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TMI Blog2010 (3) TMI 888X X X X Extracts X X X X X X X X Extracts X X X X ..... th on facts and in law, in upholding the action of the Assessing Officer in not allowing the deduction under section 80-IA of the Act as claimed and allowable under the provision of the Act. ( iii )On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in confirming the action of the Assessing Officer by wrongly interpreting the provisions of section 80-IA, whereby deduction is available in respect of income derived from providing telecom services on or 1-4-1995 and the appellant company being a service provider, its total income as such from providing telecom services shall be exempt. ( iv )On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in not appreciating the contention of the assessee that the deduction available under section 80-IA being undertaking based, the computation of income eligible even otherwise has to be worked out for each undertaking at the rate of 100 per cent for first five years and at the rate of 30 per cent for the next 5 years from the date of setting up of such undertaking. ( v )On the facts and circumstances of the case, the learned CIT(A) has erred both on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip Sub-section (4) ( iv ) Developing, Maintaining and Operating any infrastructure facility Sub-section (4A) ( v ) Specific and Industrial Research Sub-section (4B) ( vi ) Telecommunication Services Sub-section (4C) ( vii ) Industrial Park Sub-section (4D) ( viii ) Refining of Mineral Oil Sub-section (4E) ( ix ) Housing Projects Sub-section (4F) 52.1 Thus, the conditions for each of the entities are exclusive conditions and it is not that the conditions other than those stated in particular sub-section shall be applicable to others also. Accordingly, in the case of the appellant which is providing telecommunication services, all it has to fulfil is the condition prescribed in sub-section (4C) of the Act which reads as under: (4C) This section applies to any undertaking which starts providing telecommunication services, whether basic or cellular including radio-paging, domestic satellite services or network of truncking and electronic data interchange services at any time on or after the 1-4-1995 but before the 31-3-2000. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e eligible proportionately on the basis of total exchanges vis-a-vis the new exchanges. The CIT(A) has confirmed the order of the Assessing Officer. Aggrieved by the order of CIT(A) the assessee is again before us. 7. It was contended by ld. AR Shri Ved Jain that : 1.The issue as such before the Hon ble Tribunal is whether assessee will be eligible for total income and whether Assessing Officer was justified in apportioning the income in the manner he has done. 2.For this it is important to read section 80-IA and notice the important difference in sub-section (4C) which is applicable in respect of telecommunication services vis-a-vis exemption available in respect of other activities. 3.On reading of section 80-IA, it is be noticed that this section provides exemption to a different type of activities. Sub-section states these 9 activities in a narrative form. The exemption is with reference to the undertaking and the entire income which is derived from the business of the undertaking is eligible for exemption. Further, the percentage of income exempt for 9 different activities is stated in sub-section (5) and the number of years for which exemption is available have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich reaches the benefits of optic fibre to the subscriber. Fully digital network has been established. This has involved totally new dimensions of work - scrapping of old lines and laying new ones, demolition of old exchanges and construction of new ones and discarding of old machinery and instruments and installation and introduction of new sophisticated ones. 14. Various add on services such as Datacom, Inet, DID PABX, voice mail, Radio paging and ISDN has been started after 1-4-1995. In addition to this phone plus facilities like dynamic locking, call waiting/call transfer, hot lines etc. has been extended to valued customers. Further in order to minimize human re-interface, important operator based special services have been automated with IVRS (Interactive Voice Response Systems). 15. It has started providing several other advanced and other add on services such as virtual card/account card calling, free phone, virtual private network, premium rate service, telewaiting etc. A new technique named DLC (Digital Loop Carrier system) has also been established. 16. Thus, 1995 onwards the assessee s industry has underwent a tremendous revolution resulting from the poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clear that MTNL, has since 1-4-1995 inducted de novo systems and technologies in place of the outmoded and antiquated systems and technology that existed earlier and this was in pursuance of the same new telecommunications policy that gave birth to the insertion of this part of section 80-IA. It is very clear that MTNL, which was providing certain basic telecommunication services prior to 1-4-1995 started to provide various other types of basic telecommunication services on or after that date. Its activities, therefore, fall squarely within the language of section 80-IA(4C). Once this condition is fulfilled the enterprise is entitled to a deduction of the specified percentage of all its profits and gains derived from its business of providing basic telecommunication services, whether existing of earlier or introduced after 1-4-1995. For the reasons above discussed, I am of the view that the MTNL is eligible for the deduction under section 80-IA of the Income-tax Act, 1961." 27. Justice B.N. Kirpal (Chief Justice of India) after detailed analysis has opined as under : (Paper Book Pages 199-201) "On a careful analysis of the said provision it is evident that this section d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IA, the CIT issued show cause notice under section 263. On being appraised of the facts, the CIT not only dropped 263 proceedings but made following observations in his order dated 26-2-2008 (PB Pg. 363) "I am of the view that the case of MTNL (the assessee) is not entirely different from that of BSNL. Both are PSUs owned by the Govt. of India and as far as the nature of business is concerned, they are similar also. Since the taxation law has also been farmed by the same Government and since that Government has taken the view that BSNL is eligible for section 80-IA deduction, it is logical, fair and reasonable to hold that the same liberal view should be taken by the taxing authorities in regard to the allowability of section 80-IA in this case. It has always been the stand taken by the leading courts that the beneficial provision of tax laws should be construed liberally to enable the industry to receive the benefit intended for them. Moreover, there is no real loss to revenue as the assessee MTNL itself is owned by the Govt. of India." 33. In view of the above facts the Assessing Officer was not justified in treating exchange as an undertaking and treating the de novo exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new business of machinery or plant previously used for any purpose. After analyzing all these eligibility criteria, the Assessing Officer has reached to the conclusion that assessee is eligible for deduction under section 80-IA under section 4C of the Income-tax Act. Now, we have to see whether Assessing Officer was justified in restricting claim of deduction with reference to exchanges installed after 1995. It is pertinent to mention here that deduction under section 80-IA is to be computed on the profits of the eligible business and not on the basis of amount invested in plant and machinery in the form of telephone exchanges. Therefore, the profit accruing from telecommunication services is required to be taken into account while granting claim of deduction under section 80-IA. In this regard, we found that after 1995, there is a complete revolution in telecommunication industry and old exchanges if any had been totally revamped. It was not merely addition of the new exchanges but there was entire change in the set up, technology, instruments and equipments. The exchanges which were earlier operating on old technology whereby there was use of big cross bar exchanges with large te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y being revamped, most of which were non-operating and under discarded position. As the income generated through so many services being rendered by the new exchanges which is eligible for claim of deduction under section 80-IA, we cannot restrict the claim in respect of the nominal income if any generated out of the old exchanges. Keeping in view the totality of facts and circumstances of the case, we direct the Assessing Officer to attribute 75 per cent (seventy five per cent) of the income from various services enumerated above as having been carried out only by virtue of new exchanges having been installed. 25 per cent of the income may be attributed to the old exchanges. Accordingly, the matter is restored back to the file of the Assessing Officer for recomputing the claim of deduction under section 80-IA with reference to 75 per cent of the income being eligible for deduction, whereas balance 25 per cent is not eligible for deduction in all the years under consideration. We direct accordingly. 37. The other grounds in the appeal were not pressed by the learned AR, the same are therefore dismissed in limine. 38. Since in the assessment year 2005-06, there was change ..... X X X X Extracts X X X X X X X X Extracts X X X X
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