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M/s Vodafone East Limited (Formerly Known As Vodafone Essar East Limited) Versus Additional Commissioner of Income Tax And And Others

2015 (9) TMI 1358 - ITAT KOLKATA

Roaming charges paid to other telecom operators - whether liable for deduction of tax at source? - Held that:- From the statement recorded from technical experts pursuant to the directions of the Supreme Court in CIT vs Bharti Cellular Ltd (2010 (8) TMI 332 - Supreme Court of India ) which has been heavily relied upon by the Learned CITA, we find that human intervention is required only for installation / setting up / repairing / servicing / maintenance / capacity augmentation of the network. Bu .....

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or for providing this service. Hence we have no hesitation to hold that the provision of roaming services do not require any human intervention and accordingly we hold that the payment of roaming charges does not fall under the ambit of TDS provisions u/s 194J of the Act. - We hold that 194C is applicable only where any sum is paid for carrying out any work including supply of labour for carrying out any work. Thus, 'carrying out any work' is the substance for making the payment relating to .....

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hysical force which has comprehended in the word 'work'. We have al ready held that the payment of roaming charges does not require any human intervention. Hence in the absence of human intervention, the services rendered in the context of the impugned issue does not fall under the definition of 'work' as defined in section 194C and hence the provisions of sect ion 194C are not applicable to the impugned issue. - A subscriber to a telephone service could not reasonably be taken to have inten .....

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e provider cannot be considered as rent within the meaning of section 194I of the Act. Accordingly, we hold that the payment of roaming charges does not fall under the ambit of TDS provisions either u/s 194C / 194I or 194J and hence we have no hesitation in directing the Learned Assessing Officer to delete the addition made u/s 40(a)(ia) on this account. - Decided in favour of assessee. - Disallowance of Interest on loans borrowed - Held that:- In the facts and circumstances of this case, we .....

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Services as no human intervention is required for the same and hence the income of non-resident telecom operator is not chargeable to tax in India u/s 195 of the Act and hence we refrain to give our opinion on the other beneficial provisions provided in the DTAAs for the assessee in the facts of the impugned issue. Accordingly, the ground raised by the assessee with regard to applicability of TDS provisions for international roaming charges is allowed.- Decided in favour of assessee. - Disal .....

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e Act. Penalty paid to DOT does not come under the ambit of Explanation to Section 37(1) of the Act and accordingly, the grounds raised by the assessee in this regard are allowed.- Decided in favour of assessee. - Disallowance of provision for Asset Restoration Obligation (ARO) written back - Held that:- It is pertinent to note that section 41(1) of the act uses the term 'deduction' in earlier years at the time of creation of such liability. Whereas in the instant case, the assessee had only .....

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et aside this issue to the file of the Learned Assessing Officer to decide the veracity of the claim in accordance with law. Needless to mention that the assessee be given reasonable opportunity of being heard and assesse is also directed to provide complete details of depreciation claimed on ARO in earlier years and necessary workings in this regard. - Decided in favour of assessee for statistical purposes. - Disallowance of amortization of payments made to IBM - Held that:- We are admittin .....

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ned Assessing Officer is al so directed to mention in his order regarding the status of amortizat ion payment s made in the earlier years and the tax treatment given in the assessments of earlier years for the same. Needless to mention that the assessee be given reasonable opportunity of being heard - Decided in favour of assessee for statistical purposes. - Addition made towards repayment of principal on finance lease - Held that:- We are not able to ascertain the real facts of this issue. .....

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ealized foreign exchange fluctuation gain and Realized foreign exchange gain - CIT(A) allowed part relief - Held that:- There is no dispute that the provisions of section 43A of the Act would become applicable for recognizing the exchange fluctuation if the loan was obtained for acquisition of fixed assets only at the time of making payment and accordingly the exchange gain, if any, would go to reduce the cost of the fixed asset. Since in the instant case, the exchange gain is derived only on a .....

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orted in (2009 (4) TMI 4 - SUPREME COURT) wherein the principles were laid down for recognition of exchange gain/loss under various circumstances. - Decided against revenue. - Deduction of bad debts written off - CIT(A) allowed claim - Held that:- AO having accepted this issue in the remand proceedings which is mentioned in page 74 para 27 of the Learned CIT(Appeals) order and had not given any adverse comments about the impugned issue, ought not to have come on appeal before us on this issu .....

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for the Asst Year 2009-10 and 2010-11 and cross appeal of the Revenue for the Asst Year 2010-11 and hence they are taken up together and disposed off by a common order for the sake of convenience. ITA No. 1864/ 2012 (A.Y. 2009-2010)-Assessee's appeal 1. This appeal arises out of the order of the Learned Commissioner of Income Tax (Appeals) in Appeal No. 337/CIT(A)-VIII/Kol-11-12 dated 31.10.2012 for the Asst Year 2009-10 arising out of the order of the Learned Assessing Officer framed u/s 14 .....

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rom the Bar. The Learned AR also filed a chart comprising of various issues at the time of hearing wherein in respect of Ground No.1, he has specifically stated against this Ground as Not Pressed. Accordingly, the Ground No. 1 raised by the assessee is dismissed as not pressed. 4. The first issue to be decided in this appeal is as to whether the roaming charges of ₹ 55,41,01,320/- paid by the assessee to other telecom operators is liable for deduction of tax at source under the provisions .....

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h other telecom operators which have been given licence to operate as telecom service providers in other territories. The Learned AO initially proceeded to show cause the assessee for disallowance of roaming charges by invoking the provisions of section 40(a)(ia) r.w.s. 194C of the Act but later gave up and proceeded to section 194I /194J of the Act and made disallowance u/s 40(a)(ia) of the Act which was also upheld by the Learned CITA. Aggrieved, the assessee is in appeal before us on the foll .....

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not restricting the disallowance under section 40(a)(ia) of the Act to the amount which remains payable at the end of the year. 2.3. Without prejudice to the above grounds 2.1 and 2.2, on the facts and in the circumstances of the case and in law, since the insertion of second proviso to section 40(a)(ia) of the Act vide Finance Act, 2012 is curative in nature, the benefit of the same should be extended to the past years and accordingly, the learned CIT(A) ought to have directed the Additional Co .....

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section 40(a)(ia) of the Act". 4.2. The Learned AR argued that roaming means an arrangement whereby a subscriber of a cellular phone uses cellular services outside the home network and will get services from the host operator. The assessee has entered into roaming arrangements with other telecom operators to make or receive calls when the subscribers move out of the licensed territory. For example, suppose the Home Operator is licensed to provide telecom services only in Kolkata Telecom Cir .....

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services in Delhi. Depending upon the usage of the subscriber and the arrangement between the Home Operator and Visiting Operator, Visiting Operator shall raise an invoice on Home Operator for such usage by the subscriber and Home Operator shall subsequently recover such charges from the subscriber. For the sake of clarity, the process involved in provision of roaming services is given below:- a) A Vodafone East Ltd (VEL) Subscriber in Kolkata travelling to Delhi switches on his mobile device a .....

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oaming partner whose services he would like to use out of the ones which are available in that area (Subscriber can only choose the roaming partner with whom VEL has a tie-up). e) Visiting network locates mobile device and identifies that it is not registered with its system i.e. Visitor Location Register. f) Visiting network contacts home network of VEL's Subscriber i.e Home Location Register (HLR) and requests service information about roaming device using International Mobile Subscriber I .....

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routed to the Home network of VEL subscriber. VEL's network then transfers all incoming calls to the temporary phone number which terminates at the device of VEL's subscriber, currently roaming in Delhi and using the network of the Visiting Operator (i.e. the Visiting Network). 4.3. Accordingly, pursuant to the aforesaid roaming arrangements, VEL's subscribers are able to make and receive calls while they are in the territory of such other telecom operator. In lieu of the services pr .....

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ported in 330 ITR 239 (SC), wherein the question raised before the Supreme Court is as below:- "Whether tax was deductible by Bharti Cellular Ltd when it paid interconnect charges/access/port charges to BSNL"? The Supreme Court observed that the problem which arose in such cases was that there was no expert evidence from the side of the department to show how human intervention takes place, particularly during the process when calls take place, let us say, from Delhi to Nainital and vi .....

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terconnect ion agreements were arrived at? For example, as informed, each service provider is allotted a certain 'capacity'. On what basis such 'capacity' is allotted and what happens if a situation arises where a service provider's 'allotted capacity' gets exhausted and it wants, on an urgent basis, 'additional capacity'? Whether at what stage, any human intervention was involved was required to be examined, which again required technical data. According to t .....

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shna in connection with the assessment proceedings of M/s Vodafone Essar Mobile Services Ltd (formerly known as Hutchison Essar Telecom Ltd) for the Asst Year 2003-04 on 29.9.2010 which was relied upon by the Learned CITA for deciding the issue under appeal before us. The Learned AR produced the statement recorded from Shri Tanay Krishna on 29.9.2010 before us. He also produced the copy of statement recorded from Shri Tanay Krishna during cross examination proceedings. He took us to the relevant .....

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hough initially the Learned AO proceeded to disallow the roaming charges u/s 40(a)(ia) of the Act by applying the provisions of section 194C of the Act, but later gave up and proceeded to apply section 194I/ 194J of the Act. However, he assailed the impugned issue to prove that none of the provisions of section 194C, 194I and 194J of the Act are applicable in the facts and circumstances of the case. 4.7. The Learned DR vehemently argued that no technology in world could survive without human int .....

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her operator (Visiting Operator) for connectivity of two mobile handsets while roaming. This is not wireless connectivity. Wireless connection is between handset and connecting tower. Thereafter it is only transmission lines through which the electrical signals travel. It has to be seen that how the voice travels to the other mobile network. It is pertinent to note that the sound does not travel. It gets converted into electrical signals and only those signals travel to the other network. He veh .....

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i) income by way of fees for technical services payable by - Explanation 2 - For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would .....

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not considered by the Delhi High Court in 319 ITR 139 (Del) which travelled later to Supreme Court while rendering the judgement in CIT vs Bharti Cellular Ltd in 330 ITR 239 (SC) case. 4.9. He further argued that independent examination needs to be carried out with technical experts on the impugned issue and accordingly prayed for setting aside of the issue to the file of the Learned Assessing Officer. 4.10. We have heard the rival submissions and perused the materials available on record. It w .....

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as is used by such operators for provision of telecommunication services to its own subscribers. Therefore, in essence, roaming services are similar in nature to the telecom services provided by a telecom operator to its own subscribers and hence roaming charges would partake the same character as the normal telecommunication charges paid by a subscriber to its service provider. 4.11. We are not in agreement with the arguments of the Learned DR that the word 'technical' used in Explanati .....

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e automatically on the basis of machines and does not involve any human interface, the interconnect charges cannot be regarded as Fee for Technical Services (FTS) and hence would not fall in the ambit of section 194J of the Act. We find that on further appeal by the revenue to the Hon'ble Supreme Court in CIT vs Bharti Cellular Ltd in 330 ITR 239 (SC), the Hon'ble Apex Court had stated that "right from 1979 various judgements of the High Courts and Tribunal have taken the view that .....

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to determine the extent of human involvement. Based on this direction, the CBDT had also issued Instruction No. 5 of 2011 dated 30.3.2011 instructing the revenue authorities to seek opinion of technical experts in case of complex technical matters. 4.12. As per the directions of the Supreme Court in the case of CIT vs Bharti Cellular Ltd in 330 ITR 239 (SC), the TDS officer has been directed to obtain technical evidence from the expert s in the telecom field with regard to the fact of existence .....

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Rule 29 contains a prayer with reasons that these documents could not be filed before the lower authorities and that these documents are very crucial for the disposal of the case under appeal as the examination of the technical experts had taken place post the proceedings before the Assessing Officer and as per the directions of the Hon'ble Supreme Court, these statements were recorded in the case of the group company of the assessee. However, it is seen that the statement of Shri Tanay Kris .....

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d not be set aside to the file of the Learned Assessing Officer for seeking fresh technical evidences from experts as the same had al ready been obtained in the case of the group company of the assessee and CBDT had also issued Instructions in this regard to seek evidences. Any technical evidence obtained in a case can be used in the case of another assessee as long as the facts and circumstances involved are identical. In the instant case, the facts in the case of Vodafone Essar Mobile Services .....

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connect to Gateway switches/MSC of two different operators are interconnected using any transport technology which involves wires as well as human interface for setting up. It involves different phases - i) Planning phase- where how much capacity required and how much traffic handling capacity is required on these basis hardware and software is determined. ii) Selection of vendor - is done to determine who will provide these services along with his consultancy. iii) Hardware and software is supp .....

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etc) on network portion. (a) Software by hardware testing - Stand alone testing (b) Interconnect testing - it is done to test if it is compatible with other hardware/software. This testing employs technically qualified professionals and tested as per the agreed plan between services provider and vendor. Question 5 : In your expert opinion, does the system work automatically when network system of one cellular operator gets connected with the network system of other cellular operator? Ans. 5: Wh .....

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I would briefly tell you about each of such circumstances - (a) There could be a case where there is failure in physical hardware. (b) There could be a problem due to software bug. (c) There could be snapping of fibre optic cables. In (a), (b), (c) above you are required intervention of teams of technical experts to remedy the situation. Question 16: Please tell us the places or points or areas where human intervention with each other? Ans. 16: As has been detailed in several answers that I have .....

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? The call from one network to the other network flows automatically, i.e. without any human intervention. Once a call originates, the call travels automatically. In establishment of a call, therein no human intervention i.e., once a subscriber dials and the call gets connected without any fault, then there is no human intervention. Intervention is required only hen the call is not successful, i.e., the call fails due to any reason. Q. 4. Is any human intervention involved in the entire process .....

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ent, it appears that the phases described thereon are restricted to merely setting-up of the inter-connect between the networks of the two operators and not during actual carriage of the call by one operator for the other. Please confirm. Yes. Q.7. From perusal of your answers to various questions posed to you by the Tax Department, you have mentioned that services of a technical expert are required for inter-connect arrangements. Please confirm whether such services are required for provision o .....

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cellular networks the level of human intervention is much higher and of sophisticated technical level. In this regard, do you agree that cellular networks are based on sophisticated technology and work on an automated mode? The human intervention as referred by you for network operations is limited to network monitoring and maintenance and fault repair, rectification, enhancement, configuration, and set-up? We agree that the telecom networks are automated networks and do not require human inter .....

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ion lines and human intervention is very much involved with regard to usage of transmission lines. We find that the human involvement is involved only when something goes wrong in the maintenance of transmission lines and for connectivity per se, human intervention is not involved. This issue could also be looked into from the angle of applicability of TDS provisions on Transmission Charges / wheeling charges paid by power generating companies. This issue had reached the corridors of various jud .....

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entities like Maharashtra State Electricity Transmission Co. Ltd. (MSETCL) and Power Grid Corporation of India Ltd. (PGCIL) for the use of transmission lines or other infrastructure, i.e., plant, machinery and equipment could not be termed as rent under the provisions of section 194I of the Act and, consequently, the provisions of section 201 and section 201(IA) could not be applied? (b) Without prejudice to the above, whether, on the facts and in the circumstances of the case and in law, payme .....

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and carrying power through transmission lines and transmission system would not amount to renting up equipment or its charge or rent". The Hon'ble Supreme Court has also shown us some direction in this behalf. While interpreting the expression "rent", the applicability of section 194-1 must be gathered from whether the wheeling and transmission charges draw its colour from the basic meaning of the expression "rent". It is seen from the decision of the Supreme Court i .....

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nsees when found to be uneconomical and uncompetitive. It is further observed that MERC has considered pooling of transmission charges during bulk power transmission from one licensee to another licensee. It is after considering all these aspects that a composite charge method for any such transmission was adopted. Thus, it is seen that the methodology for determining of the transmission tariff could not be determined in a mechanical manner as if the charge was only for use of the State transmis .....

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erstood. The concept of rent under the Income-tax Act does not encompass, in our view, the wheeling and transmission charges payable by the assessee especially when the assessee is discharging a public function. The expression of "transmission charges and/or "wheeling charges" entails distribution of electricity in the area of the corporation and they cannot be subjected to provisions of section 194-1 of the Act. We, however, clarify that this is restricted to the case of the asse .....

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ct to the tariff that will be determined by the MERC in public interest. Hence, it is incomprehensible that the tariff passes the test as fees for technical services. Once again applying the pr inciples of conceptual interpretation to the tariff to be fixed for the wheeling and transmission charges of electricity, it cannot be interpreted to mean fees for the providing technical services. Under the open access system, it is the MSEDCL which will be availing of the said transmission facility. No .....

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views stand fortified by the very fact that the Revenue itself is confused and unsure as to the nature of the charge. The focus of the Revenue is only the requirement of deduction of tax whether under section 194- 1 or section 194J. This approach is erroneous. The Revenue contends that the wheeling and transmission charges could be rent or fees for technical services but, in our view it is neither. Wheeling charges represent the charge for permitting use of the State transmission utility by pers .....

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t scenario, we must bear in mind that taking into account the functioning of MSEDCL which is a public utility, it will not be appropriate to equate the transmission charges or wheeling charges to rent or fees for technical service. In our view, the transmission charges and/or wheeling charges are not amounts paid under any arrangement for use of land, building, plant machinery, equipment, furniture, fitting, etc. and, therefore, not rent. Equally, the amounts are not fees for technical services. .....

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e assessee paid wheeling, scheduling and transmission charges to State power utility for using its distribution network to sell energy generated by assessee to end consumers and same did not involve any human element, assessee was not required to deduct TDS under section 194JHeld, yes [Para 6] in favour of assessee". c) DCIT vs Delhi Transco Ltd reported in (2014) 52 taxmann.com 261 (Delhi) "This finding has been followed by the ITAT in ITA No. 3965/Del/2011 in the case of assessee for .....

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ook), specifically provides that "power shall be made available by the NTPC at the busbars of the Station and it shall be obligation and responsibility of the CSEB to make the required arrangement for evacuation of power from such delivery points of NTPC". It is pursuant to these obligations that the assessee, along with other bulk power beneficiaries - namely M P State Electricity Board, Gujarat Electricity Board, Maharashtra State Electricity Board, Electricity Department - Governmen .....

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terms and conditions". This agreement provides that "POWERGRID shall operate and maintain the transmission system belonging to it in the Western Region as per agreed guidelines and the directives of the Western Regional Electricity Board and the Regional Load Dispatch Centers, and cooperate with the Bulk Power Beneficiaries of the Region, so as to maintain the system parameters within acceptable/reasonable limits except where it is necessary to take measures to prevent imminent damage .....

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ded between the beneficiaries in the same ratio as is ratio of power evacuated by a beneficiary to the total sale of power from that delivery point. It is, however, not in dispute that the transmission lines are in the physical control of PGCIL, these are maintained and operated by the PGCIL and, so far as the assessee is concerned, its interest in the transmission lines is restricted to the fact that electrical power purchased by the assessee, simultaneously alongwith electrical power purchased .....

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is only allowed to use that physically identified portion of power. Strictly speaking, therefore, it is not the transmission of power from one point to another but availability of power on the entire power grid or transmission lines enabling the beneficiary to utilize the power to the extent of his allocation. On these facts, the question that requires our adjudication is whether or not the payment for transmission charges can be termed as 'rent' for the purposes of Section 194-I of the .....

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or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of - (a) two per cent. for the use of any machinery or plant or equipment; and (b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings: Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credite .....

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which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section. Explanation : For the purposes of this section, [(i) "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any, -, (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or ( .....

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has been sustained in the first appeal, is that since expression "rent", for the purpose of Section 194 I, includes "any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement" for the use of machinery, plant or equipment, and since the assessee has made the payments towards transmission charges for use of the machinery, plant and equipment collectively constituting mode of transmission of power, the provisions of Section 1 .....

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reement or arrangement "for the use of" land, building, plant, machinery or equipment etc. As evident from a plain reading of the agreements under which impugned payments have been made, the payments have been made for the services of transmission of electricity and not the use of transmission wires per se. It is a significant fact that these transmission lines are not only being used for transmission of electricity to the assessee but also for transmission to electricity to various ot .....

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payments could be said to have been made for "the use of transmission lines" in a case in which the object of consideration for which payments are made was the use of transmission lines simplictor, and such a use by the assessee does not extend beyond the transmission of electricity through such lines in the sense that the same transmission lines continue to be in the control of PGCIL for transmission of electricity for other entities and for all practical purposes. Even as electricit .....

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gal terms, of an asset may not not needed to be with the person benefiting from the asset in question, it is a condition precedent for invoking Section 194 I that the asset, for the use of which the payment in question is made, should have some element of its control by the assessee. Here is a case in which the assessee has no control over the operations of the transmission lines, and all that he gets from the arrangements is that he can draw the electrical power purchased from PGCIL's trans .....

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ommunications Co. Ltd. v. DIT [2011] 332 ITR 340 / 197 Taxman 263/ 9 taxmann.com 168 = 2011-TII-05-HC-DEL-INTL, in the following terms : "9. Thus if the transaction is one of leasing/hiring/letting simpliciter under which the possession of the goods, i.e., effective and general control of the goods is to be given to the customer and the customer has the freedom and choice of selecting the manner, time and nature of use and enjoyment, though within the framework of the agreement, then it wou .....

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right to use goods falling within the extended definition of "sale". Let me now clarify the position further, with an illustration which is a variation of the illustration used by the Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. v. CTO.[1990] 77 STC 182 (AP). Illustration (i) A customer engages a carrier (transport operator) to transport one consignment (a full lorry load) from place A to B, for an agreed consideration which is called freight charges or lorry hi .....

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g reasons : (i) The lorry is never in the control, let alone effective control of the customer; (ii) the carrier decides how, when and where the lorry moves to the destination, and continues to be in effective control of the lorry; (iii) the carrier can at any point (of time or place) transfer the consignment in the lorry to another lorry; or the carrier may unload the consignment en route in any of his godowns, to be picked up later by some other lorry assigned by the carrier for further transp .....

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responsible for making repairs apart from providing a driver to drive the lorry and filling the vehicle with diesel for running the lorry. The transaction involves an identified vehicle belonging to the transport operator being delivered to the customer and the customer is given the exclusive and effective control of the vehicle to be used in any manner as it deems fit; and during the period when the lorry is with the customer, the transport operator has no control over it. The transport operato .....

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to be for the use of an asset. When control of the asset (transmission lines in the present case) always remains with the PGCIL, any payment made to the PGCIL for transmission of power on the transmission lines and infrastructure owned controlled and in physical possession of PGCIL can be said to have been made for 'the use of ' these transmission lines or other related infrastructure. Viewed in this perspective, Section 194 I has no application so far as the impugned payments for transm .....

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3629,3530 are dismissed. The various decisions cited supra have held that there will be no TDS on transmission charges and the same analogy would apply with equal force in the case of transmission charges in telecom industry. 4.17. From the aforesaid statement recorded from technical experts pursuant to the directions of the Supreme Court in CIT vs Bharti Cellular Ltd (330 ITR 239) which has been heavily relied upon by the Learned CITA, we find that human intervention is required only for instal .....

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uman intervention and it is for this, the roaming charges is paid by the assessee to the Visiting Operator for providing this service. Hence we have no hesitation to hold that the provision of roaming services do not require any human intervention and accordingly we hold that the payment of roaming charges does not fall under the ambit of TDS provisions u/s 194J of the Act. 4.18. As far as the applicability of provisions of section 194C are concerned, we hold that the provisions of section 194C .....

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pplying a product according to the requirement or specification of the customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer." We hold that 194C is applicable only where any sum is paid for carrying out any work including supply of labour for carrying out any work. Thus, 'carrying out any work' is .....

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red to and comprehends only the activities of workman. It is the physical force which has comprehended in the word 'work'. We have al ready held that the payment of roaming charges does not require any human intervention. Hence in the absence of human intervention, the services rendered in the context of the impugned issue does not fall under the definition of 'work' as defined in section 194C and hence the provisions of sect ion 194C are not applicable to the impugned issue. 4.1 .....

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g (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings whether or not any or all of the above are owned by the payee." The real test to be considered is whether it is possible to say that it is the assessee who has used the equipment and has paid the roaming charges to the other service provider with whom it has entered into a national roaming agreement. We hold that it is not possible to say so because if at all anyone can be sai .....

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t is relevant at this juncture to get into the judgement of the apex court in the case of BSNL and Another vs Union of India and Others (2006) 282 ITR 273 (SC). One of the questions which arose for consideration was whether there was any transfer of a right to use any goods by providing access or telephone connection by the telephone service provider to a Subscriber. Referring to section 4 of the Telegraph Act, 1885, which gives exclusive privilege in respect of telecommunication and the power t .....

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The court held that the electromagnetic waves cannot be called goods. They were held to be merely the medium of communication; the waves are neither abstracted nor consumed, they are not delivered, stored or possessed, nor are they marketable. What was transmitted is not an electromagnetic wave but the signal through such means. The Supreme Court thereafter gave a more basic reason to hold that the electromagnetic waves cannot be considered as goods and it is this reason which is relevant for ou .....

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nnection. In view of the above, we hold that the payment of roaming charges by the asesssee to other service provider cannot be considered as rent within the meaning of section 194I of the Act. 4.20. Accordingly, we hold that the payment of roaming charges of ₹ 55,41,01,320/- does not fall under the ambit of TDS provisions either u/s 194C / 194I or 194J of the Act and hence we have no hesitation in directing the Learned Assessing Officer to delete the addition made u/s 40(a)(ia) on this ac .....

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Export Syndicate (2013) 33 taxmann.com 250 (Cal) wherein it was held that provisions of 40(a)(ia) could be invoked on amounts paid before the end of the previous year. Accordingly, this ground no. 2.2 raised by the assessee is dismissed. However, this ground becomes infructuous in view of our decision rendered for Ground No. 2.1. 4.22. Without prejudice to the main Ground No. 2.1 and alternative Ground No. 2.2, the Learned AR argued that the second proviso to section 40(a)(ia) inserted with effe .....

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ncome and paid tax thereon, is retrospective in nature or not? The High Court held as under- Section 40(a)(ia) was introduced by the Finance (No. 2) Act, 2004 to ensure that an expenditure should not be allowed as deduction in the hands of an assessee in a situation where income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. Hence, section 40(a)(ia) is not a penalty provision for tax withholding lapse but it is a provision introduced to compensat .....

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ACIT [2014] 45 taxmann.com 555 (Agra - Trib.) had held that the second proviso to Section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1st April, 2005, being the date from which sub-clause (ia) of section 40(8) was inserted by the Finance No. 2) Act, 2004, even though the Finance Act, 2012 had not specifically stated that proviso is retrospective in nature. The High Court affirmed the ratio laid down by The Agra Tribunal and held that said proviso is declara .....

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ed funds in the sum of ₹ 17,57,91,780/- in respect of interest free loans advanced by the assessee to its subsidiary. 5.1. The brief facts of this issue is that the assessee advanced loan of ₹ 410 crores to its subsidiary Vodafone Digilink Ltd. It is also not in dispute that out of ₹ 410 crores advanced by the assessee, a sum of ₹ 250 crores represent loan funds of the assessee and balance ₹ 160 crores was advanced out of internal accruals and own funds of the asses .....

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fficer invoked the provisions of section 36(1)(iii) of the Act while making the disallowance. Aggrieved, the assessee is in appeal before us on the following grounds:- Ground No. 3- Disallowance of interest on loans borrowed 3.1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the disallowance of interest of INR 175,791,780 on interest free loans given by the Appellant to its subsidiary. 3.2. On the facts and circumstances of the case and in law, .....

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ssee and its group companies. Subscribers of one entity avail roaming services from other entities when they visit their circles. Similarly, there are interconnect arrangements between these entities for termination of calls originating in one circle and terminating in another. Therefore, he argued that the funds advanced by the assessee to its subsidiary were driven by commercial considerations, since such funds would not only assist the operation of subsidiary but also equally assist the asses .....

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d and used owing to the interdependence between various telecom circles. This is a common practice that is adopted by other telecom operators who have most of their circles under one operating entity. Therefore, in the instant case, merely owing to the fact that the telecom circles are held by various group entities, the extension of funds by entity to another does not mitigate the commercial rationale behind sharing of such funds. Since the funds were utilized for business purposes, the interes .....

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aws relied upon in the Learned CIT(Appeals) order for justifying the disallowance of interest. 5.3. We have heard the rival submissions and perused the materials available on record. There is no dispute on the facts with regard to usage of borrowed funds to the tune of ₹ 250 crores for advancing interest free loans to subsidiary. Hence the nexus between borrowed funds and interest free loans have been clearly established by the Learned Assessing Officer. Now the short point that arises for .....

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we are satisfied that the subsidiary company had utilized the funds borrowed from the assessee for its business purposes only. From the undisputed facts stated hereinabove and in view of the fact that the subsidiary company is also in the same line of business as that of the assessee and the interdependence between the two entitles for obtaining the network and the requirement of funds, we hold that the funds were advanced by the assessee to its subsidiary as strategic advances made only during .....

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provisions of section 14A of the Act is totally misplaced as the income received from the subsidiary, if any, would only be in the nature of interest which is taxable. Admittedly, the provisions of section 14A of the Act could be invoked only for the investments made by the assessee out of borrowed funds where the resultant gain would be in the form of dividend income which is exempt from tax. 5.5. At this juncture, it would be pertinent to get into the following decisions to understand the prin .....

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is "for the purpose of business". It has been consistently held in decisions relating to section 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not hav .....

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rities should have examined the purpose for which the assessee advanced the money to its sister concern, and what the sister concern did with this money, in order to decide whether it was for commercial expediency, but that has not been done. What is relevant is whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee adv .....

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obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans." Dalmia Cement Bharat Ltd reported in - 2009-TIOL-467-HC-DEL-IT "The Delhi High Court held that no portion of interest paid by the assessee on its borrowed funds can be dis .....

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n the ground of commercial expediency and accordingly the interest paid would be allowed as deduction in the hands of the assessee. We direct the Learned Assessing Officer to delete the addition made towards disallowance of interest in the sum of ₹ 17,57,91,780/-. Accordingly, the Ground Nos. 3.1 to 3.3 of the assessee are allowed. 6. Non grant of MAT credit - ₹ 27,50,21,746/-; Charging of Interest u/s 234B and Levy of Penalty u/s 271(1)(c) of the Act These grounds are only consequen .....

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lowed. ITA No. 243 / Kol / 2014 - Asst Year 2010-11 - Assessee's Appeal 7. This appeal arises out of the order of the Learned CIT(Appeals) in Appeal No.118/CIT(A)-VIII/Kol/13-14 dated 31.12.2013 for the Asst Year 2010-11 arising out of the order of the Learned Assessing Officer framed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). 8. The first issue to be decided in this appeal is as to whether the domestic roaming charges of ₹ 64,48,54,654/- pai .....

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of the Act. 9.1. The Learned AO held that in respect of international roaming charges, the provisions of section 40(a)(i) r.w.s. 195 of the Act would become applicable and accordingly proceeded to make the disallowance of ₹ 10,64,45,346/-. On first appeal, the Learned CIT(Appeals) upheld the disallowance made by the Learned Assessing Officer. Aggrieved, the assessee is in appeal before us. 9.2. The Learned AR argued that the obligation to deduct tax at source by the assessee on internatio .....

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that even under the tax treaty, since the roaming services do not make available any technical knowledge, skill, knowhow, etc., to the telecom operators which can be applied by assessee on its own and hence, the payments do not qualify as Fee for Technical Services under the tax treaties that contain 'make available' clause. He further argued that it is an established principle that where service charges, being in the nature of Fee for Technical Services under the Act, are paid to a non- .....

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y held that the roaming charges do not fall in the ambit of Fee for Technical Services for detailed reasoning given hereinabove, the nature being the same in respect of international roaming charges, it does not come under the ambit of withholding tax provisions and as such the assessee is under no obligation to deduct tax at source u/s 195 of the Act. The case law of GE India Technology Centre Pvt Ltd reported in (2010) 327 ITR 456 (SC) relied upon by the assessee in this regard is well placed .....

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aised by the assessee with regard to applicability of TDS provisions for international roaming charges of ₹ 10,64,45,346/- is allowed. 10. Disallowance of Penalty paid to Department of Telecommunications- ₹ 5,05,000/- The next issue to be decided in this appeal is as to whether the sum paid as penalty to Department of Telecommunications (DOT) by the assessee would fall under the Explanation to section 37(1) of the Act treating the same as amount paid for infraction of any law. 10.1. .....

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by DOT for such failure. The Learned Assessing Officer stated in his assessment order that during the assessment year under appeal, the assessee has been levied with a penalty of ₹ 5,05,000/- by DOT in respect of violation of terms and conditions of license agreement in respect of verification of the Subscribers. Accordingly, he treated this as penalty paid for infraction of law and applied Explanation to Section 37(1) of the Act and disallowed a sum of ₹ 5,05,000/-. On first appeal .....

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e Subscribers and for non-maintenance of personal information of the Subscribers, DOT had imposed fine of ₹ 5,05,000/- which is in violation of statutory requirement s of law. Aggrieved, the assessee is in appeal before us. 10.2. The Learned AR argued that the penalty was paid to DOT only for non-maintenance of certain personal information of the subscribers which would ensure verification of the same. The assessee is mandated to maintain those personal information as per the terms and con .....

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erators Association of India & Ors (petitioner) vs Department of Telecommunication & Anr. (Respondent), wherein it has been stated as below:- "Para 16: Section 20 of Indian Telegraph Act provides for penalties. Section 20A provides for penalties for breach of conditions of license in the following terms:- "Breach of condition of license - If the holder of a license granted under section 4 contravenes any condition contained in his license, he shall be punished with fine which m .....

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uld be updated on regular basis. Hard copy as and when required by security agencies shall also be furnished. The LICENSEE shall ensure adequate verification of each and every customer before enrolling him as a subscriber; instructions issued by the licensor in this regard from time to time shall be scrupulously followed. The SIM Card used in the User terminal or hand-held subscriber terminal (where SIM card is not used) shall be registered against each subscriber for his bonafide use. The LICEN .....

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hrough its letter dated 22.11.2006 bearing reference No. 800-04/2003-VAS (Vol.II) 1104 as illegal, arbitrary, unreasonable, irrational, disproportionate and oppressive." TDSAT decision Para 50:- Whether in view of the provisions contained in section 7(2)(k) read with section 20 and 20A of Indian Telegraph Act, 1885, the Respondent was precluded from levying any penalty on the alleged ground of non-compliance of the customer acquisition form, is the question. Para 52:- Only when a statute go .....

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ch terms as the case may be. The matter might have been different if the parties had entered into an agreement with their eyes wide open that the circular letter shall form part of the contract. They might have also been held bound if they accepted the new rates or the periods either expressly or sub silentio." Para 54. In any event, it was incumbent upon the petitioner to show that rules have been framed and quantum of penalty has been specified thereby. In absence of such a rule having be .....

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ot be imposed by the licensor. Para 59. For similar reasons, the provision of section 20A can be resorted to only by a Criminal Court, if any case is made out therefor. 10.3. The Learned AR argued that from the aforesaid citation of TDSAT, it could be concluded that the DOT per se does not have any authority to levy penalty as the said power is vested only with a Criminal Court. He argued that the proceedings challenging the jurisdiction of DOT to levy penalty are pending and however the assesse .....

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ked in the facts of the case. In response to this, the Learned DR vehemently supported the orders of the lower authorities. 10.5. We have heard the rival submissions and perused the materials available on record. We find that the penalty is paid to DOT for non maintenance of personal information of the Subscribers which would ensure verification of the same in time of need. To this extent, the assessee had committed a breach of contractual obligation of the terms and conditions of the license ag .....

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he character of such payments from contractual liability to a statutory liability. The penalty is not stipulated under any of the statutory Acts and accordingly the same cannot be const rued as a statutory liability. At best it could only be construed as a contractual liability. 10.6. We find that the penalty paid to DOT is only for non-compliance of terms and conditions of the license agreement and not paid for infraction of any other law so as to warrant the Explanation to section 37(1) of the .....

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very, short margin etc., to National Stock Exchange and claimed deduction of same as revenue expenditure - Whether since impugned payments made by assessee were not for infraction of law, same were allowable as revenue expenditure - Held, Yes". (b) Goldcrest Capital Markets Ltd vs ITO reported in (2010) 2 ITR (TRIB.) 355 (Mum) - ITAT Mumbai B Bench dated 21.1.2009. The head notes are reproduced below:- "Section 37(1) of the Income Tax Act, 1961- Business expenditure -Allowability of - .....

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ts of the members of NSE Ltd. Though every member of NSE Ltd would be obliged to abide by such rules and regulations, a violation thereof cannot be treated as violation of a statutory law or rule. The fines and penalties levied for violation on account of "unfair trading practice" as specified in 4.6 of the NSE regulations and "un-business like conduct" as specified in IV(4)(e) of the NSE rules cannot be equated with violation of a statutory rule or law. Thus, fine paid by th .....

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ssessee, it is beyond the control of share broker to know in advance that the trading volume would increase beyond the fixed exposure limit because trading depends upon the market trend and on certain dates there can be extraordinary increase in trading volume. On that increased trading volume, the concerned member also earns income in the shape of commission, etc., which is taxable. So, the fine by the share broker which was correlated with the increase in trading volume, which cross the fixed .....

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uld not also be termed as penal in nature. Similarly, fine paid for delay in making the deliveries of shares due to deficiencies in the documents like non-matching of signatures, et., could not be considered as penal in nature. Irregularities of that type could not be ruled out in such type of business and any fine paid for those irregularities could not be considered as an infraction of any law. So, the payments made by the assessee in the regular course of business could not be termed as penal .....

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impugned orders were to be set aside. In the result, the appeal was to be allowed." 10.8. We find that analogy could be drawn from the aforesaid case laws to the facts of the instant issue before us and hold that the penalty paid to DOT does not come under the ambit of Explanation to Section 37(1) of the Act and accordingly, the grounds raised by the assessee in this regard are allowed. 11. Disallowance of provision for Asset Restoration Obligation (ARO) written back - ₹ 6,52,00,000/ .....

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ion written back in the revised return of income filed belatedly. This was disallowed by the Learned Assessing Officer on the ground that revised return was filed beyond the time limit prescribed u/s 139(5) of the Act and hence cannot be considered for this item. This action of the Learned Assessing Officer was upheld by the Learned CIT(Appeals) on the ground that the assessee has not placed on record any documentary evidence to show that the provision for ARO was debited to from year to year th .....

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s. 11.2. The Learned AR argued that the assessee had entered into lease agreements with owners of certain premises for setting up cell sites for rendering cellular services. Such agreements are usually entered into for a long period of time say in the range of 15-20 years. He stated that further such lease agreements cast an obligation on the lessee (i.e. the assessee herein) to restore the leased premises to their original form at the time of vacating such premises. Accordingly for this obligat .....

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with lease agreements and therefore the obligation to restore the premises to their original condition al so stands transferred to Vodafone Infrastructure Ltd with effect from Asst Year 2010-11. Accordingly, the assessee in Asst Year 2010-11 reversed the ARO provision amounting to ₹ 6,52,00,000/- created in its books in the past years as the same is no longer required as a result of demerger. He further argued that at the time of reversal, the ARO provision appearing in the books of accoun .....

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ts the amount of book depreciation that was charged by the appellant on the provision for ARO obligation in the prior years prior to the demerger. Given that such write back of ARO provision is capital in nature, the same has been reduced in the computation of income for the Asst year 2010-11 in the revised return of income. The Learned AR argued that provisions of section 41(1) of the Act would not become applicable in the instant case as this provision was not charged to the profit and loss ac .....

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ritten back and credited to profit and loss account. This income was sought to be reduced by the assessee in the revised return filed on 5.12.2011 while computing its taxable income on the ground that section 41(1) would not be applicable. We find that the revised return was filed within the time limit prescribed u/s 139(5) of the Act and hence the action of the Learned AO in not considering the claim of expenditure alone during the course of assessment, while considering the additional income o .....

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see had not filed any documentary evidences before the Learned Assessing Officer to enable him to verify the authenticity of claim made by the assessee. In the facts and circumstances of the case, we deem it fit and appropriate, in the interest of justice and fair play, to set aside this issue to the file of the Learned Assessing Officer to decide the veracity of the claim in accordance with law. Needless to mention that the assessee be given reasonable opportunity of being heard and assesse is .....

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de to IBM in the sum of ₹ 51,16,245/-. 12.1. The brief facts of this issue is that the assessee had entered into a service contract with IBM wherein IBM is meant to provide end to end IT services and solutions on receipt of consideration from the assessee. The sums paid by the assessee represented amortization of additional hardware charges for the support services. IBM continued to be the owner of the hardware and accordingly, the assessee sought to amortise the total payments made to IBM .....

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de to IBM and ac cordingly declined to offer extensive comments on this issue for want of full facts. The Learned CIT(Appeals) proceeded to confirm the disallowance on the fact that the assessee had not furnished the agreement copy entered into with IBM and it is not clear from the materials on record as to what is the treatment given for the impugned issue in the earlier years on amortization. Aggrieved, the assessee is in appeal before us. 12.2. The Learned AR filed a copy of the master servic .....

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nal evidence filed by the Learned AR containing the Master Service Agreement entered into by the assessee as it is very crucial for determining the issue under appeal. Since this agreement was not verified by the Learned Assessing Officer, we deem it fit and appropriate, in the facts and circumstances of the case, in the interest of justice and fair play, to set aside this issue to the file of the Learned Assessing Officer to decide this issue afresh in accordance with law. The Learned Assessing .....

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raised the following ground on this issue:- "Disallowance of repayment of principal finance lease On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in holding that repayment of principal amount of finance lease, amounting to INR 485,642, is not an allowable deduction". 13.2. No argument s were advanced either by the Learned AR or by the Learned DR in this regard. 13.3. We have perused the materials available and from the same we are not able to asce .....

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in this regard is allowed for statistical purposes. In the result, the appeal of the assessee in ITA No. 243/KOL/2014 is partly allowed for the Asst Year 2010-11. ITA No. 343/Kol/2014 - Department Appeal - Asst Year 2010-11 14. This appeal of the revenue arises out of the order of the Learned CIT(Appeals)-VIII, Kolkata in Appeal No. 118/CIT(A)-VIII/Kol/13-14 dated 31.12.2013 for the Asst Year 2010-11 arising out of the order of the Learned Assessing Officer framed u/s 143(3) of the Income Tax A .....

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n the return of income filed. It was explained by the assessee that the said amount pertained to notional fluctuation gain which arose on capital account and hence not includible in the total income. The Learned Assessing Officer sought to add the same in the assessment without adducing any reasons. On first appeal, the Learned CIT(Appeals) called for a remand report from the Learned Assessing Officer in this regard. The Learned Assessing Officer in his remand report had stated that notional exc .....

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umstance of the case whether the ld. CIT(A)-VIII, Kolkata, was justified in allowing relief of ₹ 2,55,01,032/- on account of unrealized foreign exchange of fluctuation gain". 15.2. The Learned DR vehemently supported the order of the Learned Assessing Officer. In response to this, the Learned AR argued that the exchange fluctuation to be computed as per the provisions of section 43A of the Act based on actual payment of foreign currency loan or purchase of fixed assets etc, wherein th .....

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d. The facts stated hereinabove are undisputed. There is no dispute that the provisions of section 43A of the Act would become applicable for recognizing the exchange fluctuation if the loan was obtained for acquisition of fixed assets only at the time of making payment and accordingly the exchange gain, if any, would go to reduce the cost of the fixed asset. Since in the instant case, the exchange gain is derived only on a notional basis and is unrealized, by applying the provisions of section .....

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gnition of exchange gain/loss under various circumstances. Respectfully following the provisions of the act and the decision of the apex court, we are not inclined to interfere with the decision of the Learned CIT(Appeals). Accordingly, the ground no. 1 raised by the revenue is dismissed. 16. The next issue to be decided in this appeal of the revenue is as to whether the Learned CIT(Appeals) is correct in granting relief of ₹ 8,22,318/- on account of realized foreign exchange gain. 16.1. W .....

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