PR. Commissioner of I. Tax-Delhi-2 v. Bharat Sanchar Nigam Ltd.

1. Allowed,subjectto alljust exceptions. CM No. 27276/2016 (for condonation of delay of 38 days in filing the appeal)in ITA No.478/2016

2. For the reasons stated in the application,the delay in filing the appeal is condoned.

3. The application is disposed of. ITA No.476-479/2016.ITA No.481-483/2016 &ITA No.490/2016

4. The challenge in these appeals is to the order dated 23'"'' December 2015 and the common order dated 22"'' January 2016 passed by the Income Tax Appellate Tribunal(TTAT')in the following appeals: High Court Corresponding A.Y. Date ofITAT Appeal Nos. ITAT Appeal Nos. Order 483/2016 &490/2016 Page4of10 476/2016 2176/DEL/2008 2005-06 22"^* January 477/2016 4275/DEL/2010 2006-07 22"^* January 478/2016 3386/DEL/2010 2004-05 23*^^ December 479/2016 2162/DEL/2008 2005-06 22"*^ January 481/2016 I901/DEL/2012 2008-09 22"''January 482/2016 3701/DEL/2010 2006-07 22"^* January 483/2016 2879/DEL/2010 2007-08 22"^* January 490/2016 1823/Del/2012 2008-09 22"^* January'

5. It may be mentioned that the order dated 23^^^ December 2015 passed by the ITAT for AY 2004-05 has been followed by it in the subsequent order dated 22"'^ January 2016for the other AYs mentioned above.

6. The common question that is sought to be urged in all these appeals by the Revenue is whether the ITAT has erred in interpreting Section 80-IA (2A)ofthe Income Tax Act, 1961 ('Act')? The Revenue is aggrieved by the decision of the ITAT that the first degree nexus implicit in the words "derived from" used in section 80 lA is not required for computation of deduction in the case of undertaking engaged in providing telecommunication services since the words "derived from" do not occur in sub-section (2A) of Section 80 lA. According to the Revenue, the ITAT erred in reading the sub-section(2A)in isolation, and thereby carved out a separate scheme with regard to the nature and extent of deduction for undertaking engaged in providing telecommunication services. 483/2016 &490/2016 Page5of10

7. Section 80IA(1),(2)and(2A)ofthe Actread as under: "80 lA:Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development,etc.- (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section(4)(such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions ofthis section,be allowed,in computing the total income of the assessee, a deduction of an amount equal to hundred per cent ofthe profits and gains derived from such business for ten consecutive assessment years. (2)The deduction specified in sub-section(1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park or develops a special economic zone referred to in clause (ill) of sub-section (4) or generates power or commences transmission or distribution of power 1 or undertakes substantial renovation and modernisation ofthe existing transmission or distribution lines Provided that where the assessee develops or operates and maintains or develops,operates and maintains any infrastructure facility referred to in clause(a)or clause(b)or clause(c)ofthe Explanation to clause

(i) of sub-section (4), the provisions of this sub-section shall have effect as ifforthe words "fifteen years",the words'"twenty years" had been substituted. (2A) Notwithstanding anything contained in sub-section (1) or sub section (2), the deduction in computing the total income of an undertaking providing telecommunication services,!specified in clause

(ii) of sub-section (4), shall be hundred per cent of the profits and

483/2016&490/2016 Page6of10 gains of the eligible business for the first five; assessment years commencing at any time during the periods as specified in sub-section (2)and thereafter,thirty per cent ofsuch profits arid gains for further five assessment years."

8. The question arose in the context ofthe Assessee being asked to explain why certain specific items categorized as 'other income' and 'extra-ordinary item'in the Profit and Loss Account in assessment year 2004-05 should not be excluded from the profit and gains of the Assessee.; According to the Revenue, these items could not be considered as profits;and gains 'derived from'the eligible business for the purpose ofdeduction under Section 80lA. The said six items were: (i)Extra Ordinary Items (ii)Refund from Universal Service Fund (iii)Interest from others (iv)Liquidated Damages (v)Excess provision written back

(vi) Others including sale of directories, publications, form, waster paper,etc.

9. The AO held that the six items ofincome could not be said to be derived fi-om the business of the Assessee and added the income therefrom to the returned income of the Assessee. In the appeal by Ithe Assessee, the Commissioner of Income Tax (Appeals)['CIT (A)'] agreed with the AO that three of the above items, viz. Extraordinary Items, Refund from Universal Service Fund and Interest from Others, did not form part of the profit derived from eligible business. However, the Assessee's plea regarding the other three items as being derived from; the business was 483/2016&490/2016 Page 7of10 1) accepted by the CIT(A).

10. The Assessee filed appeals and the Revenue filed cross-appeals before the ITAT.TheITAT in the impugned orders concluded thkt with sub-section (2A) beginning with a non-obstante clause, the legislative intention of making available to an undertaking, providing telecommunication services, the benefit of deduction of 100% of the profits and gains "of the eligible business" was explicit. Indeed, the legislature appears, to have made a conscious departure in adopting for sub-section (2A) a wording different from that appearing in sub section (1). Under Section jSOIA (1), what is available for deduction are profits and gains "derived byjan undertaking or an enterprise from any business referred to in sub-section (4)" whereas in Section 80-IA(2A)what is available for deduction is "hundred percent of the profits and gains of the eligible business". The following conclusion reached by the ITAT in para 13.11 of the impugned order correctly encapsulates the legal position as far as the interpretation of Section 80IA (2A)is concerned. "13.11 Thus, we find that the legislature being alive to providing tax deductions to business enteiprises and undertakings, it wanted to curtail the time line during which deduction can be claimed and also addressing the|extent upto which it can be claimed has consciously carVed out an exception to specified undertakings/enterprises whose needs and priorities differ has taken care to expand the time line for claiming deductions. It has consciously enabled those undertakings/enterprise who fall under sub-section (2A) to claim 100% deduction of profits and gains ofeligible business for the first five years and upto 30% for the remaining five years in the ten consecutive assessment years out ofthe fifteen years starting from the time the enterprise started its operation. 483/2016&490/2016 Page8of10 The legislature having ousted applicability of sub-section (1) and(2)in the opening sentence brought in for the!purposes of time line sub-section (2) into play but madej no efforts whatsoever to put the assessee under sub-section(2A)to meet the stringent requirements that the profits so contemplated were to be "derived from". The requirements of the ifirst degree nexus of the profits from the eligible business has not been brought into play."

11. As a result,the orders ofboth the AO and the CIT(Aj)to the extent they deny the Assessee, which in this case is in the busihess of providing telecommunication services,deduction in respect ofthe above items in terms ofSection 80IA(2A)are unsustainable in law and have rightly been reversed by the ITAT.