Section 5 – Income – Accrual of income – Telecommunication service provider – Payments received on prepaid cards – Liability to be discharged at future date – To the extent of unutilised talk time payment did not accrue as income in year of sale – Unutilised amount is revenue receipt when talk time is actually used or in case of cards that lapsed on date when cards lapsed

55. CIT vs. Shyam Telelink Ltd.; 410 ITR 31
(Del) Date of order: 15^th November,
2018 A. Ys. 2003-04, 20004-05 and 2009-10

Section 5 – Income – Accrual of income –
Telecommunication service provider – Payments received on prepaid cards –
Liability to be discharged at future date – To the extent of unutilised talk
time payment did not accrue as income in year of sale – Unutilised amount is
revenue receipt when talk time is actually used or in case of cards that lapsed
on date when cards lapsed

The assessee provides basic
telecommunication services and had both prepaid and post paid subscribers. The
prepaid subscribers were billed on the basis of actual talk time. According to
the Department, in respect of the prepaid cards, the assessee was to account
for and include the entire amount paid on the date of purchase of the prepaid
cards by the subscribers and the date of purchase of the prepaid card was the
date when the income accrued to the assessee.

However, the assesse recognised the revenue
on prepaid cards on the basis of the actual usage and carried forward the
unutilised amount outstanding on the prepaid cards, if any, at the end of the
financial year to the next year. The unutilised amount was treated as advance
in the balance sheet and recognised as revenue in the subsequent year, when the
talk time was actually used or was exhausted when the cards lapsed on expiry of
stipulated time.

The Tribunal held that the amount received
on the sale of prepaid cards to the extent of unutilised talk time did not
accrue as income in the year of sale. On appeal by the Revenue, the Delhi High
Court upheld the decision of the Tribunal and held as under:

“i)   The payments made on account of the prepaid
cards by the subscribers was an advance subject to the assesse providing basic
telecommunication services as promised, failing which the unutilised amount was
required to be refunded to the prepaid subscribers. The apportionment of the
prepaid amount was contingent upon the assessee performing its obligation and
rendering services to the prepaid customers as per the terms. If the assesse
failed to perform the services as promised, it was under an obligation to
refund the advance payment received under the ordinary law of contract or
special enactments, such as Consumer Protection Act, 1986.

ii)    The Tribunal was right in
holding that the amount received on the sale of prepaid cards to the extent of
unutilised talk time did not accrue as income in the year of sale. In the case
of prepaid cards that lapsed, the unutilised amount had to be treated as income
or receipt of the assessee on the date when the cards had lapsed. The Assessing
Officer was to compute the assessees income accordingly while he gave effect to
the order of the Tribunal.”