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2016 (5) TMI 813 - ITAT DELHI

2016 (5) TMI 813 - ITAT DELHI - TMI - Subsidy received from DOT for rural telephony - eligibility for deduction u/s 80-IA - Held that:- As in terms of the non-obstante clause used in section 80IA(2A), deduction for telecommunication services is available in respect of 'profits of eligible business' and is not restricted to 'profits derived from eligible business' as mentioned in section 80IA.

Giving due recognition for the peculiarities of the telecommunication services where heavy in .....

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y such an assessee towards the aims of the government policy wherein gestation period necessarily looking at the nature of the undertaking is very long. Thus, for the purposes of the time frame the legislature has given the timeline of fifteen years from which ten consecutive years could be opted. The fact remains that the legislature aware of the differences in the use of terms used consciously ensures that "profits and gains derived from" used in sub-section (1) is not used in sub-section (2A) .....

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the relevant provision giving cause to no debate whatsoever. - Decided in favour of assessee

Disallowance of depreciation claimed for the current year - Held that:- The Government of India has transferred the assets to the petitioner company at their book value i.e., the value at which thesaid assets are reflected in the books of DTS and DTO and the book value of the Government of India's holding in the petitioner company as shareholder and a creditor aggregates the book value of the .....

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business is limited to the value of loans and the face value of the shares issued to the Government of India. A reserve represents the shareholders' fund and may be utilized in various ways including to declare dividends or for issuing bonus shares. There is no plausible reason to assume that the value of shareholders' holding in a company is limited to the face value of the issued and paid up share-capital and the reserves represent a subsidy or a grant or a reimbursement by the shareholders fr .....

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ld that:- Once through writing back in the computation of Income of the Provisions made for asset write-offs, and then again if the same were to be disallowed separately by the A.O. The accounting entries passed in this regard are consistently being followed from year to year. It appears that the full accounting implication of this item of 'Write off of Assets' in light of the corresponding 'Provision accounts' for 'Decommissioned Assets has not been fully understood. The A.O's step of disallowi .....

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t Member And Shri Sudhanshu Srivastava, Judicial Member For the Appellant : Shri Tarandeep Singh, Adv For the Respondent : Shri Ravi Jain, CIT DR ORDER Per Sudhanshu Srivastava, Judicial Member I.T.A. Nos. 2196 and 2799 pertain to assessment year 2005-06. I.T.A. No. 2196 has been preferred by the assessee against the order dated 14.3.2012 passed by the Ld. CIT(A)-V, New Delhi, partly confirming the penalty imposed u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter called 'the Act') w .....

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are being disposed of through this common order. Now we take up these appeals one by one. I.T.A. Nos. 2196 & 2799/2012 2. Return of income declaring a gross total income of ₹ 8656,56,00,000/- was filed on 31.10.2005. The Net income after the claim of deduction under the provisions of chapter VI-A of the Act was ₹ 787,37,00,000/- and the taxable book profit u/s 115JB of the Act was calculated at ₹ 10145,50,00,000/-subject to tax @7.5%. Subsequently, the income was assessed .....

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sallowance of deduction u/s 80IA on the following items of income:- 1. Interest from others 2. Liquidated damages 3.Excess provision written back 4. Rent on staff quarters 5. Sale of scrap 6. Other income Rs.13,15,00,00/- Rs.147,86,00,000 Rs.395,32,00,000 ₹ 10,97,00,000 ₹ 44,78,00,000 Rs.118,15,00,000 Rs.729,43,00,000/- (IV) Adjustment of both profits on account of provision for bad and doubtful debts Rs.718,01,00,000/- 3. On appeal, the Ld. CIT (A) deleted the penalty on the disallo .....

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s u/s 80IA on account of Interest from others and Rent of staff quarters. Aggrieved, the assessee is before us challenging the imposition of penalty on these two issues. The Department is in appeal challenging the deletion of the penalty on all the issues on which relief has been granted by the Ld. CIT (A). 4. The Ld. AR submitted that the issue of disallowance of depreciation allowance of ₹ 2268,05,00,000/- has been deleted in the quantum appeals by the ITAT 'A' Bench in I.T.A. No .....

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te clause used in section 80IA (2A), deduction for an undertaking engaged in provision of telecommunication services will be available in respect of 'profit of eligible business' and was not to be restricted to 'profits derived from eligible business' and, accordingly, the disallowances had been deleted. As far as the remaining issue of disallowance/adjustment of book profits on account of provision for bad and doubtful debts was concerned, the Ld. AR submitted that Finance Act, .....

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le on claims made but negated by a subsequent amendment. 5. The Ld. DR placed reliance on the order of the Assessing Officer and submitted that the penalty had been imposed correctly. 6. We have heard the rival submissions and have perused the material on record. As far as the penalty on the issue of disallowance of depreciation is concerned, we find that the quantum has been deleted by the ITAT in I.T.A. Nos. 2162/Del/2007 and 2176/Del/2008 by following the judgment of the Hon'ble Delhi Hig .....

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penalty on 80IA deduction is concerned, this issue is again covered in favour of the assessee in the quantum appeals for assessment year 2005-06 by the ITAT and accordingly, the issue is decided in favour of the assessee and against the Department. Accordingly, Ground no. 2 of the assessee's appeal is allowed and ground no. 3 of the Department's appeal is dismissed. The last remaining ground for adjudication is Department's appeal's ground no.5 challenging the deletion of penalt .....

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se of the Assessing Officer that the assessee had furnished any incorrect particulars or had concealed any material fact. Penalty cannot be levied on the basis of subsequent retrospective amendments in law. When the return of income was filed by the assessee, the retrospective amendment to section 115JB regarding provision for bad and doubtful debts (amount set aside towards provision of diminution in the value of assets) was not in the Statute and, therefore, we do not see any infirmity in the .....

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he Department and the assessee respectively and pertain to assessment year 2009-10. The grounds of appeal raised by the Department are as under:- "1. The Ld. CIT(A) has erred on facts and in law in directing the AO to treat the following receipts as eligible profits for the purpose of deduction u1s 801A of the IT Act: (a) Liquidated damages amounting to ₹ 215,37,00,000/-. (b) Excess provision written back of ₹ 1170,14,00,000/- (c) Rent of Quarters amounting to ₹ 12,96,00,0 .....

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be of first degree source special activity, but not of ancillary and incidental activity of the undertaking. Merely crediting certain sum as revenue receipt cannot ipso facto be eligible for deduction u/s 801A the Act. 2 The Ld. CIT (A) has erred on facts and in law in deleting the disallowance of ₹ 169,51,78,618/- made on account of write off of losses ignoring that the assessee company failed to point out the individual items of suo- moto disallowance vis-a-vis the items related to claim .....

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facts and circumstances of the case and in law the learned CIT(A) erred in holding that the subsidy received by the appellant from Universal Service Fund of ₹ 667.28 Crores is an ancillary income and hence is not eligible for deduction u/s 80-IA of the Income Tax Act. 3. That on the facts and circumstances of the case and in law the learned CIT (A) has erred in holding that the "Interest from Others" amounting to ₹ 39.99 Crores is not eligible for deduction u/s 80-IA of the .....

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t, 1961. 6. That the learned CIT (A) erred, on the facts & circumstances of the case and in law in confirming the disallowance of depreciation claimed for the current year to the extent of ₹ 674.65 crores, whereas the disallowance had been made by the A.O. on the basis of re-assessment proceedings of A.Y. 2001-02, which itself has not got finality and is pending for decision before Hon'ble Delhi High Court in a writ petition filed by the assessee. 7. That on the facts and circumsta .....

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drawn and interest u/s 234D has been wrongly charged. 9. That the order passed by CIT (A) is bad in Law and contrary to the facts & circumstances of the case." 10. The Ld. AR submitted that ground nos. 1 to 5 are covered by the decision of the ITAT 'A' Bench, New Delhi in assessee's own case in I.T.A. Nos. 3304 & 3386/Del/2010 for assessment year 2004-05. He submitted that in terms of the non-obstante clause used in section 80IA(2A), deduction for telecommunication servi .....

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High Court in assessee's own case for assessment year 2001-02 and as reported in 355 ITR 188 (Del). The Ld. AR also submitted that ground no. 7 of assessee's appeal pertaining to disallowance @15% of license and spectrum fees is also covered in favour of the assessee in assessee's own case for assessment years 2003-04 to 2008-09 by the decision of ITAT, Delhi vide order dated 22.1.2016. 10.1 Regarding ground no. 2 of the Department's appeal, the Ld. AR submitted that the issue of .....

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so perused the material on record. As far as ground nos. 1 to 5 of assessee's appeal and ground nos. 1 & 1.1 of Department's appeal are concerned, we concur with the submissions of the Ld. AR that they are covered in favour of the assessee by the order of the ITAT Delhi 'A' Bench in the assessee's own case in I.T.A. Nos. 3304 & 3386/Del/2010 for assessment year 2004-05 wherein the coordinate bench has discussed the issue at length. It will be worthwhile to reproduce p .....

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used by the legislature itself" in Re Kanailal Sur vs. Paramnidhi Sadhukhar 1958 SCR 360. The primary test and the fundamental principle of interpretation is therefore to examine the language employed in the Act and where the words are clear and plain, the Court is bound to accept the expressed intention of the legislature. Hence we need to examine the scheme of the relevant Section in order to determine the true meaning of the words used in any one or more of the sub-sections. The provisio .....

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on contains a word or phrase which, in the particulars context, is capable of having more than one meaning. 13.1. We find from the submissions of the parties that both the sides have canvassed that the intention of the legislature is very clear on a literal reading of the Section, though both the parties have taken a contrary view on the manner in which the words used in the provision are to be construed in the context for imposition of tax or allow deduction. 13.2. On a reading of sub-section ( .....

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ercent of the profits and gains derived from such business for ten consecutive assessment years" subject to the provisions of the section. The meaning and intention of the legislature has been legally settled and well understood to mean that only those profits come under the ambit which can be said to be "derived from" such business. The intention of the legislature on a plain reading of the said sub-section is loud and clear. Reference to the decisions which establish a nexus of .....

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in the said extent is clear and unambiguous. 13.3. What we may take note of is that on reading of only this sub-section in isolation what emanates clearly is that the deduction is applicable to any undertaking or an enterprise from any business referred to in sub- section (4) of section 80-IA which the legislature describes as "eligible business". The said sub-section sets out in unequivocal terms that the deduction is available to the gross total income of such undertaking/enterprise .....

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d complying with the mandate of sub-section (1) of section 80-IA may be claimed for ten consecutive assessment years out of fifteen years beginning from the first year in the case of the defined enterprise/undertakings etc. It is relevant to note that the restrictive meaning put to the available profits as only those profits which come under the ambit of first degree nexus continues to remain in play as is evident from the opening line itself. The said sub-section retains hundred percent deducti .....

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iods, for certain infrastructural activities where profits available for deduction may not be there in the initial 5 years also permits the option to claim deduction for the period of ten consecutive years from the first 15 years. Thus full play of the restriction placed on the profits available for deduction has been permitted and upto this stage both the parties have no objection to the literal meaning of the said sub-section to be construed in the above manner. 13.5. It is seen that the Legis .....

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sub- section (4), the provisions of this sub-section shall have effect as if for the words "fifteen years", the words "twenty years" had been substituted. 13.6. A plain reading of the above proviso to sub-section (2) of section 80-IA shows that the legislature further carves yet another exception for such an assessee who develops or operates and maintains any infrastructural facility referred to in clause (a); (b) or (c) of Explanation to clause (i) of sub-section (4) of sect .....

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diluted either in sub- section (2) or in the proviso to sub-section (2) of section 80-IA. Accordingly it is seen that the "referent business" i.e. the undertakings or enterprises covered under the proviso, have been enabled to exercise their option for claiming deductions for ten consecutive years from a period of twenty years. 13.7. Thus, we find that the meaning and intent of sub- section (1); (2) and the proviso to sub-section (2) of section 80-IA is clear and unambiguous. It is se .....

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ntemplated for deduction are "derived from" as the clear reference to sub-section (1) in the very first line makes it clear. The intention that the deduction can be claimed for ten consecutive years from the first fifteen years depending upon the referred to enterprises/undertaking falling under sub-section (2) and for 20 years for those undertaking/enterprise falling under the proviso to sub-section (2) is well understood. The purpose may have been guided by the fact that certain ente .....

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ithstanding" "anything contained in sub-section (1) or sub-section (2)" is plain and clear. The clear meaning of this non-obstante clause, which is reflected upto this stage is that whatever may have been contained in sub-section (1) or sub-section (2) of section 80-IA is to be excluded. This position is fortified by the conscious inclusion of the word "anything contained in" which qualifies "notwithstanding". The meaning and import of the term "notwithsta .....

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d word does not lead to any confusion or ambiguity. Thus prima-facie to our understanding when considering the para phrasing used by the legislature in its plain and literal meaning there cannot be any doubt about what the intention of the legislature is as it is loud and clear in stating that while considering and deciding the intent of sub-section (2A) the mandate of sub- sections (1) and Sub-section (2) are not required to be imported in respect of the referent undertaking or enterprises prov .....

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resent proceedings. Reverting back to the said sub-section it is seen that the legislature sets out that the deduction is to be allowed at hundred percent of the profits and gains "of the eligible business" for a period of five years as opposed to the enterprise/undertakings in sub-section (1) and (2) wherein hundred percent of deduction is available for ten consecutive years. The deduction after five years in the case of an assessee in section (2A) is to be for the remaining five year .....

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deduction as hundred percent in the first five assessment years and thereafter thirty percent for the next five assessment years it is seen that the legislature also alive to the nature and extent of deductions wanted to give to specified enterprise or undertaking therefore makes a conscious reference to the ousted sub-section (2) in the opening lines for the purposes of bringing into play the extended timeline of 15 years for exercising the option contained in sub-section (2) by making a specif .....

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assessee sub-section (2A) does not put the restriction contemplated in sub-section (1) of section 80-IA in the face of the non-obstante clause coupled with the specific omission to use the well understood term "derived from". This argument is notwithstanding the argument that considering the assessee's nature of business the direct nexus presumed by sub-section (1) of section 80-IA is also fulfilled. On a careful reading of the above provisions, we find that the legislature has lef .....

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nues to exist for an assessee covered under sub-section (2) of section 80-IA. The legislature has consciously retained it for enterprise/undertaking falling in sub-section (2) and the proviso thereto only keeping in mind the nature of the enterprises/undertakings contemplated under sub- section (2) the option of claiming deduction in any ten consecutive years is given to be claimed from the first fifteen years of beginning operation is given. 13.11. Thus, we find that the legislature being alive .....

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n of profits and gains of eligible business for the first five years and upto 30% for the remaining five years in the ten consecutive assessment years out of the fifteen years starting from the time the enterprise started its operation. The legislature having ousted applicability of sub-section (1) and (2) in the opening sentence brought in for the purposes of time line sub-section (2) into play but made no efforts whatsoever to put the assessee under sub-section (2A) to meet the stringent requi .....

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led that in a taxing statute one has to look merely at what is clearly stated. The meaning and extent of the statute must be collected from the plain and unambiguous expression used therein rather than from any notions which may be considered to be just or expedient. To put in the words Rowlatt J. as held in Cape Brandy Syndicate vs Commissioners of Inland Revenue [(1921) 1 KB 64, 71]. In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is n .....

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uage can be approached for a clarification. The language used in a statute till it is amended, repealed or modified remains static as the Legislature cannot be approached for clarification. After having enacted a law or an act, the legislature becomes functus officio as far as the particular Act is concerned and it cannot itself thereafter interpret it. Though the Legislature retains the power to amend or repeal the law so made and can also declare its meaning but this can be done only by making .....

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he text. 13.14. It is well understood that the Court only interprets the law and cannot legislate. Even if a provision of law is presumed to be misused and subjected to the abuse of the process of law, it is for the legislature to amend, modify or repeal it, if deemed necessary as held in Padma Sundara Rao vs State of Tamil Nadu (2002) 255 ITR 147 at pages 154 to 155 (SC); Prakash Nath Khanna vs CIT (2004) 266 ITR 1 at page 9 [SC]; Union of India vs Rajeev Kumar AIR (2003) SC 2917 at 2923. Court .....

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in by Courts not it can be created by an administrative order. No doubt, it is the bounden duty and obligation of the Court to interpret the statute but the duty is to interpret, the statute as it is and not by adding or supplying words to it. It is contrary to all rules of construction to read words into statute which the legislature in its wisdom has deliberately not incorporated as held in CIT vs Tara Agency [2007] 292 ITR 444 at 464 (SC). 13.16. The true function of the Court is to interpret .....

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take and that it did what it intended to do. The Court must, as far as possible, adopt a construction which will carry out the obvious intention of the Legislature. Undoubtedly, if there is a defect or an omission in the words used by the Legislature, the Court would not go to its aid to correct or make up the deficiency. The Court could not add words to statutes or read words into it which are not there, especially when the literal reading produces intelligible results. Reference may be made to .....

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ction (1) is retained and intended businesses are given to option of any ten years from fifteen years the proviso introduced to sub-section (2) of section 80-IA, it is seen that for an assessee who is developing or operating and maintaining infrastructure referred to in clause (a) or clause (b) or clause (c) of Explanation to clause (i) of sub- section (4) is given a further leeway of exercising its option in any of the ten consecutive years from the first twenty years instead of fifteen years a .....

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this the language used in sub-section (2A) is considered the legislature has been very clear in its mandate and has consciously used not only the well- accepted and judicially well-settled phrase of "Notwithstanding" but has also underlined the import and extent of the over-ride provided by adding the word "anything contained in sub-section (1) or sub-section (2)" in its opening lines thereby removing all doubts. There was nothing stopping the legislature to use the term &qu .....

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e words used by the legislature leads to only one conclusion namely that sub-section (1) and (2) of section 80-IA for the purposes of an undertaking providing telecommunication services which are covered under clause (ii) of sub-section (4) have to be ignored and have no play. There is no doubt that the assessee falls under clause (ii) of sub-section (4) and is such an enterprise providing telecommunication services. After having over- ridden the requirements of sub-section (1) and (2) completel .....

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mmunication services where heavy investment costs in the initial years are a necessity they have been allowed to be recovered by way of profits to the extent of hundred percent from that activity in the first five years and thereafter the allowable deduction is substantially reduced to thirty percent in the next five years presuming that by then the heavy infrastructural costs would have been recovered and/or the objectives of the governmental policy would have been attained. Keeping in mind the .....

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b-section (1) is not used in sub-section (2A). Instead in sub-section (2A) the term used is "profits and gains of eligible business" juxta posed with the glaring fact that the sub-section (2A) starts with a non-obstante clause namely "Notwithstanding" qualified further by the use of the words "anything contained in". In the face of the clear and unambiguous statutory provisions we find ourselves unable to agree with the arguments advanced by the Ld. CIT DR however v .....

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's appeal. As far as ground no. 6 of assessee's appeal is concerned, it is seen that this issue is covered by the judgment of the Hon'ble Delhi High Court in assessee's own case for assessment year 2001-02 (reported in 355 ITR 188 (Del). This judgment has attained finality as the Department has not approached the Apex Court against this judgment. The relevant paragraphs of the judgment of the Hon'ble Delhi High Court are paragraphs 23 to 25 and the same are being reproduced b .....

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counsel for the parties on this issue, it is apposite that we consider the same. 24. Explanation 10 to Section 43(1) of the Act is as under: "Explanation 10. - Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable .....

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cluded in the actual cost of the asset to the assessee." 25. The Assessing Officer seems to have proceeded on an assumption that whereas the value of share capital, issued to the Government as part consideration for the transfer of business to the petitioner company, is limited only to the face value of the shares, the reserves represent a subsidy, grant or reimbursement for meeting the cost of assets transferred. We find no basis for such an assumption. We are hard pressed to imagine as to .....

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es are a part of shareholders fund. The balance sheet of the petitioners company also reflects the reserves and surpluses as a part of shareholders' funds. The relevant portion of the balance sheet of the petitioner company as on 31.03.2001 is quoted below:- "Shareholders' Funds Capital A 50,000,000 Preference Capital pending allotment (Refer Note 2.3 on T) 75,000,000 Reserves & Surplus B 339,079,523 Loan Funds Secured Loan C 5,100,000 Unsecured Loans D 107,983,258 Total 577,162 .....

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377; 7500 Crores and issued both equity and preference share capital of the face value of ₹ 5000 Crores and ₹ 7,500 Crores, respectively. The balancing figure was reflected as reserves which is an integral part of the shareholders funds. The Government of India has transferred the assets to the petitioner company at their book value i.e., the value at which thesaid assets are reflected in the books of DTS and DTO and the book value of the Government of India's holding in the peti .....

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and the whole consideration received by the Government of India for transfer of business is limited to the value of loans and the face value of the shares issued to the Government of India. A reserve represents the shareholders' fund and may be utilized in various ways including to declare dividends or for issuing bonus shares. There is no plausible reason to assume that the value of shareholders' holding in a company is limited to the face value of the issued and paid up share-capital .....

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ees. It is seen that this issue is also covered in favour of the assessee by the order of ITAT, Delhi Bench in assessee's own case for assessment years 2003-04 to 2008-09. The relevant paras are 4 to 4.8 and they are being reproduced below for ready reference:- "4. Allowability of License Fee: We first take up the assessee's ground which is against the disallowance of license fees and spectrum charges by the A.O. 4.1. This issue arises in the assessee's appeal as ground no.2 for .....

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eing made. Alternatively he held that license fee and spectrum fee were statutory liabilities and had to be paid by the assessee without any option before the due date specified for such payment. He held that the amount cannot be allowed in view of S.43B of the Act, for the reason that, the amount of ₹ 1,332.05 crores was paid after the due date of filing of the return and as a difference of ₹ 85.05 crores remained unpaid. 4.3. On appeal the First Appellate Authority held that as far .....

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of the assessee that the entire amount should be allowed as deduction cannot be accepted. He further held that the assessee company does not have specific details by which deviation of estimated license fee in respect of NLD could be determined with reference to the actual amount of license fee available and that it is not possible to determine the NLD revenues earned during the year, which forms part of the AGR. He restricted the disallowance to 15% of the total amount claimed under this head o .....

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ter hearing rival contentions we find that the issue in question is no more res integra. The ITAT Mumbai "D" Bench in the case of Videsh Sanchar Nigam Ltd. vs. JCIT (2002) reported in 81 ITD 456 (Mumbai) vide order dt. 14th September, 2000 held as follows. "Section 37(1) of the Income-tax Act, 1961 - Business - expenditure - Allowable as - Assessment year 1995-96 - Assessee, a Government-company, was incorporated in 1986 for entire management, control, operation and maintenance of .....

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aid by assessee as licence fee in assessment year under consideration and debited to profit and loss account was disallowed by Assessing Officer holding that it was nothing but -substitute of DOT levy in revised revenue sharing formula - Whether payment made by assessee, by whatever name called, was for making use of network owned by DOT and for services utilised for purpose of business and, hence, could never be considered as non-business expenditure - Held, yes - Whether, therefore, DOT levy, .....

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as been followed by Delhi F Bench of ITAT in the case of MTNL vs. JCIT in ITA No.377/Del/2001 for the A.Y. 1997-98 and in ITA Nos. 3448, 3449 and 3450/Del/2003 and 2919/Del/2004 for the AY 1998-99 to 2002-03 vide order dt. 3rd Feb., 2006. 4.6. Further the AO himself for the A.Y. 2004-05 did not make any disallowance of licence fee paid by following the opinion given by the Attorney General of India who had given an opinion in favour of the assessee. 4.7. The contentions of the Ld.D.R. that he am .....

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has not disputed the same till date, the question of holding that the amount is not ascertainable at this length of timedoes not arise. As regards invoking the provisions of S.43B of the Act, we uphold the findings of the First Appellate Authority. The quantum of the license fee paid is neither tax, duty, cess or fees. The Ld. CIT(A) has rightly relied on the decision of Hon'ble Calcutta High Court in the case of CIT vs. Varas International Pvt. Ltd. reported in 225 ITR 831. The 'licens .....

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en as reproduced herein above, we allow ground no. 7 of assessee's appeal. 17. The last ground for consideration before us is ground no. 2 of the Department's appeal wherein the Department is challenging the deletion of disallowance of ₹ 169,51,78,618/-made on account of write off of losses. This issue has been discussed by the Ld. CIT (A) in para 6 (page 15) of the impugned order as under:- "On this issue finding for the AY 2008-09 is reproduced as under " I have examine .....

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