2016 (3) TMI 1350 - AT - Income Tax

Deduction u/s 80IA - CIT (A) confirming the exclusion being profit from sale of VSAT equipment u/s 80IA on the ground that such profits are not derived from eligible business or providing telecommunications services - Exclusion being income from software division for the purpose of computing deduction allowable u/s 80IA - Exclusion of only net interest income, i.e., gross interest income less expenditure incurred for earning such interest income, while computing deduction under Section 80-IA - HELD THAT - As perused the records and have carefully gone through the order of the Hon ble High Court in assessee s own case for AY 2005-06 which is the relevant assessment year before us. In the interest of justice, we remit this issue back to the file of AO to be decided as directed by the Hon ble High Court 2012 (6) TMI 34 - DELHI HIGH COURT

Summary

Issues Involved:
1. Exclusion of profit from sale of VSAT equipment under Section 80IA.
2. Exclusion of income from software division for computing deduction under Section 80IA.
3. Exclusion of only net interest income while computing deduction under Section 80IA.
4. Deletion of addition made by the AO on account of disallowance of deduction claimed under Section 80IA(4)(ii) for not fulfilling prescribed conditions.
5. Levy of interest under Section 234B.

Issue-wise Detailed Analysis:

1. Exclusion of Profit from Sale of VSAT Equipment under Section 80IA:
The first issue concerns the exclusion of Rs. 50,42,717/- being profit from the sale of VSAT equipment under Section 80IA of the Income Tax Act, 1961. The Delhi High Court had remitted this issue back to the tribunal to examine whether the income from trading activities is derived from an industrial undertaking within the meaning of Section 80IA. The High Court emphasized that the nature of the contracts under which the sales were made must be examined. If the sale of equipment was inextricably linked to providing telecommunication services, the income might qualify for deduction under Section 80IA. The tribunal directed the AO to re-examine the issue in light of the High Court’s observations.

2. Exclusion of Income from Software Division for Computing Deduction under Section 80IA:
The second issue pertains to the exclusion of Rs. 57,58,000/- being income from the software division for the purpose of computing deduction under Section 80IA. The High Court had framed the question of whether the income from developing software upgrades for Network Management Systems (NMS) for VSAT services qualifies for deduction under Section 80IA. The tribunal had not examined the nature and character of the software developed and sold. The High Court directed that the tribunal should re-examine this aspect, considering whether the software was inextricably linked to the business of providing telecommunication services. The tribunal remitted the issue back to the AO for fresh adjudication, with the liberty for the assessee to provide expert opinions.

3. Exclusion of Only Net Interest Income while Computing Deduction under Section 80IA:
The third issue involves whether only net interest income (gross interest income less expenditure incurred for earning such interest income) should be excluded while computing deduction under Section 80IA. The High Court observed that the tribunal had not correctly applied the principles laid down in the case of CIT Vs. Shri Ram Honda Power Equip and ACG Associated Capsules Private Limited Vs. Commissioner of Income Tax. The High Court directed that the tribunal should re-examine the factual matrix, including the balance-sheet and accounts of the assessee, to determine the net interest income. The tribunal remitted the matter back to the AO for fresh examination as per the High Court’s directions.

4. Deletion of Addition Made by the AO on Account of Disallowance of Deduction Claimed under Section 80IA(4)(ii) for Not Fulfilling Prescribed Conditions:
The fourth issue pertains to the deletion of an addition of Rs. 25,94,935/- made by the AO on account of disallowance of deduction claimed under Section 80IA(4)(ii). The High Court had framed the question of whether the income earned from domestic satellite services qualifies for deduction under Section 80IA. The High Court noted that the assessee was not in the business of providing lease/sale of space segment or satellite services but was providing broadband/internet services. The High Court directed that the tribunal should re-examine the nature and character of the services rendered by the assessee and whether they qualify for deduction under Section 80IA. The tribunal remitted the matter back to the AO for fresh adjudication.

5. Levy of Interest under Section 234B:
The fifth issue concerns the levy of interest under Section 234B of the Income Tax Act. The tribunal noted that the charging of interest under Section 234B is consequential. The AO shall recalculate the interest under this section while giving effect to the appellate order.

Conclusion:
Both the assessee's and the revenue's appeals are disposed of for statistical purposes, with the tribunal remitting the issues back to the AO for fresh adjudication as per the directions of the High Court. The AO is directed to re-examine each issue, giving the assessee an opportunity to present their case and, if necessary, obtain expert opinions.