2019 (1) TMI 472 - HC - Income Tax

Disallowance u/s 80IA - income from sharing fibre cables and cell sites is not derived from the undertaking of telecommunication business - Held that - In view of language of clause (ii) to sub-section (4) to Section 80IA, which states that for the purpose of the said clause an undertaking shall be treated as providing telecommunication services, if it is engaged in basic or cellular, including radio paging, domestic satellite services, network of trunking, broadband network, and internet services within the two dates, the income by the assessee from third parties who had availed of the telecommunication services, in the form of payments received by the assessee from third persons for using fibre cables and cell towers network qualifies for deduction under Section 80IA. This income or receipts have to be treated as income earned by the undertaking from telecommunication services . Assessee had also paid bank charges as cheques issued by some of the customers had been dishonoured. The cheque bounce charges were also levied to the customers but entire amount could not be recovered. AO held that late payment charges or cheque bouncing charges was in the nature of penalty and was not income derived from telecommunication business by referring to the judgments defining the scope and ambit of the expression income derived from . We have already noted that the said expression is missing and is not the mandate of the legislature in sub-section (2A) to Section 80IA. As held that the late payment charges or cheque bounce charges were relatable and directly linked with the telecommunication business of the assessee. Further, as noted above, the expression derived from is not relevant for claim for computation of deduction under sub-section (2A) to Section 80IA of the Act as held by the Delhi High Court in the case of Bharat Sanchar Nigam Limited 2016 (8) TMI 270 - DELHI HIGH COURT . We uphold the finding of the Tribunal that income from sharing of fibre cables and cell-sites qualify for deduction under Section 80IA(2A). Tribunal was also right and justified in upholding the reasoning and order of the Commissioner of Income Tax (Appeals) on cheques bouncing and late payment charges.

Summary

Issues Involved:

1. Whether the Income Tax Appellate Tribunal (ITAT) erred in deleting the disallowance made by the Assessing Officer (AO) under Section 80IA for income from sharing fibre cables and cell sites.
2. Whether the ITAT erred in deleting the disallowance of deduction under Section 80IA for cheque bounce charges received by the assessee.

Detailed Analysis:

Issue 1: Income from Sharing Fibre Cables and Cell Sites

The appellant challenged the ITAT's decision to delete the disallowance made by the AO under Section 80IA, arguing that income from sharing fibre cables and cell sites is not derived from the telecommunication business. The AO had denied the benefit of sub-section (2A) to Section 80IA for profits from sharing infrastructure facilities, considering it as leasing income rather than income derived from telecommunication services.

The Commissioner of Income Tax (Appeals) reversed the AO's findings, accepting the respondent-assessee's contentions that the sharing arrangements were part of the telecommunications operations aimed at cost reduction and operational efficiencies. The infrastructure was not leased but shared to reduce costs, and revenues from such arrangements were directly linked to the telecommunication business.

The High Court upheld the findings of the Commissioner of Income Tax (Appeals) and the Tribunal, stating that the expression "telecommunication services" includes a broad range of services and is not restricted to end-user services. The income from sharing fibre cables and cell sites was considered income from telecommunication services and eligible for deduction under Section 80IA(2A).

Issue 2: Cheque Bounce Charges

The AO had disallowed the deduction for cheque bounce charges, considering them penal in nature and not income derived from the telecommunication business. The Commissioner of Income Tax (Appeals) and the Tribunal held that cheque bounce charges were in the nature of reimbursement of penal charges paid by the assessee to the bank, and thus, directly linked to the telecommunication business.

The High Court affirmed the findings of the Commissioner of Income Tax (Appeals) and the Tribunal, stating that the cheque bounce charges were relatable and directly linked with the telecommunication business. The expression "derived from" is not relevant for the computation of deduction under sub-section (2A) to Section 80IA, as held in the case of Bharat Sanchar Nigam Limited.

Conclusion:

The High Court answered both questions in favor of the respondent-assessee and against the appellant-revenue. The income from sharing fibre cables and cell sites and cheque bounce charges qualify for deduction under Section 80IA(2A). The appeals were dismissed without any order as to costs.