TaxTMI 
TaxTMI 
2025 (10) TMI 1483
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....led its return of income on 31.12.1999, declaring income of Rs.1439.82 crores. The return of income so filed by the assessee was selected for scrutiny. In course of assessment proceeding, the A.O., while verifying the return of income filed by the assessee, noticed that the assessee had claimed deduction of an amount of Rs.412,37,88,812/- u/s. 80IA of the Act. He further noticed that such deduction has been claimed in respect of profits derived from new earth stations installed by the assessee for providing telecommunication services at various places. It was claimed by the assessee that since the new earth stations are industrial undertaking under sub section (4C) of section 80IA of the Act and has started providing services after 01.04.1995, but before 31.03.2000, it is entitled for deduction. While examining assessee's claim, the A.O. was of the view that new earth stations is not an industrial undertaking in terms with section 80IA of the Act, but is only one link in an integrated telecommunication system. Relying upon the decision of the co-ordinate bench in case of MTNL (in ITA No. 1088 & 1618/Del/2000 for A.Ys. 1995-96 & 1996-97 vide order dated 10.12.2001), A.O. ulti....
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....rvices, whether basic or cellular, including radio paging, domestic satellite service or network of trunking and EDI services were also treated as eligible business for claiming deduction. He submitted, sub-section (4C) of section 80IA of the Act applicable to the assessment year under dispute sets out the conditions for availing deduction u/s. 80IA of the Act in respect of an undertaking which starts providing telecommunication services whether basic or cellular including radio paging, domestic satellite service or network of trunking and electronic data interchange services at any time on or after 1 st day of April, 1995 but before the 31st day of March, 2000. He submitted, ld. first appellate authority has rejected assessee's claim of deduction u/s. 80IA of the Act for two reasons. Firstly, the internet services provided by the assessee cannot be treated as an 'undertaking' as it is not capable of functioning independently of the old unit/units. He submitted, the fact that the assessee has started providing EDI/internet services since 15.08.1995 cannot be disputed as it is borne out from materials placed on record. In this context, he drew our attention to the follow....
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.... to provide end-to-end services. To demonstrate such fact, ld. Counsel drew our attention to the following pictorial chart: 7. He submitted, had it been the case that to become eligible for deduction u/s. 80IA(4C) of the Act, an undertaking has to provide end-to-end internet services, then no internet service provider would be eligible to avail deduction u/s. 80IA of the Act, as none of them can provide end-to-end services. To substantiate such submission, ld. Counsel drew our attention to a list of internet service provider including Dishnet Dsl Ltd., who have availed some or other infrastructure facilities of the assessee including the telecommunication network, undersea cable etc. Thus, he submitted, the internet undertaking of the assessee has to be treated as an eligible undertaking in terms with section 80IA(4C) of the Act. Proceeding further, he submitted, even assuming that the internet undertaking is dependent upon the other existing/old units, still then eligibility for claim of deduction u/s. 80IA of the Act will not be hampered. 8. In support of such contention, he relied upon the decision of Hon'ble Gujarat High Court in case of Gujarat Alkalies & Chemicals L....
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....ship or developing, maintaining and operating in infrastructure facilities or scientific or industrial research and development or providing telecommunication services whether basic or cellular. The aforesaid provision has been amended from time to time for widening its scope in respect of the eligible undertaking. Through one such amendment, by Finance (No. 2) Act, 1998, effective from 01.04.1999, the scope of telecommunication services whether basic or cellular was enlarged to include radio paging, domestic satellite service or network of trunking and electronic data interchange services. Thus, from 01.04.1999 applicable to A.Y. 1999-2000 in addition to telecommunication services whether basic or cellular, other services including radio paging, domestic satellite service or network of trunking and electronic data interchange services were also included within the eligible business. Sub section (4C) to section 80IA of the Act sets out the conditions for eligibility of an undertaking providing telecommunication services whether basic or cellular including radio paging, domestic satellite service or network of trunking and electronic data interchange services which has communicated ....
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....ices: Referring to the definition of EDI as per Wikipedia website and another article by by John Schreibfeder dated 01.02.1999, ld. first appellate authority held that 'EDI' is a separate mode of data transfer which worked without internet services also. Whereas, 'internet' is a separate mode of electronic data transfer. EDI can be run or used on different computers through a software installed in those computers. It can work on "Intranet". Thus, according to him, since EDI services are capable of being provided without internet, it cannot be equated with internet. According to ld. first appellate authority, since section 80IA of the Act applicable to A. Y. 1999-2000, did not provide deduction in case of internet services but provided only with regard to EDI, the assessee having provided internet services cannot claim deduction. 12. Keeping in perspective the reasoning of ld. first appellate authority, the first issue which needs to be addressed is 'whether the EDI/internet services provided by the assessee can be treated as an undertaking for the purpose of section 80IA(4)(c) of the Act?'. For this purpose, it is necessary to look into the provi....
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....her operators from where the data is provided to international service provider's nodes. This is how the end-to-end service is provided. 13. Thus, from the above, it can be well imagined that it is impossible for one internet service provider to provide end-to-end service starting from a consumer in India to a person located somewhere in USA, UK or anywhere in the world. Therefore, the internet service provider has to depend upon the infrastructure facilities of others to provide its services. Merely because the assessee has provided EDI/internet services by utilizing its existing telecommunication network and undersea cables, would not disqualify the internet undertaking as an eligible undertaking for the purpose of section 80IA of the Act. The materials submitted before the departmental authorities as well as before us demonstrate that the assessee has made huge investments in installing of equipment's, machineries for providing internet services. It has employed huge number of technically qualified persons to maintain the equipment's and provide services on a regular 24 x 7 basis. That being the factual position on record, it cannot be said that the undertaking cr....
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....80-I of 1961). The Supreme Court has held that in order to be entitled to the benefit under Section 15C, the following facts have to be established by the assessee, subject always to time-schedule in the section: 1. investment of substantial fresh capital in the industrial undertaking set up, 2. employment of requisite labour therein, 3. manufacture or production of articles in the said undertaking. 4. earning of profits clearly attributable to the said new undertaking, and 5. above all, a separate and distinct identity of the industrial unit set up. We are of the view that so far as the fifth test is concerned i.e. a separate and distinct identity, only because to a certain extent the new undertaking is dependent on the existing unit, will not deprive the new undertaking the status of a separate and distinct identity. It all depends on the nature of the technology and the mechanism of production. We cannot ignore the fact that new machinery and new plant have been installed at an investment of Rs.7 crore some time in the year 1982-83 i.e. almost three decades back and also the fact that the production has gone from 34000 M.Tonnes to alm....
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....om publication of TRAI captioned Review of Internet Services and extract from Press Information Bureau of GOI giving details about internet services in India, it is noticed that prior to 1995, only limited access to internet was available for academic and research purpose through the ERNET (Education and Research Network). Internet access for public on commercial basis was started by the assessee on 15.08.1995. At the initial stage, only data could be transferred through internet. With advancement in technology, the concept of internet became much broader and in addition to data, audio and video files and many other activities such as browsing of websites, exchange of mail through email, web meetings, online transactions, e-commerce, etc. could be carried out. It will be pertinent to mention, after referring to the material collected from internet to differentiate between EDI and internet, ld. first appellate authority has made the following observations: "From the above, it is clear that EDI is a separate mode of electronic data transfer which can work without internet also. On the other hand, internet is a separate mode of electronic data transfer. EDI can be run or used....