2014 (12) TMI 1331 - HC - Income Tax

Entitlement for deduction u/s 80IA - basic telephone services provider - whether assessee who are franchisees of BSNL and who have been permitted to install, maintain and operate in-dialling PABX under franchisee to support the department, can be treated to have provided basic telephone services entitling them for deduction u/s 80IA? - Held that - As decided in assessee s own case for the assessment year 1998-99 the assessee have made huge investment in setting up and maintaining the entire PABX. In view of the agreement between the parties which has been minutely considered by this Court, the services provided by the assessee shall fall within the definition of basic telephone service and therefore they shall be entitled to deduction u/s 80IA. The Tribunal has not committed any error in reversing the orders passed by the AO. The Tribunal had examined all the aspects of the case and concluded that the assessee were providing basic telecommunication service and were entitled to deduction under section 80IA(4)(ii). Tribunal is right in law and on facts in holding that the assessee who are franchisees of BSNL and who have been permitted to install, maintain and operate in-dialling PABX under franchisee to support the department, can be treated to have provided basic telephone services entitling them for deduction u/s 80IA - Decided in favour of assessee.

Summary

Issues:
- Interpretation of "basic telephone services" for deduction u/s 80IA
- Whether franchisees of BSNL providing in-dialling PABX services qualify for deduction

Analysis:
1. The High Court considered the substantial question of law regarding the eligibility of franchisees under section 80IA. The Tribunal's decision in favor of the assessees was challenged by the revenue.

2. The assessees, franchisees of BSNL providing in-dialling PABX services, claimed deduction u/s 80IA. The Assessing Officer contended that basic services were provided by the Department of Telecommunication, not the assessees, thus disqualifying them.

3. The Tribunal, after considering CIT(A)'s orders, ruled in favor of the assessees. The revenue appealed, arguing that franchisees do not provide basic services and, therefore, are ineligible for the deduction.

4. The revenue's advocate highlighted the definition of "Basic Telephone Service" by the Telecom Regulatory Authority of India. They argued that since the assessees are franchisees and not providers of basic services, they should not qualify for the deduction.

5. The assessees' counsel supported the Tribunal's decision, emphasizing the investment in infrastructure for the EPABX system and the terms of the license agreement. They argued that the assessees do provide basic telephone services.

6. The High Court, after reviewing the terms of the agreement and the Mumbai Bench's decision, upheld the Tribunal's decision. The assessees' investment and services were deemed to fall within the definition of "basic telephone services," entitling them to the deduction under section 80IA.

7. Consequently, the Court confirmed that franchisees of BSNL providing in-dialling PABX services can be considered as offering "basic telephone services" and are eligible for the deduction u/s 80IA. The Tribunal's orders were upheld, and the Tax Appeals by the revenue were dismissed.