By TIOL News Service

NEW DELHI, AUG 04, 2016: THE issue is - Whether in the absence of 'derived from', the requirement of first degree nexus in Sec 80IA does not apply to undertakings providing telecommunication services covered u/s 80IA(2A). YES is the verdict.

Facts of the case

Revenue challenges the order of the Tribunal interpreting Sec 80IA(2A) and holding that the first degree nexus implicit in the words "derived from" used in section 80 IA was not required for computation of deduction in the case of undertaking engaged in providing telecommunication services since the words "derived from" did not occur in sub-section (2A) of Section 80IA. 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. The question arose in the context of the 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 of deduction under Section 80 IA.

The AO held that certain items of income could not be said to be derived from the business of the Assessee and added the income therefrom to the returned income of the Assessee. In the appeal by the Assessee, the Commissioner of Income Tax (Appeals) 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 accepted by the CIT (A).

On appeal, the Tribunal concluded that 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 80IA (1), what is available for deduction are profits and gains "derived by an undertaking or an enterprise from any business referred to in sub-section (4)" whereas in Section 80-IA (2A) what was available for deduction was "hundred percent of the profits and gains of the eligible business"..

On appeal, the Revenue's counsel pleaded that while the Assessee in this case was engaged only in the business of telecommunication services, there could be an enterprise which had more than one undertaking and one such undertaking could be in the telecommunication services. According to him, in such an event, a question might arise whether such an enterprise would be able to seek deduction both under Section 80IA (2A) as far as the telecommunication business is concerned, and under Section 80-IA (1) as far as any other eligible business is concerned.

Held that,

++ in the first place it is a hypothetical situation. In any event, Section 80-IA (2A) treats an undertaking providing telecommunication services as a separate species warranting a separate treatment as is evident from the non-obstante clause with which it begins. The Court sees no reason why such an undertaking would not be able to take the benefit of deduction in terms of Section 80IA(2A) notwithstanding that the enterprise of which it forms part may have other eligible businesses for which the deduction would have to be calculated in terms of Section 80-IA (1) of the Act;

++ the Court finds no reason to differ from the view expressed by the ITAT in the impugned orders as far as the interpretation of Section 80-IA(2A) of the Act is concerned.

(See 2016-TIOL-1640-HC-DEL-IT)