Skip to content


Birla at and T Communication Ltd. Vs. Joint Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(2001)77ITD142(Mum.)
AppellantBirla at and T Communication Ltd.
RespondentJoint Commissioner of Income-tax
Excerpt:
.....which is the total number of the relevant previous years. thus regarding any payment in assessment year a deduction will be allowed of the amount distributed over remaining years of life of licence. since payment of rs. 3,13,80,00,000 was made in assessment year 1996-97 and the licence was valid for 10 years, deduction allowable in assessment year 1997-98 is only rs. 31,38,00,000 i.e., @ 10% of rs. 3,13,80,00,000. the claim of the assessee that in assessment year 1996-97, there was no business and therefore, deduction pertaining to that year which was claimed in assessment year 1997-98 is not supported by any provision of law, as mentioned in section 35abb. accordingly this is a mistake apparent from record and is a prima facie mistake within meaning of section 143(1)(a). since section.....
Judgment:
1. This is an appeal by the assessee which is a company. The appeal relates to the assessment year 1997-98, for the previous year ended on 31-3-1997.

2. There are two disputes raised by the assessee. The first is regarding the correctness of the prima facie adjustment made by the Assessing Officer under section 143(1)(a) of the Act by disallowing a sum of Rs. 31.38 crores, for the reasons given by him in the Adjustment Explanatory Sheet. The second dispute, which is the more important one is whether the Assessing Officer was justified in levying additional income-tax of Rs. 2,69,86,800 under section 143(1A), as a consequence to the prima facie adjustment.

3. We may first take up the new dispute namely, the levy of the additional income-tax under section 143(1A), the Assessing Officer is empowered to charge additional tax from the assessee where as a result of the prima facie adjustment made under the first proviso to clause (a) of sub-section (1), the income declared by the assessee, in the return is increased or the loss declared by such person is reduced or is converted into income. The additional tax in the present case came to be imposed under the following circumstances. The assessee is engaged in the business of providing telecom services. In the month of December, 1995, it paid licence fees of Rs. 313.8 crores in respect of the licence, which was to remain valid for a period of ten years. The payment fell in the accounting year ended 31-3-1996 relevant to the assessment year 1996-97. The assessee's business had not been set up in this year. It therefore filed nil return in November, 1996 which is stated to have been accepted under section 143(1)(a). The installation of the equipment was completed during the next accounting year namely, 1-4-1996 to 31-3-1997, relevant for the assessment year 1997-98. The first telephone call was made on 26-1-1997 and the business is stated to have been set up on that date. For this year, i.e., year ended 31-3-1997, the assessee filed a return declaring a loss of Rs. 1,14,21,17,389 and claimed the entire tax deducted at source as refund.

In the return, a copy of which is available at page 1 of the paperbook, the assessee commenced the computation of the income from business from the figure of loss as per the profit and loss account and increased the same, inter alia, by a sum of Rs. 80,19,33,333 which was described as "deduction under section 35ABB in respect of licence fees to operate telecom services". Page 2 contains the details of the claim relating to the licence fees and the same are reproduced as under : I. For Previous Year 1995-96 : l/10th of the expenditure as the same could't be claimed as section 35ABB is introduced with retrospective effect from 1-4-1996 II. For Previous Year 1996-97: 1 / 10th of the amount paid in P,Y.1995-96 Licence fees paid during the Previous Year ended 31-3-1997(Assessment Year 1997-98) Remaining Period of Licence Deduction for Assessment Year 1997-98 l/9th of amount paid during 1996-97 It may be seen from the aforesaid details that the assessee claimed two amounts of Rs. 31.38 crores each in respect of the payment of Rs. 313.8 crores made during the previous year ended 31-3-1996. Each of these amounts represented 1/10th of the licence fees paid during the year ended 31-3-1996. In addition, 1/9th of the licence fees of Rs. 159.6 crores paid during the previous year ended 31-3-1997, which came to Rs. 17,43,33,333 was also claimed as deduction.

4. The return was processed under section 143(1)(a) of the Act and an intimation was drawn up on 3-11-1998. The loss was reduced to Rs. 82,82,74,300 by disallowing two items claimed by the assessee in the return as deduction. The first was the disallowance under section 43B in an amount of Rs. 43,089 with which we are not concerned in this appeal. The second was the disallowance of licence fees of Rs. 31.38 crores. The Assessing Officer gave the following reasons in the Adjustment Explanatory Sheet for disallowing 'he licence fees : "In the return the assesses has claimed deduction under section 35ABB of Rs. 80,19,33,333. This consists of an amount of Rs. 17,43,33,333 claimed in assessment year 1997-98. Further the assessee Has claimed deduction of Rs. 31,38,00,000 @ 10% of licence fees paid of Rs. 3,13,80,00,000 in assessment year 1997-98. The assessee has further claimed an additional amount of Rs. 31,38,00,000 being 1/10th amount relating to assessment year 1996-97, Thus against payment of Rs. 3,13,80,00,000. In assessment year 1996-97 the assessee has claimed deduction @ 20%. As per section 35ABB, deduction in any year is allowable at appropriate fraction meaning fraction the numerator of which is one and the denominator of which is the total number of the relevant previous years. Thus regarding any payment in assessment year a deduction will be allowed of the amount distributed over remaining years of life of licence. Since payment of Rs. 3,13,80,00,000 was made in assessment year 1996-97 and the licence was valid for 10 years, deduction allowable in assessment year 1997-98 is only Rs. 31,38,00,000 i.e., @ 10% of Rs. 3,13,80,00,000. The claim of the assessee that in assessment year 1996-97, there was no business and therefore, deduction pertaining to that year which was claimed in assessment year 1997-98 is not supported by any provision of law, as mentioned in section 35ABB. Accordingly this is a mistake apparent from record and is a prima facie mistake within meaning of section 143(1)(a). Since section 35ABB allows deduction only at appropriate fraction and does not permit deduction for an amount pertaining to assessment year in which the business was not set up, claim of the assessee of deduction of Rs. 31,38,00,000 is without any basis.

Accordingly claim is not allowed and the disallowance of Rs. 31,38,00,000 is made under section 143(1)(a)." Consequently additional Income-tax of Rs. 2,69,90,506 was charged which is now challenged before us.

5. The assessee filed an appeal before the CIT (Appeals) and contended that the adjustment by disallowing the licepce fees paid was not a prima facie adjustment and that consequently the levy of additional income-tax was also illegal. It was contended that until the business was set up, the assessee cannot claim any expenses or losses under the Act and therefore, prior to 26-1-1997. It could not have claimed any expenses or losses and therefore it had rightly not claimed any deduction in respect of the licence fees under section 35ABB in the return filed for the assessment year 1996-97. It was further pointed out that the Finance Act, 1997 made the provisions of the section retrospective from 1-4-1996 and ensured that even those instalments of licence fees which were paid prior to 1-4-1996 would be eligible for deduction for the balance period of the licence and therefore the provision must be so construed as to avoid hardship which may be caused to genuine cases like that of the assessee. It was further submitted that at any rate, the question whether the assessee could claim deduction in respect of the fees paid in December, 1995 and referable to assessment year 1996-97, in the return for the assessment year 1997-98 was a debatable issue on the basis of the provision as it existed at the time of filing the return for the assessment year 1997-98 and therefore no additional income-tax can be charged.

"4. On a careful consideration of the submissions made, 1 agree with the action taken by the Assessing Officer. The appropriate fraction of licence fee is allowed from the year of commencement of business up to the stipulated number of years. Moreover, in Explanation (ii) to sub-section (1) of section 35ABB, "appropriate fraction" has been defined to mean "... the numerator of which is one..." whereas, the appellant claimed two deductions, including one in respect of the year when the business had not commenced, which is clearly not permissible. The argument that the proposed amendment to these provisions in the Finance Bill of 1999 would suggest that the issue was unclear and hence debatable at the relevant point of time does not appear correct, as the law had to be applied as it stood at the relevant point of time. The Assessing Officer has correctly worked out the deduction admissible to the appellant, as per law and hence does not call for any interference on my part. Accordingly the issue is decided against the appellant.

5. In the second ground, the appellant has contested levy of additional tax under section 143(1A) of the Income-tax Act, 1961.

The issue being consequential in nature, no specific directions are called for on my part.

7. The assessee is in further appeal before us. It was contended on its behalf that no deduction of the licence fees paid could have been claimed in the return for the assessment year 1996-97 because the assessee's business of providing telecom services had not been set up during the previous year. However, the Intention of section 35ABB was to give complete deduction in respect of the payment of licence fees for tclecom services and since the amount had actually been paid, the assessee bona fide took the view that it could claim 1/10th of the payment made in December, 1995 and referable to the assessment year 1996-97 in the return filed for the assessment year 1997-98, in addition to the l/10lh of the fees paid and referable to the assessment year 1997-98. Thus, it was that two deductions under section 35ABB, each of Rs. 31.38 crores and each representing 1/10th of the total licence fees of Rs. 313.8 crores paid in December, 1995, came to be claimed in the return for the assessment year 1997-98. It was submitted that the object of inserting the section as explained in the Memorandum (224 ITR Statutes 120) was to amortise the capital expenditure of paying telecom services fees and that if the fees has actually been paid, the same has to be amortised in equal instalments over the period for which the licence remained in force and viewed in the background of this object, the assessee was justified in its belief that the payment of Rs. 313.8 crores would be amortised over a period of ten assessment years, but since the business had not been set up in the previous year relevant to the assessment year 3996-97, it genuinely believed that the fraction of 1/10th can be claimed, instead of in the assessment year 1996-97, in the return filed for the assessment year 1997-98. The claim it was submitted, would be in consonance with the object of introducing the provision. It was pointed out further that originally, the section was to take effect only from 1-4-1998 but after considering the representations the Legislature was pleased to give retrospective effect from 1-4-1996. Our attention, in this connection, was drawn to the Speech of the Hon'ble Union Finance Minister while moving the Finance Bill, 1997 in the Lok Sabha (See 25 ITR Statutes 30, para 24).

The reason for accepting the representations and giving retrospective effect from 1-4-1996 has been stated to be the fact that 1-4-1996 marks the beginning of the fiscal year when the first telecom licence was issued. It was therefore contended that if the object of the provision is to allow the assessee to amortise the licence fees paid, the assessee cannot be faulted for entertaining a bona fide impression that any deduction referable to an assessment year, which is prior to the setting up of the telecom business can be claimed in the return for the assessment year first available after the setting up of such business.

In further support of the contention, the ld. counsel for the assessee has drawn attention to the fact that realising the difficulties which the assessees were facing where the payment of the fees has been made prior to the setting up of the telecom business, section 35ABB was amended by the Finance Act, 1999, with retrospective effect from 1-4-1996 to provide that irrespective of the fact that the payment of the licence fees had been effected prior to the commencement of the business, the assessee can claim deduction of the appropriate fraction in the previous years beginning with the previous year in which such business was commenced. The effect of this amendment, it was pointed out, was that the assessec's claim was proper. Attention was also drawn to the Notes on Clauses of the Finance Bill, 1999 (236 ITR, 170 Statutes) wherein the reason for the amendment was given as under: Rationalisation of the provisions relating to allowance for telecommunication licence fees.

in computation of the profits and gains of business or profession, a deduction is allowable under section 35ABB, in respect of any capital expenditure incurred for acquiring any right to operate telecommunication services and for which the payment has actually been made to obtain a licence. This deduction is allowable in equal instalments during the relevant previous years. Under the existing provisions, the expression relevant previous years' means the previous years beginning with the previous year in which the licence fee is actually paid and the subsequent previous year or years during which the licence, for which the fee is paid, shall be in force.

With a view to clarifying that the deduction is allowable in respect of the entire capital expenditure incurred and actualiy paid by the assessee, whether before the commencement of the business or thereafter, the Bill proposes to provide that in a case where the licence fee is actually paid before the commencement of the business, the relevant previous years would mean the previous years beginning with the previous year in which such business commenced and the subsequent previous year or years during which the licence is in force. It is also proposed that no deduction under sub-section (1) of section 32 shall be available for such expenditure for the same year or any subsequent previous year.

The proposed amendment will take effect retrospectively from the 1st of April, 1996, and will, accordingly apply in relation to the assessment year 1996-97 and subsequent years." It is stresscd that the amendment put the matter beyond doubt, in the sense, that the assessec's claim must now be considered as a proper claim and that at any rate, the amendment itself recognised the existence of a doubt or difficulty in the earlier provision and if there is a doubt or debate with respect to the interpretation of a statutory provision, no prima facie adjustment can be made, nor additional income-tax be charged.

8. The ld. sR. DR, on the other hand, strongly relied on para 4 of the order of the CIT(A). He pointed out that for the purpose of levying additional income-tax or for deciding whether the prima fads adjustment was properly made, the law as it stood at the time of filing the return has to be seen and it was not open to the assessee to raise a debate on the basis of the subsequent amendment to the law. In support of this contention, he relied upon the judgment of the Calcutta High Court in the case of Modern Fibotex India. Ltd v. Dy. CIT [1995] 212 ITR 496. He submitted that equitable considerations such as that the assessee would not get a deduction in respect of the payment of licence fees under section 35ABE in the year in which the business was not set up and therefore it must get the deduction in the year in which the business is set up and thus the entire payment should get amortised over the period of the licence can have no place in the interpretation of the income-tax law and if the claim is incorrect, on the basis of the law existing at the time of filing of the return, there is no option but to charge additional income-tax. He pointed out that there was no room for any doubt that the first year in which the assessee, according to the unamended section would get deduction of the appropriate fraction of the licence fees paid, was the assessment year 1997-98 and in the return filed for this year, the assessee cannot get a deduction which relates to the assessment year 1996-97 and has been missed due to the fact that in the previous year relevant to that assessment year, the assessee had not set up the business. The ld. Sr. DR thus supported both the prima facie adjustment as well as levy of additional income-tax.

9. In his rejoinder, the ld. counsel for the assessee pointed out that the return of income was filed only in accordance with law prevailing at the time of filing the same in the sense that there was "nothing revolutionary" in claiming a deduction in the return in respect of an expenditure or payment made in the earlier year and that the section itself permitted deduction, spread over a period of the licence, even though the payment of the licence fees had been effected in an earlier year. The only question was, according to him, whether the Assessing Officer was justified in charging additional income-tax in respect of a debatable or ticklish question relating to the interpretation of a statutory provision. In his submission, the Assessing Officer was not justified.

10. We have carefully considered the rival contentions. We find a good deal of force in the arguments taken on behalf of the asscssec. Section 35ABB, as it was first introduced from 1-4-1996, stood as under : "35ABB. Expenditure for obtaining licence to operate telecommunication services. --(1) In respect of any expenditure, being in the nature of capital expenditure, incurred for acquiringany right to operate telecommunication services and for which payment has actually been made to obtain a licence, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure.

(i) 'relevant previous years' means the previous years beginning with the previous year in which the licence fee is actually paid and the subsequent previous year or years during which the licence, for which the fees is paid, shall be in force; (ii) 'appropriate fraction' means the fraction the numerator of which is one and the denominator of which is the total number of the relevant previous years; (iii) 'payment has actually been made' means the actual payment of expenditure irrespective of the previous year in which the liability for the expenditure was incurred according to the method of accounting regularly employed by the assessee." In accordance with the above section, in respect of the payment made in December, 1995, the deduction of the fraction of 1 / 10th had to be allowed in the assessment year 1996-97 since this was the assessment year relevant to the previous year in which the licence fees was actually paid. But since the business had not been set up during the previous year ended 31-3-1996, the assessee could not, and rightly did not, claim the same in the return filed for the assessment year 1996-97, in November, 1996. In fact, at the time when the return for assessment year 1996-97 was filed, section 35ABB was not even thought of. The return for the assessment year 1997-98 was the first return which the assesses filed after the coming into force of section 35ABB, with retrospective effect from 1-4-1996. Since the section had been given retrospective effect from the assessment year 1996-97, it is quite possible that the assessee was under an impression that what it did not and could not claim in the return for the assessment year 1996-97, could be claimed in the return filed for the assessment year 1997-98, in addition to the appropriate fraction relating to the assessment year 1997-98. The claim of two amounts of Rs. 31.38 crores each, one representing the appropriate fraction relating to the assessment year 1996-97 and the other representing the appropriate fraction relating to the assessment year 1997-98, was also in consonance with the object of introducing the provision namely, the amortisation of the entire licence fees, if it had actually been paid.

There is no dispute that the asscssce had actually paid the licence fees of Rs. 313.8 crorcs in December, 1995. Therefore, consistent with the object of introducing section 35ABB, the asscssee was justified in entertaining a bona fide impression that the arrears of the appropriate fraction can also be claimed in the return filed for the first lime after the section came into force. The section at that time specifically stated that the deduction would commence with the previous year in which the licence fee was actually paid and the subsequent previous year or years during which the business was in force. This also must have lent support to the assessee's belief that the arrears of the claim could also be made in the return filed for the assessment year 1997-98. The section was amended by the Finance Act, 1999, with retrospective effect from 1-4-1996 and after the amendment, the relevant portion of the section stood as under : "35ABB. Expenditure for obtaining licence to operate telecommunication services. --(1) In respect of any expenditure, being in the nature of capital expenditure, incurred for acquiring any right to operate telecommunication services either before the commencement of the business to operate telecommunication services or thereafter at any time during any previous year and for which payment has actually been made to obtain a licence, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure.

(A) in a case where the licence fee is actually paid before the commencement of the business to operate telecommunication services, the previous years beginning with the previous year in which such business commenced; (B) in any other case, the previous years beginning with the previous year in which the licence fee is actually paid, and the subsequent previous year or years during which the licence for which the fee is paid, shall be in force; (ii) appropriate fraction means the fraction the numerator of which is one and the denominator of which is the total number of the relevant previous years; (iii) 'payment has actually been made' means the actual payment of expenditure irrespective of the previous year in which the liability for the expenditure was incurred according to the method of accounting regularly employed by the assessee". [Emphasis supplied] The amendment, it may be noted, clarifies that irrespective of the fact that the licence fees was paid before the commencement of the business, the deduction would start from the previous year in which such business commenced. The words underlined by us as well as the definition of the words "relevant previous years" in Explanation (i) clearly bring out the intention of the Legislature to sanctify arrears of the claims for deduction in the year in which the business is actually commenced. The object of the amendment has been brought out in the Notes on Clauses (236 ITR 170 Statutes) which we have already extracted in the earlier portion of our order. Thus, considering the object of the amendment also, the assessee's claim appears to be prima facie acceptable. In any event, there is scope for debate and argument as to whether the assessee was right in claiming l/10th of the licence fees relating to the assessment year 1996-97 in the return for the assessment year 1997-98 and if there is a debate, the levy of additional income-tax cannot be upheld.11. At this juncture, we may clarify that we are not to be understood as having pronounced on the correctness or otherwise of the assessee's claim on merits. We are only saying that there is much to be said in favour of the assessee's stand and that it is not a case where no argument is available to the assessee. It is our considered view that it is not a case for prima facie adjustment as envisaged in section 143(1)(a).

12. For the aforesaid reasons, we cancel the levy of additional income-tax and allow the assessee's appeal.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //