TMI Blog2007 (8) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... nication services. The earth station commissioned by the assessee company is in the nature of an internal pathway of its transmission system. We are of the considered view that the earth stations commissioned by the assessee company in the previous year relevant to the assessment year under appeal are not undertakings for the purpose of s. 80-IA. Sec. 80-IA provides that the deduction shall be available to an assessee in providing telecommunication services only if it has set up an undertaking which starts providing telecommunication services whether basic or cellular at any time on or after the 1st day of April, 1995 but before the 31st day of March, 2000. In the present case, it is not possible to hold that the assessee company has set up an undertaking to provide telecommunication services for the fact that it has commissioned two earth stations in the previous year relevant to the assessment year under appeal. We hold that earth stations are not undertakings for the purpose of s. 80-IA. We find that the requirement that the undertaking should provide basic telecommunication or cellular telecommunication must be understood in their plain meaning. Then the question to be answered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Such deduction meant for basic service providers may not be found necessary by the Government to persons like the assessee who are providing direct services to other basic service providers in the area of international telecommunication; may be for the reason that the tariff rate enjoyed by such secondary service providers itself would take care of the need of incentives. Therefore, we find that the assessee company is not providing basic telecommunication services as stated in s. 80-IA(4C). The assessee is providing international connectivity to other providers of basic services in India. The services rendered by the assessee company is one step above the basic telecommunication services. Therefore, it is to be seen that the assessee company does not satisfy the condition provided in sub-s. (4C) regarding the nature of telecommunication services so as to become eligible for the deduction provided u/s 80-IA. We hold the answer in the negative that the assessee is not entitled to be treated as eligible undertaking for the purposes of s. 80-IA of the IT Act, 1961. The only ground raised by the assessee in the impugned appeal is the disallowance of claim made u/s 80-IA. As we have fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of the learned Departmental Representative is accepted, then inclusion of words like satellite service or trunking network would become ineffective. Such construction would be absurd and, therefore, cannot be accepted. Thus, it is held that the telecommunication services through earth stations set up by the assessee cannot be characterized either basic or cellular and, therefore, the assessee would not be entitled to deduction u/s 80-IA for the year under consideration. In the result, appeals of the assessee stand dismissed. PRAMOD KUMAR, A.M - I may also add that though the assessee company was a public sector undertaking in the relevant previous year, according to the learned counsel, it has since been privatized and, therefore, clearance has not been obtained from the Committee on Disputes (Cabinet Secretariat). Learned counsel contends that the ownership of the assessee company now vests in private sector, and, for this reason, the requirements of Hon'ble Supreme Court's judgment in the case of Oil Natural Gas Commission Anr. vs. CCE [ 1991 (10) TMI 58 - SUPREME COURT] do not apply in this case. As learned CIT (DR) has conceded this position, we have not address ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be construed as an undertaking. He was of the opinion that earth station is a link in a long chain which started from the telephone instrument through which a subscriber makes a call and culminated at the receiver's end, passing through various landlines, earth station and satellite. He held that an earth station is a part of the transmitting chain and not an independent undertaking. The AO was of the view that an earth station is like a sub-station in an electric supply network. He also held that the assessee should have commenced providing telecommunication services on or after 1st April, 1995 so as to qualify for the deduction under s. 80-IA, whereas in the present case, the assessee has been providing the service right from 1986. He further held that an undertaking in its normal meaning is a complete business by itself as an independent unit for which he relied on the decision in S.Y.C.W S. Mills AIR 1969 Mysore 280 at 291 The assessing authority further held that in order to claim the deduction, the assessee should provide telecommunication services of the nature prescribed in sub-s. (4C). That is the assessee should provide basic telecommunication services or cellular te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Machinery Corpn. Ltd. vs. CIT would not be applicable to the present case for the reason that in the case decided by the Supreme Court, the assessee had set up a separate jute mill as an industrial undertaking in addition to the existing industrial undertaking of the assessee engaged in the manufacture of boilers and machinery parts. The CIT(A) held that in the present case, the activity of providing telecommunication service remained the same before and after commissioning of the earth stations except the fact that the earth station is an extra device to increase its output and quality of service. The CIT(A) held that the basic nature of the service provided by the assessee always remained the same and by setting up of an earth station, the assessee company has not established an undertaking in its commercial sense. Ultimately, he held that the assessing authority was justified in declining the claim of deduction made by the assessee under s. 80-IA. 7. The assessee company is aggrieved by the order of the CIT(A) in confirming the disallowance of claim made under s. 80-IA and therefore has filed this second appeal before the Tribunal. In fact the only issue raised in this appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or proper or to constitute a Special Bench for disposing of this appeal: 'Whether, on the facts and in. the circumstances of the case, the telecommunication earth station, as is commissioned by the assessee in the relevant previous year, is entitled to be treated as eligible undertaking for the purposes of s. 80-IA of the IT Act, 1961?'. 9. On recommendation of the Division Bench, the Hon'ble President, Tribunal has constituted this Special Bench to hear and dispose of the entire appeal in the light of the question referred before it. The question referred before the Special Bench is: Whether, on the facts and in the circumstances of the case, the telecommunication earth station, as is commissioned by the assessee in the relevant previous year, is entitled to be treated as eligible undertaking for the purposes of s. 80-IA of the IT Act, 1961? It is how the Special Bench is seized of the matter. 10. Shri Dinesh Vyas, the learned senior counsel appeared for the appellant along with Shri Sunil Lala and Raju Vakharia and argued the case at length. The assessee company has caused to file detailed paper books before the Tribunal containing details regarding the various aspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... telecommunication services. The modulator processes information signals in a globally accepted transmission format and enables the transmission feasible over long transmission media. Combiners are necessary wherever outputs are coming from multiple modulators feeding into an up-converter. The up-converter converts the intermediate frequency to microwave/radio frequency which ensures that there is lesser loss of signal. RF. combiner is installed for combining the output of various up-converters and the high power amplifier enhances the power from milli watts to kilo watts. The SOMC bifurcates between the carrier going out from the earth station and coming from the satellite. The satellite dish antenna provides the means to transmit the radio frequency signal to the satellite and equally receive the signal from the satellite. Likewise low noise amplifier, RF divider, down converter, IF divider, demodulator etc. function in different critical areas in the whole operation of providing telecommunication services. 4. Therefore an earth station is a processing unit which converts the input signal into an entirely different form while sending it to the satellite. The signal received from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earth stations are forming a segment of existing business carried on by the assessee company is not a bar against the assessee company for claiming the relief under s. 80-IA for the reason that despite of such segmental relationship earth stations are providing new, distinct and advanced services to the assessee company. 4. That the technical input provided by the system of the assessee company is converted to a product in the nature of voice by the earth stations and therefore there is no difficulty in identifying the commercial activities carried on by the earth station. 14. The learned senior counsel thereafter harnessed his arguments on the basis of legal propositions and judicial pronouncements. 15. In the above context, the first proposition made by the learned senior counsel is that the Revenue has erred in equating an undertaking with the company or the assessee. It is his contention that an undertaking is not to be equated with companies or assessees. In support of the above proposition, the learned senior counsel has relied on the following judicial pronouncements: 1. Madras Machine Tools Manufacturers Ltd. vs. CIT (1975) 98 ITR 119 (Mad) It has been held by the Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will have to be construed liberally in a broad commercial sense keeping its object in view. The Court further observed that s. 80HH(2) refers to industrial undertaking and not to the assessee or his other business. The Court held that if a new industrial unit is established as a part of an already existing industrial establishment and if the newly established unit is itself an integrated independent unit in which new plant and machinery is put up and that by itself is capable of production of goods independently of the old unit, the said unit could be classified as a newly established industrial undertaking and will qualify for the relief. 5. Industrial Gases Ltd. vs. CIT (1965) 58 ITR 317 (Cal) In this case again, the Calcutta High Court was considering a case in the light of s. 15C of the old IT Act, 1922. The Court observed that s. 15C makes a distinction between the assessee and the industrial undertaking. The unit of assessment is the assessee and not the industrial undertaking. The Court held that the exemption conferred by s. 15C is confined to the profits derived from the industrial undertaking and not to the profits derived from any trade or business carried on by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king and other analogous expressions must be understood in a broad commercial sense from a commonsense point of view. 19. Again, adventing upon the true import of undertaking, the learned senior counsel relied on the following decisions so as to highlight the meaning of the expression in a more apparent manner. 1. S.Y.C.W. . S. Mills The Court has considered the meaning of the expression undertaking and has held that in its real meaning it is not anything which may be described as a tangible property like land, machinery or the equipments; it is in actual effect an activity of man which in commercial or business parlance means an activity engaged in with a view to earn profit. 2. Textile Machinery Corpn. Ltd. vs. CIT In this case the Court has held that a new activity launched by the assessee by establishing new plants and machineries by investing substantial funds may produce the same commodity of the old business or it may produce some other distinct marketable products, even commodities which may feed old business. These products may be consumed by the assessee in old business or may be sold in the open market. Even then the new activity would be in the nature of new undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned senior counsel further argued that the earth stations commissioned by the company are undertakings explained on the basis of its functions so as to state that a new undertaking need not produce any new product or item but it could produce even the old same commodity which may feed the business already carried on by the assessee and the nature of products and services as such is not a crucial issue to decide the character of an undertaking as always argued by the Revenue. The learned senior counsel has relied on the following judicial pronouncements: (i) Textile Machinery Corpn. Ltd. vs. CIT; (ii) CIT VS. Indian Aluminium Co. Ltd. (1977) 108 ITR 367 (SC); (iii) Mahindra Sintered Products Ltd. vs. CIT; (iv) CIT vs. Associated Cement Companies Ltd. (1979) 118 ITR 406 (Bom); (v) Rajeswari Mills Ltd. vs. CIT; (vi) CIT vs. Premier Cotton Mills Ltd.; (vii) CIT vs. Rohtas Industries Ltd. (1979) 120 ITR 110 (Cal); (viii) CIT vs. Orient Paper Mills Ltd.; (ix) International Instruments (P) Ltd. vs. CIT (1979) 9 CTR (Kar) 291 : (1980) 123 ITR 11 (Kar); (x) CIT vs. Hind Lamps (1980) 122 ITR 451 (All); (Xi) Patel Engineering Ltd. vs. Dy. CIT (2004) 84 TTJ (Mumbai) 646; (xii) CIT vs. Quali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vides basic public international switched telephone services, including facsimile, data transmission services and voice services. The company also provides home country direct services, which permit a caller to speak to an operator in his home country directly and place a collector charge call. That the said document is signed by the chairman and managing director of the assessee company pursuant to the authority granted by the Government, of India vide D.O. letter No. DDG/(1C A)/TF/DD/VSNL dt. 23rd June, 1999. That the features explained by the assessee company in its offer document while it was a fully owned Government of India undertaking are irrefutable evidence to show that the assessee company is engaged in the business of providing basic telecommunication services. 2. That the Government, of India, Department of Telecommunication has granted a monopoly for 10 years in basic services (voice telephony) starting from 1st April, 1994 which is evidenced by the letter dt. 23rd Feb., 1994 issued by the Telecommunications Secretary to the chairman and managing director of the assessee company. In the said Government letter also, the services provided by the assessee company are expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er electromagnetic systems. 8. In the Telecom Regulatory Authority of India Act, 1997, the meaning of telecommunication service has been given as service of any description including electronic mail, voice mail, data services, radio paging and cellular mobile telephone services which is made available to users by means of any transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature, by wire, radio visual or other electromagnetic means. 9. The 34th Report of the Standing Committee on Information Technology (2005-06) (Ministry of Communications and Information Technology-Department of Telecommunications) has considered various aspects of providing domestic and international telecommunication services. It is mentioned therein that the Department of Telecommunication has categorised international telecommunication services as part of basic telecommunication services. The Department has explained before the Standing Committee that the word basic has not been defined in the Indian Telegraph Act, 1885 and it can be interpreted keeping in view the situation, circumstances and modern technology prevalent as on date. To add to this, the Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the details of computation under s. 80-IA, in Annex. D attached to the revised return. He has also explained the mode of computation of the revenue and the basis of apportionment of various expenses. The learned senior counsel has also relied on the decision of Tribunal Mumbai Bench 'I' rendered in the case of West Coast Paper Mills Ltd. vs. Asstt. CIT (2006) 105 TTJ (Mumbai) 344 : (2006) 103 ITD 19 (Mumbai) where the Tribunal has held that it is possible to work out the profits attributable to a captive power plant on the basis of average price paid by the assessee to the State Electricity Board for the power consumed. In the light of the above decision, the learned senior counsel submitted that it is always possible to work out the income attributable to an independent sub-system working under the overall chain of activities carried on by the assessee company. 28. Shri Krishna Mohan Prasad, learned CIT (Departmental Representation) who appeared for the Revenue explained that he has no objection regarding the technological features explained by the learned senior counsel for the assessee on the two earth stations commissioned by the assessee company during the previous ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has set up two new undertakings in the previous year relevant to the assessment year under appeal for providing telecommunication services. By setting up the two earth stations, the business volume of the assessee might have gone up, technological advancement might be achieved, quality of service might be improved and the capital outlay might have been increased; but all these instances do not make out a case that the earth stations which are basically a supporting system of the telecommunication business carried on by the assessee company partake the character of undertakings. 3. An earth station is only a link in the chain of activities carried on by the assessee company, which starts from making a call and ending in completing the call. The telephone call is carried through various landlines, earth stations and satellite telecommunications and reached to the party on the other end. In this chain of activity, the earth station is only a link and it is like a sub-station of an electricity supply network. 4. An earth station by itself is not an undertaking. An undertaking in its normal meaning is a full functional business unit. In the present case, the undertakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablished by the company could contribute a quantum jump in the production capacity of the company. Likewise the learned CIT referred to all other decisions relied on by the learned senior counsel appearing for the assessee and submitted that those decisions are not applicable to the present case in hand. He also made a special reference to the decision of the Supreme Court in the case of Textile Machinery Corpn. Ltd. vs. CIT, on which both sides have placed reliance. 32. The learned CIT further contended that the next condition specified in s. 80-IA in sub-s. (4C) is that the undertaking should commence its operations after 1st April, 1995. In the present case, the assessee company, VSNL has commenced its operations way back in 1986 and therefore that condition is also not satisfied. 33. The next important limb of the argument advanced by the learned CIT is on the question whether the undertakings are providing basic or cellular services or not? The learned CIT explained that in order to claim the deduction under s. 80-IA, the assessee company, providing telecommunication services should provide either basic or cellular services. It is nobody's case that the assessee company i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have access to large base of customers in order to compete for its business. This statement itself points out f that the assessee company is not providing basic telecommunication services but they are providing connectivity services to other providers of basic services. They are providing such connectivity services on the basis of agreements entered into with domestic cellular service providers and basic operators. 35. The learned CIT has further contended that the earth stations commissioned by the assessee company being an integral link of the total system, cannot be treated as an independent centre and therefore there is no way to calculate the income attributable to those earth stations. No separate identity can be given to the earth stations in the overall performance of the assessee's business and in such circumstances the computation of income attributable to the earth stations is quite illusionary or academic. No revenue or income could be attributed to earth stations as such. Therefore. the computation made by the assessee company so as to make the claim under s. 80-IA is quite unreal. 36. The learned CIT has further elaborated his arguments even in respect of a basic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords telecommunication services. 39. The learned counsel further relied on the Finance (No. 2) Act, 1998 which has inserted the following in s. 80-IA(4C) w.e.f. 1st April, 1995 after the words telecommunication services, whether basic or cellular including radiopaging, domestic satellite service or network of trunking and electronic data interchange services. He explained that the above extension to the term telecommunication services needs to be widely construed and the phrase whether basic or cellular does not in any way restrict the fundamental meaning of the term telecommunication services. For this proposition, he has relied on the decision of the Supreme Court in the case of Allied Motors (P) Ltd. vs. CIT (1997) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC), and the decision in V. Verghese Anr. vs. Dy. CIT (1994) 121 CTR (Kar)(FB) 146 : (1994) 210 ITR 511 (Kar)(FB) and CWT vs. India Exchange Traders Association (1992) 197 ITR 356 (Cal). 40. The learned senior counsel concluded his argument on reinstating (reiterating) his propositions that rule of ejusdem generis has no inverse application, the terms expressed in s. 80-IA have to be liberally interpreted and above all where two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... independently of the old unit, the said unit could be classified as a newly established industrial undertaking and will qualify for the relief. In that case, the assessee firm which was selling diesel engines purchased new machinery for making fuel injection pipes for diesel engines. In that case, it could be seen that by establishing a new industrial undertaking, the assessee was manufacturing an altogether new item even though much related to the business carried on by the assessee. Further, the new unit is capable of surviving independent of the old unit. 3. This is the same principle embodied in the judgment of the Calcutta High Court in the case of CIT vs. Orient Paper Mills which decision has been relied on by the assessee. In that case, the assessee which was owning paper mills set up another plant for manufacture of caustic soda. Here also new unit is independently survivable producing different product even though formed an integral part of the existing unit. 43. The dictum of the decision of Mysore High Court in the case of S.Y.C.W. S. Mills relied on by the assessee has been arrived at on a different set of facts as well as law where the Court was examining the concept o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et up by the existing business houses should be independent units engaged in a distinguishable commercial activity and capable of surviving independent of the existing business. The above features apparent in all the judicial pronouncements relied on by the learned senior counsel endorse the principal view of an undertaking as construed in commercial and business circles. An undertaking is not an abstract piece of idea. It is not a concept as such. It can have its own physical identity by land, building, plant and machinery; it can have its own technology but still the new units may very much form part of the existing unit. These are all matters of different permutations and combinations that emerge out of business dynamics in given set of circumstances. But above all, the distinguishing feature of an undertaking eligible for deductions provided under the IT Act is its basic character of independence of function and ability to survive independent of the old units. The case made out by the assessee in the present appeal does not answer to the above distinguishing features that should be invariably apparent in an undertaking. All the cases relied on by the learned senior counsel are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght in by the assessee company in upgrading its services through value addition by adopting contemporary and appropriate technology. It is a case of improvement of an existing system. Let us examine an analogous case. Indian Railway was running the trains in the past by using steam engines. Thereafter they adopted new technology and deployed diesel engines to run the trains. Again the railways switched over to engines run by electric power. Tomorrow railways may invent engines run by solar energy. These are all system improvements by adopting more appropriate, efficient, economical and contemporary technologies. It is not possible to say that electric engine is a new undertaking within the railway system. Railway is such a big and versatile system where a lot of segments are working simultaneously in unison for providing the ultimate service of transportation. It is almost like providing telecommunication services. An improvement brought out in one of the systems cannot be construed as setting up of a new undertaking. 50. Therefore we are of the considered view that the earth stations commissioned by the assessee company in the previous year relevant to the assessment year under ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cellular. 55. At the time of hearing there was a mention about the principle of ejusdem generis; whether the reverse of the principle would be acceptable in law or not. The principle of ejusdem generis, provides that where general terms. follow specific terms, the specific terms limit the scope of the general terms whereby the subsequent general terms cannot go beyond the meaning and nuances of specific terms. Logically speaking, the reverse should be that the specific words of which, the meaning does not limit the scope of the earlier general terms. If such a reversal is permissible, the position would be that the expression basic or cellular does not limit the meaning of telecommunication services. But the learned senior counsel himself has fairly admitted that there is no such concept of reversal of ejusdem generis in interpreting the statutory provisions. Once it is found that such proposition does not exist, the above logical exercise has no relevance. 56. In the present case, we find that the requirement that the undertaking should provide basic telecommunication or cellular telecommunication must be understood in their plain meaning. Then the question to be answered would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... telecommunication services are stated to cover voice telephone services also. 59. The above authorities relied on by the assessee company do give a general view on the technical aspects of the nature of services rendered in telecom sector. Those documents do not speak out the exact modalities of operations by which service providers could be distinguished as providers of basic services or otherwise. In the notification issued by TRAI, the names of telecommunication companies providing basic services have been included. Those providers are BSNL, MTNL, Reliance Infocom Ltd., Tata Teleservices Ltd., Bharati TeleVentures Ltd., Shyam Telelink Ltd. and HFCL Infotec Ltd. The absence of the name of the assessee company is conspicuous in the above list of providers of basic telecommunication services. Likewise, in the statement of WTO, in p. 2, the overall management of telecommunication services in India has been explained wherein the assessee company has been stated to be providing international telecom services whereas, it has been stated that basic telecommunication services are provided by Department of Telecommunications. In the above two crucial revelations of Department of Telecomm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee company. The learned senior counsel has also rightly explained that it is impossible for any service provider to extend an end-to-end service in international telecommunication. 64. We do agree. If not impossible, it is highly improbable that a single telecom provider can extend international telecommunication services on an end-to-end basis. But, the expression basic does not mean end-to-end service. It is sufficient, if the service provider has direct linkage with the ultimate customer at one end. The assessee company can have one end connectivity with the ultimate telecommunication customer in India. That would satisfy the requirement of basic telecommunication service. There needs to be a first level inter-connectivity with the service user (ultimate customer) so as to say that the services provided by the assessee company are basic telecommunication services. 65. In this context, we should also refer to the argument of the learned senior counsel that the deduction should not be denied to the assessee company, which is operating not in any other area except in telecommunication services. We do not think that there is any room for such a grievance. We also think that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided by the assessee company are not basic or cellular as again provided in that sub-section. We have found therefore that the assessee company is not entitled for deduction provided under s. 80-IA. It follows that it is not relevant to consider the question whether the method of computation is acceptable or not. 69. The question referred before the Special Bench is Whether, on the facts and in the circumstances of the case, the telecommunication earth station, as is commissioned by the assessee in the relevant previous year, is entitled to be treated as eligible undertaking for the purposes of s. 80-IA of the IT Act, 1961? We hold the answer in the negative that the assessee is not entitled to be treated as eligible undertaking for the purposes of s. 80-IA of the IT Act, 1961. The only ground raised by the assessee in the impugned appeal is the disallowance of claim made under s. 80-IA. As we have found that the assessee is not entitled, the ground raised by the assessee in this appeal fails. 70. In result, this appeal filed by the assessee is dismissed. K.C. SINGHAL, J.M.: 10th July, 2007 71. After going through the order proposed by my learned Brother, Dr. O.K. Narayanan, AM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing telecommunication services whether basic or cellular...... (such business being hereinafter referred to as the eligible business), to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee. a deduction from such profits and gains of an amount equal to the percentage specified in sub-s. (5) and for such number of assessment years as is specified in sub-s. (6). Sub-s. (4C) This section applies to any undertaking which starts providing telecommunication service whether basic or cellular including radio paging, domestic satellite service or network of trunking and electronic data interchange services at any time on or after the 1st day of April, 1995 but before 31st day of March, 2000. Perusal of the above shows that legislature has used the expression profits derived from the business of providing telecommunication services whether basic or cellular in sub-s. (1) while sub-s. (4C) provides that this section would apply to an undertaking providing such services. So, the combined reading would infer that deduction under s. 80-IA is available in respect of the profits d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity launched by the assessee by establishing new plant and machinery amounted to new industrial undertaking even though articles produced by these units were used by the existing business divisions. 77. In the present case, the assessee had been in the business of providing connectivity of phone calls at international level through the sea cables since 1986. A new activity was launched by the assessee in this year by establishing earth stations at Calcutta and Madras. However, the AO was of the view that earth station by itself could not be treated as undertaking since in his view the assessee company i.e., VSNL itself was an undertaking. Since VSNL started its business in 1986, it could not be said that any new activity was started in the financial year 1995-96 and consequently, the claim under s. 80-IA could not be allowed. For the benefit of this order, the reasons given by the AO in para 17.5 are being reproduced as under: 17.5 I am of the firm opinion that deduction under s. 80-IA is not allowable on the following grounds: (a) The assessee did not start providing telecommunication services on or after 1st April, 1995. It has been carrying out this function right from 1986. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits from an undertaking. The undertaking is one of the activities, which the assessee may carryon and, therefore, exemption would be restricted to the profits of the undertaking only. If the stand of the AO is accepted, then the entire income of the assessee would be entitled to exemption which is not the intention of the legislature. In this connection, the reference can be made to the Board circular dt. 13th Dec., 1963, wherein, it has been clarified that benefit under s. 84 (now omitted) is to the undertaking and not to the assessee. The relevant portion of the circular is being reproduced as under: 330. New industrial undertaking taken over by another assessee before expiry of five years - Whether benefit under the section available to successor for remaining years. The Board agrees that benefit of s. 84 attaches to the undertaking and not to the owner thereof. The successor will be entitled to the benefit for the unexpired period of five years provided the undertaking is taken over as a running concern. The provisions of s. 84 (now omitted) and the provisions of s. 80-IA are similar. Therefore, the said circular would be applicable to the present case. 79. This aspect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also wrong in observing that activity carried on in the existing business cannot be undertaken by the new undertaking. The Hon'ble Supreme Court in the case of Textile Machinery Corpn. Ltd., has clearly observed that a new activity launched by the assessee may produce the same commodity of the old business or some other products which may feed the old business. The decision of the Hon'ble Supreme Court in the case of CIT vs. Indian Aluminum Co. Ltd. (1977) 108 ITR 367 (SC), is nearer, on facts, to the present case. In that case, assessee was already manufacturing aluminium ingots from the ore at four units at different locations. In the year under consideration, the assessee set up another unit for manufacturing the same item and claimed exemption under s. 15C of the Indian IT Act, 1922. The claim was disallowed by the tax authorities on the ground that considering the nature of the activity, it could not be said that assessee had set up new industrial undertaking. However, the Tribunal allowed the claim. The Hon'ble Supreme Court, following its earlier decision in the case of Textile Machinery Corpn. upheld the view of the Tribunal. In view of this settled legal positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit as it could not work as stand alone. Further, generation of income for this unit was not ascertainable and, therefore, the same could not be considered as an integrated unit. According to him, earth station by itself cannot commercially function without the other systems embedded in the chain of activity carried on. by the assessee in providing telecom services. Earth station is only an internal pathway of the transmission system. Merely because a new technology has been deployed, the earth station cannot be considered as new undertaking. The true test, according to him, is whether the earth station is self-supporting and independent in function, and an independent profit unit in commercial sense. To prove his point of view, he gave an example of Indian Railway. Initially, the train was running through steam engine but subsequently switched over to diesel engine and then electric engine but mere change of engine technology would not treat the railways running a new unit. It would be a case of old undertaking running in the same business with new technology. 84. In my view, the submission of the learned Departmental Representative is without force. The question of investment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f change in technology is irrelevant since new unit can be set up even to produce the same commodity with the same technology. This view is justified by the judgment of the apex Court in the case of Indian Aluminum Co. Ltd., wherein the assessee was engaged in the business of manufacturing ingots from the aluminium ore. The assessee set up additional units for manufacturing the same item and claimed exemption. The claim was disallowed by the tax authorities on the ground that such unit could not be said to be new unit as carrying on the same activity. The Tribunal, however, allowed the claim by holding that assessee had set up new units and, therefore, exemption was allowable. The apex Court, following the earlier decision in the case of Textile Machinery Corpn., upheld the order of the Tribunal. 86. In the present case, the new units are identifiable units separate and distinct from the existing one as these were located at places different from the existing one. Even the system of connectivity of phone calls was entirely different from the existing one since the existing activity was through sea cables while the new activity was through the satellite. The investment in plant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of the word 'telecommunication'. The field of telecommunication was governed by the Indian Telegraph Act, 1872, wherein the word 'telegraph' was defined as under: 'telegraph' means any appliance, instrument, material or apparatus used or capable of use for transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature by wire, visual or other electromagnetic emissions, radio waves or Hertzian waves, galvanic, electric or magnetic means. According to the provisions of this Act, the Government had the exclusive domain on this subject except where license is granted by the Government. Till eighties, it remained exclusive domain of the Government. It is only in nineties, that this field was thrown open to the private sector under the license granted under the above Act. The format of license prescribed by the Government of India defines the words 'telecommunication' as under: 'Telecommunication'-Any transmission, emission or reception of signs, signals, writing, images and sounds or intelligence of any nature of wire, radio; optical or other electromagnetic systems. In mid 90s, the Government of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basic or cellular. This clearly shows that the legislature has restricted the scope of the expression 'telecommunication services'. The word 'cellular' undisputedly refers to voice communication through mobile phone based on the new technology. The word 'basic' is a general word. It is well settled legal position that when general word is used along with a specific word, then the general word is to be understood in the sense in which specific word is used. This rule is based on the maxim that a word is known by the company it keeps. In support of this proposition, reference can be made to the judgment of the Hon'ble Supreme Court in the case of G.S. Pal Co. 45 STC 58 (SC), wherein the Court was concerned with the scope of the expression water supply and fittings. The Court, following the above rule, held that water supply fittings should be understood in the sense of sanitary fittings. Consequently, it was held that the water supply fittings would only include such pipes as are used in toilets and bathrooms and, therefore, would not include heavy pipes. In view of this ruling, the word 'basic' would, therefore, mean voice communication through th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding telecommunication services unless such services are provided from one end to the other end. According to him, the assessee is operating as backbone industry and connects the calls received through other service providers and, therefore, does not provide any service to the actual user of the phone. In my opinion, this contention cannot be accepted for the reason that legislature itself has allowed the deduction to telecommunication services through satellite or trunking network. Both these services are provided by backbone industry which does not have any direct link with actual consumer of such services. The customers of satellite network are the service providers who have access to actual consumers like all mobile service providers and Mahanagar Telephone Nigam Ltd., Bharat Sanchar Nigam Ltd., Department of Telecommunication, etc. If the contention of the learned Departmental Representative is accepted, then inclusion of words like satellite service or trunking network would become ineffective. Such construction would be absurd and, therefore, cannot be accepted. 94. Before parting with this issue it may be mentioned that at the end of the hearing of the case, both the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. 96. In the result, appeals of the assessee stand dismissed. PRAMOD KUMAR, A.M.:17th August, 2007 97. I have had the benefit of going through the separate orders proposed by my distinguished senior colleagues Dr. O.K. Narayanan and Shri K.C. Singhal. The common thread in these two orders is that the appeal filed by the assessee is to be dismissed, even though the reasoning adopted by my learned colleagues is so radically different that there is hardly any other meeting ground. Be that as it may, the majority view of this Special Bench already is that the appeal filed by the assessee is to be dismissed. I also respectfully endorse the same. I have, however, a few observations to make. Since both the orders have reached as signed orders, after my transfer from Mumbai Benches, I have to add my own little note for this purpose. 98. The assessment year before us is 1996-97. In para Nos. 92 and 93 of the proposed separate order, coupled with the fact in the said order it has been concluded that the assessee had set up a separate undertaking in the relevant previous year; there is an interesting discussion about the legal position for the asst. yr. 1997-98 onwards. It has been concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,090 crores. Whether or not, in order to be eligible for deduction under s. 80-IA, satellite telecommunication services are required to be provided on end-to-end basis obviously cannot have anything to do with the issue in appeal for the asst. yr. 1996-97; this aspect is relevant only for the asst. yr. 1997-98 onwards. The issue before this Special Bench is confined to the asst. yr. 1996-97. We must leave it at that, and, in my opinion, we must also refrain from doing anything which may, or may even seem to, preempt the decision for the other years. No doubt whatever finding is necessary for the disposal of present appeal, irrespective of whether or not it will have impact in the later years, such a finding is to be given. This does not, however, extend to the other issues which are not relevant for the present year. 100. While on the subject, I may also add that though the assessee company was a public sector undertaking in the relevant previous year, according to the learned counsel, it has since been privatized and, therefore, clearance has not been obtained from the Committee on Disputes (Cabinet Secretariat). Learned counsel contends that the ownership of the assessee com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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