IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "B" NEW DELHI
BEFORE SHRI R.P. TOLANI AND SHRI J.S. REDDY
ITA No. 456/Del/2012
Asstt. Yr: 2006-07
ACIT, Central Circle-2, Vs. M/s Essel Shyam Communication
New Delhi. Ltd., C-138, Naraina Industrial Area,
Phase-1, New Delhi.
PAN: AAACE 2299Q
( Appellant ) ( Respondent )
Appellant by : Shri Sameer Sharma Sr. DR
Respondent by : Ms. Renu Jain CA
ORDER
PER R.P. TOLANI, J.M :
This is Revenue's appeal against CIT(A)'s order dated 14-11-2011
relating to A.Y. 2006-07. Following effective grounds are raised:
"1. On the facts and in the circumstances of the case, the
CIT(A) erred in law and on facts in holding that income of Rs.
43,43,455/- from trading activities is derived from industrial
undertaking within the meaning of section 80IA of the Income
Tax Act, 1961.
2. On the facts and in the circumstances of the case, the
CIT(A) erred in law and on facts in holding that the trading of
equipments is inextricably linked to the business of its
telecommunication services.
3. On the facts and in the circumstances of the case, the
CIT(A) erred in law and on facts in holding that income of Rs.
26,79,780/- from space is eligible for deduction u/s 80IA of the
Income Tax Act 1961.
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4. On the facts and in the circumstances of the case, the
CIT(A) erred in law and on facts in holding that INSAT 2E is a
domestic satellite within the meaning of sub clause (ii) of clause
(4) of Section 80IA of the Income Tax Act 1961, despite the fact
that British Telecom has leased it and is operating it.
5. On the facts and in the circumstances of the case, the
CIT(A) has erred in law and on facts in deleting the
disallowance of Rs. 2,61,541/- made by the A.O. u/s 14A of the
Income-tax Act, 1961 read with Rule 8D of the Income tax
Rules 1962.
2. Facts of the case, in brief are: The assessee company is engaged in the
business of providing satellite based telecommunication solutions including
VSAT services, uplinking services, playout services and broadband services
through the satellite. The assessee claimed deduction u/s 80IA, intter alia, in
respect of profit earned on sales/trading activities, interest income etc., said
to have been derived from the business of an undertaking covered u/s 80IA.
The assessing officer following his order in assessee's own case for A.Y.
2005-06, rejected the assessee's claim. In appeal, the CIT(A) allowed the
claim by following ITAT's order dated 31-3-2010 rendered in ITA no.
3265/Del/08 & ITA no. 3176/Del/06 in assessee's case for A.Y. 2005-06.
Aggrieved, revenue is in appeal before us.
3. Ld. Counsel for the assessee at the out set contends that the issue of
deduction u/s 80IA raised in ground nos. 1 to 4 in respect of income from
sale of VSAT equipment amounting to Rs. 43,43,455/-; and income earned
from space segment charges paid amounting to Rs. 26,79,780/- is squarely
covered in favour of the assessee by the earlier order of the ITAT dated 31-
3-2010 rendered in ITA no. 3176/Del/06 in assessee's own case for A.Y.
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2005-06, granting deduction u/s 80IA. The order of CIT(A) in allowing
assessee's claim being in consonance with ITAT order for A.Y. 2005-06,
the revenue's appeal on these grounds is liable to be dismissed.
4. Ld. DR on the other hand relied on the assessment order.
5. We have heard rival contentions and gone through the entire material
available on record. In respect of income from sale of VSAT equipment the
ITAT in para 11 of its order dated 31-3-2010 for A.Y. 2005-06 (supra) has
allowed deduction u/s 80IA on sale of VSAT equipments by observing as
under:
"Let us have a look on the nature of equipments. We have
perused pages number 29-40 of the paper book. On page 29-31
the copy of the import license for import of C band redundant 1
: 1 to Converter and Down Converter have been placed on
record. These are the technical device. Similarly on page 32-33
are the import license on page 34 is the description of the item
which are to be imported. At page 34 the description of the item
is Codan 40 Wku Bank BUC. According to the assessee these
equipments are essential equipments for enabling assessee to
the telecommunication services. The Govt. has put up various
restrictions on import of such items because of security
reasons. If the assessee is unable to provide these items to its
customer then it might not be possible for it to provide
telecommunication services. It was pointed out at the time of
hearing that these equipments cannot be used for availing the
services from any other service provider. The customer has to
avail the telecommunication services through these items
necessarily from the assessee only. Considering the nature of
equipments and their relation to the nature of services provided
by the assessee, in our opinion the receipt received by the
assessee for supply of these items is inextricably links to the
business of its telecommunication services. The A.O. is not
justified in excluding these receipts. Therefore we direct the
A.O. to include the receipt of Rs. 5042717/- representing
income from sale of equipment in the eligible receipt for grant
of deduction u/s 80IA."
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5.1. Admittedly, there is no change in facts for the assessment year under
consideration. The order of the CIT(A) being in consonance with ITAT
order for A.Y. 2005-06, we see no reason to interfere with the order of
CIT(A) in allowing deduction u/s 80IA on sale of VSAT equipments. In
view of above ground nos. 1 & 2 are dismissed.
6. Regarding income from space segment amounting to Rs. 26,79,780/-,
the ITAT in 15 to 19 of its order dated 31-3-2010 for A.Y. 2005-06 (supra)
has upheld the order of CIT(A), allowing deduction u/s 80IA on income
earned from space segment charges paid by holding that the payment made
by the assessee is not to any foreign company which was owner of a satellite
or operating the satellite in terms of section 80IA(4)(ii). In operative para 19
the ITAT has observed as under:
"19. We have duly considered the rival contention and gone
through the record carefully. The satellite is a domestic
satellite. The British Telecom (Worldwide) has nothing to do
with the satellite. It is neither owner of this satellite nor it is
operating it. The only role of British Telecom (Worldwide) is
that it has taken certain space of this satellite on lease that
space has been leased out to the assessee for
telecommunication services. Thus the payment made by the
assessee is not to any foreign company which was owner of a
satellite or operating the satellite. Ltd. first Appellate authority
has appreciated the controversy in right perspective and we do
not see any reason to interfere in his finding."
6.1. The order of the CIT(A) on the issue in question being in consonance
with ITAT order for A.Y. 2005-06 and there being no change in facts, we
see no reason to interfere with the order of CIT(A) in allowing deduction u/s
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80IA on income earned from space segment charges paid. In view of above
ground nos. 3 & 4 are dismissed.
7. As regards disallowance u/s 14A, the CIT(A) has deleted the
disallowance made by assessing officer by observing as under:
"So far as ground no. 3 of appeal is concerned it is observed
that a disallowance of Rs. 2,61,541/- has been made u/s 14A by
applying Rule 8D of the Act, which has been held to be
applicable from AY 2008-09 onwards by the Mumbai High
Court in the case of Godrej & Boyce Manufacturing Co. Ltd.
(supra). It is moreover seen that no dividend has been received
on the investment of Rs. 80 lacs which is an old investment and
further the appellant is having its own funds of more than 24
crores which goes on to show that there are no financial
expenses incurred for making such investment. In vie of the
above facts & following the decisions cited by the appellant
including the case of Hero Cycles (supra) the disallowance
made for Rs. 2,61,541/- is directed to be deleted and the appeal
is allowed."
7.1. We have heard rival contentions on the issue in question. The Hon'ble
Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd.
234 CTR (Bom) 1, has, inter alia, observed as under:
"v) The provisions of Rule 8D of the Income tax Rules which
have been notified with effect from 24 March 2008 shall apply
with effect from Assessment year 2008-09.
vi). Even prior to Assessment year 2008-09, when Rule 8D was
not applicable, the Assessing Officer has to enforce the
provisions of sub section (1) of Section 14A. For that purpose,
the Assessing Officer is duty bound to determine the
expenditure, which has been incurred in relation to income,
which does not form part of the total income under the Act. The
Assessing Officer must adopt a reasonable basis or method
consistent with all the relevant facts and circumstances after
furnishing a reasonable opportunity to the assessee to place all
germane material on the record."
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7.2. In view of Hon'ble Mumbai High Court judgment, there is no dispute
that Rule 8D is applicable prospectively from A.Y. 2008-09 onwards,
however, since the assessee has not filed any details of expenses on earning
from old investment of Rs. 80 lacs, we set aside the orders of authorities
below and restore the matter back to the file of AO to decide the same afresh
in accordance with law after affording an opportunity of being heard to the
assessee.
8. In the result, Revenue's appeal is partly allowed for statistical
purposes.
Order pronounced in open court on 1-11-2013.
Sd/- Sd/-
( J.S. REDDY ) ( R.P. TOLANI )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 1-11-2013.
MP
Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR
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