Undesirable litigation by revenue in case of PUS- BSNL- claim was allowed by Tribunal as per clear provisions of S.80IA (2)

[CA DEV KUMAR KOTHARI]

Case:

Pr. Commissioner of I. Tax-Delhi Versus Bharat Sanchar Nigam Ltd. [2016 (8) TMI 270 - DELHI HIGH COURT]

Links and references:

Provisions: S. 80IA (2) was applicable, Revenue tried to also apply S.80IA (1) and (2).

S.80IE in which words ‘derived from’ are not used, therefore  the ruling in case of BSNL  is applicable.

Provisions relevant to the issue are reproduced below with highlights:

S.80- IA

Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.

     80-IA. ²[(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years.]

      (2)  xxx   not relevant to main issue involved   

[(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), the deduction in computing the total income of an undertaking providing telecommunication services, specified in clause (ii) of sub-section (4), shall be hundred per cent of the profits and gains of the eligible business for the first five assessment years commencing at any time during the periods as specified in sub-section (2) and thereafter, thirty per cent of such profits and gains for further five assessment years.]

From reading of the above provisions we find as follows as crucial aspects of two provisions:

• Sub-section (1) and (2A) are different and have different field of operations and applicability.
• Sub-section (2A) starts with non obstante clause and specifically carves out exception by use of words “Notwithstanding anything contained in sub-section (1) or sub-section (2),”
• In sub-section (1) provisionsays‘ …. a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years.
• In sub-section (2A) provisions says‘shall be hundred per cent of the profits and gains of the eligible business

Revenues contentions and appeals seems without application of mind, properly:

On reading of provisions, it appears that the revenue tried to import words used in sub-section (1) so as to restrict deduction in respect of profits derived from eligible business and on  incidental receipts and benefits.

Authors observations:

 The Revenue was totally wrong because sub-section (2A) starts with exception to the provision of sub-section (1) as highlighted above.

Secondly in Sub-section (2) words  ‘derived from’ are not used. Therefore, there is difference between two provisions.

Therefore, this case shows that tax authorities have indulged into un-necessary and undesirable litigation, particularly because there was no merit at all in view taken by AO and CIT(A) so there should not be appeal before ITAT.   Another reason for considering litigation as undesirable is that assessee (BSNL) is a Public Sector Undertaking) fully/ mostly controlled by the Government. Therefore, in such cases such litigation, which have no merit should be avoided.

History of case:

We find that in this case learned AO restricted deductions based on concept of ‘derived from’; that was confirmed by the CIT(A). On appeal by assessee, honourable Tribunal has very rightly pointed out difference between two provisions and held that all incomes of assessee from specified business will be eligible. Surprisingly the Principal CIT was not satisfied and he preferred appeal before Delhi High Court. In the process of filing of appeal, consultations wit senior / standing counsels should also have taken place, and they also advised to file an appeal.

This shows that revenue is un-necessarily initiating litigation from assessment stage and carrying such litigation up to the honourable Supreme Court also ( as we can see many cases) .

Let us hope that the revenue shall not appeal against judgment of Delhi High Court.

Other provisions in which this judgment is applicable:

We find some other provisions in which this judgment is applicable because in those provisions also restrictive words like ‘derived from’ undertaking or eligible business are  not use. For example Section  80-IE. However, unfortunately in case of that provision also tax authorities are applying concept of ‘derived from’ and restricting deduction.

A fit case for awarding costs:

This was a fit case for awarding substantial costs in favour of BSNL due to un-necessary litigation initiated by the Assessing Officer, supported by CIT(A), CI, Principal CIT and Counsels of revenue. It is surprising that even senior counsels of revenue seems to have made some arguments judt for sake of arguing. That is why honourable Court has, while considering contention raised by Counsel  held that  “ In the first place as far as the present appeals are concerned, the above issue as posed by learned counsel for the Revenue is purely hypothetical.”

 However, honourable Court has not passed any order for costs. Heavy costs in favour of assessee in such cases can put a check on un-necessary litigation which causes lot of wastage of public money and valuable time of tax authorities, counsels , courts and also of tax payers.   

From the judgment- relevant portion of judgment is reproduced below with highlights added by author::

Question before the High Court is reproduced in beginning of  paragraph 6 of the judgment and grievance of revenue is also discussed therein as follows:

6. The common question that is sought to be urged in all these appeals by the Revenue is whether the ITAT has erred in interpreting Section 80-IA (2A) of the Income Tax Act, 1961 („Act‟)?  

The Revenue is aggrieved by the decision of the ITAT that the first degree nexus implicit in the words "derived from" used in section 80 IA is not required for computation of deduction in the case of undertaking engaged in providing telecommunication services since the words "derived from" do not occur in sub-section (2A) of Section 80 IA. According to the Revenue, the ITAT erred in reading the sub-section (2A) in isolation, and thereby carved out a separate scheme with regard to the nature and extent of deduction for undertaking engaged in providing telecommunication services.

7. Section 80IA (1), (2) and (2A) of the Act read as under:  Xxx not reproduced as reproduced earlier."

8. The question arose in the context of the Assessee being asked to explain why certain specific items categorized as 'other income' and 'extra-ordinary item' in the Profit and Loss Account in assessment year 2004-05 should not be excluded from the profit and gains of the Assessee. According to the Revenue, these items could not be considered as profits and gains 'derived from' the eligible business for the purpose of deduction under Section 80 IA.  The said six items were: (i) Extra Ordinary Items (ii) Refund from Universal Service Fund (iii) Interest from others (iv) Liquidated Damages (v) Excess provision written back (vi) Others including sale of directories, publications, form, waster paper, etc. 

9. The AO held that the six items of income could not be said to be derived from the business of the Assessee and added the income therefrom to the returned income of the Assessee. In the appeal by the Assessee, the Commissioner of Income Tax (Appeals) [„CIT (A)‟] agreed with the AO that three of the above items, viz. Extraordinary Items, Refund from Universal Service Fund and Interest from Others, did not form part of the profit derived from eligible business. However, the Assessee‟s plea regarding the other three items as being derived from the business was accepted by the CIT (A).  

10. The Assessee filed appeals and the Revenue filed cross-appeals before the ITAT. The ITAT in the impugned orders concluded that with sub-section (2A) beginning with a non-obstante clause, the legislative intention of making available to an undertaking, providing telecommunication services, the benefit of deduction of 100% of the profits and gains “of the eligible business” was explicit. Indeed, the legislature appears to have made a conscious departure in adopting for sub-section (2A) a wording different from that appearing in sub section (1). Under Section 80IA (1), what is available for deduction are profits and gains “derived by an undertaking or an enterprise from any business referred to in sub-section (4)” whereas in Section 80-IA (2A) what is available for deduction is “hundred percent of the profits and gains of the eligible business”. The following conclusion reached by the ITAT in para 13.11 of the impugned order correctly encapsulates the legal position as far as the interpretation of Section 80IA (2A) is concerned. “13.11 Thus, we find that the legislature being alive to providing tax deductions to business enterprises and undertakings, it wanted to curtail the time line during which deduction can be claimed and also addressing the extent upto which it can be claimed has consciously carved out an exception to specified undertakings/enterprises whose needs and priorities differ has taken care to expand the time line for claiming deductions. It has consciously enabled those undertakings/enterprise who fall under sub-section (2A) to claim 100% deduction of profits and gains of eligible business for the first five years and upto 30% for the remaining five years in the ten consecutive assessment years out of the fifteen years starting from the time the enterprise started its operation. The legislature having ousted applicability of sub-section (1) and (2) in the opening sentence brought in for the purposes of time line sub-section (2) into play but made no efforts whatsoever to put the assessee under sub-section (2A) to meet the stringent requirements that the profits so contemplated were to be “derived from”. The requirements of the first degree nexus of the profits from the eligible business has not been brought into play.” 

11. As a result, the orders of both the AO and the CIT (A) to the extent they deny the Assessee, which in this case is in the business of providing telecommunication services, deduction in respect of the above items in terms of Section 80IA(2A) are unsustainable in law and have rightly been reversed by the ITAT.  

12. Learned counsel for the Revenue sought to urge that while the Assessee in this case is engaged only in the business of telecommunication services, there could be an enterprise which has more than one undertaking and one such undertaking could be in the telecommunication services. According to him, in such an event, a question might arise whether such an enterprise would be able to seek deduction both under Section 80IA (2A) as far as the telecommunication business is concerned, and under Section 80-IA (1) as far as any other eligible business is concerned.   

13. In the first place as far as the present appeals are concerned, the above issue as posed by learned counsel for the Revenue is purely hypothetical. In any event, Section 80-IA (2A) treats an undertaking providing telecommunication services as a separate species warranting a separate treatment as is evident from the non-obstante clause with which it begins.

The Court sees no reason why such an undertaking would not be able to take the benefit of deduction in terms of Section 80IA(2A) notwithstanding that the enterprise of which it forms part may have other eligible businesses for which the deduction would have to be calculated in terms of Section 80-IA (1) of the Act.  

14. The Court finds no reason to differ from the view expressed by the ITAT in the impugned orders as far as the interpretation of Section 80-IA(2A) of the Act is concerned.  

15. No substantial question of law arises for consideration. The appeals are dismissed.