of real ambiguity. One must not use the rule to create an ambiguity. One must find the ambiguity first. Even where a clause by itself is ambiguous if, by looking at the whole policy, its meaning becomes clear, there is no room for the application of the doctrine. So also where if one meaning is given to a clause, the rest of the policy becomes clear, the policy should be construed accordingly." (emphasis supplied) 74. In our opinion, the rule mentioned above of contra proferentem does not apply to the present....
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....cted with the business activity of the resolution applicant. Similarly, all the categories of persons mentioned in Section 5(24A) show that such persons must be "connected" with the resolution applicant within the meaning of Section 29A( j). This being the case, the said categories of persons who are collectively mentioned under the caption "relative" obviously need to have a connection with the business activity of the resolution applicant. In the absence of showing that such person is "connected" with the business of the activity of the resolution applicant, such person cannot possibly be disqualified under Section 29A( j). All the categories in Section 29A( j) deal with persons, natural as well as artificial, who are connected with the business activity of the resolution applicant. The expression "related party," therefore, and "relative" contained in the definition sections must be read noscitur a sociis with the categories of persons mentioned in Explanation I, and so read, would include only persons who are connected with the business activity of the resolution applicant." (C) South Gujarat Roofing Tiles Manufacturers v. State of Gujarat, 1976 (4) SCC 601, 3. The questi....
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.... the explanation may have been mentioned out of abundant caution to emphasize the comprehensive character of the entry, to indicate that all varieties of pottery are included therein. This argument, though more plausible, does not also seem acceptable. It is possible that one might have doubts whether things like refractories or electrical or textile accessories would pass under the description pottery as that word is used in common parlance, but the explanation also mentions crockery and toys regarding which there could be hardly any doubt. The inclusion in the list of objects which are wellrecognised articles of pottery makes it plain that the explanation was added to the entry not by way of abundant caution. 5. The contention of Mr. Tarkunde for the appellants is that the articles mentioned in the explanation were intended to be exhaustive of the objects covered by Entry 22. According to Mr, Tarkunde if the legislature wanted to bring within the entry all possible articles of pottery then there was hardly any point in mentioning only a few of them by way of explanation. To this Mr Patel's reply is that it is wellknown that where the legislature wants to exhaust the significan....
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....ot unknown. The observation of Lord Watson in Dilworth v. Commissioner of Stamps which is usually referred to on the use of "include" as a word of extension, is followed by these lines: "But the word 'include' is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to 'mean and include', and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions." It must therefore be held that the manufacture of Mangalore pattern roofing tiles is outside the purview of Entry 22." (emphasis supplied) 76. The definition of gross revenue is crystal clear in the agreement. How the adjusted gross revenue to be arrived at is also evident. It cannot be submitted that the revenue has not been defined in the contract. Once the gross revenue is defined, one cannot depart from it and the very meaning is to be given to the revenue for the agreement. Overall revenue, has to be taken into accou....
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....ver note. The incorporation of the terms and conditions of the policy may also arise from a combination of references in two or more documents passing between the parties. Documents like the proposal, cover note, and the policy are commercial documents, and to interpret them, commercial habits and practice cannot altogether be ignored. During the time the cover note operates, the relations of the parties are governed by its terms and conditions, if any, but more usually by the terms and conditions of the policy bargained for and to be issued. When this happens, the terms of the policy are incipient, but after the period of temporary cover, the relations are governed only by the terms and conditions of the policy unless insurance is declined in the meantime. Delay in issuing the policy makes no difference. The relations even then are governed by the future policy if the cover notes give sufficient indication that it would be so. In other respects there is no difference between a contract of insurance and any other contract except that in a contract of insurance there is a requirement of uberrima fides i.e. good faith on the part of the assured and the contract is likely to be constr....
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....he execution or performance of that contract shall be in terms of another contract (which contains the terms and conditions relating to performance and a provision for settlement of disputes by arbitration), then, the terms of the referred contract in regard to execution/performance alone will apply, and not the arbitration agreement in the referred contract, unless there is special reference to the arbitration clause also. (iv) Where the contract provides that the standard form of terms and conditions of an independent trade or professional institution (as for example the standard terms and conditions of a trade association or architects association) will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitration in such standard terms and conditions, shall be deemed to be incorporated by reference. Sometimes the contract may also say that the parties are familiar with those terms and conditions or that the parties have read and understood the said terms and conditions. (v) Where the contract between the parties stipulates that the conditions of contract of one of the parties to the contract shall form a part of the....
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....reprobate inheres in it. The doctrine of estoppel byelection is one of the species of estoppels in pais (or equitable estoppel), which is a rule in equity. ... Taking inconsistent pleas by a party makes its conduct far from satisfactory. Further, the parties should not blow hot and cold by taking inconsistent stands and prolong proceedings unnecessarily." 81. In Jal Mahal Resorts Private Limited v. K.P. Sharma, (2014) 8 SCC 866, the Court observed: "4. However, in spite of withdrawal of the special leave petitions, if the petitioner State is taking a diametrically opposite stand which it had taken before the High Court as also before this Court when the arguments were concluded, we surely have reservations in permitting the learned Senior Counsel to take an opposite stand now and advance arguments exactly the opposite of what was submitted in the High Court as also before this Court through the earlier counsel being the Attorney General. 5. However, the learned Senior Counsel submitted that the State is a respondent in other special leave petitions also which have been preferred by the other petitioners and, therefore, as a respondent therein, they are eligible to advance t....
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....the gross revenue has been clearly defined in the agreement. Parties have agreed to various inclusions in the agreement and have willingly switched over to revenuesharing regime under the 1999 policy and same is apparent from the stand and the reliefs prayed in the petitions filed in 2003 and 2005 extracted above. The licensees were aware of items specifically included in the agreement. TSPs agreed to interpretation and accepted it as held by this Court in 2011 judgment. Licensees are taking inconsistent stands, earlier they have taken the stand that all these items concerning which disputes have been raised, had been included illegally in the definition of gross revenue, the definition may be declared ultra vires, invalid, and be struck down. They have also contended that revenue from activities under the licence cannot be included in gross revenue, which submission has been negated by this Court in 2011, it was held that the gross revenue would include the revenue generated from nonlicensing activities. Licensees cannot be permitted to approbate and reprobate and to take inconsistent stands that they are not included in gross revenue as per AS9. The stand taken rather than buttre....
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....rgument had been raised on a hypothetical basis without foundational facts to raise the same is thus, liable to be and is rejected at the threshold. 86. DOT has urged that the Central Government has exclusive privilege under section 4 of the Telegraph Act; thus, it is bound to get the best price for natural resources. To part with the exclusive privilege under the revenue sharing regime is extremely beneficial to the licensees. Thus, the State must get the price for its valuable right as mandated under Article 14. In our opinion, there is no doubt that the State is a trustee of the natural resources and is obliged to hold it for the benefit of the citizens but also to ensure equal distribution to subserve the common good as observed under Article 39 of the Constitution of India in Re : Natural Resources Allocation, 2012 (10) SCC 1. The Government being the sole repository of all the resources in the country, also has the exclusive power to determine the licence conditions at which it parts with the exclusive right to the resources. Government has to make an effort to get the best price for its valuable rights and cannot throw them away, and there would be no arbitrariness in the ....
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....he best available price for its valuable rights. ...." (emphasis supplied) 87. Similar is the case law laid down in Har Shankar v. Excise & Taxation Commissioner, 1975 (1) SCC 737; Government of A.P. v. Anabeshahi Wine & Distilleries (P) Ltd., (1988) 2 SCC 25; Excise Commissioner 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 and State of Punjab v. Devans Modern Breweries Ltd., (2004) 11 SCC 26. 88. A licence granted under section 4(1) is in the nature of a contract. DOT has relied upon Khardah Company Ltd. v. Raymond & Co. (India) Pvt. Ltd., 1963 (3) SCR 183 in which it has been observed that once a contract has been reduced to writing, terms have to be ascertained from the agreement. It may be relevant to look into the circumstances in case need arises, which resulted in the inclusion of the definition of AGR in the licence agreement. The deliberations were held with the licensees, experts, and then finally migration package, revenue sharing regime is being consented to, was worked out in which the definition of adjusted gross revenue as a part of the financial condition of the licence....
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....ink Ltd. v. Union of India, 2010 (10) SCC 165, thus: "21. The unconditional acceptance of the terms of the package and the benefit which the appellant derived under the same will estop the appellant from challenging the recovery of the dues under the package or the process of its determination. No dispute has been raised by the appellant and rightly so in regard to the payment of outstanding licence fee or the interest due thereon. The controversy is limited to the computation of liquidated damages of Rs. 8 crores out of which Rs. 7.3 crores was paid by the appellant in the beginning without any objection followed by a payment of Rs. 70 lakhs made on 2952001. 22. Although the appellant had sought waiver of the liquidated damages yet upon rejection of that request it had made the payment of the amount demanded which signified a clear acceptance on its part of the obligation to pay. If the appellant proposed to continue with its challenge to demand, nothing prevented it from taking recourse to appropriate proceedings and taking the adjudication process to its logical conclusion before exercising its option. Far from doing so, the appellant gave up the plea of waiver and deposit....
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....d) 91. The terms and conditions cannot be said to be oppressive as submitted on behalf of the licensees on the strength of Central Inland Water Transport Corporation v. Brojo Nath Ganguly, 1986 (3) SCC 156, it cannot be said that DOT was in a dominant position, or possessed wholly disproportionate and unequal bargaining power. In the matter of commercial contracts, the doctrine of unconscionable bargaining is not applicable as held with respect to migration package in S.K. Jain v. State of Haryana, 2009 (4) SCC 35, thus: "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 beneficial to its interests. The pack....
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....m of volume discount given separately, the billed amount should be taken as revenue, and the discount may be treated as an expense which is not open to deduction under clause 19.1. A credit note given after the billing may also be treated as an expense. If the revenue booked in the profit and loss account shows netting off on account of any discount, the amount netted off may also be added up for computation of gross revenue. 97. The tribunal has adopted two different criteria concerning discounts on international roaming. With respect to commission and discount allowed to distributors on sale of prepaid vouchers, the tribunal has held that if the sale and invoicing is on Maximum Retail Price (MRP) and if any discount is given separately then in terms of clause 19.1, such discount is not deductible even if the revenue booked in the profit and loss account is after netting off the discount. On the other hand, if the sale is on a stated/agreed price, invoiced at that agreed price and booked under the revenue in the profit and loss account accordingly, without netting off any discount, then the actual selling price would be the revenue and the difference between the MRP and this sel....
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.... the invoice raised on the distributor. 103. Concerning the "subscriber's discount," it is submitted on behalf of the licensees that these discounts offered to the customers or subscribers are part of the tariff plan. Subscriber has a choice of different rental plans offered by the appellants, where certain discounts are offered by way of some free minutes/calls/SMS/VAS/value. Once a subscriber selects a plan, he is entering into a contract with the operator, is entitled to services and discounts, as indicated in the plan. Usually, these are in the form of free calls or additional data, and no revenue is collectible. Hence it cannot be taken into account for determining licence fee. DOT is asking for licence fee on the notional revenue for these free calls/SMS/VAS minutes/data when the appellants collect no amount on this account. These amounts of discounts are transparently reflected in the invoice raised on the subscriber as memorandum. 104. It is further submitted on behalf of the licensees that services are offered by the licensees and not goods. For payment of service tax, the licensees consider the gross amount charged as derived and mandated under section 67 of the S....
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.... by TDSAT. This Court did not accept it; as such, it is barred by res judicata and the question as to discount on international roaming, and questions as to other discounts, were not raised before TDSAT. As such, these objections concerning discounts allowed to distributors on sale of prepaid vouchers are barred by the principle of constructive res judicata. 106. When we consider the rival submissions it has been mentioned in the communication dated 26.7.2001 that the interest income, dividend income, value of rebates, discounts, free calls, and reimbursement from the USO funds have to be included in the adjusted gross revenue. Consequently, a prayer was made to set aside the communication dated 26.7.2001 in Petition No.7 of 2003. Prayer has not been granted on the ground that the Government has not accepted the recommendations of TRAI and the decision of the Government is final, binding and conclusive as has been held by this Court in AUSPI (2011). Finding has been recorded that parties have agreed to aforesaid position as reflected in communication dated 26.7.2001. 107. When we ponder on the definition of "gross revenue" in clause 19.1 of the licence agreement, it is apparent....
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....fair value is not the basis of Accounting Standard9. Fair value is the operating concept of IND AS18. In AS9, revenue recognition is at nominal value and that the fundamental difference between the two accounting standards. Thus, the nominal value has to be taken as the one which is relevant for AS9. Under the AS9 regime, the revenue recognition shall be measured as the gross inflow of cash, receivables, or other consideration received. There is no concept of fair valuation under AS9. 109. With the advent of modern technology, the mode of business transactions has changed. The number of online purchases and sales has been continually growing, and the techniques to retain clients online are being utilised. Unlike sales promotion schemes in the case of offline transactions, the online transactions of sales carry cash back rewards, discount coupons, and reward points. The incentives may include cash coupons, discount coupons, cash discounts, cashback and credit points, etc. The various incentives affect the amount of revenue to be recognised. Under IND AS18 Revenue or IND AS115, Revenue from Contracts with Customers states that revenue shall be measured at the fair value of the cons....
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....tion under Rule 9(a) of the said Rules must be shown in invoice, itself and that it would not be good enough to show it employing a credit note issued after the sale. The decision is on the method of computation when discount can be allowed on salestax and VAT under the Kerala General Sales Tax Rules, 1963, and has no relevance. In Commissioner of Central Excise, Madras v. Addison & Co. Ltd., (2016) 10 SCC 56, the question of turnover discount came up for consideration under section 11B of the Central Excise Act, 1944. It was held that trade discounts should not be disallowed because they are not payable at the time of each invoice or deducted from the invoice price. In Southern Motors v. State of Karnataka & Ors., (2017) 3 SCC 467, a question arose of trade discount given postissuance of tax/sale invoice, a deduction from the sale price for computing taxable turnover when the discount was not reflected in the tax invoice or bill of sale. It was held that it has to be proved that such discounts were given. The decision was in the context of Karnataka Value Added Tax Rules, 2005. Yet in Maya Appliances Pvt. Ltd. v. Additional Commissioner of Commercial Taxes & Ors., (2018) 2 SCC 756....
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.... reasonably sure that Z to pay the amount within 15 days. In the AS regime, the revenue has to be recorded at Rs. 1000, and when Z pays Rs. 900, the amount of cash discount of Rs. 100 will be recognised as an expense. That is the effect of the revenue to be recognised as a gross amount under AS9. Concerning the volumebased discount, under the AS9 regime, revenue is recognised at the gross amount received or receivable from the customers. However, the value of trade discounts and volume rebates received cannot be deducted from the gross revenue owing to the definition in clause 19.1. The subscriber's discount can also be in the form of free calls, some free minutes SMS value. 116. DOT has rightly asked for the licence fee on the notional revenue of free calls, SMS, VAS minutes/data. When these amounts admittedly are reflected in the invoice raised on the subscriber as memorandum, it is the gross revenue. It forms part of the gross revenue and cannot be deducted. That is what was intended by carving out the definition to make it free from litigation and accounting jugglery and to free determination of licence fee from the clutches of accounting jugglery. 117. The discounts al....
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....behalf of the licensees that offering discounts is frequently used to increase business in the long run/term. These are inevitable as there were 8 to 10 operators operating in the same geography at highly competitive prices. Discounts help to survive and grow business and augment revenue. Thus it is in the nature of expense for earning the profit and by this method it is admitted that business has grown and there is an increase in revenue, hence the same being part of the commercial strategy to enhance the business, it has to be treated in the nature of expense and cannot be deducted from gross revenue. 122. Thus, we have no hesitation to reject the claim for various forms of discounts, commissions, prepaid vouchers, goodwill waiver etc., raised on behalf of the licensees and set aside the finding of the TDSAT to the extent it is contrary to the stand taken by DOT, and we hold that all discounts and commission etc. as discussed form part of the gross revenue for the purpose of payment of licence fee. In re: Gains arising out of Foreign Exchange Fluctuations: 123. The telecom service providers have transactions of purchasing equipments or settling roaming charges etc. in forei....
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....r loss. The transactions denominated in foreign currency are recorded at the exchange rate prevailing at the time of transaction and realised. As such, gain or loss results when there is a change in the exchange rate between the transaction date and date of settlement of items. 126. It is further submitted on behalf of the licensees that notional gains are not inflows of cash and do not represent revenue. When there is neither accrual nor receipt of income, no revenue can be said to have resulted. A higher cost of an asset shown in the books on account of a higher foreign exchange rate may be reduced to reflect the current foreign exchange rate and does not result in any revenue received or receivable by the appellant. If forex gain is on any item of expenditure, then it should not enter calculation of gross revenue as expenses are not deductible while calculating gross revenue. It is further submitted that Para 3(iii) of AS9 expressly excludes the realised or unrealised gains resulting from changes in foreign exchange rates and adjustment arising on the transaction of foreign currency financial statements. 127. When we consider the rival submissions, it is apparent that there ....
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.... benefit and has to be accounted for while working out the gross revenue as a decrease in liability would be gain. Whatever may be the expenditure, whether it has increased or decreased, must be accounted for as it forms part of the gross revenue. 129. In the definition of gross revenue, any other miscellaneous revenue is included, and when once the item has to be shown in the balancesheet or profit and loss account, obviously, it has to be accounted for gross revenue, even as a notional figure. Once the amount is receivable, it has to be taken as part of gross revenue. The finding to the contrary recorded by the TDSAT is thus liable to be set aside. Whether the amount is paid for the purchase of equipment, it has to be accounted for and must be accounted for as per the value spent on the date of the banking transaction, which cannot be ignored. Thus, the gains from foreign exchange fluctuations have to be added in the computation of gross revenue, otherwise, the benefit which is accruing will be ignored. Where profit or loss arises on account of appreciation of foreign currency, such gain or loss has to form part of profit from the business or loss. Whether it is profit or loss ....
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.... also closing statement at the end of the year. What is gain over and above the book value in the year in question, has to be taken into consideration towards gross revenue received. Submission to the contrary raised on behalf of the licensees cannot be accepted. We are not able to accept the submission that the money collected on the sale of shares etc. is not like revenue receipt but is a capital receipt. The gain from the sale of capital asset including increase over and above net book value and scrap and not the entire proceeds are to be taken as revenue in calculation of the gross revenue without netting off and should be on accrual basis, is unobjectionably within the ken of definition of gross revenue. To say in case e.g., gain for AGR will accrue when the sale proceeds or the current disposition value of the goods is Rs. 60, and if it is sold at Rs. 70, in that case, there will be a gain of Rs. 10. That shall be taken as a gain for AGR calculation. The result would be the same in case the value of an asset worth Rs. 100 has depreciated to book value worth Rs. 60 and is sold at Rs. 70, as urged on behalf of DOT, Rs. 10 will form part of gross revenue. For what purpose and he....
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....e any classification as to when an asset is destroyed and replaced later on. The insurance claim received more than depreciated book value has to be recorded in the profit and loss account under any other income, that too constitutes a gain, therefore, it will form part of the gross revenue in the calculation without netting off and on accrual basis. To say if the revenue to form part of gross revenue will be treated only when the insurance claim received is more than the book value. Therefore, the excess amount received over and above the book value shall be taken as revenue for calculation of gross revenue. For the use of accounting, the gain from the insurance claim, the bifurcation made by the contingencies, was uncalled for and cannot be culled out from the definition of gross revenue, which was to simplify the procedure of assessment of licence fee. What is the meaning to be given to the word 'immediately' would differ from case to case and determination of licence fee. The cost of replacement also depends upon various factors. An old asset may be replaced by a brand new one of the higher prices. For an accounting of gain from the insurance claim, the methodology classifi....
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....from such usage beyond the permitted duration for the amount received by it. 138. The case set up by DOT is that the negative balance is communicated to the customer and also shown in the account. It is billed on accrual basis and becomes part of gross revenue. In case it is not realised, the same has the effect of bad debt, which is not allowed as a deduction as per the definition of gross revenue. In case it is not counted towards the gross revenue, it may encourage the licensee to give discounts increasing their gross revenue by such incentive and not paying the licence fee to the public exchequer. 139. It is apparent that the amount of negative balance is a business strategy, and the amount is adjusted in case recharge is opted. Otherwise also, it is billed and reflected on accrual basis in the account of the customer. Though it has to form part of gross revenue for determination of licence fee under clause 19.1, the number of calls at the full value have to be measured without any discounts or incentive of such business strategy. It is a part of revenue. It cannot be deducted from the gross revenue to be worked out as per the definition of gross revenue under AS9. Thus, th....
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....ring infrastructure". The definition of gross revenue does not permit differentiation between the reimbursement of expenses and rent for the usage of the facility. By the interpretation of TDSAT, accounting jugglery would take place, and the licensee will try to derive maximum reimbursement of infrastructure operating expenses under the category of "reimbursement of expenditure" rather than under the "rent category". The company may form cartel and put up a common expenditure in the type of reimbursement of the cost it would give a chance for netting off the expenditure against revenue, which is prohibited in clause 19.1. 145. In the definition of gross revenue, the item sharing of infrastructure facility is explicitly mentioned. In the format in Appendix 2 to AnnexureII also, the entire amount is required to be shown. It has been specifically mentioned that there cannot be any setting off of the amount of gross revenue, and the entire money received has to be treated as the gross revenue for the determination of licence fee. It is not the determination of profit. The gross revenue carries a different definition, and the intendment is clear to prevent disputes. Thus the entire am....
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.... purview of gross revenue once it becomes leviable. Thus, the finding of the TDSAT is not sustainable and is set aside. In re: Gains from roaming charges and PSTN passthrough charges 151. Roaming charges apply when the customer leaves the home network area and roams into the network or coverage area of another service area. Passthrough charges are charges paid by the licensee to the licensor for allowing their subscribers' calls to be carried on their networks. Clause 19.2 of the licence agreement provides for certain deductions of roaming charges and PSTN passthrough charges from gross revenue on actually paid basis. The TDSAT considered grievance on behalf of the licensees that many a time it happens that the licensee to whom such charges to be paid, happens to be the same company. It is stated officers of the respondent do not allow deduction of such charges on the ground that there is no such actual payment as the company making as well as receiving the payment is the same. But the revenue is counted under both the licences to compute the gross revenue, and the tribunal has observed that irrespective of the company being the same, passthrough charges shall be allowed to....
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.... Ministry of Information & Broadcasting. The said licence is practically free. Therefore, other service providers of TV uplinking service do not have to pay almost any licence fee. The TDSAT had rejected the recommendation of TRAI according to which revenue from TV uplinking and Internet service is to form part of AGR as it was held to be a form of AGR. It was held by TDSAT that revenue from these services is to be excluded from AGR. 156. In the impugned order, the tribunal has held that the revenue from operating FCC 214 licence arises not from the licence granted by DOT but by FCC. Hence, this inflow cannot be taken as part of AGR unless the DOT can establish that there is technical, managerial and financial interconnection interlacing and synergy between company's operations in the USA and India the gross revenue from the services of 214 FCC licence is reflected in the company's accounts. 157. The stand of the DOT is that if this is permitted, every TSP/licensee in India would have branch offices in other parts of the world and would treat majority of the international income of the licensee as having been generated in the branch office outside the country and would ....
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....ing as to the correctness of the finding recorded by the tribunal based on the concession, which was prima facie incorrect. We have heard learned counsel for the parties on the issue whether nonrefundable deposit forms part of the revenue of the licensee. 162. Appendix II to AnnexureII of the licence agreement: Item No.5, in Section D of the format, is an entry concerning nonrefundable deposits from subscribers. It has to be included as per the format in the statement of the gross revenue. The definition of gross revenue is wide enough to cover nonrefundable deposits as nonrefundable deposits are revenue earned from licensed activities. Nonrefundable deposits are to be treated as accrued in the profit and loss account as per Annexure III of the licence agreement. It is apparent that nonrefundable deposits are in fact revenue received in advance from the subscribers. Even if they are used for discount etc. in the bills, they form part of revenue. Licensees themselves treat nonrefundable deposits as income under section 80 IA (2a) of the Incometax Act. Be that as it may. The finding recorded by the TDSAT concerning nonrefundable deposits not being part of the revenue based upon wro....
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....d debts written off may be allowed as deductions from revenue but as and when those are recovered subsequently those should be added on to revenue. The submission is not acceptable but it needs to be clarified that when any bad debt written of is recovered finally, it may not be charged to license fee again as that would result in double charging of license fee on the same revenue." 166. TDSAT has not accepted the submission of the licensees. However, at the same time, it has safeguarded the interest of the licensees. In case it is realised later on, it may not be charged again. It should be charged only once. We find the finding to be appropriate. No case for interference in the findings recorded by the TDSAT is made out. In re: Liability written off 167. The TDSAT has observed as under: "Take the example of a company that makes a provision for retirement benefits for the amount. For income tax, it will be considered as an expense, but no discount from income will be allowed for the sum for determining the license fee. If such a liability is written off on a future date and shown accordingly in the profit and loss statement it surely cannot be brought to charge for a seco....
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....ny and recovers interest from subsidiaries, is good enough to make it a part of gross revenue. 173. Thus, interest income from intercorporate loan has to be included in the gross revenue for working out the licence fee. In re: Revenue under IP1 Registration 174. Whether it can be claimed/clubbed under revenue under CUG licence? It is apparent from the definition of gross revenue that income from licensed activities and even from nonlicensing activities and any other miscellaneous revenue of the licensee has to be included. Thus, DOT has rightly included the income of the licensee from IP registration under the CUG licence. In re: Income from management consultancy services: 175. When we consider the definition of gross revenue, it has to be included in the adjusted gross revenue to work out the licence fee. The income from management support and consultancy of the licensee cannot be excluded. Submission to the contrary cannot be accepted and is as a result of this rejected. 176. The TDSAT has also rightly held in the case of Bharti Airtel that the revenue from Cable Landing Station has to be included in the gross revenue. In re: Res Judicata 177. Coming to the submi....
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....e into the facts and material relating to the demand of a particular licensee. It was further observed that the tribunal may go into the facts and material based on which demand is raised to make the computation. Thus, the scope of the latter observations is not so wide to take out certain items, though included explicitly in the definition of gross revenue and to hold that they do not to form part of it. Income from licensing and nonlicensing activities are in the ambit of gross revenue had been determined conclusively in 2011 judgment. Only facts and material can be seen for computation. 179. It was submitted that the computation involves the process of that of computing, numbering, reckoning, and distributing. The account of estimation by rule of law is distinguished from the arbitrary construction of the parties. The reliance has been placed on the decision in Hindustan Machines Ltd. v. Union of India, 1985 (2) SCC 197. 180. Reliance has also been placed on Lohia Machines Ltd. & Anr. v. Union of India & Ors., (1985) 2 SCC 197 in which for income tax, the term computation has been considered. Wharton Law Dictionary reference has also made as to the definition of computation ....
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....sense. Of course it may be pointed out that in this statute the word "computed" has been used in relation to the "capital of the company" and not in relation to the "capital employed" but that would make no difference, because what we are concerned with here is the sense in which the word "computed" has been used and whether it involves the process of exclusion as well as inclusion and on that point, the Act analogically throws considerable light. The statutory deduction which must be made from the chargeable profits for the purpose of determining the charge of Surtax under this statute is defined to mean "an amount equivalent to ten percent of the capital of the company as computed in accordance with the provisions of the Second Schedule" and the Second Schedule after its amendment by Finance Act 66 of 1976 does not provide for inclusion of borrowed moneys and debts in computation of the capital of the company though it provides for inclusion of the paidup share capital and reserves. It will thus be seen that there is legislative history behind the use of the word "computed" in relation to the "capital employed" and it has been legislatively recognised as involving, as part of the....
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.... in accordance with the provisions of the Act, what is indubitably part of income cannot be excluded in the computation. However, the argument of Mr. Palkhivala was that in the case of definition of "total income" the exclusion of items of income in the process of computation is provided for by the legislature itself and is not purported to be done by any rulemaking authority. The legislature, stated Mr. Palkhivala, can cut down the width and amplitude of the expression "total amount of income" by expressly providing that particular item or items shall be excluded in the computation of the total amount of income, but the Rulemaking authority cannot do so, because by doing so, it would be derogating from the provisions of the statute. Now we have already pointed out that since the expression "capital employed" has a variable meaning which in a given case may or may not include borrowed moneys, the Central Board of Revenue, could, in exercise of its rulemaking power, exclude borrowed moneys in computation of the "capital employed" and in doing so, it would not in any way be acting contrary to the mandate of the statute. But the point which we wish to emphasise here, while referring t....
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....in the expression "capital employed". It is left by the legislature to the Central Board of Revenue as rulemaking authority to prescribe the manner in which the "capital employed" shall be computed and in so prescribing, the Central Board of Revenue may include or exclude items which may be regarded as forming part of the "capital employed"." 181. This Court has considered the matter given the provisions contained in section 80J of the Income Tax Act and has observed that capital employed has variable meanings. It has been legislatively recognised both inclusion as well as exclusion of the items, which may otherwise be regarded as forming part of the capital employed. Thus, the expression computation has not been used in the 2011 decision to include those very items from the purview of the definition of gross revenue, which have been held to be covered by this Court to be part of gross revenue. According to the 2011 judgment, whether the demand is in terms and conditions of the licence agreement and, in particular, the definition of adjusted gross revenue, could have been seen. The TDSAT could also view the facts and material based on which demand has been raised, but it was not ....
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.... monthly. Under clause 20.8, the penalty is to be paid in case the total amount paid as quarterly licence fee falls short by more than 10% of the payable licence fee, it shall attract a penalty of 50% of the entire amount of shortpayment. A grace period of 60 days is granted, otherwise, it will carry the interest. The amount of penalty shall be payable within 15 days of the date of signing the audit report, failing which interest shall be charged as per terms of clause 20.5. 184. Whether interest and penalty have to be levied or not is to be gone into on the facts and circumstances of the case. 185. The TDSAT has held that it would not be appropriate to levy interest as well as the penalty. In case interest has to be levied, it has to be collected at a nominal amount. The TDSAT has not specified the same. 186. DOT submits that as per the terms and conditions of the agreement, interest has to be paid for delayed payment. The contract has been entered into, and the rate of interest has been fixed therein. It is not for the court to modify the same and penalty clause is also attracted considering the nature of the objections raised as to the very definition of gross revenue wher....
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....ged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when 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. Those in charge of the affairs of the Company in failing to register the Company as a dealer acted in the honest and genuine belief that the Company was not a dealer. Granting that they erred, no case for imposing penalty was made out." B. Akbar Badrudin Giwani v. Collector of Customs, 1990 (2) SCC 203, "60. In the present case, the Tribunal has itself specifically stated that the appellant has acted on the basis of bona ....
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....n, it cannot be said that merely because the appellants did not take out a licence and did not pay the duty the provisions of Section 11A got attracted. There is no evidence or proof that the licence was not taken out and/or duty not paid on account of any fraud, collusion, wilful misstatement or suppression of fact. We, therefore, set aside the demand under the showcause notice dated 351993." (emphasis supplied) D. In Tecumseh Products India Ltd. v. Commissioner of Central Excise, Hyderabad, 2004 (6) SCC 30, it was held as under: "7. But, insofar as the application of extended period of limitation provided under Section 11A is concerned, we do not think that the Tribunal is justified because it was not clear as to whether if any part is used for the purpose of repairing a machinery would amount to manufacture. In fact, the Tribunal on a detailed analysis and after going into several processes carried out by the appellant, came to the conclusion that the stators which were used in the repairing of the compressors involved manufacturing activity. This circumstance itself shows that there was bona fide dispute between the parties in regard to the question whether stators mad....
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....nformation supplied in the return filed by him, there would be no default on his part to meet his statutory obligation under Section 7 of the Act and, therefore, it would be difficult to hold that the 'tax payable' by him 'is not paid' to visit him with the liability to pay interest under clause ( a ) of Section 11B. It would be a different matter if the return is not approved by the authority, but that is not the case here. It is difficult on the plain language of the section to hold that the law envisages the assessee to predicate the final assessment and expect him to pay the tax on that basis to avoid the liability to pay interest. That would be asking him to do the near impossible." (emphasis supplied) F. Kailash Nath Associates v. Delhi Development Authority & Anr., 2015 (4) SCC 136, paras 40 & 43 "40. From the above, it is clear that this Court held that Maula Bux v. Union of India, (1969) 2 SCC 554, was not, on facts, a case that related to earnest money. Consequently, the observation in Maula Bux that forfeiture of earnest money under a contract if reasonable does not fall within Section 74, and would fall within Section 74 only if earnest money is considered a pe....
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....y interest the quantum whereof may at the end prove to be ruinous. At times the interest charged and capitalised is manifold than the amount actually advanced. Rule of damdupat does not apply. Penal interest, service charges and other overheads are debited in the account of the borrower and capitalised of which debits the borrower may not even be aware. If the practice of charging interest on quarterly rests is upheld and given a judicial recognition, unscrupulous banks may resort to charging interest even on monthly rests and capitalising the same. Statements of accounts supplied by banks to borrowers many a times do not contain particulars or details of debit entries and when written in hand are worse than medical prescriptions putting to test the eyes and wits of the borrowers. Instances of unscrupulous, unfair and unhealthy dealings can be multiplied though they cannot be generalised. Suffice it to observe that such issues shall have to be left open to be adjudicated upon in appropriate cases as and when actually arising for decision and we cannot venture into laying down law on such issues as do not arise for determination before us. However, we propose to place on record a fe....
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....e Banking Regulation Act, 1949 is coupled with duty to act. The Reserve Bank of India is the prime banking institution of the country entrusted with a supervisory role over banking and conferred with the authority of issuing binding directions, having statutory force, in the interest of the public in general and preventing banking affairs from deterioration and prejudice as also to secure the proper management of any banking company generally. The Reserve Bank of India is one of the watchdogs of finance and economy of the nation. It is, and it ought to be, aware of all relevant factors, including credit conditions as prevailing, which would invite its policy decisions. RBI has been issuing directions/circulars from time to time which, inter alia, deal with the rate of interest which can be charged and the periods at the end of which rests can be struck down, interest calculated thereon and charged and capitalised. It should continue to issue such directives. Its circulars shall bind those who fall within the net of such directives. For such transaction which are not squarely governed by such circulars, the RBI directives may be treated as standards for the purpose of deciding wheth....
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....ss revenue. The objections which have been raised pertained to the definition of gross revenue for which the court held they are part of revenue. Now, relying upon AS9 standards, an attempt has been made by an indirect method for excluding items, which are expressly included in the definition of gross revenue. Objections are too tenuous, and, as a matter of fact, there was no scope to raise such objections in 2003 itself. Because of the various correspondence which has been referred, it becomes apparent that all these heads are included in the definition of gross revenue, and there is no justification for the licensees to raise the objections and to keep them pending for over two decades. 189. Further, the conduct of the licensees has also to be considered in the backdrop of the fact that the regime of revenue sharing was 144 extremely beneficial than the previous regime of the fixed licence fee, and they have tremendously benefited by it as is apparent from the statistics of the revenue earned by the licensees under the revenue sharing regime. When Government has parted with the privilege as to revenue on sharing basis under the license, and an agreement entered into, it ought t....
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.... right in holding that interest would be payable on the principal amount due in accordance with the terms of the agreement between the parties till the entire amount due was paid as per the order passed under Section 32 of the Act. We hold that the decision of the Karnataka High Court, referred to above, which has applied Section 34 of the Code to a proceeding instituted under Section 31(1) of the Act is not correctly decided." (emphasis supplied) 191. In Punjab Financial Corporation v. Surya Auto Industries, (2010) 1 SCC 297, the Court held that when the terms of the agreement have 146 not been questioned, contractual rate of interest cannot be altered. The Court has observed thus: "25. The High Court also committed serious error in declaring that the appellant Corporation will be entitled to charge simple interest at the rate of 10% w.e.f. 142003 i.e. after the expiry of six months from the date of taking over of the unit. Undisputedly, the respondent had not challenged the terms of loan agreement. Therefore, the High Court could not have suo motu altered the terms of agreement and directed the appellant to make fresh calculation of the outstanding dues and allowed the re....
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....iscretion, and considering the conduct of conscious disregard, the decision rather negates the submission than espousing the same. 193. Reliance has been placed on J.K. Industries Ltd. & Anr. v. Union of India & Ors., (supra) and Tecumseh Products India Ltd. (supra). In both the cases, duty was not paid under the provisions of section 11-A. There were divergent views of the High Courts. It was not found to be a case of fraud, collusion, wilful misstatement, or suppression of facts. Thus, the action of the imposing penal interest under section 11A and other penalties were set aside as there was a bona fide dispute. In the present case, there is no bona fide dispute, and it is not appropriate to vary the interest or the penalty. That has to be worked out from 2003 and not after the decision to be passed by this Court. Facts in J K Synthetics Ltd. (supra) were different. In that case, the assessee had paid the tax based on information supplied by him in the return. Thus, it was held that it would not be proper to levy interest under clause (a) of section 11B. In the instant case, the demand had been raised by the licensor, and after that, untenable objections have been raised which ....
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....transactions. The legislature has stepped in from time to time to relieve the debtors from hardship whenever it has found the practice of charging compound interest and its capitalisation to be oppressive and hence needing to be curbed. The practice is permissible, legal and judicially upheld excepting when superseded by legislation. There is nothing wrong in the parties voluntarily entering into transactions, evidenced by deeds incorporating covenant or stipulation for payment of compound interest at reasonable rates, and authorising the creditor to capitalise the interest on remaining unpaid so as to enable interest being charged at the agreed rate on the interest component of the capitalised sum for the succeeding period. Interest once capitalised, sheds its colour of being interest and becomes a part of the principal to bind the debtor/borrower. 44. We are of the opinion that the meaning assigned to the expression "the principal sum adjudged" should continue to be assigned to "principal sum" at such other places in Section 34(1) where the expression has been used qualified by the adjective "such", that is to say, as "such principal sum". Recognition of the method of capitali....