2012 (9) TMI 215 - AT - Income Tax

Deduction under section 80-IA(4)(ii) Held that - Assessee herself has not developed any telecommunication service system or as such she is not operating and maintaining any system independently - in order to get exemption as provided under section 80-IA, it is necessary for the assessee to obtain licence from the Department of Telecommunication (DOT), Government of India or from the Telecom Regulatory Authority of India (TRAI) on the basis of a written agreement, which the assessee has not obtained - assessee is not eligible for deduction provided under section 80-IA(4)(ii).

Summary

Issues:
Interpretation of eligibility for deduction under section 80-IA(4)(ii) of the Income-tax Act, 1961 for a business providing telecommunication services.

Analysis:
The case involved five appeals by the Revenue against the orders of the Commissioner of Income-tax (Appeals) concerning the eligibility of a business, running a private telephone exchange as a franchisee of BSNL, to claim deduction under section 80-IA(4)(ii). The assessee claimed the benefit of deduction under section 80-IA for the assessment years 2002-03 to 2006-07. The key issue was whether the business qualified as an undertaking engaged in infrastructure development to avail of the deduction.

The provisions of section 80-IA(4)(ii) allow deductions for enterprises providing telecommunication services, including basic or cellular services, subject to certain conditions. The assessing authority initially denied the deduction, stating that the assessee did not independently develop or operate any telecommunication system and lacked the necessary licenses from regulatory authorities. However, the Commissioner of Income-tax (Appeals) ruled in favor of the assessee, emphasizing the liberal interpretation of the provisions to promote tele-density in the country.

The Revenue contended that the assessee, as a franchisee of BSNL, did not meet the criteria under section 80-IA(4)(ii) since she did not hold the required licenses from the Central Government for providing telecommunication services. They argued that the Commissioner erred in extending the deduction to a franchisee and failed to apply principles of strict interpretation of tax provisions.

The Appellate Tribunal, after considering the arguments, found that the assessee's role was limited to operating as a commercial entity under a franchise agreement with BSNL and did not independently develop telecommunication infrastructure. Therefore, the Tribunal concluded that the assessee was not eligible for the deduction under section 80-IA(4)(ii) and overturned the Commissioner's decision, reinstating the assessing authority's rejection of the claim.

In conclusion, the Appellate Tribunal allowed the appeals filed by the Revenue, emphasizing the importance of engaging in infrastructure development to qualify for deductions under section 80-IA. The judgment highlighted the distinction between being an operating agent of an established entity and independently developing infrastructure to avail of tax benefits, ultimately upholding the assessing authority's decision in this case.