2013 (11) TMI 823 - AT - Income Tax

Allowance of deduction u/s 80IA of the Income tax Act - Income from sale of VSAT equipment Held that - These equipments are essential equipments for enabling assessee to the telecommunication services. The Govt. has put up various restrictions on import of such items because of security reasons. If the assessee is unable to provide these items to its customer then it might not be possible for it to provide telecommunication services Held that - Following the judgment of the ITAT in the assessee s own case in the previous year, it was held that Considering the nature of equipments and their relation to the nature of services provided by the assessee, the receipt received by the assessee for supply of these items is inextricably links to the business of its telecommunication services. The A.O. is not justified in excluding these receipts Deduction allowed u/s 80IA as the situation in this year does not change Decided against the revenue. Computation of disallowance under Rule 8D read with Section 14A of the Income tax Act Held that - Following the Hon ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. 2010 (8) TMI 77 - BOMBAY HIGH COURT , it was held that The provisions of Rule 8D of the Income tax Rules which have been notified with effect from 24 March 2008 shall apply with effect from Assessment year 2008-09 - In view of Hon ble Mumbai High Court judgment, there is no dispute that Rule 8D is applicable prospectively from A.Y. 2008-09 onwards, however, since the assessee has not filed any details of expenses on earning from old investment of Rs. 80 lacs, set aside the orders of authorities below and restore the matter back to the file of AO to decide the same afresh in accordance with law after affording an opportunity of being heard to the assessee.

Summary

Issues:
1. Deduction under section 80IA for income from trading activities
2. Linkage of trading activities to telecommunication services
3. Eligibility of income from space for deduction under section 80IA
4. Classification of INSAT 2E as a domestic satellite for tax purposes
5. Disallowance under section 14A for expenses related to investments

Analysis:

Issue 1:
The Revenue appealed against the CIT(A)'s decision regarding the income of Rs. 43,43,455 from trading activities under section 80IA for AY 2006-07. The ITAT upheld the CIT(A)'s decision based on a previous order for AY 2005-06, emphasizing the essential nature of the equipment for providing telecommunication services. The ITAT concluded that the income from the sale of VSAT equipment was intricately linked to the telecommunication business, making it eligible for deduction under section 80IA.

Issue 2:
Regarding the linkage of trading activities to telecommunication services, the ITAT reiterated its decision from AY 2005-06, where it allowed deduction under section 80IA for income earned from space segment charges paid. The ITAT emphasized that the payment made by the assessee was not to a foreign company owning or operating the satellite, but rather for leasing space for telecommunication services. The ITAT upheld the CIT(A)'s decision, stating that the payment was not to a foreign company owning or operating the satellite, making it eligible for deduction under section 80IA.

Issue 3:
The classification of INSAT 2E as a domestic satellite for tax purposes was challenged by the Revenue. However, the ITAT upheld the CIT(A)'s decision based on the fact that British Telecom had leased the satellite but was not its owner or operator. The ITAT concluded that the satellite was domestic, and the payment made by the assessee for space usage was eligible for deduction under section 80IA.

Issue 4:
The disallowance under section 14A for expenses related to investments was deleted by the CIT(A) based on the Mumbai High Court's ruling that Rule 8D applied from AY 2008-09 onwards. The CIT(A) observed that no dividend was received on the investment, and the appellant had substantial own funds, indicating no financial expenses for the investment. The ITAT set aside the orders of the authorities and remanded the matter to the AO to decide afresh in accordance with law.

In conclusion, the ITAT partially allowed the Revenue's appeal for statistical purposes, maintaining the decisions on deduction under section 80IA and disallowance under section 14A based on the facts and legal interpretations presented in the judgment.