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TMI Blog2012 (5) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... ntity from 17.10.2000 (sic). 2) It is not formed by transfer of old plant and machinery. 3) The undertaking was engaged in providing telecommunication services i.e. E-Tendering Services which comes under Internet Services and Electronic Data Inter change Services. (Category 'A' Licence attached). 4) Millennium Telecom has claimed deduction under 80IA from A.Y. 2003-04. 5) Millennium Telecom Ltd. was not claiming any deduction under any other sections. 6) The undertaking has been audited by the statutory auditors appointed by CAG and Audit report has been submitted with the return of income. Hence, the undertaking is eligible for deduction u/s. 80IA i.e. 100% of profit upto A.Y. 2007-08". However, the AO did not accept the assessee's submission. He observed that the assessee is providing E-Tendering services, Cyber Cafe services and sale of Internet packs. He further observed that scrutiny of the accounts showed that the receipt of the assessee in the current year i.e. assessment year 2005-06 is as follows: "Income from E-tendering services Rs.12,940,000 Income from sale of ISP packs Rs. ....... Income from cyber caf&eacut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not providing basic or cellular telecommunication services. (iii) For carrying out the business of providing telecommunication and internet services, licence of Department of Telecommunication is required. It is true that the licence was granted to the assessee on 06-10-2000 and revised on 13-08-2002 but that does not mean that the assessee is carrying out the business of telecommunication. Further, as per Schedule B of the licence, the assessee was required to pay nominal fee of Re.1/- per annum and in addition to this the assessee was required to deposit an amount of Rs.2 crores with the Department of Telecommunication for carrying out business of telecommunication. The balance-sheet of the assessee does not show that it has offered any such bank guarantee to the Department of Telecommunication. (iv) The assessee has not made substantial investment in plant and machinery to carry out the business of telecommunication and internet services. (v) After extracting the investment made by the assessee towards plant and machinery appearing at pages 5 and 6 of the appellate order, the ld. CIT(A) has held that the assessee has not made any investment required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it will be important to refer to the developments which have taken place in this section 80IA(4)(ii) since its introduction by the Finance Act 1997, which reads as under (written submissions): "......... On going through the scheme of the Section 80IA it may be noted that Section 80IA provides for deduction of profit and gains derived from any business of industrial undertaking or an eligible enterprise. Industrial undertaking has been referred to in sub-section (3) and conditions for its eligibility have been prescribed in sub-section are as under- (i) It is not formed by splitting up, or the reconstruction of a business already in existence. (ii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Accordingly in case exemption is being claimed as an industrial undertaking, both the above conditions need to be fulfilled. Eligible enterprises have been enumerated in sub-section (4). Clause (i) of sub-section (4) is in respect of an enterprise carrying on the business of developing, maintaining and operating any infrastructure facility. To be eligible under this clause the enterprise should be - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of other companies. There is no provision of using old plant and machinery as is the case applicable in the case of an industrial undertaking under sub-section (3). Now, coming to the observation of CIT(A), the observation of the CIT(A) on page 4 to the effect that telecommunication services which are basic and which should satisfy the basic needs of an ultimate customer is only eligible is also not correct. The scope of section 80IA(4) clause (ii) as explained above has been expanded from year to year and is not limited to basic or cellular services. Accordingly, the CIT(A)'s observation that the appellant is not providing basic or cellular telecommunication services is not relevant to decide the issue under consideration. The observation of the CIT(A) that the appellant has not fulfilled the condition for starting the telecommunication services since it has not given the Bank Guarantee is also factually incorrect. The appellant company has provided the Bank guarantee as is evident from page 15 of the paper book which are Notes to the Accounts whereby under Note 3 it has been stated "Contingent Liabilities including guarantee given by banks of Rs.2 crores." Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002. As a part of its first business strategy, the assessee company started providing E-tendering services which is a valued added services and is an internet service covered by clause (ii) of Sub-section(4) of 80IA. This was a new service. The first customer of its services was its parent company i.e. Mahanagar Telephone Nigam Ltd. itself. In this process, the assessee company set up the complete base for providing Etendering services to the various customers. In this regard, it will be important to analyze the meaning of the word 'telecommunication'. The telecommunication comes out from 'tele' and 'communication'. 'Tele' means far off. 'Communication' means to communicate with other person. In the initial days, the communication was possible by speaking to another person. With the advent of the script the communication became possible by writing. One could write what one could speak and send it across to the other person. With the need of the communication became popular the post services came into existence. With advent of telephone the communication became possible whereby one could speak to the other person at a distance and this communication was possible through cable i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n E-Tendering Internet Services. The said note was not before the AO and the ld. CIT(A). 10. In CIT vs. Emptee Poly-Yarn Pvt. Ltd. (2010) 320 ITR 665 (SC), it has been observed by Their Lordships (placitum 5 at page 666 of ITR): "Repeatedly this court has recommended to the Department, be it under Excise Act, Customs Act or the Income-tax Act, to examine the process applicable to the product in question and not to go only by dictionary meanings. This recommendation is not being followed over the years. Even when the assessee gives an opinion on a given process, the Department does not submit any counter opinion wherever such counter opinion is possible. Prima facie, however, in this case, we do not see possibility of any counter opinion to the opinion given by the Mumbai University, vide letter dated July 10, 1999." 11. Respectfully following the above observations of the Hon'ble Apex Court and keeping in view that the assessee at this stage has filed new evidence which was not before the AO and ld. CIT(A) to show that providing E-Tendering is equivalent to providing Internet service eligible for deduction u/s.80IA(4)(ii) of the Act and the Revenue authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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