TMI Blog2018 (12) TMI 400X X X X Extracts X X X X X X X X Extracts X X X X ..... greement, itself shows, when there existed no right, the amount so paid by the appellant was apparently by way of abundant precaution to safeguard its interest. However, in our opinion, it cannot be held that the assessee had acquired any capital asset which was transferred by it by way of extinguishment in favour of DOT, as held by the Revenue on mere fact that the appellant had paid ₹ 100 crores which in our opinion is not a decisive factor. CAG was also of the considered opinion that UW had no right, title, interest to claim any set off and so far as the appellant is concerned, in any case, the appellant had no legal enforceable right to seek a set off and has been also stated in the aforesaid report of CAG, as being not allowable to the appellant. We agree that CAG being a Constitutional Authority, the findings as noted in the Report cannot be disputed and consequently its findings in the Report cannot be ignored. We observe that there is no inconsistency between the facts stated in CAG report regarding the event which lead to the set off of such amount and submission made by the appellant before us. Therefore in the absence of any contrary material, we consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of identical facts the ITAT deleted the additions made by the AO. Thus we uphold the contentions of the Assessee that the unearned revenue had accrued to the appellant as income for the AY 2014-15. Accordingly, the earlier orders of this Tribunal are applicable in the case of the appellant also. Hence, we direct the learned AO to examine whether unearned revenue of ₹ 220.80 crores has been offered to tax in the succeeding year, if so, then the said amount is directed to be deleted. - Decided in favour of assessee for statistical purpose. - I.T.A. No.7541/DEL/2017 - - - Dated:- 26-11-2018 - Shri Amit Shukla, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Appellant : Shri G.S. Agarwal, Sr. Adv. And Shri K.M. Gutpa, Adv.. For the Respondent : Shri S.S. Rans, CIT(DR) ORDER PER AMIT SHUKLA, J.M.: The aforesaid appeal has been filed by the appellant assessee against impugned order dated, 30.11.2017, passed by Ld. CIT (Appeals)-23, New Delhi for the quantum of assessment passed u/ 143(3) for the Y 2014-15. 2. In the aforesaid appeal, the appellant has raised as many as eight grounds of appeal, however the said grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rim orders in the interest of subscribers/customers and directed TRAI to make recommendations for the grant of fresh licenses and allocation of spectrum in 2G Band in 22 service areas by auction as was done in allocation of spectrum in 3G band. It had further directed the Central Government to consider the recommendations of TRAI and take appropriate action within next one month and fresh licenses be granted by auction. 3.3 After the licenses were quashed, the Telenor Group participated in the fresh auction initiated as per the directions of Hon ble Supreme Court through its affiliate, the appellant company, which had been incorporated on 24.2.2012. In pursuance to the directions issued by the Apex Court dated 02.02.2012, the Government of India, through DoT issued a public Notice Inviting Applications (NIA) for the grant of fresh licenses to eligible telecom operators through an auction. In the aforesaid auction, the appellant participated and became successful bidder when its bid amount was accepted in 6 circles for an adequate consideration of ₹ 4018 crores. On being successful bidder, it claimed a set off of ₹ 1657.58 crores which represented the sum paid by UW f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in accordance with extant law, the response to query No. 23 will be applicable to the transfer to such winning bidder provided that holder of quashed License and winning bidder are controlled by a common entity with not less than 26% shareholding in both entities directly or indirectly, provided that such transfer is in accordance with law and in line of Supreme Court Order in 2G case 3.5 On 14.11.2012, the Appellant Company participated online in the fresh auction and became successful in obtaining spectrum licenses in respect of six circles for an aggregate consideration of ₹ 4018.20 crores. Pursuant to such an auction, the appellant was to make an upfront payment of ₹ 1326.03 crores by 01.12.2012 to DoT in respect of such six spectrum licenses and the remaining sum was to be paid subsequently in instalments. The appellant by its letter dated 23.11.2012 requested DoT to set-off of non-refundable one-time entry fee of ₹ 1658.57 crores paid by UW against the upfront fee so payable and adjust the balance amount against the subsequent instalments. However, there had been no response from DoT on the aforesaid request made by the appellant. The appellant howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d responses dated 12 October, 2012 to the Notice Inviting Applications dated 28 September, 2012 (NIA), permitted a set off of the license fee paid by entities whose UASLs stand quashed pursuant to the Supreme Court Orders, against the earnest money and the payments due in the event of spectrum being won in the recently concluded 2G auction (Spectrum Auction). Further, the DoT has, by way of an amendment dated 18 October, 2012 to the NIA, prescribed the format in which details of the license fee paid by entities whose UASLs stand quashed are to be specified in the application form for participating in the Spectrum Auction. **** (F) Unitech Wireless did not participate in the Spectrum Auction and will have no future operations effective 18 January 2013 as a result of which Unitech Wireless will not be able to claim the benefit of the set off of License Fee which has been permitted by the DoT. Further, the business of Unitech Wireless to be transferred to Telewings as a result of which Telewings will be entitled to claim set off of the License Fee against payments being made it to the DoT (Set Off). The parties have agreed that Telewings shall pay fair consideration, which h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by UW. 3.9 One important fact as which is quite pertinent is that, parties having given their undertakings as aforesaid, both the parties decided to revive the actionable claim agreement, which had expired since DoT had not allowed the set off of license fee to appellant. The parties amended the actionable claim agreement by way of a letter dated 30.12.2013 on account of additional liabilities assumed by the Appellant and duly recorded the same. Pursuant to the same, the consideration for transfer of actionable claim was reduced to partially offset the additional liabilities assumed by the appellant. Under the revised agreement, the consideration was modified as 50% of the amount of set off allowed or ₹ 100 crores whichever is less. 3.10 On 31.03.2014, after protracted communications between the appellant and DOT, Ministry of Communication and IT, it was intimated to the appellant that the entry fee paid by M/s Unitech Wireless (Tamilnadu) Pvt. Ltd. has been set off against the payable bid amount for winning spectrum by M/s. Telewings Communications Services Private Limited. The appellant in its books of accounts prepared under the Companies Act had reflected the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onducted in November 2012. He further held that the aforesaid capital asset, i.e., right had been acquired by the appellant on 06.12.2012 for a consideration of ₹ 100 crores or 50% of the value of set off permitted by the DoT. Having held that the appellant had acquired a capital asset, he further held that the said right to set off was exercised by the assessee company on 31.03.2014 being the date, under which the set off was allowed by DoT. Consequently, he held that consequent to the set off, capital asset acquired by the appellant was extinguished and thus there was a transfer of a capital asset within the meaning of section 2(47) of the Act. In view thereof, he held that since the asset acquired by the assessee, before it got extinguished, which asset had been held by it for a period less than 36 months, and that the said capital asset constituted a short term capital asset within the meaning of section 2(14) of the Act. AO held that the difference between the cost of acquisition and the full value of consideration constituted capital gain liable to be assessed in the hand of the assessee. 5. The assessee, being aggrieved, preferred an appeal before the learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment of India and was based on the principles of right to equal restitution. (d) The next submission of his was that, the actionable claim agreement had only permitted it to exercise its legal remedy for enforcement of claims and counter claims with DoT. In such event the appellant had merely acquired right which is in the nature of right to sue and no more. It was further submitted that right to sue is not a capital asset and as such there being no right which could be regarded in the nature of capital asset. (e) It was further submitted by him that even assuming and without admitting that the same agreement namely Actionable Claim Agreement, is an independent contract, in that event also amount of set off allowed could not be taxed in the year under consideration since the agreement had not been culminated in as much as only one of the transaction has been completed and other remains yet to be settled between the DoT and the appellant. It was further submitted that the final taxability of gain or loss, if any, could be considered in the year in which all the claims and counter claims are settled by the DoT and not in the piecemeal manner. It was further submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t held by UW which could be regarded as an actionable claim. (k) Further, the actual cost of license fee borne by the appellant was as a result of unilateral action of DoT, when DoT bestowed the said set off in favour of the appellant and as such set off could only reduce the amount of license fee paid. In support he cited the judgment of the High Court of Delhi in the case of Steel Authority of India vs. CIT, reported in 348 ITR 150. 7. In short, his contentions were that the AO and CIT(A) both have erred on facts and in law in concluding the appellant had acquired any right which right got extinguished and thus there arose a capital gain liable to be assessed as short term capital gain. The aforesaid submission was made apart his further contention that the assessee had not entered into any venture in the nature of trade, so as to hold that income accrued to it by way of business income. In support he relied on the judgment of the Supreme Court in the case of Shrimant Padmaraje R. Kadambande vs. CIT reported in 195 ITR 877. He had further alternatively contended that even if it is held that the appellant had acquired a capital asset, there can be no computation of capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble entry fee paid in respect of the 22 licenses. Accordingly, it was submitted by him that it cannot be contended by the Revenue that UW had any right, which was enforceable in law whatsoever in the entry fee paid by it and as such, it had transferred such an alleged right of set off to the appellant under the actionable claim agreement. 10. Regarding the observation made by ld. CIT (A) in its order that there was no contract between UW and GOI as per Indian Contract Act 1872, he submitted that the aforesaid finding was based in disregard of the agreement entered between UW and DOT dated 29.02.2008 which had been completely overlooked by the ld. CIT (A) nor did he attempt to call for such a document i.e. agreement from the appellant. He submitted that whenever a license is granted, there has to be necessarily an agreement between the licensor and licensee as per law. However, such a license has been placed by the assessee on record. Accordingly, the observations made by the Ld. CIT (A) were factually incorrect. 11. The second submission of the Senior Counsel was that set off had been allowed to the appellant on the basis of principle of equal restitution as a policy decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the license holders whose licenses were quashed, that they will be eligible for a refund or set off of the license fee paid by them. Even the NIA also did not so stated that any set off is allowable to the cancelled license holders or any other group entity in the event, such companies are successful in fresh auction. Subsequently, a policy decision was taken by the Empowered Group of Ministers (EGoM) in October 2012 based on which the DoT issued clarification that the set off of the earlier license fees paid by the entities would be adjusted against the earnest money and subsequent payment due, if the same entities participate and are successful in the auction. The amount will be limited to the total licenses fees paid by the entities for UASLs that were quashed by the Hon'ble Supreme Court. It was contended by him that UW did not participate in the fresh auction. In fact it was submitted by him that there was no clarity as regards to the amount of the license fees paid by the license holders. The entities whose licenses were cancelled and who successfully bid for the fresh licenses, got the set off allowed from the government as a policy decision taken by it. No refund of lic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reimbursement. He relied upon the decision of the Hon'ble Delhi High Court in the case of Steel Authority of India Ltd. v. Commissioner of Income-tax [2012] 20 taxmann.com 198 (Delhi) , wherein the Hon'ble High Court in para 13 has summarised the correct and true position for insertion of Explanation 10 to section 43 of the Act in the following words: Apparently Explanation 10 was introduced to ensure appropriate computation of actual cost of assets in case subsidy is received. After the introduction of Explanation 10, it is no longer possible to contend that the subsidy given by the government, by whatever name called, cannot be reduced from the actual cost of the assets in terms of Section 43(1) of the Act for the purpose of allowing depreciation. But Explanation 10 does not cover the case of waiver of the loan. It covers only the grant of a subsidy or re-imbursement by whatever name called. The case of the assessee may not, therefore, fall under Explanation 10, but having regard to the facts as found which we have alluded to earlier, the waiver of the loan amounted to the meeting of a portion of the cost of the assets under the main provisions of Section 43(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submission of the Senior Counsel was that there is no capital asset in the nature of right to claim refund or set off which can be transferred by UW to the appellant under BTA or the actionable claim agreement. 16. Based on the aforesaid, the ld. Senior Counsel submitted that there being no enforceable right either under contract or statutorily, as per which UW could seek a refund or set off the amount of one-time entry fee so as to enable the appellant to have acquired any such right from UW under an actionable claim agreement. It was submitted that the Ld. CIT (A) in his order has also held that the appellant had earned an income and such an income is an income being adventure in the nature of trade. With regard to the aforesaid finding, it was submitted that the set off has been granted from the license fee payable by it to DoT and the said sum of set off has not resulted into any business transaction entered by it with DoT. The said sum of set off so allowed was in the nature of mere waiver or concession from the license fee payable and cannot be held to be an income much less business income. The assumption of the revenue that the assessee had carried on any activity whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim damages which itself is not a capital asset. It was submitted that upon cancellation of licenses by the Hon'ble Supreme Court, the UW does not have any right, whatsoever, in the entry fee paid in respect to the 22 licenses allotted by DoT in 2008. As per the terms of UASL agreement between UW and DoT, the amount of onetime entry fee paid by UW is non-refundable and therefore, the sum payable by UW was neither refundable nor could have been refunded since neither UW had any right, title or interest in the said license fee paid nor it could have transferred the same to the appellant. Therefore, the appellant had not acquired any right to set off the license fee paid by UW under the actionable claim agreement which is in the nature of a capital asset as per the provisions of the Act. Reference was also made by him to Section 3 of Transfer of Property Act, 1882 (T.P. Act), which defines actionable claim as under: actionable claim means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eited amount of spectrum fee by UW, the agreement merely gives the appellant the right to seek legal remedy for compensation/refund/set off of one time spectrum fee paid by UW based on the principle of Restitution as well specific performance. The sequence of events stated also highlighted that due to intervention of the Court, the licenses allotted by DoT were cancelled and DoT/Government of India failed to fulfil its obligation to allow the access of spectrum licenses for 20 years. The remedy available with the appellant is a legal remedy which can be exercised within the framework of law which includes right to sue for compensation/damages against the DoT in appropriate Court. 21. Mr. Aggarwal also contended that mere right to sue cannot be transferred as per the provision of T.P. Act. When a contract is broken, it gives rise to a civil wrong which may entitle the injured party to sue the wrong doer (1) for damages liquidated or unliquidated, or (2) for specific performance and in some cases (3) for restitution or even (4) an injunction. In the given case, the contract between UW and DoT for allowing the telecom licenses for 20 years got terminated in pursuance to the cancell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract. The assessee claimed that the impugned receipt was a non-recurring capital receipt and being casual, was not liable to tax. The ITO while agreeing that it was in the nature of capital receipt, held that the payment resulted in extinguishment of the assessee's right to acquire the subjectmatter in intangible asset, and was, therefore, covered by section 2(47), read with section 45, and was liable to tax as short-term capital gain. The Tribunal upheld the ITO's order. On appeal, the Hon'ble Court held as under: Once there is a breach of contract and the defaulting party not only refuses to perform his part of the contract but also disposes of the subject-matter, the injured party has nothing left in the contract except the right to sue for damages. After the amendment of section 6(e) of the Transfer of Property Act a mere right to sue, whether arising out of tortuous act or excontract, is not transferable. The word 'mere' indicates that if the right to sue is accompanied with any other right under the contract, it would not be hit by section 6(e). In the instant case, there was a total cessation of the contract and the only right which survived in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case, on 31.03.2014, DoT on without prejudice has allowed the set off against the payable bid amount. This shows that set off has been bestowed to the appellant as per the policy decision of the Government of India and not in view of any existing right. That right must be enforceable in law and it is not any and every right whether it is enforceable in law or not can be regarded as capital asset. Though the DoT was not under an obligation to allow the refund of spectrum fee in respect of the cancelled licenses or to allow set off thereof, however, due to the subsequent changes in the Policies, the DoT allowed set off of the spectrum fee of the cancelled licenses to the Appellant. The set off so allowed to the appellant was subject to conditions and the rights of DoT to recover all claims/counter claims of cancelled licenses of UW from the appellant. This was clearly evident from the undertaking given by the Appellant to DoT to discharge all liabilities of the cancelled licenses whose license/entry fee was allowed to be set off against the spectrum fee payable for the fresh licenses. It was submitted that the appellant had received a number of notices from DoT for such liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and he had no option whatsoever selectively take liabilities of the transferor in respect of such actionable claim. It is a general rule that the assignee will not get a better title than the assignor. Accordingly, a transferee of a claim is only entitled to get what transferor is eligible to receive. If the debtor has a right to receive some amount from the assignor, then he has the right to set off such amount against the payment to be made to the assignee. 24. Thus, in the facts of the present case, the spectrum fee paid by UW was in relation to services provided till the date spectrum licenses were cancelled by the Hon'ble Supreme Court. The liabilities accrued to UW on account of cancelled licenses are thus intrinsically linked with the spectrum fee paid by UW to DoT. Accordingly, the moment, UW assigned its rights on spectrum fee alongwith its all claims as well as right to set off, all corresponding liabilities of UW due to DoT were automatically vested with appellant due to the provisions of section 132 of the TP Act. The appellant placed reliance on the decision of Supreme Court in the case of Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC) wherein it has been he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt held as under: 18. In the case of Mrs. Grace Collis (supra), the Court did not have occasion to go into the question as to whether the destruction of a capital asset which as a consequence brings about the extinguishment of the rights of the assessee-owner in such asset, would amount to transfer. The Court did not hold that Vania Silk Mills (P.) Ltd.'s case (supra) was wrongly decided, or that the definition of 'transfer' in section 2(47), particularly, the use of the words 'extinguishment of any rights therein' would cover cases of destruction of the capital asset. Cases such as the destruction of the capital asset in a fire, or its complete loss as in the case of sinking of a vessel in the sea, cannot be regarded as having been brought within the fold of definition of 'transfer' in section 2(47), by reason of what has been said and laid down in the case of Mrs. Grace Collis (supra). 20. The law laid down in Vania Silk Mills (P.) Ltd.'s case (supra), that extinguishment of rights in a capital asset as a necessary consequence of destruction of the asset does not amount to transfer, has not been overruled by the Apex Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CIT(A) wherein it had been held that the assessee in the alternative earned income by way of profits and gains from the business and relied on the following judgments: (i) CIT vs. Kasturi Estates Pvt. Ltd., 62 ITR 578 (Mad.) (ii) M. Raman Pillai vs. CIT, 51 ITR 829 (Ker.) (iii) CIT vs. P.K.N. Co. Ltd., 80 ITR 65(SC) (iv) R. Dalmia vs. CIT, 137 ITR 665 (Del.) (v) Lakshminarayan Ram Gopal Son Limited vs. Government of Hyderabad, 25 ITR 449 (SC) (vi) Dalhousie Investment Trust Co. Ltd. vs. CIT, 68 ITR 486 (SC). (g) He had objected to the admission of additional evidence furnished, without stating which of the evidence furnished by the assessee, was additional evidence. REJOINDER BY APPELLANT 28. The appellant filed its rejoinder on 03.04.2018 on the contentions raised by the Ld. CIT (DR) in its submissions. Regarding the first contention, the Senior Counsel submitted that there was no requirement to enter into an actionable claim agreement for allowing alleged right of set off of the license fee paid by UW. It was only by way of abundant precaution that the said agreement was entered into by the parties. Thus, the submission of the Ld. CIT (DR) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) to argue that the right of set off of refund was a capital asset as per section 2(14) of the Act and it was transferred by UW to the assessee as per section 2(47) of the Act. The Senior Counsel submitted that the Ld. CIT(A) failed to appreciate that the term right is not used in the definition of Capital Asset in section 2(14) of the Act. The Ld. CIT(A) drew analogy from section 55 of the Act and right in itself could be Capital Asset , but failed to appreciate on the facts of the case that rights which are held as capital asset are capable of transfer and identifiable and not inchoate or contingent right in the form of right to sue as in the present case. The Ld. CIT (DR) erred in contending that the exercise of right by the Appellant resulted in relinquishment of the asset or the extinguishment of any right therein which was to be considered as transfer as per section 2(47) of the Act. The Senior Counsel submitted that once the set off has been allowed by DoT, the asset itself has been destroyed. Where asset is extinguished by its destruction, there can be no transfer of the asset. Further, it had been contended that there was no extinguishment of any right. Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the UW in year 2008 which have been detailed, in the earlier part of the this order and is summarised as below:- i. UW had acquired 22 licenses from the Government of India to operate as telecom operator in 22 Circles on payment of ₹ 1658.57 Crores in aggregate in the year 2008 on first cum first service basis. ii. The contracts had been entered between the DOT and UW in respect of the 22 licenses under the Indian Telegraph Act, 1885. Under the aforesaid contracts, when the UW had paid one time non-refundable entry aggregating to ₹ 1658.57 Crores in respect of 22 licenses. iii. Subsequently, the Hon ble Apex Court in a Public interest Litigation vide its judgement dated 02.02.2012 quashed the allotment of 122 licenses including the 22 licenses allotted to UW in 2008. The Hon ble Apex Court in the interest of the users of the telecom services under said licenses allowed the operations of such 122 licenses till 15.02.2013 by passing interim orders time to time. The Apex Court also issued directives to Government of India to make fresh auction of said 122 quashed licenses by way of fair transparent manner. Here, it is important note that the judgement of the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant sought clarification/permission from DOT for transfer of business of UW as an ongoing concern basis. b) 15.10.2012: UW based upon clarification issued on NIA sought refund of entry fee paid in 2008, as it had been decided by UW that they would not participate in fresh auction to be conducted in November 2008. c) 17.10.2012: Telenor Group intended to participate in fresh auction through appellant and communicated its desire for the transfer of UW telecom business to appellant as on going concern upon the appellant being successful bidder in fresh auction. It is also communicated that the UW would not participate in fresh auction and requested to DoT to consider the set off of entry fee paid by UW as part of overall transfer of telecom business in accordance then existing policy. d) The appellant being declared successful bidder on 14.11.2012 in fresh auction in respect of 6 circles became liable to pay ₹ 4018.20 Crores as spectrum fee. e) Subsequently on 06.12.2012, the agreement for business transfer as well as actionable claim were entered by the appellant with UW. f) Thereafter, the appellant made other several representations to DOT for approval of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct there was no provision seeking refund of the onetime entry fee paid by the license holders. In such circumstances, we do not find any justification to hold that the appellant had acquired any right from UW, when in our opinion UW itself had no right, title, interest in the amount of non-refundable entry fee paid by it. In our opinion it is not any and every right which can be regarded as a capital asset. Right must be such a right which is enforceable in law either under a statute or under binding contractual agreement. In view thereof, in our opinion since UW had been left with no right, title, interest in the amount of entry fee paid in the year 2008 in respect of the licenses granted to UW, it cannot be validly held that UW held any capital asset, which capital asset could be stated to have been acquired by the appellant from UW under an actionable claim agreement dated 06.12.2012. We have also noticed that under the aforesaid agreement, the appellant had paid ₹ 100 crores to acquire such an alleged right. Be that as it may, the mere fact that the appellant had paid ₹ 100 crores against such an alleged right, will not be a decisive factor to the nature of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r are reproduced hereunder: 2. The parties failed to obtain the aforesaid DoT approval by 18 January 2013 and further did not agree to a different date in writing. Accordingly, the Actionable Claims remain with Unitech Wireless. 3. Despite the expiry of the Agreement, Unitech Wireless and Telewings have pursued the business transfer agreement dated 6 December 2012 (BTA) signed between the Parties which required specific approvals from the Department of Telecommunications (DoT) for transfer of certain UASL related resources from Unitech Wireless to Telewings. 4. As a precondition to such approvals, the DoT sought an undertaking from Telewings whereby it was required to assume various additional contingent liabilities of Unitech Wireless, that were not contemplated in the BTA, including dues owed to the DoT. Telewings agreed to provide the undertaking and consequently assumed such liabilities of Unitech Wireless. In view of the above, the consideration agreed in the actionable claim agreement had also been modified in the said amendment letter which is as under: 8. In view of the above, the Parties have agreed to revive the Agreement and agree to the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of UAS license. Further, the Attorney General of India in his response to the legal opinion sought by DoT s query Whether entry fee paid by licensees needs to be refunded as demands are being made by the licensees? , stated (August 2012) that the question of refund of entry fee paid by the licensees does not arise at this stage. NIA stipulated that the companies/licensees whose licenses were slated to be quashed as per the directions of the Supreme Court would be treated as New Entrant . This meant that they had to deposit the full auction fee without any linkage to entry fee paid for their quashed licenses. Further the Hon ble Supreme Court had not made any distinction amongst the licensees while quashing the 122 licenses of the nine operators. But DoT on the plea of the operators that their licenses were cancelled for no fault of theirs, created two categories of quashed licensees-licensees whose licenses were cancelled due to their fault and licensees whose licenses were quashed without their fault and allowed set-off on the principle of equal restitution. It was also pointed out by the Comptroller and Auditor General of India in his Performance A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry fee and not allowed to any of the quashed license holders that did not participate and win spectrum in auction. The decision to allow set-off was taken by the EGoM in the light of the various representations and submissions by the stakeholders and guided by the principle of equal restitution. Set-off was taken as full up-front payment and no set-off was allowed to be carried forward against future instalments. The request of the Telenor Group was not acceded to by the DoT in accordance with the then extant policy/guidelines on the issue and therefore it was decided by the competent authority to refer the matter to EGoM and the decision to allow set-off was an administrative decision taken by the EGoM on 06 March 2013. .. The replies of the DoT are not acceptable as: Audit has not questioned the policy of the Government per-se. Audit has commented on the incompleteness and inadequacy of information submitted to EGoM. Decision on Show-cause Notices issued by DoT to VTL and Unitech group relating to their eligibility as on date of submission of application for UAS licenses was pending with DoT at the time of submission of note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the fresh auction fee payable by the successful bidder had no linkage to entry fee paid for their quashed licenses. iv. CAG report also confirms that the appellant is not eligible for the set off of non-refundable entry fee paid by UW. The initial request of the setoff of entry fee paid was rejected by the DOT on 23.02.21013. However, the subsequent request of the appellant is placed before the EGOM on 05.03.2013, when the appellant again requested DoT that though they were a separate entity, DoT should set-off the one-time entry fee paid by the Unitech group against the payment due from the appellant. On the same date (i.e. on 05.03.2013), a note for the EGoM was prepared and the same was approved in the meeting of the EGoM held on 06.03.2013 which shows that the set off was granted not by way of any right but on the basis of principle of equal restitution. v. DOT responded on October 2013 to CAG, (i.e. much prior to actual set off allowed to appellant on 31.03.2014), where DOT itself stated that set off of entry fee was allowed as a policy decision guided by the principle of equal restitution. vi. With respect of the set off of entry fee allowed to the appellant, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cannot be decided by considering the CAG report is rejected. 37. The other issue, i.e., the need of entering into two separate agreement, i.e., Business Transfer Agreement and Actionable Claim Agreement on 06.12.2012 separately, Mr. Aggarwal had contended that need of entering into an agreement for actionable claim alongwith Business Transfer Agreement arose since the appellant had become a successful bidder in respect of six of the circles in the fresh auction. It was thus, considered as a commercially prudent to enter into Business Transfer Agreement and also an Actionable Claim Agreement on 06.12.2012 with UW. The intent and purpose of the parties to enter into two separate agreements was for the acquisition of business as an ongoing concern for commercial consideration and such consideration had also been communicated to DOT much prior to its participation in the fresh auction. However, the DoT had, in its responses to various queries, had not formulated the regulations, procedures and policies for transfer of business of quashed license holders and thus only as an abundant precaution, the part of the DoT s claims over UW and UW s claim over DoT were kept under the agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able by it to DoT and the said sum of set off has not resulted into any business transaction entered by it with DoT. The said sum of set off so allowed was in the nature of mere waiver or concession from the license fee payable and cannot be held to be an income much less business income. In the instant case the assessee has received no sum directly or indirectly. It had not entered into business transaction or any transaction with DoT in respect of such amount so waived and such sum had been set off by DoT on the principle of equal restitution. Also, we find that the appellant is not in the business of trading of UASL. Further, the DoT guidelines applicable, at that time did not permit trading/sharing of spectrum. It was privy only to the Appellant and the Appellant alone could use it to render permitted telecom services. Thus, the set off against the spectrum fees cannot, by any stretch of imagination, be construed in the revenue field or a sum chargeable to tax under the head profit and gains from business and profession. 40. Thus, in our considered view, the action CIT(A) to tax such amount as business receipts is devoid any merit.The amount of set off is allowed on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of prepaid plans would accrue and be recognized over the period, in which the Appellant has the obligation to render the concerned services and not upon mere receipt of money. Further, as per the guidelines of DoT, the telecom companies are required to share their revenue with DoT as per terms of license granted to them. Accordingly, in order to adopt a transparent system for payment of license fee on revenue sharing basis, the Appellant installed integrated ERP software as per which the revenue in respect of services that has been provided to the customers was automatically recognized in the accounts i.e. talk time charges were recognized on the basis of actual use of customers which is a normal practice followed by the telecom companies as per the terms with DoT. The amount in respect of which the customers had not used the prepaid card, was treated as advance in the balance sheet and shown as liability towards customers under the head Unearned Revenue . In the next year, when the talk time was actually used, the same was adjusted with Unearned Revenue and credited as income in the profit and loss account in that year. Once the validity period for the prepaid card was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the same during the course of appellate proceedings, when it had been explained that sales were recorded by the appellant as and when the services are consumed and completed and not prior to that. The payment received from distributors/customers was treated as advance of sale and shown as liability in the balance sheet. The advance amount is further transferred to unearned revenue upon activation of recharge coupons and as and when the customer utilises the services, the corresponding revenue is transferred from Unearned Revenue account to the income account. This entry is an automated entry made through the integrated ERP system used by the appellant for accounting and billing purpose. On monthly basis, the amounts are booked in the books of accounts for ease of convenience. 44. The appellant, in alternative, has also submitted that if the said some is taxable as income for the captioned year, the corresponding expenditure should be allowed against such income on the basis of matching principles on estimation basis. The appellant placed reliance on the decision of Supreme Court in the case of CIT vs. Bilahari Investment Pvt. Ltd. reported in 299 ITR 1 and Calcutta Co. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when it accrues to assessee, whereas expenditure is to be charged the moment liability gets crystallized. The two aspects cannot be mingled and have to be considered separately. [Para 14] There is no gainsaying that receipt of amount and accrual of income are entirely two different concepts. Every receipt of amount cannot be treated as income and only that part of receipt can be treated as income which can be legally appropriated by the receiver in his own right to the exclusion of its giver. As long as the payer has some right over the amount it has paid to the payee, it cannot be said that income has accrued to the payee. A legal right to appropriate the amount should have accrued in favour of the payee for recognizing the sum as income. Unless debt has accrued in favour of payee, it cannot be said that income had accrued to the payee. [Para 15] In the present case, the main dispute is regarding revenue recognition relating to unused talk time remaining available as at the end of the year. As noted earlier, there is no dispute that company had to provide talk time to its subscriber till the expiry of the period of card or till complete utilization of tal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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