TMI Blog2019 (11) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2015 CIVIL APPEAL NO .13697 OF 2015 CIVIL APPEAL NO .13698 OF 2015 CIVIL APPEAL NO .13680 OF 2015 CIVIL APPEAL NOS .60226044 OF 2016 CIVIL APPEAL NO. 8275 OF 2019 @ SPECIAL LEAVE PETITION (C) NO.20219 OF 2016 And CIVIL APPEAL NOS .86468648 OF 2018 For The Parties : Mr. Ramji Srinivasan, Sr. Adv., Mr. Somiran Sharma, AOR, Ms. Manju Bajpai, Adv., Mr. Shashwat Bajpai, Adv., Mr. Vishnu Sharma, Adv., Mr. Tushar Bhardwaj, Adv., Mr. Biju P. Raman, Adv., Mr. Jagjeet Sahani, Adv., Mr. Palak Verma, Adv. Mr. Dhruv Tamta, Adv., Ms. Binu Tamta, Adv., Mr. Mohit D. Ram, AOR, Mr. Abhijat P. Medh, AOR, Mr. Kishore Kunal, AOR, Mr. E. C. Agrawala, AOR, Mr. Harsh Kaushik, AOR, Mr. Rahul Narayan, AOR, Mr. Gautam Narayan, AOR, Mr. Gurmeet Singh Makker, AOR Mrs. Bina Gupta, AOR, Ms. Maneesha Dhir, Adv., Mr. Abhishek Kumar, Adv., Mr. Saransh Gupta, Adv., Mr. Mohit Paul, AOR, Mr. Sunil Kumar Jain, AOR, Mrs. Anil Katiyar, AOR, Mr. Mahesh Agarwal, Adv., Ms. Shally Bhasin, Adv., Ms. S. Basu Mallik, Adv., Ms. Surabhi Limaye, Adv., Ms. Vaishali Kalera, Adv., Mr. C.A. Sundaram, Sr. Adv., Mr. Shyam Divan, Sr. Adv., Mr. Tarun Gulati, Sr. Adv., Mr. Kavin Gulati, Sr. Adv., Mr. Mahesh Agarwal, Adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, which was payable by the service providers every year. 2. However, as the said fixed license fee was very high and the telecom service providers consistently defaulted in making the payments, the telecom service providers made a representation to the Government of India for relief against the steep license fee. The said representation was considered and keeping the interest of the country, and the telecom sector in mind, a new package, known as the National Telecom Policy, 1999 Regime giving an option to the licensees to migrate from fixed licence fee to revenue sharing fee was made applicable in the year 1999. The National Telecom Policy, 1999 was devised after holding detailed deliberations and consultations with the telecom service providers and the telecom industry. Clause III of the migration package reads as under: ( iii) The Licence fee as a percentage of gross revenue under the license shall be payable w.e.f. 1.8.1999. The Government will take a final decision to charge the quantum of the revenue share as licence fee after obtaining recommendations of the Telecom Regulatory Authority o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From out of money received under the head of Adjusted Gross Revenue, the Central Government took a conscious decision to spend money to remote and uncovered areas, rural areas, tribal areas, and hilly areas to ensure maximum teleconnectivity. iv. The said objective was achieved, inter alia, by giving subsidies for the establishment of telecom infrastructure in such areas 5. Fifteen percent AGR was fixed as license fee under revenue sharing, which was reduced to 13 percent and lastly to 8 percent in 2013. It appears that the revenue sharing package turned out to be very very beneficial to the telecom service providers, which is evident from the continuing rise in the gross revenue, which is as follows: Financial Year (ending in March) Gross Revenue earned by TSPs (in crores) 2004 4,855 2006 2,666 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to other eligible/entitled telecommunication service providers and; II. Service Tax on provision of service and Sales Tax actually paid to the Government if gross revenue had included as component of Sales Tax and Service Tax. 19.3 Applicable AGR in respect of Spectrum usage charge shall be as given under Part VII of this agreement. 8. Along with the Draft Licence Agreement, all annexures to the license, including the format of Statement of Revenue and Licence Fee (Appendi -II to Annexure-II) were circulated. As per the form of the Statement of Revenue and Licence Fee, the telecom operators were required to submit the relevant data/revenue earned by them so that the ultimate AGR/license fee can be determined. 9. That vide communication dated 01.03.2001, the Association of Basic Telecom Operators submitted their comments on Draft License Agreement for basic service licenses. The comments on the revenue to levy the license fee were as under: For ascertaining the Revenue, income is proposed to be considered on an accrual basis while deductible e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Appellate Tribunal, New Delhi (hereinafter referred to as the TDSAT') under Section 14(a)(i) read with Section 14(A) (1) of the Telecom Regulatory Authority of India Act, 1997 (hereinafter referred to as the TRAI Act ) being Petition No. 07 of 2003. 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. The telecom operators heavily relied upon the recommendations issued by the TRAI on 31.08.2000, making detailed recommendations on the terms and conditions for issuance of licenses to new Basic Operators, more particularly the recommendations made by the TRAI with the revenue sharing of 12%, 10% and 8% for categories A, B and C Circles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gross Revenue from out of the amounts due and refundable to the Petitioners consequent to the Judgements of this Hon ble Tribunal and the Hon ble Supreme Court; c) set aside the DoT demand letters inter alia dated 21.8.02, 9.8.02, 14/21.1.03, 23.1.03, 7.3.03 and similar demands raised against the BSOs claiming Revenue Share on interest income and other miscellaneous heads which are contrary to the Recommendations of the TRAI; d) direct the DoT to implement the recommendations of the TRAI dated 31.8.00 and 31.10.00; e) direct the DoT to refund the BSOs all such excess amounts together with interest @ 12% per annum that may have been collected by it under its letter dated 26.7.01 or 7.5.03 or otherwise, contrary to the recommendations of the TRAI dated 31.10.00. 13. The objections described above can be said to be the first set of the grounds by the telecom operators raised at the first instance and the earliest. It appears that after TDSAT remitted the matter to the TRAI by observing that there was no adequate consultation with the TRAI before finalising the AGR and the components w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AGR in the Licence Agreement could be questioned before the Tribunal including the submission that the AGR shall also include the revenue from activities outside the license, the TDSAT in its fresh order dated 30.08.2007 did not permit the Union of India to raise the aforesaid issues, and the Tribunal held that its earlier order dated 07.07.2006 having become final, it cannot be reopened after the disposal of Civil Appeal No. 84/2007. The Tribunal held that it's finding in the earlier order dated 07.07.2006 that the adjusted gross revenue AGR will include only revenue arising from licence activities and not revenue from activities outside the licence cannot be reagitated by the Union of India. Therefore, the TDSAT held that the AGR would include only the revenue from licence activities. After that the Tribunal in its fresh order dated 30.08.2007 considered the recommendations of the TRAI regarding the heads of the revenue to be included and the heads of the revenue to be excluded from the AGR and decided as follows: ( i) The Tribunal accepted the recommendation of TRAI that income from dividend even thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recommendation of TRAI that revenue from sale of tenders, directories, forms, forfeiture of deposits/earnest money in relation to telecom service should form part of the adjusted gross revenue, but held that management fees, consultancy fees and training charges from telecom service should not form part of the adjusted gross revenue as these activities do not require a licence. ( ix) The Tribunal held that payments received on behalf of the third party should not form part of the adjusted gross revenue and did not accept the recommendation of TRAI in this regard. ( x) The Tribunal did not accept the recommendation of TRAI that the revenue from TV uplinking and internet service should form part of the adjusted gross revenue as these activities are under a separate licence. ( xi) The Tribunal accepted the recommendation of TRAI that sale of handsets or telephone equipment bundled with telecom service should be part of the adjusted gross revenue because such sale comes within the licensed activity. ( xii) The Tribunal accepted the recommendation of TRAI that receipts fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the adjusted gross revenue will include only revenue arising from licensed activities and not revenue from activities outside the licence of the licensee. ( ii) Whether TRAI and the Tribunal have the jurisdiction to decide the validity of the terms and conditions of the licence which had been finalised by the Central Government and incorporated in the licence agreement including the definition of adjusted gross revenue. ( iii) Whether as a result of the Union of India not filing an appeal against the order dated 772006 of the Tribunal passed in favour of some of the licensees, the said order dated 772006 had not become binding on the Union of India with regard to the issue that revenue realised from activities beyond the licensed activities cannot be included in the adjusted gross revenue. ( iv) Whether the licensee can challenge the computation of adjusted gross revenue, and if so, at what stage and on what grounds. 17. While answering issue No.1, this Court took note of the expressed language of the order dated 19.01.2007 passed in Civil Appeal No.84 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of adjusted gross revenue finalised by the Central Government and incorporated in the licence, this Court observed and held as under: 37. A bare perusal of subsection (1) of Section 4 of the Telegraph Act shows that the Central Government has the exclusive privilege of establishing, maintaining, and working telegraphs. This would mean that only the Central Government, and no other person, has the right to carry on telecommunication activities. 39. The proviso to subsection (1) of Section 4 of the Telegraph Act, however, enables the Central Government to part with this exclusive privilege in favour of any other person by granting a licence in his favour on such conditions and in consideration of such payments as it thinks fit. As the Central Government owns the exclusive privilege of carrying on telecommunication activities and as the Central Government alone has the right to part with this privilege in favour of any person by granting a licence in his favour on such conditions and in consideration of such terms as it thinks fit, a licence granted under the proviso to subsection (1) of Section 4 of the Telegraph Act is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions of licence including the payment to be paid by the licensee for the licence, TRAI has been conferred with the statutory authority to make recommendations on the terms and conditions of the licence to a service provider and the Central Government was bound to seek the recommendations of TRAI on such terms and conditions at different stages, but the recommendations of TRAI are not binding on the Central Government, and the final decision on the terms and conditions of a licence to a service provider rested with the Central Government. The legal consequence is that if there is a difference between TRAI and the Central Government with regard to a particular term or condition of a licence, as in the present case, the recommendations of TRAI will not prevail and instead the decision of the Central Government will be final and binding. 44. In contrast to this recommendatory nature of the functions of TRAI under clause (a) of subsection (1) of Section 11 of the TRAI Act, the functions of TRAI under clause (b) of subsection (1) of Section 11 of the TRAI Act are not recommendatory. This will be clear from the very language of clause (b) of subsection (1) of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommunication services. The word means in Sections 2(e) and 2(ea) of the TRAI Act indicates that the definitions of licensee and licensor in Sections 2(e) and 2(ea) of the TRAI Act are exhaustive and therefore would not have any other meaning. As Justice G.P. Singh puts it in his book Principles of Statutory Interpretation, 12th Edn., at pp. 17980: When a word is defined to mean such and such, the definition is prima facie restrictive and exhaustive; 47. A dispute between a licensor and a licensee referred to in Section 14(a)(i) of the TRAI Act, therefore, is a dispute after a person has been granted a licence by the Central Government or the Telegraph Authority under subsection (1) of Section 4 of the Telegraph Act and has become a licensee and not a dispute before a person becomes a licensee under the proviso to subsection (1) of Section 4 of the Telegraph Act. In other words, the Tribunal can adjudicate the dispute between a licensor and a licensee only after a person had entered into a licence agreement and become a licensee and the word an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... require licence under Section 4 of the Telegraph Act and transfer these activities to any other person or firm or company. The incorporation of the definition of adjusted gross revenue in the licence agreement was part of the terms regarding payment which had been decided upon by the Central Government as a consideration for parting with its rights of exclusive privilege in respect of telecommunication activities and having accepted the licence and availed the exclusive privilege of the Central Government to carry on telecommunication activities, the licensees could not have approached the Tribunal for an alteration of the definition of adjusted gross revenue in the licence agreement. 50. Regarding the recommendations of TRAI under Section 11(1)(a)(i) of the TRAI Act, we find that the Tribunal in its order dated 772006 has held that the opinion of the renowned expert on Accountancy that any other definition of adjusted gross revenue would lead to reduction of licence fee liability by way of accounting jugglery was not placed before TRAI and as a result there was no proper and effective consultation with TRAI and the weightage that was due to the recommendations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ], State of M.P. v. KCT Drinks Ltd. [(2003) 4 SCC 748], State of Punjab v. Devans Modern Breweries Ltd. [(2004) 11 SCC 26], Shyam Telelink Ltd. v. Union of India [(2010) 10 SCC 165 : (2010) 4 SCC (Civ) 99] and in Bharti Cellular Ltd. v. Union of India [(2010) 10 SCC 174 : (2010) 4 SCC (Civ) 108], that this Court has consistently taken a view that once a licensee has accepted the terms and conditions of a licence, he cannot question the validity of the terms and conditions of the licence before the court. We, therefore, hold that TRAI and the Tribunal had no jurisdiction to decide on the validity of the definition of adjusted gross revenue in the licence agreement and to exclude certain items of revenue which were included in the definition of adjusted gross revenue in the licence agreement between the licensor and the licensee. 20. While considering the substantial question of law no.3, this Court observed and held in paragraph 59 as under: 59. Thus, the Tribunal in its order dated 772006 has not just decided a dispute on the interpretation of adjusted gross revenue in the licence agreement but has decided on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and materials relating to the demand on a particular licensee. 22. Ultimately, this Court allowed the appeals preferred by the Union of India and set aside the order dated 30.08.2007 passed by the TDSAT. Thereafter, in paragraph 67, this Court clarified as under: 67. We have delivered today the judgment in these cases (supra paras 166) and while answering the last substantial question of law, we have held that when a particular demand is raised on a licensee, the licensee can challenge the demand before the Tribunal and the Tribunal will have to go into the facts and materials on the basis of which the demand is raised and decide whether the demand is in accordance with the licence agreement and in particular the definition of adjusted gross revenue in the licence agreement and can also interpret the terms and conditions of the licence agreement. 23. After that, the respective telecom operators again approached the TDSAT challenging the demand notices/demand. The TDSAT by the impugned order has considered the specific head of items to be included or excluded under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of shares. ( v) In re: Insurance claim in respect of capital assets. ( vi) In re: Amount of negative balance of prepaid customer. ( vii) In re: Reimbursement of the infrastructure operating expenses. ( viii) In re: Waiver of late fee. ( ix) In re: Gains from roaming charges PSTN passthrough charges. ( x) In re: Nonrefundable deposits. ( xi) In re: Licence fee demand where spectrum is not granted. ( xii) In re: Income from interest dividend. ( xiii) In re: Baddebts written off. ( xiv) In re: Liability written off. ( xv) In re: Intercorporate loan. ( xvi) In re: Revenue under IP1 Registration. ( xvii) In re: Income from management consultancy services. ( xviii) In re: Res Judicata. ( xix) In re: Levy of interest, penalty and interest on penalty. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions are to be accepted in its entirety, and no dispute concerning the license agreement shall be raised at any future date. The acceptance of the package be deemed full and final settlement, and after that amendment to the license agreement has to be signed. Following stipulations were mentioned explicitly in the Migration Package: 2. Migration to the NTP99 on the conditions mentioned above will be permitted on the premise that the aforesaid conditions are accepted as a package in its entirety and simultaneously all legal proceedings in Courts, tribunals or in Arbitration instituted by the license and Associations of Cellular and Basic Service Operators (COAI) ABTO) against DoT or UOI shall be withdrawn. Further, any dispute with regard to the license agreement for the period up to 31.07.1999 shall not be raised at any future date. The acceptance of the package will be deemed as full and final settlement of all existing disputes whatsoever irrespective of whether they are related with the present package or not. 3. After the terms and conditions of the package are accepted, amendments to the existing license agreement will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be charged as license fee, so that the amount of license fee is appropriate in the context of the present stage of evolution of telecom companies. 1.4 To ensure consistency, we may lay down uniform accounting policies to be followed by telecom companies for presenting their annual accounts as well as periodical statements of revenue to be sent to the government supporting their payments. ( emphasis supplied) 30. The definition of revenue has been taken in a broad, comprehensive, and inclusive manner to pose fewer problems of interpretation, and exclusion of certain items was avoided. 31. On 21.5.2001, the Government of India finalised the concept of gross revenue and AGR. 32. The format of the statement of revenue and license fee payable by the TSPs is appended to the license agreement, which reflected the various heads and components, including any other income/miscellaneous receipts from the wireline subscribers, which was to be included for the computation of AGR. Provision in Clause 20.2 was made for payment of license fee by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation basis, not on an accrual basis, and not to include notional revenue income in AGR. 35. Prayer was made to direct DoT to modify the definition of gross revenue and AGR for license fee as also WPC charges under Section 4 of the Indian Telegraph Act, 1885. Prayers were also made to direct DoT to modify the Format of Statement of Gross Revenue, Adjusted Gross Revenue, and License Fee and strike down the definition of gross revenue and AGR. This Court in Union of India v. AUSPI (2011) held that Tribunal has no jurisdiction to exclude certain items of revenue, which were included in the definition of AGR. The licensee could not have approached the Tribunal for the alteration of the definition of AGR in the license agreement. TRAI and Tribunal had no jurisdiction to decide on the validity of the definition AGR in the licence agreement. The licensees are not only precluded to challenge the definition of gross revenue/AGR, but also by the meaning the Government may choose to put to the definition. The Tribunal has travelled beyond its jurisdiction to act contrary to the specific findings and decision in AUSPI v. Union of India. 36. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue; and (c) it would be adjusted revenue, but adjustment can be made only by deductions as provided under Clause 19.2. Revenue has to be interpreted in keeping with commercial and financial parlance. The contract itself recognise the applicability of the accounting standards as apparent from Clauses 20.6 and 22.7. The accounts have to be maintained as per the accounting standards. The purpose of accounting standards is to ensure that there is clarity, uniformity in dealing with the financial terms to give definitiveness and clarity to such financial expressions. Accounting standards are mandatory. Revenue had not been defined in the commercial license agreement and this being a commercial contract and the accounting standards having been incorporated by reference in the license agreement as such the basis on which the license fee has to be decided, the same would prevail. 41. It is further submitted that all receipts would not form part of AGR. The use of the word inclusive under Clause 19.2 does not make the definition of AGR expansive though the definition is not exhaustive as the provision of valueadded services is different and provided in other cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use 19.1 and any other miscellaneous revenue, without any setoff for related items of expense, etc. All the licensees accepted the migration package and have signed the agreements. It has turned out to be a substantial financial booster in favour of the licensees as is apparent from figures of the gross revenue earned by them mentioned above. When under a contract signed by the parties, gross revenue and AGR have been given the meaning coupled with the format and the annexures which form part of the contract. Format is contained in appendix to AnnexureII which is part of the agreement in which requisite information has to be furnished. The meaning in clause 19 of the gross revenue and the format mentioned above have to prevail. 45. No doubt about it that the accounts have to be maintained as per the AS9 regime prevalent at the relevant time. The definition of the contract has to prevail and not what is generally revenue, as defined in AS9. 46. The question as to what constitute Gross Revenue has been agitated, though concluded in earlier decision in 2011, by the TSPs. again by raising the submission that we have to follow the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arry on telecommunication activities, nor do they alter the contractual nature for the licence granted under the proviso to section 4(1) of the Telegraph Act. After TRAI makes the recommendation, the Central Government shall take a final decision under section 11(1)(a)(ii) of the TRAI Act. The TRAI shall have the function to make a recommendation. In case of difference between TRAI and Central Government with regard to particular terms or conditions of the licence, the recommendation of TRAI cannot prevail, and it is the decision of the Central Government, which is to be final and binding. The tribunal has no jurisdiction to decide upon the validity of terms and conditions incorporated in a licence; it has jurisdiction to decide any dispute between the licensor and the licensee on the interpretation. It has also been observed to make a final decision on the definition of the gross revenue in the licence agreement, the Government has the competence. The licence fee would be a percentage of gross revenue, which would be the total revenue of the licensee company. 51. This Court has held in Union of India v. AUSPI (2011) that the licensing company had acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . They are extracted hereunder: 20.6 Final adjustment of the Licence Fee for the year shall be made based on the gross revenue figures duly certified by the AUDITORS of the LICENSEE in accordance with the provision of Companies Act, 1956. 20.7 A reconciliation between the figures appearing in the quarterly statements submitted in terms of the clause 20.4 of the agreement with those appearing in annual accounts shall be submitted along with a copy of the published annual accounts audit report and duly audited quarterly statements, within 7 (seven) Calendar days of the date of signing of the audit report. The annual financial account and the statement as prescribed above shall be prepared following the norms as prescribed in Annexure. x x x 22. Preparation of Accounts. 22.1 The LICENSEE will draw, keep and furnish independent accounts for the SERVICE and shall fully comply orders, directions, or regulations as may be issued from time to time, by the LICENSOR or TRAI as the case may be. 22.2 The LICENSEE shall be obliged to: a) Compile a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the accounts of the LICENSEE by appointing auditor at the cost of the LICENSEE and such auditor(s) shall have the same powers which the statutory auditors of the company enjoy under Section 227 of the Companies Act, 1956. The remuneration of the Auditors, as fixed by the LICENSOR, shall be borne by the LICENSEE. 22.6 The LICENSOR may also get conducted a Special Audit of the LICENSEE company's accounts/records by Special Auditors, the payment for which at a rate as fixed by the LICENSOR shall be borne by the LICENSEE. This will be in the nature of auditing the audit described in para 22.5 above. The Special Auditors shall also be provided the same facility and have the same powers as of the companies' auditors as envisaged in the Companies Act, 1956. 22.7 The LICENSEE shall be liable to prepare and furnish the company s annual financial accounts, according to the accounting principles prescribed and the directions given by the LICENSOR or the TRAI, as the case may be, from time to time. 55. The clauses mentioned above provided as to how the lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the purview of gross revenue, is the sole test that it should conform with the definition of revenue as provided in AS9, and the golden thread is the phrase arising in the course of the ordinary activities of the enterprise. 57. Revenue is a Term of Art' as per Chapter 4.08 Kim Lewison, the Interpretation of Contract, Sweet Maxwell, 1997, wherein it has been observed as under: Where a document contains a legal term of art, the court should give it its technical meaning in law, unless there is something in the context to displace the presumption that it was intended to carry its technical meaning. ( emphasis added) 58. The Technical meaning as to the gross expression revenue does not mean inflows that are not revenue and other miscellaneous revenue cannot have a broader meaning. It must qualify as revenue. It is not miscellaneous inflow and miscellaneous receipts. The items of the revenue must be interpreted as per the doctrine of ejusdem generis , as observed in Maharashtra University of Health Sciences v. Satchikitsa Prasarak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion by the parties of the meaning that they give and have given to the terms of their contract previously made. There is no good reason why the courts should not give great weight to these further expressions by the parties, in view of the fact that they still have the same freedom of contract that they had originally. The American Courts receive subsequent actings as admissible guides in interpretation. It is true that one party cannot build up his case by making an interpretation in his own favour. It is the concurrence therein that such a party can use against the other party. This concurrence may be evidence by the other party s express assent thereto, by his acting in accordance with it, by his receipt without objection of performances that indicate it, or by saying nothing when he knows that the first party is acting on reliance upon the interpretation (see Corbin on Contracts, Vol. 3, pp.249 25456). 12. The rule that obtains in other jurisdictions is also the same: In France construction of a contract is within the sole province of the judges of fact who are entirely free to use whatever material seems relevant to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uminate the darkness arising out of the ambiguity of the language should not be shut out. In the case of an ambiguous instrument, there is no reason why subsequent interpreting statement should be inadmissible. The question involved is this: Is the fact that the parties to a document, and particularly to a contract, have interpreted its terms in a particular way and have been in the habit of acting on the document in accordance with that interpretation, any admissible guide to the construction of the document? In the case of an unambiguous document, the answer is No. (See Odgers Construction of Deeds and Statutes, 5th Edn. by G. Dworkin, pp. 11819). But, as we said, in the case of an ambiguous one, the answer must be yes. In Lamb v. Goring Brick Co., a selling agency contract contained the words the price shall be mutually agreed. Documents showing the mode adopted for ascertaining the price were put in evidence without objection. In the court of appeal Greer, L.J. said: In m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt accounting standard which adopts fair valuation method i.e. , Ind AS18 and not relevant for the AS9 accounting standard. 62. The submission is wholly devoid of substance. It is not only barred by the principle of constructive res judicata but also indicates that the licensees are raising the similar objections which they have raised earlier and were not entertained by this Court and were rejected. Again precisely, the same attempt is made by submitting; revenue should be taken as defined in AS9, not in Clause 19.1 of the agreement, submission runs contrary to the decision of the Court, as held in para 48 of the 2011 judgment, which operates as res judicata inter se parties. The meaning of revenue is apparent that it has to be gross revenue, and the licence fee would be a percentage of the same. Thus, the licensees have made a futile attempt to submit that the revenue to be considered would be derived from the activities under the licence; whereas it has been held in 2011 that the revenue from activities beyond the licence have to be included in adjusted gross revenue, is binding. 63. Even otherwise, on merit, the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition of gross revenue given under the agreement in Clause 19.1 and that is the total revenue. In our considered opinion, when there is a contractual definition as to what would be the gross revenue that would be the revenue and also the total revenue, the revenue as mentioned in the mode of accounting AS9 cannot govern the definition. The general definition of revenue in the mode of accounting cannot govern the contractual definition of gross revenue. 65. As per clause 20.4, a licensee must make quarterly payment in the prescribed format as AnnexureII showing the computation of revenue and licence fee payable. The Format is part of the licence and is independent of accounting standards and is in tune with the definition of gross revenue, and is the basis for the calculation of licence fee. It is only for uniformity that the account has to be maintained as per accounting standards AS9 which are prescribed from time to time. Once the licensee provides the details to the Government in format AnnexureII along with accounts certified by the auditor, the reconciliation has to take place. The accounting standard AS9 is relevant only for whether the figure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of AS9 also makes it clear that the agreement between the parties would determine the amount of revenue arising on a transaction. 67. Section 211 of the Companies Act, 1956 deals with the obligation of the company to comply with accounting standards. In case they do not comply, it has to be disclosed in its profit and loss account, the deviation, reasons for such deviation, and financial effect. Sections 211(3A) and 211(3B) are quoted hereunder: 211 (3A) Every profit and loss account and balancesheet of the company shall comply with the accounting standards. (3B) Whether the profit and loss account and the balancesheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account and balancesheet, the following, namely:- ( a) the deviation from the accounting standards; ( a) the reasons for such deviation; and ( b) the financial effect, if any, arising due to such deviation. 68. Thus, it is apparent that accounting standard AS9 is a metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition of gross revenue to be invalid, was set aside by this Court in Union of India v. AUSPI (supra) and this Court held that items are to be included in definition of gross revenue. 72. The rule of interpretation of contra proferentum has also been pressed into service. As observed in United India Insurance Co. Ltd. v. Pushpalaya Printers , 2004 (3) SCC 694 thus: 6. .If the word impact is interpreted narrowly, the question of impact by any rail would not arise as the question of a rail forcibly coming to the contact of a building or machinery would not arise. In the absence of specific exclusion and the word impact having more meanings in the context, it cannot be confined to forcible contact alone when it includes the meanings to drive close , effective action of one thing upon another and the effect of such action , it is reasonable and fair to hold in the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivray on Insurance Law (9th Edn., Sweet and Maxwell, London 1997) at p.280. deals with the rule of contra proferentem as follows: The contra proferentem rule of construction arises only where there is a wording employed by those drafting the clause which leaves the court unable to decide by ordinary principles of interpretation which of two meanings is the right one. One must not use the rule to create the ambiguity - one must find the ambiguity first. The words should receive their ordinary and natural meaning unless that is displaced by a real ambiguity either appearing on the face of the policy or, possibly, by extrinsic evidence of surrounding circumstances. ( footnotes omitted) 11. Colinvaux s Law of Insurance Robert and Merkin (Eds.), Colinvaux s Law of Insurance (6th Edn., 1990) at p.42. propounds the contra proferentem rule as under: Quite apart from contradictory clauses in policies, ambiguities are common in them, and it is often very uncertain what the parties to them mean. In such cases, the rule is that the policy, being drafted in language ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to its ordinary, popular and natural sense. It is this aspect of the definition which has weighed with the High Court and, therefore, the High Court has argued that if the words extinguishment of any rights therein are substituted for the word transfer in Section 45, the claim or compensation received from the insurance company would be attracted by the said section. The High Court has, however, missed the fact that the definition also mentions such transactions as sale, exchange etc. to which the word transfer would properly apply in its popular and natural import. Since those associated words and expressions imply the existence of the asset and of the transferee, according to the rule of noscitur a sociis, the expression extinguishment of any rights therein would take colour from the said associated words and expressions, and will have to be restricted to the sense analogous to them. If the legislature intended to extend the definition to any extinguishment of right, it would not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified therein. Pottery in a wide sense will take in all objects that are made from clay and hardened by fire, from crude earthen pots to delicate porcelain. Mr Patel appearing for the respondent, State of Gujarat, contends that the explanation indicates that potteries industry in Entry 22 is intended to cover all possible articles of pottery including Mangalore pattern roofing tiles. Referring to the wellknown use of the word include in interpretation clauses to extend the meaning of words and phrases occurring in the body of the statute, Mr. Patel submits that the explanation, when it says that potteries industry includes the nine named objects, what is meant is that it includes not only these objects but other articles of pottery as well. It is true that includes is generally used as a word of extension, but the meaning of a word or phrase is extended when it is said to include things that would not properly fall within its ordinary connotation. We may refer to the often quoted observation of Lord Watson in Dilworth v. Commissioner of Stamps that when the word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Entry 22. According to Mr, Tarkunde if the legislature wanted to bring within the entry all possible articles of pottery then there was hardly any point in mentioning only a few of them by way of explanation. To this Mr Patel s reply is that it is wellknown that where the legislature wants to exhaust the significance of the term defined, it uses the word means or the expression means and includes , and that if the intention was to make the list exhaustive, the legislature would not have used the word includes only. We do not think there could be any inflexible rule that the word include should be read always as a word of extension without reference to the context. Take for instance Entry 19 in the schedule which also has an explanation containing the word includes . Entry 19 is as follows: Employment in any tobacco processing establishment, not covered under Entry 3. Explanation.-For the purpose of this entry, the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclude is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to mean and include , and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions. It must therefore be held that the manufacture of Mangalore pattern roofing tiles is outside the purview of Entry 22. ( emphasis supplied) 76. The definition of gross revenue is crystal clear in the agreement. How the adjusted gross revenue to be arrived at is also evident. It cannot be submitted that the revenue has not been defined in the contract. Once the gross revenue is defined, one cannot depart from it and the very meaning is to be given to the revenue for the agreement. Overall revenue, has to be taken into account for determination of licence fees without set off, as provided in the agreement. The same wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and conditions of the policy may also arise from a combination of references in two or more documents passing between the parties. Documents like the proposal, cover note, and the policy are commercial documents, and to interpret them, commercial habits and practice cannot altogether be ignored. During the time the cover note operates, the relations of the parties are governed by its terms and conditions, if any, but more usually by the terms and conditions of the policy bargained for and to be issued. When this happens, the terms of the policy are incipient, but after the period of temporary cover, the relations are governed only by the terms and conditions of the policy unless insurance is declined in the meantime. Delay in issuing the policy makes no difference. The relations even then are governed by the future policy if the cover notes give sufficient indication that it would be so. In other respects there is no difference between a contract of insurance and any other contract except that in a contract of insurance there is a requirement of uberrima fides i.e. good faith on the part of the assured and the contract is likely to be construed contra proferentem that is against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into the contract (where such reference is made), only by a specific reference to arbitration clause. ( iii) Where a contract between the parties provides that the execution or performance of that contract shall be in terms of another contract (which contains the terms and conditions relating to performance and a provision for settlement of disputes by arbitration), then, the terms of the referred contract in regard to execution/performance alone will apply, and not the arbitration agreement in the referred contract, unless there is special reference to the arbitration clause also. ( iv) Where the contract provides that the standard form of terms and conditions of an independent trade or professional institution (as for example the standard terms and conditions of a trade association or architects association) will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitration in such standard terms and conditions, shall be deemed to be incorporated by reference. Sometimes the contract may also say that the parties are familiar with those terms and conditions or that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it jurisdiction must come with clean hands. He cannot prevaricate and take inconsistent positions. 13. A similar view was taken in Joint Action Committee of Air Line Pilots Assn. of India v. DGCA, (2011) 5 SCC 435, observing: (SCC p. 443, para 12) 12. The doctrine of election is based on the rule of estoppel -the principle that one cannot approbate and reprobate inheres in it. The doctrine of estoppel byelection is one of the species of estoppels in pais (or equitable estoppel), which is a rule in equity. Taking inconsistent pleas by a party makes its conduct far from satisfactory. Further, the parties should not blow hot and cold by taking inconsistent stands and prolong proceedings unnecessarily. 81. In Jal Mahal Resorts Private Limited v. K.P. Sharma, (2014) 8 SCC 866, the Court observed: 4. However, in spite of withdrawal of the special leave petitions, if the petitioner State is taking a diametrically opposite stand which it had taken before the High Court as also before this Court when the arguments were concluded, we surely have reserva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould not be subversive of rule of law. The Government has to rise above the nexus of vested interest and nepotism, etc. as the principles of governance have to be tested on the touchstone of justice, equity and fair play. The decision must be taken in good faith and must be legitimate. (Vide Onkar Lal Bajaj v. Union of India, (2003) 2 SCC 673, State of Karnataka v. All India Manufacturers Organisation, (2006) 4 SCC 683 and State of T.N. v. K. Shyam Sunder, (2011) 8 SCC 737.) 83. In our considered opinion, 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 takin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause 22 is a rider upon the licensee to maintain the records of activities and other matters such as financial position as enumerated therein. 85. Clause 18.1 of the agreement has also been pressed into service. The submission raised that a single company may hold 5 licences for 5 different service areas; the AGR as suggested by the DOT, cannot be followed as it may end up in paying the licence fee at the rate of 5 times. As the licence fee cannot be charged more than once, there is no room to entertain the submission. It is not what is contemplated in the definition. While computing the licence fee, the gross revenue has to be taken into consideration under a particular licence for which it is being determined. The argument had been raised on a hypothetical basis without foundational facts to raise the same is thus, liable to be and is rejected at the threshold. 86. DOT has urged that the Central Government has exclusive privilege under section 4 of the Telegraph Act; thus, it is bound to get the best price for natural resources. To part with the exclusive privilege under the revenue sharing regime is extremely beneficial t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f he thinks that the price offered is inadequate. There is no concluded contract till the bid is accepted. Before there was a concluded contract, it was open to the bidders to withdraw their bids - see Union of India v. Bhimsen Walaiti Ram , (1970) 2 SCR 594. By merely giving bids, the bidders had not acquired any vested rights. The fact that the Government was the seller does not change the legal position once its exclusive right to deal with those privileges is conceded. If the Government is the exclusive owner of those privileges, reliance on Article 19(1) ( g ) or Article 14 becomes irrelevant. Citizens cannot have any fundamental right to trade or carry on business in the properties or rights belonging to the Government-nor can there be any infringement of Article 14, if the Government tries to get the best available price for its valuable rights. . ( emphasis supplied) 87. Similar is the case law laid down in Har Shankar v. Excise Taxation Commissioner , 1975 (1) SCC 737; Government of A.P. v. Anabeshahi Wine Distilleries (P) Ltd ., (1988) 2 SCC 25; Excise Commissioner v. Issac Peter , (19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst incurring losses. It is a business for the licensees. Whether they make a profit or incur a loss is no concern of the State. In law, it is entitled to its money under the contract. It is not as if the licensees are going to pay more to the State in case they make substantial profits. We reiterate that what we have said hereinabove is in the context of contracts entered into between the State and its citizens pursuant to public auction, floating of tenders or by negotiation. It is not necessary to say more than this for the purpose of these cases. What would be the position in the case of contracts entered into otherwise than by public auction, floating of tenders or negotiation, we need not express any opinion herein. 89. The licensees who have taken the advantage under the licence, carry certain obligations. The licensee is bound to discharge the obligation while taking benefit under the licence of migration package, for this purpose as held in Shyam Telelink Ltd. v. Union of India , 2010 (10) SCC 165, thus: 21. The unconditional acceptance of the terms of the package and the benefit which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... package policy, 1999, there is an exponential growth of the telecom sector. In Bharti Cellular Ltd. v. Union of India , 2010 (10) SCC 174, this Court held that acceptance of benefits under the package precluded them from questioning the terms of the same. The Court observed: 8. There is, in our opinion, no legal infirmity in the view taken by the Tribunal. Once the appellantpetitioner had specifically and unconditionally agreed to accept the migration package and given up all disputes relating to licence agreement for the period up to 3171999, it was not open to it to turn around and agitate any such dispute after availing of the migration package. A party which has unconditionally accepted the package cannot after such acceptance reject the conditions subject to which the benefits were extended to it under the package. It cannot reject what is inconvenient and onerous while accepting what is beneficial to its interests. The package having been offered subject to the conditions that all disputes relating to the licence agreement for the period ending 3171999 shall stand abandoned by the operators, there was no room for going back on that representa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner as to violate the principles of right and good conscience. 93. In R.N. Gosain v. Yashpal Dhir , AIR 1993 SC 352, it was held: 10. Law does not permit a person to both approbate and reprobate. This principle is based on the doctrine of election which postulates that no party can accept and reject the same instrument and that a person cannot say at one time that a transaction is valid and thereby obtain some advantage, to which he could only be entitled on the footing that it is valid, and then turn round and say it is void for the purpose of securing some other advantage . 94. Submissions have been raised in respect of various revenue heads not being revenue cannot be included within the purview of gross revenue. We propose to deal with each of them under separate heads. In re: Discount and Commissions: 95. The Tribunal has dealt with discounts, and commissions under 3 heads : (i) discounts allowed on international roaming; (ii) commission and discount allowed to distributors on sale of prepaid vouchers; (iii) goodw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounting. Expenses are always in the form of outflow of cash. In the telecom sector, discounts are given to the customers to get the advantage of the much lesser amount. The same induce gross inflow of cash to a telecom company. Therefore, discounts can never be treated as an expenditure. 100. It is further submitted on behalf of the licensees that as per binding and mandatory principle of AS9, the ICAI has declared discounts, rebates, deductions, lesser realisation of cost price are not to be treated as an expenditure. It is further submitted that an agreement between the parties determines the revenue arising on a transaction. It is measured at the fair value of the consideration received or receivable considering the amount of consideration. The amount of any discount or volumebased discount and volume rebates are not considered as revenue. 101. It is further submitted that the licensees have been given the discount that is transparently reflected in its invoice. The appellant only receives the discounted amount, which is the realised revenue or the cash inflow in their hands. The licence fee is paid on this realised a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to increase business in the long run. Those were inevitable as there were 8 to 10 operators operating in the same geography, and the licensees had to match highly competitive prices offered, especially by new entrants. Discounts help to survive and grow business and increase revenue, which is to the advantage of DOT. 105. On behalf of the DOT, it has been submitted that discounts over and above the agreed charges are part of the overall commercial strategy to enhance business. Hence, these discounts are like expenses. As per definition of gross revenue in clause 19.1 of the agreement, it is not permissible to set off these volumebased discounts against the revenue as expenses are not permitted to be netted off, such amounts form part of revenue; otherwise, it would lead to accounting jugglery, which is very consciously avoided by purposefully drafting the AGR definition in inclusive terms. Otherwise, the discounts may be used by the company to reduce its costs, and the profitability of the company may remain unaffected, but the gross revenue for the computation of AGR may be reduced. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the definition, is the gross revenue, without setoff, is to be taken into consideration including the discounts given. Parties understood right from the beginning that the gross revenue does not exclude discounts, commissions, rebate etc. and specific challenge made to the same had not been accepted in 2011. Now once again by the circuitous method, impermissible attempt has been made to rewrite the definition of gross revenue. The definition of gross revenue is independent of AS9 as the definition of revenue in AS9 cannot govern the definition in Clause 19.1 of the licence agreement. What has been defined in AS9 is revenue, whereas, for a licence fee, gross revenue is the revenue. It would be greatest fallacy to say that while gross revenue has been defined in Clause 19.1 of agreement, revenue has not been defined in the licence agreement. What has been defined as gross revenue is in fact broader definition of revenue and has to be taken as definition of revenue for licence agreement. An attempt has made to wriggle out of the rigour of the definition of gross revenue by banking upon the definition of revenue in AS9 is to scuttle the effect of the previous decision in Union ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us incentives provided to the customers. 110. Reliance has been placed on Union of India v. Bombay Tyres International Pvt. Ltd ., (2005) 3 SCC 787, wherein this Court has observed that trade discount should be allowed to be deducted from the sale price. The decision is in the context of the Central Excise Salt Act, 1944. The decision has no relevance to consider the concept of gross revenue under the licence agreement. Reliance has also been placed on the decision of this Court in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. M/s. Advani Oorlikon (P) Ltd ., (1980) 1 SCC 360, in which this Court considered the question of taxable turnover and the concept of sale price under the Sales Tax Act. It was held that the trade discount on catalogue price allowed by the wholesaler to the retailer is not includible in the taxable turnover. Trade discount is distinct from cash discount. A cash discount is a discount granted in consideration of prompt payment. A trade discount is a deduction from the catalogue price of goods allowed by wholesalers to retailers engaged in the trade. Reliance has also been placed on the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en relied upon where the question of computation of taxable turnover came up for consideration in the context of Karnataka Value Added Tax Act, 2003, with respect to all regular trade discounts and they are allowable as permissible deductions, if proper proof is shown. 112. The decisions have no relevance having been rendered under the provisions of different statutes and for construing the definition of gross revenue under the licence agreement, which has to prevail. 113. Reliance has been placed on service tax Circular dated 13.10.1997, which provides that service tax liability is only in respect of the discounted price so received by the Cellular companies. The question of service tax liability has no relevance for determination of licence fee for which definition has been worked out by the Government of India, which has been agreed to by the licensees also as that was beneficial to them as compared to the fixed fee regime which prevailed earlier. They have switched over to the new regime of sharing the revenue earned by them on a percentage basis. The definition of gross revenue has the purpose behind it and was the outcom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and accounting jugglery and to free determination of licence fee from the clutches of accounting jugglery. 117. The discounts allowed on international roaming, commission, and discount allowed to distributors on sale of prepaid vouchers form part of the gross revenue and cannot be deducted by placing reliance on the definition of revenue and certain notes of AS9 standards; whereas they are explicitly included in the definition of gross revenue. 118. As to prepaid options, the format of statement of revenue and licence fee contained in Appendix II to AnnexureII provides in the case of prepaid options, sale of prepaid SIM cards including full value of components charged therein. Revenue from mobile community phone service including full value of all components charged therein has to be considered, revenue from franchisees/resellers including all commissions and discounts, etc. have to form part of the gross revenue. How the parties have understood and agreed to pay the gross revenue is apparent from the correspondence and letter dated 22.7.2001 and the ultimate definition mentioned in the licence agreement Clause 19.1 and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscounts and commission etc. as discussed form part of the gross revenue for the purpose of payment of licence fee. In re: Gains arising out of Foreign Exchange Fluctuations: 123. The telecom service providers have transactions of purchasing equipments or settling roaming charges etc. in foreign currency. The change in exchange rate vis vis a foreign currency from the date of transaction to the time of settlement may cause gain or loss based upon the fluctuations in the exchange rate of rupee. TDSAT in the 2007 judgment held that the fluctuations in the foreign exchange rate have nothing to do with the licensed activities of the telecom service providers. The TDSAT in the impugned judgment and order in 2015 has held that foreign exchange gains are of two types. The reduction in liability towards payment for purchase of capital goods from prepaid and payment of charges or outroamers and secondly in receipt from inroamer. In the first case, there is a decrease in cost, which cannot be taken as revenue for the purpose of determining AGR. In case of reduction, payment of charges for outroaming the reduction is allowed only on payment ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould not enter calculation of gross revenue as expenses are not deductible while calculating gross revenue. It is further submitted that Para 3(iii) of AS9 expressly excludes the realised or unrealised gains resulting from changes in foreign exchange rates and adjustment arising on the transaction of foreign currency financial statements. 127. When we consider the rival submissions, it is apparent that there can be realised as well as unrealised foreign exchange gains/losses which may differ depending on whether or not the transaction has been completed by the end of the accounting period. The realised gains or losses are the gains or losses that have been achieved. It means that the customer has already settled the invoice before the close of the accounting period. For example, to say a customer purchased items worth $1000 from a foreign seller based abroad, and the invoice is valued at $1100 at the invoice rate. When customer settles the invoice after a few days, say four weeks, after the date invoice was sent, and the invoice is valued at $1200 when converted to US dollars at the current exchange rate. It means that the seller will have a realised ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equipment, it has to be accounted for and must be accounted for as per the value spent on the date of the banking transaction, which cannot be ignored. Thus, the gains from foreign exchange fluctuations have to be added in the computation of gross revenue, otherwise, the benefit which is accruing will be ignored. Where profit or loss arises on account of appreciation of foreign currency, such gain or loss has to form part of profit from the business or loss. Whether it is profit or loss on account of trading or on account of asset, it has to form part of profit and loss account, thus, it has to account for gross revenue. The fluctuation in the foreign currency has to be accounted for in the account at the time when the amount is received or at the end of the accounting year. Thus, there is no escape from the conclusion that forex gain has to be accounted for as part of gross revenue. When loss can be claimed as an expenditure, profit or gain due to fluctuations in the rate of foreign exchange has also to be accounted for towards gross receipt, which is gross revenue. In re: Monetary Gains on Sale of Shares: 130. It is submitted on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on accrual basis, is unobjectionably within the ken of definition of gross revenue. To say in case e.g., gain for AGR will accrue when the sale proceeds or the current disposition value of the goods is ₹ 60, and if it is sold at ₹ 70, in that case, there will be a gain of ₹ 10. That shall be taken as a gain for AGR calculation. The result would be the same in case the value of an asset worth ₹ 100 has depreciated to book value worth ₹ 60 and is sold at ₹ 70, as urged on behalf of DOT, ₹ 10 will form part of gross revenue. For what purpose and head the income tax would be leviable, is not the question for our consideration. 132. The submission raised that the sale of shares is not an ordinary business activity, as provided in Para 4.1 of AS9. Even Para 3(i) of AS9 which excludes from the ambit of revenue' any realised or unrealised gains resulting from disposal of noncurrent assets, i.e. appreciation in the value of fixed assets. Again, a futile attempt has been made to get rid of the definition of gross revenue, and confusion is sought to be created by ordinary business activity, which is the expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the excess amount received over and above the book value shall be taken as revenue for calculation of gross revenue. For the use of accounting, the gain from the insurance claim, the bifurcation made by the contingencies, was uncalled for and cannot be culled out from the definition of gross revenue, which was to simplify the procedure of assessment of licence fee. What is the meaning to be given to the word immediately' would differ from case to case and determination of licence fee. The cost of replacement also depends upon various factors. An old asset may be replaced by a brand new one of the higher prices. For an accounting of gain from the insurance claim, the methodology classification adopted by DOT is not found to be proper and is not in tune with the definition of gross revenue. 135. It is submitted on behalf of the licensees that the amount received towards insurance claim is for indemnification towards loss of capital asset to compensate for the loss. The decision in Vania Silk Mills v. C.I.T. Ahmedabad , (supra) has been pressed into service wherein it has been held that while paying for the loss, the insurance company compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot allowed as a deduction as per the definition of gross revenue. In case it is not counted towards the gross revenue, it may encourage the licensee to give discounts increasing their gross revenue by such incentive and not paying the licence fee to the public exchequer. 139. It is apparent that the amount of negative balance is a business strategy, and the amount is adjusted in case recharge is opted. Otherwise also, it is billed and reflected on accrual basis in the account of the customer. Though it has to form part of gross revenue for determination of licence fee under clause 19.1, the number of calls at the full value have to be measured without any discounts or incentive of such business strategy. It is a part of revenue. It cannot be deducted from the gross revenue to be worked out as per the definition of gross revenue under AS9. Thus, the finding of the TDSAT cannot be said to align with the meaning of gross revenue in factual aspects of the case and is set aside. In re: Reimbursement of the infrastructure operating expenses 140. The telecom service provider needs infrastructure like towers to o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reimbursement of expenses and rent for the usage of the facility. By the interpretation of TDSAT, accounting jugglery would take place, and the licensee will try to derive maximum reimbursement of infrastructure operating expenses under the category of reimbursement of expenditure rather than under the rent category . The company may form cartel and put up a common expenditure in the type of reimbursement of the cost it would give a chance for netting off the expenditure against revenue, which is prohibited in clause 19.1. 145. In the definition of gross revenue, the item sharing of infrastructure facility is explicitly mentioned. In the format in Appendix 2 to AnnexureII also, the entire amount is required to be shown. It has been specifically mentioned that there cannot be any setting off of the amount of gross revenue, and the entire money received has to be treated as the gross revenue for the determination of licence fee. It is not the determination of profit. The gross revenue carries a different definition, and the intendment is clear to prevent disputes. Thus the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed explicitly in the definition of gross revenue. As such, it has to be computed as part of gross revenue. Merely by waiver, it cannot be ousted from the purview of gross revenue once it becomes leviable. Thus, the finding of the TDSAT is not sustainable and is set aside. In re: Gains from roaming charges and PSTN passthrough charges 151. Roaming charges apply when the customer leaves the home network area and roams into the network or coverage area of another service area. Passthrough charges are charges paid by the licensee to the licensor for allowing their subscribers' calls to be carried on their networks. Clause 19.2 of the licence agreement provides for certain deductions of roaming charges and PSTN passthrough charges from gross revenue on actually paid basis. The TDSAT considered grievance on behalf of the licensees that many a time it happens that the licensee to whom such charges to be paid, happens to be the same company. It is stated officers of the respondent do not allow deduction of such charges on the ground that there is no such actual payment as the company making as well as receiving the payment is the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord service in that licence. Since for TV uplinking facility, a separate licence is required, such service could not be rendered under an ILD licence. The ILD licence issued by DOT carries a revenuesharing scheme out of the gross revenue, which is not there in case of TV uplinking licence issued by the Ministry of Information Broadcasting. The said licence is practically free. Therefore, other service providers of TV uplinking service do not have to pay almost any licence fee. The TDSAT had rejected the recommendation of TRAI according to which revenue from TV uplinking and Internet service is to form part of AGR as it was held to be a form of AGR. It was held by TDSAT that revenue from these services is to be excluded from AGR. 156. In the impugned order, the tribunal has held that the revenue from operating FCC 214 licence arises not from the licence granted by DOT but by FCC. Hence, this inflow cannot be taken as part of AGR unless the DOT can establish that there is technical, managerial and financial interconnection interlacing and synergy between company's operations in the USA and India the gross revenue from the services of 214 FCC licence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from its customers, which at times are nonrefundable but are used to provide discounts on the bills raised. Concerning nonrefundable deposits, the claim was not pressed by the learned counsel appearing on behalf of DOT before the tribunal. However, we find that the concession given by the learned counsel on behalf of DOT concerning nonrefundable deposits is palpably incorrect. 161. We had put learned counsel for the parties at notice during the hearing as to the correctness of the finding recorded by the tribunal based on the concession, which was prima facie incorrect. We have heard learned counsel for the parties on the issue whether nonrefundable deposit forms part of the revenue of the licensee. 162. Appendix II to AnnexureII of the licence agreement: Item No.5, in Section D of the format, is an entry concerning nonrefundable deposits from subscribers. It has to be included as per the format in the statement of the gross revenue. The definition of gross revenue is wide enough to cover nonrefundable deposits as nonrefundable deposits are revenue earned from licensed activities. Nonrefundable deposits are to be treated as ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and dividend earned from the licensing and nonlicensing activities, have to form part of gross revenue for determination of licence fee. In re: Bad-debts written off 165. The bad debts written off are not allowed as a deduction by the DOT while computing adjusted gross revenue, bad debt is written off when recovered subsequently, it cannot be added to the gross revenue. The TDSAT in the impugned order, has observed as under: Licensees submit that if a bad debt, that is written off is later on recovered, it is required to be reported to the DoT, this, according to the licensees, that bad debts written off may be allowed as deductions from revenue but as and when those are recovered subsequently those should be added on to revenue. The submission is not acceptable but it needs to be clarified that when any bad debt written of is recovered finally, it may not be charged to license fee again as that would result in double charging of license fee on the same revenue. 166. TDSAT has not accepted the submission of the licensees. However, at the same time, it has safegua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay interest at the SBI Prime Lending Rates (PLR) every quarter, which in turn is paid by the holding company to the banks/financial institutions. DOT seeks to include the interest received from the subsidiaries companies in the revenue of the holding company. The TDSAT has included the income from interest on intercorporate loan as part of gross revenue. It is submitted on behalf of licensees that as the holding company only performs the function for the subsidiary company and the interest amount is only reimbursement of the amount paid to the bank, it cannot be included in the gross revenue. As such, it does not form part of gross revenue. 172. The submission has no legs to stand, and it is apparent from the definition of gross revenue in clause 19.1 that income from interest is to be included in the gross revenue. Thus, the submission is baseless. By the fact that the holding company gives loan to the subsidiary company and recovers interest from subsidiaries, is good enough to make it a part of gross revenue. 173. Thus, interest income from intercorporate loan has to be included in the gross revenue for working out the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. This Court has held that TRAI and the TDSAT had no jurisdiction to decide on the validity of the definition of gross revenue and adjusted gross revenue in the licence agreement and to exclude items of revenue, which were included in the definition of gross revenue in the licence agreement, whether they are from nonlicencing activities. 178. Considering whether the licensee can challenge the computation of adjusted gross revenue and if so, at what stage and on what ground, this Court has observed that one such dispute can be that computation of adjusted gross revenue made by the licensor and the demand raised based on such computation is not following the licence agreement. The dispute can be raised after the licence agreement has been entered into at the appropriate stage, when the demand is raised by the licensor/licensee. This Court observed if the dispute is raised, TDSAT will have to go into the facts and material to decide demand is as per licence, in particular, the definition of adjusted gross revenue in the licence agreement. It can also interpret the terms and conditions of the licence agreement, as the tribunal has not gone into the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard of Revenue may include some items and exclude some others while prescribing the manner of computation of the capital employed . This is the sense in which the word computed has been consistently used by the legislature while enacting legislation of this kind. Turning to the earliest legislation where the word computed has been used in relation to the capital employed , we find that in the Excess Profits Tax Act, 1940 for determining the standard profits, the statutory percentage was required to be applied to the average amount of capital employed as computed in accordance with the Second Schedule and the Second Schedule provided for inclusion of certain items and exclusion of certain others including borrowed moneys and debts. The legislature clearly, in this statute, regarded exclusion of borrowed moneys and debts as implicit in the process of computation of the capital employed or to put it differently, according to legislative usage, computation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computed has been used by the legislature in relation to the capital employed in Section 80J subsection (1). 19. It may be noted that even in the Income Tax Act, 1961 the word computed has been consistently used in relation to income in the sense of involving both inclusion and exclusion of items of income. Section 2 clause (45) defines total income to mean the total amount of income referred to in Section 5 computed in the manner laid down in this Act . Now, if we look at the provisions in the Income Tax Act, 1961, which lay down the manner of computation of the total income, it would be clear that the process of computation of total income involves both inclusion and exclusion of various items of income. Section 10 provides that in computing the total income of a previous year of any person, any income falling within any of the clauses of that section shall not be included in the total income, tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of its rulemaking power, exclude borrowed moneys in computation of the capital employed and in doing so, it would not in any way be acting contrary to the mandate of the statute. But the point which we wish to emphasise here, while referring to the definition of total income in Section 2 clause (45), is that the word computed have been used by the legislature as comprehending within its scope not only inclusion but also exclusion of certain items of income which are admittedly and without doubt, part of the income of the assessee. We find that even in some of the subsections of Section 80J the word computed has been used in the same sense as involving both inclusion and exclusion. The second proviso to subsection (4) of Section 80J provides that where any building or any part thereof previously used for any purpose is transferred to the business of the industrial undertaking, the value of the building or part so transferred shall not be taken into account in computing the capital em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 181. This Court has considered the matter given the provisions contained in section 80J of the Income Tax Act and has observed that capital employed has variable meanings. It has been legislatively recognised both inclusion as well as exclusion of the items, which may otherwise be regarded as forming part of the capital employed. Thus, the expression computation has not been used in the 2011 decision to include those very items from the purview of the definition of gross revenue, which have been held to be covered by this Court to be part of gross revenue. According to the 2011 judgment, whether the demand is in terms and conditions of the licence agreement and, in particular, the definition of adjusted gross revenue, could have been seen. The TDSAT could also view the facts and material based on which demand has been raised, but it was not permissible to exclude the items which are included in the definition of gross revenue, as is sought to be done. Be that as it may. We have examined all the submissions which have been raised on merits again, uninfluenced by the plea of res judicata/constructive res judicata, and we have found no merit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall attract a penalty of 50% of the entire amount of shortpayment. A grace period of 60 days is granted, otherwise, it will carry the interest. The amount of penalty shall be payable within 15 days of the date of signing the audit report, failing which interest shall be charged as per terms of clause 20.5. 184. Whether interest and penalty have to be levied or not is to be gone into on the facts and circumstances of the case. 185. The TDSAT has held that it would not be appropriate to levy interest as well as the penalty. In case interest has to be levied, it has to be collected at a nominal amount. The TDSAT has not specified the same. 186. DOT submits that as per the terms and conditions of the agreement, interest has to be paid for delayed payment. The contract has been entered into, and the rate of interest has been fixed therein. It is not for the court to modify the same and penalty clause is also attracted considering the nature of the objections raised as to the very definition of gross revenue whereas parties have fully understood the meaning of gross revenue and the regime of revenue shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the Company in failing to register the Company as a dealer acted in the honest and genuine belief that the Company was not a dealer. Granting that they erred, no case for imposing penalty was made out. B. Akbar Badrudin Giwani v. Collector of Customs , 1990 (2) SCC 203, 60. In the present case, the Tribunal has itself specifically stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stones or boulders into smaller pieces amounts to manufacture. In view of the divergent views of the various High Courts, there was a bona fide doubt as to whether or not such an activity amounted to manufacture. This being the position, it cannot be said that merely because the appellants did not take out a licence and did not pay the duty the provisions of Section 11A got attracted. There is no evidence or proof that the licence was not taken out and/or duty not paid on account of any fraud, collusion, wilful misstatement or suppression of fact. We, therefore, set aside the demand under the showcause notice dated 351993. ( emphasis supplied) D. In Tecumseh Products India Ltd. v. Commissioner of Central Excise, Hyderabad, 2004 (6) SCC 30, it was held as under: 7. But, insofar as the application of extended period of limitation provided under Section 11A is concerned, we do not think that the Tribunal is justified because it was not clear as to whether if any part is used for the purpose of repairing a machinery would amount to manufacture. In fact, the Tribunal on a detailed analys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd has been frequently understood to mean that which may, can or should be paid and is held equivalent to due . Therefore, the conjoint reading of Sections 7(1), (2) and (2A) and 11B of the Act leaves no room for doubt that the expression tax payable in Section 11B can only mean the full amount of tax which becomes due under subsections (2) and (2A) of the Act when assessed on the basis of the information regarding turnover and taxable turnover furnished or shown in the return. Therefore, so long as the assessee pays the tax which according to him is due on the basis of information supplied in the return filed by him, there would be no default on his part to meet his statutory obligation under Section 7 of the Act and, therefore, it would be difficult to hold that the tax payable by him is not paid to visit him with the liability to pay interest under clause ( a ) of Section 11B. It would be a different matter if the return is not approved by the authority, but that is not the case here. It is difficult on the plain language of the section to hold that the law envisages the assessee to predicate the final assessment and expect him to pay the tax on that basis to avoid the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore cannot be permitted to be capitalised. 55. During the course of hearing it was brought to our notice that in view of several usury laws and debt relief laws in force in several States private moneylending has almost come to an end and needy borrowers by and large depend on banking institutions for financial facilities. Several unhealthy practices having slowly penetrated into prevalence were pointed out. Banking is an organised institution and most of the banks press into service longrunning documents wherein the borrowers fill in the blanks, at times without caring to read what has been provided therein, and bind themselves by the stipulations articulated by the best of legal brains. Borrowers other than those belonging to the corporate sector, find themselves having unwittingly fallen into a trap and rendered themselves liable and obliged to pay interest the quantum whereof may at the end prove to be ruinous. At times the interest charged and capitalised is manifold than the amount actually advanced. Rule of damdupat does not apply. Penal interest, service charges and other overheads are debited in the account of the borrower and capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and obligations of the parties as to recovery and payment of interest. ( 4) Capitalisation method is founded on the principle that the borrower failed to make payment though he could have made and thereby rendered himself a defaulter. To hold an amount debited to the account of the borrower capitalised it should appear that the borrower had an opportunity of making the payment on the date of entry or within a reasonable time or period of grace from the date of debit entry or the amount falling due and thereby avoiding capitalisation. Any debit entry in the account of the borrower and claimed to have been capitalised so as to form an amalgam of the principal sum may be excluded on being shown to the satisfaction of the court that such debit entry was not brought to the notice of the borrower and/or he did not have the opportunity of making payment before capitalisation and thereby excluding its capitalisation. ( 5) The power conferred by Sections 21 and 35A of the Banking Regulation Act, 1949 is coupled with duty to act. The Reserve Bank of India is the prime banking institution of the country entrusted with a supervisory r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l manner. 188. Before considering the applicability of the decisions above, the factual gamut of the case has to be considered. The demand was raised for the first time in the year 2003 despite the fact that the definition of gross revenue was clear, and as is apparent from the correspondence and the agreement reached between the parties, there was no doubt what constitutes gross revenue. Licensees were aware that these items concerning which they have raised the dispute were included in the definition of gross revenue, as such, they had initially questioned inclusion on the basis of the validity of the definition of gross revenue. The challenge was found to be sans any basis by this Court. The objections raised concerning the validity of the gross revenue, were wholly unsustainable and on the face of it, were liable to be rejected, and came to be rejected finally and conclusively by this Court in the year 2011. After that, again the objections have been repeated to exclude those very revenue items which were held to be included once over an effort has been made to get rid of the definition of gross revenue. The objections which have been r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable on the principal amount due under the court s order passed under section 32 of the State Financial Corporations Act, 1951 would be as stipulated in the contract as the provisions of section 34 CPC are not attracted, order under section 32 being not a decree, liability to pay contractual rate of interest cannot be disowned, merely because of absence of direction for payment of interest in order under section 32. This Court has held: 6. If as held by this Court the proceeding instituted under Section 31(1) of the Act is something akin to an application for attachment of property in execution of a decree at a stage posterior to the passing of the decree no question of passing any order under Section 34 of the Code would arise since Section 34 of the Code would be applicable only at the stage of the passing of the decree and not to any stage posterior to the decree. It may also be mentioned here that even under the Code the question of interest payable in mortgage suits filed in civil courts is governed by Order 34 Rule 11 of the Code and not by Section 34 of the Code which may be applicable only to cases of personal decrees passed under Order 34 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greed to and particularly since it is a revenuesharing regime, and the licensees have acted in conscious disregard of their obligation. Thus, on the anvil of the decision above also, they are liable to pay the dues with interest and penalty. There is no discretion to vary the penalty. It is 50% of the amount which is in shortfall which cannot be said to be unreasonable and that too, two grace periods have been given in clause 20.8 to make payment of the same. As it is the agreed term and cannot be said to be arbitrary, the ratio of the decision is not attracted. Reliance has also been placed on Akbar Badrudin Giwani v. Collector of Customs (supra), wherein the dispute was bona fide. It was a case of exercise of power by the tribunal while imposing a penalty and fine instead of confiscation. There is no such discretion available when the parties have agreed in default what amount is to be paid. It automatically follows that it is not to be determined by licensor once over again. Parties (licensor and licensees) are bound by the terms and conditions of the contract. There is no enabling clause to vary either the rate of interest or the penalty provided therein and even if permissib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt named in the contract can be awarded. In the instant case, it is quite reasonable amount of the penalty in case of default in payment of the amount. The term cannot be said to be unconscionable. As the Government has been deprived of the revenue and the licensees have been benefited by revenue sharing regime, in spite of that, they have not shared the revenue. They are bound by the stipulation, which is found to be quite reasonable in the facts and circumstances of the case. 195. In Central Bank of India v. Ravindra , (supra), this Court considered the question of award of payment of interest and has held that there is nothing wrong with the party voluntarily entering into the transaction as to stipulation, for payment of compound interest ,at reasonable rates and authorising the creditors to capitalise the amount on the amount remaining unpaid so as to enable interest to be charged on the accrued rate on the interest component of the capitalised sum for the succeeding period. Interest, once capitalised, sheds its colour of interest and becomes a part of the principal to become a debt as has been observed thus: 36. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f interest is paid there will be no occasion for capitalising the amount of interest and converting it into principal. If the interest is not paid on the date due, from that date the creditor is deprived of the use of the money, and which it would have made if the debtor had paid the amount of interest on the date due, the creditor needs to be compensated for deprivation. As held in Pazhaniappa Mudaliar v. Narayana Ayyar, AIR 143 Mad 157, the fact situation is analogous to one as if the creditor has advanced money to the borrower equivalent to the amount of interest debited. We are, therefore, of the opinion that the expression the principal sum adjudged may include the amount of interest, charged on periodical rests, and capitalised with the principal sum actually advanced, so as to become an amalgam of principal in such cases where it is permissible or obligatory for the court to hold so. Where the principal sum (on the date of suit) has been so adjudged, the same shall be treated as principal sum for the purpose of such principal sum ..... X X X X Extracts X X X X X X X X Extracts X X X X
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