Tca/362/2009 Of M/S Sabdhagiri Telecom v. The Income Tax Officer

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 14.11.2018 CORAM : THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MR.JUSTICE N.SATHISH KUMAR Tax Case Appeal Nos.362 and 363 of 2009 M/s.Sabdhagiri Telecom,C-1, K.R.V.Complex,347, 7[th] Street,Gandhipuram,Coimbatore-641 012 .... Appellant in both the Appeals -vs- The Income Tax Officer,Ward-1(1), Coimbatore. ... Respondent in both the Appeals Tax Case Appeals filed under Section 260A of the IncomeTax Act, 1961 against the common order of the Income TaxAppellate Tribunal Chennai 'D' Bench, dated 28.11.2008 in ITANo.2109/Mds/2006 and ITA No.1788/Mds/2007 for the Assessmentyears 2003-04 and 2004-05. Against the order of the Commissionerof Income Tax (Appeal -I), Coimbatore in Appeal No.446/06-07 andAppeal No.446/05-06, dated 30.08.2006 and against the order ofthe Income Tax Officer Ward II(1), Coimbatore, in PANNo.AASFS1417R/2004-05dated06.12.2006andPANNo.AASFS1417F/2003-04, dated 27.02.2006. These appeals by the appellant/assessee, under Section260-A of the Income Tax Act, 1961 (The 'Act' for brevity), aredirected against the common order passed by the Income Tax https://hcservices.ecourts.gov.in/hcservices/ Appellate Tribunal, Madras 'D' Bench, in ITA No.2109/Mds/2006and ITA No.1788/Mds/07, for the Assessment years 2003-04 and2004-05, respectively. 2.These Appeals have been admitted on 21.04.2009, on thefollowing Substantial Question of Law:"Whether on the facts and circumstancesof the case, the Tribunal was right in holdingthat the assessee is not a basictelecommunication service provider as perSection 80IA(4)(ii) and therefore, not entitledfor deduction under Section 80IA?” 3.The assessee filed their return of income for theassessment years 2003-04 and 2004-05, admitting a total incomeof Rs.'Nil'. The assessments were completed under Section 143(3) of the Act, vide assessment orders dated 27.2.2006 and6.12.2006. The Assessing Officer held that the nature ofservice done by the assessee is that of commission agent of BSNLand they do not render any telecommunication service.Therefore, the deduction claimed by the assessee, under Section80IA 4(ii) of the Act, was rejected. The assessee preferredappeals before the Commissioner of Income Tax (Appeals) ('CITA'for brevity), who by a common order dated 30.08.2006 allowed theappeals. The Revenue, being aggrieved by such order, preferredappeals to the Tribunal. However, it appears that none appearedfor the assessee before the Tribunal and the Tribunal, by theimpugned order held that the assessee is collecting charges oncommission basis on behalf of BSNL and therefore, cannot be saidto be a provider of telecommunication services. Accordingly,the appeals filed by the Revenue were allowed and the orderspassed by the CITA were set aside. The assessee is before uschallenging the said common order passed by the Tribunal. 4.We have heard Mr.V.C.Janardhanan, the learned counselfor the appellant/assessee and Mr.T.R.Senthilkumar, the learnedSenior Standing Counsel for the Revenue. 5.The CITA, while allowing the assessee's appeals, hadexamined the agreement entered into between the assessee and theBSNL and took note of the Certificate issued by the BSNL statingthat the assessee is an authorised GEPABX (Group ElectronicPrivate Automated Branch Exchange) franchise of BSNL and isoperatingtelephoneexchangesandprovidingBasicTelecommunication services to its customers in Gandhipuram andRaja Street, for which, agreements have been entered into 4.We have heard Mr.V.C.Janardhanan, the learned counselfor the appellant/assessee and Mr.T.R.Senthilkumar, the learnedSenior Standing Counsel for the Revenue. 5.The CITA, while allowing the assessee's appeals, hadexamined the agreement entered into between the assessee and theBSNL and took note of the Certificate issued by the BSNL statingthat the assessee is an authorised GEPABX (Group ElectronicPrivate Automated Branch Exchange) franchise of BSNL and isoperatingtelephoneexchangesandprovidingBasicTelecommunication services to its customers in Gandhipuram andRaja Street, for which, agreements have been entered into between the BSNL and the assessee. The CITA, on perusal of theterms and conditions of the agreements, held that the assesseeis operating telephone exchanges and providing basictelecommunication services to its customers, and therefore, theinterpretation of the Assessing Officer that the assessee is notproviding 'basic telecommunication services' is incorrect.Further, after taking note of the statutory provision, viz.,Section 80IA(4)(ii) of the Act, the CITA held that from theagreement entered into between the assessee and the BSNL and theCertificate dated 22.08.2006 issued by the BSNL it is clear thatthe assessee is providing 'basic telecommunication services' toits customers and therefore, held that the assessee is entitledto claim deduction under Section 80IA(4)(ii) of the Act andaccordingly directed the Assessing Officer to allow the claimfor deduction, as claimed by the assessee, in its return ofincome for the relevant assessment years. 6.The Tribunal reversed the decision of the CITA on avery slender point by stating that the assessee is collectingcommission charges and therefore, not a provider oftelecommunication services. We are unable to accept the findingrecorded by the Tribunal for more than one reason. Firstly wefully subscribe to the finding rendered by the CITA and we aresatisfiedthattheassesseeisproviding'basictelecommunication services'. Our conclusion is strengthened byreferring to the relevant Rules in the Indian Telegraph Rules1951 (the 'Rules' for brevity) and the Telecom RegulatoryAuthority of India Act, 1997 ('TRAI Act' for brevity). 7.In Rule 2(e) of the Indian Telegraph Rules,'Departmental Exchange' is defined to be a telephone exchange,which is installed, maintained and controlled by the TelegraphAuthority. Clause (i) of Rule 2(e) of the Rules defines'Electronic Exchange' to mean an electronically operated andmaintained Telephone Exchange of the stored programmecontrolled type, which uses a computer for the establishment oftelephone calls. Rule 2(k) of the Rules defines “ExchangeSystem” to mean any Departmental Telephone Exchange or Exchangesand any lines connected therewith declared by the TelegraphAuthority to be an exchange system. Rule 2(jj) defines 'PrivateBranch Exchange' means an exchange provided for any one partyand connected to a departmental exchange. Rule 2(kk) defines“Private Exchange” to mean a telephone exchange providedexclusively for the use of an organisation or an individual andnot connected to the public network. 8.Section 2(k) of the TRAI Act, 1997 defines'telecommunication service' in the following terms: “'Telecommunication service' meansservice of any description (includingelectronic mail, voice mail, data services,audio tax services, video tax services, radiopaging and cellular mobile telephone services)which is made available to users by means ofany transmission or reception of signs,signals, writing images and sounds orintelligence of any nature, by wire, radio,visual or other electromagnetic means but shallnot include broadcasting services”. 8.Section 2(k) of the TRAI Act, 1997 defines'telecommunication service' in the following terms: “'Telecommunication service' meansservice of any description (includingelectronic mail, voice mail, data services,audio tax services, video tax services, radiopaging and cellular mobile telephone services)which is made available to users by means ofany transmission or reception of signs,signals, writing images and sounds orintelligence of any nature, by wire, radio,visual or other electromagnetic means but shallnot include broadcasting services”. 9.We find that the definition of 'telecommunicationservice', as defined under Section 2(k) of the TRAI Act, is avery wide and comprehensive definition, which includes servicesof any description, which is made available to users by means ofany transmission or reception of signs, signals etc. Thus, thedefinition being very wide and inclusive definition, it wouldencompass all types of services regardless of the descriptionand definitely it would encompass the type of service renderedby the assessee and therefore, we have no hesitation to holdthat the type of service rendered by the assessee is a 'basictelecommunication service'. Furthermore, the official websiteof the BSNL also shows EPABX as one of the enterprises servicesprovided by BSNL. The official website of BSNL also states thatit permits telephone subscribers to use their own PABX/EPABXconnected to the BSNL network under certain commercial/technicalconditions. Thus, this type of service done by the assessee isan authorised 'telecommunication service' in association withBSNL. Our above view is strengthened by the decision of theGujarat High Court at Ahmedabad in TCA No.1098 of 2005 etc., inthe case of Commissioner of Income Tax Vs. Himanshu v.Shah andothers, dated 16.12.2014. The Tribunal examined an identicalquestion, where the assessees, who were franchisees of BSNL andwho were permitted to instal, maintain and operate in-diallingPABX under franchisee to support the Department, can be treatedto have provided 'basic telephone services' entitling them fordeduction under Section 80IA of the Act. The Court held infavour of the assessee. Further in the decision of ITAT,Mumbai Bench, in ITA No.1654/Mum/10, dated 21.12.2009 in thecase of Income Tax Officer v. Quick Telecom, Mumbai, the MumbaiTribunal also examined an identical agreement as that of theagreement entered into by the assessee with BSNL and held thatmerely because the services are provided in association withMTNL (in that case), it does not mean that the assessee is not providing the 'basic telecommunication services'. 10.Thus, for all the above reasons, we find that theinterpretation given by the Commissioner of Income Tax (Appeals)is perfectly valid and proper and the interference by theTribunal to such an order was uncalled for. In the result, the Tax Case Appeals filed by theappellant/assessee are allowed and the common order passed bythe Tribunal is set aside and the orders passed by theCommissioner of Income Tax (Appeals) are restored and theSubstantial Question of Law is answered in favour of theassessee. No costs. Sd/- Assistant Registrar(CS-VIII) //True copy// Sub Assistant Registrar msk To 1.The Income Tax Appellate Tribunal Madras 'D' Bench. 2. The Commissioner of Income Tax (Appeals)-1, Coimbatore 3. The Income Tax Officer, Ward -II(1), Coimbatore +2cc to Mr.VC.Janardhanan, Advocate SR.No.77728 +1cc to Mr.T.R.Senthilkumar, Advocate SR.No.77642 T.C.A.Nos.362 and 363 of 2009SVN(CO)GMY(19/12/2018)