July 2019

Section 80-IA(2A) of ITA, 1961 – Telecommunication services – Deduction u/s. 80-IA(2A) – Scope – Payment by third parties for availing of telecommunication services of assessee – Late fees and reimbursement of cheque dishonour charges received from such third parties – Income eligible for deduction u/s. 80-IA(2A)

K.B.Bhujle
Advocate

30  Principal CIT vs. Vodafone Mobile Services Ltd.; 414 ITR 276 (Del) Date of order: 3rd December, 2018 A.Y.: 2008-09

 

Section 80-IA(2A) of ITA, 1961 – Telecommunication services – Deduction u/s. 80-IA(2A) – Scope – Payment by third parties for availing of telecommunication services of assessee – Late fees and reimbursement of cheque dishonour charges received from such third parties – Income eligible for deduction u/s. 80-IA(2A)

 

The assessee was engaged in the business of providing telecommunication services. For the A.Y. 2008-09, the AO denied the benefit of section 80-IA(2A) of the Income-tax Act, 1961 on the profits and gains earned by the assessee from sharing of infrastructure facilities in the form of cell-sites and fibre cable with other companies or undertakings engaged in “telecommunication services”. This, he held, would amount to leasing of the assets to third parties and income from the leasing would not be income derived from “telecommunication services”. The assessee had also paid bank charges as cheques issued by some of the customers had been dishonoured. These charges were also levied to the customers but the entire amount could not be recovered. The AO held that late payment charges or cheque dishonour charges were in the nature of penalty and not income derived from telecommunication business and hence not eligible for deduction u/s. 80-IA(2A).

 

The Commissioner (Appeals) and the Tribunal allowed the claims.

 

On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:

 

“i)   The finding of the Assessing Officer that income from sharing fibre cables and cell-sites was income by way of leasing and hence not includible in revenue earned for computing profits from ‘telecommunication service’ was far-fetched and misconceived. The assets, i.e., cell-sites and fibre cables, were not transferred. Third parties wanting to avail of the spare capacity were only allowed usage of the facilities for consideration. Payments so made by the third parties were to avail of and use the telecommunication infrastructure. They would qualify as payments received for availing of ‘telecommunication services’. The income from sharing of fibre cables and cell-sites qualified for deduction u/s. 80-IA(2A).

 

ii)   The Tribunal was also justified in upholding the reasoning and order of the Commissioner (Appeals) on cheque dishonour and late payment charges.”

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