2016 (8) TMI 270 - HC - Income Tax

Eligible business for the purpose of deduction under Section 80IA - 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? - eligibility for Extra Ordinary Items, Refund from Universal Service Fund, Interest from others, Liquidated Damages, Excess provision written back and Others including sale of directories, publications, form, waster paper, etc Held that - 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 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. 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. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 80-IA (2A) of the Income Tax Act, 1961.
2. Exclusion of specific items from profit and gains for deduction under Section 80-IA.
3. Treatment of an enterprise with multiple undertakings seeking deductions under different sections.

Analysis:

Issue 1: Interpretation of Section 80-IA (2A)
The primary issue in these appeals was the interpretation of Section 80-IA (2A) of the Income Tax Act, 1961. The Revenue challenged the ITAT's interpretation, arguing that the ITAT erred in not requiring a first-degree nexus for computation of deductions for undertakings providing telecommunication services. The dispute centered around the absence of the term "derived from" in sub-section (2A) and the ITAT's decision to treat telecommunication services differently in terms of deduction calculation.

Issue 2: Exclusion of Specific Items for Deduction
The case involved the exclusion of specific items from profit and gains for deduction under Section 80-IA. The Revenue contended that certain items categorized as 'other income' and 'extraordinary item' in the Profit and Loss Account should not be considered as profits 'derived from' the eligible business. The AO excluded six items from the Assessee's profit, leading to an appeal where the CIT (A) agreed with the AO on three items but accepted the Assessee's plea on the other three items.

Issue 3: Treatment of Enterprise with Multiple Undertakings
A hypothetical issue raised by the Revenue's counsel was the treatment of an enterprise with multiple undertakings seeking deductions under different sections. However, the Court found this issue irrelevant to the present appeals. Section 80-IA (2A) treats an undertaking providing telecommunication services distinctly, allowing separate deductions. The Court upheld the ITAT's interpretation of Section 80-IA(2A) and dismissed the appeals, concluding that no substantial question of law arose for consideration.

In conclusion, the judgment clarified the interpretation of Section 80-IA (2A) regarding deductions for undertakings providing telecommunication services. It highlighted the specific treatment of telecommunication services and upheld the ITAT's decision to allow deductions for the Assessee. The Court's analysis focused on the legislative intent behind the provision and affirmed that no substantial legal question warranted further consideration.