2019 (11) TMI 168 - SC - Indian Laws

Interpretation of statute - definition of gross revenue as defined in clause 19.1 of the licence agreement granted by the Government of India to the Telecom Service Providers - shifting of 'revenue sharing regime' - benefit of migration package - It was a case of the telecom operators that the department was supposed to determine the quantum based on the recommendations of the TRAI. According to the telecom operators, the department had illegally included various elements of income in the definition of the term AGR which do not accrue from the operations under the license viz., dividend income, interest income on short term investment, discounts on calls, revenues from other activities separately licensed, reimbursements under the Universal Service Fund (USF) etc. HELD THAT - It cannot be said that DOT has taken inconsistent stands at different stages of the same litigation. Their stand is apparent that the gross revenue has been clearly defined in the agreement. Parties have agreed to various inclusions in the agreement and have willingly switched over to revenuesharing regime under the 1999 policy and same is apparent from the stand and the reliefs prayed in the petitions filed in 2003 and 2005 extracted above. The licensees were aware of items specifically included in the agreement. TSPs agreed to interpretation and accepted it as held by this Court in 2011 judgment. Licensees are taking inconsistent stands, earlier they have taken the stand that all these items concerning which disputes have been raised, had been included illegally in the definition of gross revenue, the definition may be declared ultra vires, invalid, and be struck down. They have also contended that revenue from activities under the licence cannot be included in gross revenue, which submission has been negated by this Court in 2011, it was held that the gross revenue would include the revenue generated from nonlicensing activities. Licensees cannot be permitted to approbate and reprobate and to take inconsistent stands that they are not included in gross revenue as per AS9. The stand taken rather than buttressing the submissions raised by them, counters and militates against their own interest and paves the way in favour of DOT. The submission raised that the definition is not wide, cannot be accepted, and stands repelled. Clauses 22.1, 22.2 and 22.3 cast obligation upon the licensee to draw, keep and furnish independent accounts for the service. Under clauses 22.1 and 22.2, the licensee has to maintain records quarterly. Accounts have to be audited and can be called for by the licensor or the TRAI, as provided in Clause 22.3. The format of gross revenue is supportive of definition of gross revenue as defined in the agreement. Clause 22 is a rider upon the licensee to maintain the records of activities and other matters such as financial position as enumerated therein. The appeals of licensees are dismissed and filed by DOT, are accordingly allowed.

Issues Involved:
1. Definition of Gross Revenue
2. Discount and Commissions
3. Gains from Foreign Exchange Fluctuations
4. Monetary Gains on Sale of Shares
5. Insurance Claim in Respect of Capital Assets
6. Negative Balance of Prepaid Customer
7. Reimbursement of Infrastructure Operating Expenses
8. Waiver of Late Fee
9. Gains from Roaming Charges and PSTN Passthrough Charges
10. Nonrefundable Deposits
11. Licence Fee Demand Where Spectrum is Not Granted
12. Income from Interest and Dividend
13. Bad Debts Written Off
14. Liability Written Off
15. Intercorporate Loan
16. Revenue under IP1 Registration
17. Income from Management Consultancy Services
18. Res Judicata
19. Levy of Interest, Penalty, and Interest on Penalty

Detailed Analysis:

1. Definition of Gross Revenue:
The Supreme Court addressed the definition of "gross revenue" under Clause 19.1 of the license agreement between the Government of India and Telecom Service Providers. The court emphasized that the definition is broad, comprehensive, and inclusive, covering various revenue streams such as installation charges, late fees, sale proceeds of handsets, interest, dividend, value-added services, supplementary services, access or interconnection charges, roaming charges, revenue from permissible sharing of infrastructure, and any other miscellaneous revenue. The court rejected the argument that the definition should be aligned with Accounting Standard (AS9), stating that the contractual definition prevails.

2. Discount and Commissions:
The court held that discounts and commissions form part of the gross revenue and cannot be deducted. The tribunal's differentiation between various types of discounts was rejected. The court emphasized that the gross revenue must be taken without any setoff for related items of expense, including discounts and commissions.

3. Gains from Foreign Exchange Fluctuations:
The court ruled that gains from foreign exchange fluctuations must be included in the calculation of adjusted gross revenue (AGR). The court clarified that both realized and unrealized gains from foreign exchange fluctuations should be accounted for as part of the gross revenue.

4. Monetary Gains on Sale of Shares:
The court held that gains from the sale of shares, including gains over and above the net book value, must be included in the gross revenue. The court rejected the argument that such gains are not part of ordinary business activities and should be excluded.

5. Insurance Claim in Respect of Capital Assets:
The court ruled that insurance claims received for more than the book value of capital assets must be included in the gross revenue. The tribunal's artificial bifurcation of insurance claims was rejected.

6. Negative Balance of Prepaid Customer:
The court held that the negative balance of prepaid customers, resulting from loan talktime provided by the service provider, must be included in the gross revenue. The court emphasized that the amount is billed on an accrual basis and cannot be excluded.

7. Reimbursement of Infrastructure Operating Expenses:
The court ruled that the entire amount received by the licensee on account of sharing passive infrastructure must be included in the gross revenue. The tribunal's differentiation between rent and reimbursement of expenses was rejected.

8. Waiver of Late Fee:
The court held that the late fee, once billed, must be included in the gross revenue even if it is waived off later. The court emphasized that the gross revenue must be taken without any setoff for related items of expense.

9. Gains from Roaming Charges and PSTN Passthrough Charges:
The court ruled that passthrough charges must be excluded from the gross revenue only if they are actually passed on to the licensees in different service areas. The court emphasized the need for actual payment rather than accrual basis.

10. Nonrefundable Deposits:
The court held that nonrefundable deposits must be included in the gross revenue. The court emphasized that such deposits are revenue received in advance from subscribers and must be accounted for in the profit and loss account.

11. Licence Fee Demand Where Spectrum is Not Granted:
The court agreed with the tribunal's finding that no licence fee can be demanded where the spectrum has not been granted, as no revenue is generated from such non-licensed activities.

12. Income from Interest and Dividend:
The court held that income from interest and dividend must be included in the gross revenue as expressly provided in the definition under Clause 19.1 of the license agreement.

13. Bad Debts Written Off:
The court upheld the tribunal's finding that bad debts written off are not allowed as a deduction. However, if recovered later, they must not be charged again to avoid double charging.

14. Liability Written Off:
The court upheld the tribunal's finding that liability written off must be treated as an expense, and no discount on income will be allowed for determining the licence fee.

15. Intercorporate Loan:
The court ruled that interest income from intercorporate loans must be included in the gross revenue. The court emphasized that such interest income forms part of the gross revenue as defined in Clause 19.1.

16. Revenue under IP1 Registration:
The court held that income from IP1 registration must be included in the gross revenue under the CUG licence. The court emphasized that income from both licensed and non-licensed activities must be included.

17. Income from Management Consultancy Services:
The court ruled that income from management consultancy services must be included in the gross revenue. The court emphasized that such income cannot be excluded from the adjusted gross revenue.

18. Res Judicata:
The court addressed the issue of res judicata, stating that the findings in the 2011 judgment operate as res judicata for items already dealt with. The court emphasized that the tribunal cannot exclude items explicitly included in the definition of gross revenue.

19. Levy of Interest, Penalty, and Interest on Penalty:
The court upheld the levy of interest, penalty, and interest on penalty as per the terms of the license agreement. The court emphasized that the contractual stipulations must be followed, and the licensees are bound by the agreed terms. The court found no ground to reduce the interest or penalty, considering the nature of the objections raised by the licensees.

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