2018 (12) TMI 400 - AT - Income Tax

Addition on account of short term capital gain - right to set off, under an agreement of actionable claim - set off being non-refundable entry fee paid by the UW to DOT in the year 2008 against the allocation of licenses to the appellant against the fresh spectrum fee payable in respect of the newly acquired spectrum of six circles in an auction conducted on 14.11.2012 - Acceptance of the facts and findings recorded in CAG report Held that - UW had no enforceable legal right, title, interest in the amount of non-refundable entry fee paid by UW to DoT. Once we conclude that, there was no right, title, interest which was enforceable in law, the answer to the issue involved, in our opinion is that, since UW had no right, title, interest in the said non-refundable entry fee or it was not entitle to make any claim from DoT for set off of the said license fee, UW could have not transferred any such right so as to enable the appellant to acquire such an alleged right. The appellant had paid ₹ 100 crores to acquire such a right, under the actionable claim agreement, itself shows, when there existed no right, the amount so paid by the appellant was apparently by way of abundant precaution to safeguard its interest. However, in our opinion, it cannot be held that the assessee had acquired any capital asset which was transferred by it by way of extinguishment in favour of DOT, as held by the Revenue on mere fact that the appellant had paid ₹ 100 crores which in our opinion is not a decisive factor. CAG was also of the considered opinion that UW had no right, title, interest to claim any set off and so far as the appellant is concerned, in any case, the appellant had no legal enforceable right to seek a set off and has been also stated in the aforesaid report of CAG, as being not allowable to the appellant. We agree that CAG being a Constitutional Authority, the findings as noted in the Report cannot be disputed and consequently its findings in the Report cannot be ignored. We observe that there is no inconsistency between the facts stated in CAG report regarding the event which lead to the set off of such amount and submission made by the appellant before us. Therefore in the absence of any contrary material, we consider it appropriate to have to accept the facts and findings recorded in CAG report. Accordingly, the objections of the ld. CIT DR that the taxability of the amount in question cannot be decided by considering the CAG report is rejected. In the instant case the assessee has received no sum directly or indirectly. It had not entered into business transaction or any transaction with DoT in respect of such amount so waived and such sum had been set off by DoT on the principle of equal restitution. Also, we find that the appellant is not in the business of trading of UASL. Further, the DoT guidelines applicable, at that time did not permit trading/sharing of spectrum. It was privy only to the Appellant and the Appellant alone could use it to render permitted telecom services. Thus, the set off against the spectrum fees cannot, by any stretch of imagination, be construed in the revenue field or a sum chargeable to tax under the head profit and gains from business and profession. The action CIT(A) to tax such amount as business receipts is devoid any merit. The amount of set off is allowed on account administrative and policy decision and not by way of adventure in nature of trade. CIT (A) in its order placed reliance in the case Of CIT vs. Kasturi Estates 1965 (10) TMI 7 - MADRAS HIGH COURT which is clearly distinguishable as the issue in the said case was whether the sale and purchase of land would fall under capital field or revenue field. Accordingly, the appellant also succeed on this count. In view of the above, the ground nos. 2 to 4 are allowed. Unearned revenue - principle of recognizing the revenue - whether earned revenue has not accrued to the appellant during the captioned assessment year and accordingly, not taxable in given year? - Held that - The said additions only resulted in a timing difference and the overall taxable income remains the same and as such, there is no loss to the Revenue. The CIT (DR) relied upon the order of AO and Ld. CIT (A) based on the contention that the amount had accrued to the appellant in the captioned year and the AO had rightly brought to tax the same in the hands of the Company. We find that the facts of the present case are identical to the facts and circumstances of the case of ACIT vs. Shyam Telelinks Limited (2012 (7) TMI 955 - ITAT DELHI) and is squarely covered by the decision of this Tribunal wherein on the basis of identical facts the ITAT deleted the additions made by the AO. Thus we uphold the contentions of the Assessee that the unearned revenue had accrued to the appellant as income for the AY 2014-15. Accordingly, the earlier orders of this Tribunal are applicable in the case of the appellant also. Hence, we direct the learned AO to examine whether unearned revenue of ₹ 220.80 crores has been offered to tax in the succeeding year, if so, then the said amount is directed to be deleted. - Decided in favour of assessee for statistical purpose.

Summary

Issues Involved:

1. Taxability of ?1658.57 crores as short-term capital gain.
2. Taxability of ?220.80 crores as unearned revenue.

Issue 1: Taxability of ?1658.57 crores as Short-Term Capital Gain

The primary issue revolves around whether the appellant acquired a capital asset in the form of a right to set off the non-refundable entry fee paid by Unitech Wireless (UW) against the spectrum fee payable for fresh licenses. The appellant argued that UW had no enforceable right to claim a refund or set-off of the entry fee, as the licenses were quashed by the Supreme Court, and the entry fee was non-refundable. The appellant contended that the set-off was allowed by the Department of Telecommunications (DoT) as a policy decision based on the principle of equal restitution and not due to any right transferred from UW.

The Tribunal examined the facts and concluded that UW had no right, title, or interest in the non-refundable entry fee after the licenses were quashed. Consequently, UW could not have transferred any such right to the appellant. The Tribunal also noted that the set-off was allowed by DoT as a policy decision and not due to any enforceable right. Therefore, the appellant did not acquire any capital asset from UW, and no capital gain arose from the extinguishment of such a right. The Tribunal reversed the findings of the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] on this count.

Issue 2: Taxability of ?220.80 crores as Unearned Revenue

The second issue concerns the taxability of unearned revenue of ?220.80 crores in the assessment year (AY) 2014-15. The appellant, engaged in providing prepaid telecom services, recognized revenue based on the actual usage of talk time by customers. The unutilized talk time at the year-end was treated as unearned revenue and shown as a liability in the balance sheet. The AO and CIT(A) held that the unearned revenue should be taxed in the year of receipt, as the conditions for revenue recognition under Accounting Standard (AS)-9 were met.

The Tribunal referred to the decision in ACIT vs. Shyam Telelinks Limited, which dealt with a similar issue and held that revenue should be recognized when the services are rendered. The Tribunal found that the appellant's method of recognizing revenue based on actual usage was consistent with AS-9 and the industry practice. The Tribunal directed the AO to verify whether the unearned revenue was offered to tax in the subsequent year. If so, the AO was directed to delete the addition. If not, the AO was instructed to allow corresponding expenditure incurred by the appellant.

Conclusion:

The Tribunal allowed the appeal partly for statistical purposes, directing the AO to verify the treatment of unearned revenue and corresponding expenditure. The Tribunal concluded that the appellant did not acquire any capital asset from UW, and no capital gain arose from the set-off allowed by DoT.