Section 80IA(4)(ii) of  IT Act would still apply even if same undertaking were to expand or add services: Delhi HC dismisses Appeal [Read Order]

In a significant case, the Delhi High Court while dismissing the appeal held that section  80IA(4)(ii) of  Income Tax Act would still apply even if the same undertaking were to expand or add services .

The respondent/assessee,Bt Global Communications India Pvt. Ltd a company engaged in the business of providing telecommunication and related support services including virtual private network, global management network and internet services to various customers within and outside India.

In the return of income respondent declaring its total income as nil on the basis of deduction of Rs.20,01,05,275/- under Section 80IA of the Act and book profit of Rs.5,33,99,601/-. Thereafter the assessee field revised return which was duly processed under Section 143(1) of the Income Tax Act.

Subsequently the respondent case was selected for scrutiny .Further  reference under Section 92CA(1) of the Act was made to the Transfer Pricing Office to determine Arm’s Length Price since the respondent/assessee had entered into international transactions with associated enterprises. Accordingly TPO passed an order making certain additions.

respondent/assessee raised objections before the Dispute Resolution,who decided the objections of the respondent/assessee, directing the TPO to determine the Arm’s Length .Thereafter the Assessing Officer passed order by assessing the income of the respondent/ assessee as Rs.6,51,45,21,530/- by way of addition of Rs.6,45,87,22,468/- on account of adjustment to the Arm’s Length Price and deduction of Rs.20,01,05,275/- under Section 80IA of the Act.

Thereafter, the Principal Commissioner Income Tax (PCIT) invoked the revisional jurisdiction under Section 263 of the Income Tax  Act and held that respondent/assessee was not eligible to any deduction under Section 80IA(4)(ii) of the Act.

Aggrieved by the order, the respondent filed an appeal before the Tribunal and who allowed the appeal. Against the order petitioner/revenue filed an appeal before the court.

During the proceedings the counsel for respondent/assessee  argued that assessee  was being allowed deduction under Section 80IA of the Act since AY2007-08, but the appellant/assessee took a U-turn by denying the benefit in AY 2010-11, that too invoking jurisdiction under Section 263 of the Act, which cannot be justified.

Counsel for revenue submitted that Section 80IA(4)(ii) of the Act are silent about migration of license; and that since business was commenced by the respondent/assessee in AY 2004-05 having availed 100% deduction from AY 2004-05 to AY2008-09, the respondent/assessee was entitled to claim deduction only to the extent of 30% from AY 2009-10 to AY 2013-14

It was observed by the court that respondent/assessee since the year 2003 was dealing in Internet Protocol-Virtual Private Network (IP-VPN) services license and in the year 2006, the Department of Telecommunication (DoT) granted National Long Distance-International Long Distance (NLD-ILD) license.

Further observed that the assessee was  migrating from IP-VPN services to NLD-ILD license, with the clear stipulation that services earlier being provided under IP-VPN license would continue under NLD-ILD license.

Thus with respect to the decision of PCIT vs Verizone Communications India Pvt. Ltd, the court determined that mere addition of services or expansion of the same undertaking would not take it out of the realm of Section 80IA(4)(ii) of the Act.

After analyzing the facts and arguments of both parties, a division bench of  Justice Rajiv Shakdher and Justice Girish Kathpalia observed that PCIT wrongly invoked jurisdiction under Section 263 of the Act and fell in error by taking a U-turn in fourth assessment year thereby denying benefit of Section 80IA of the Act to the respondent/assessee.

Therefore section  80IA(4)(ii) of  Income Tax Actwould still apply even if the same undertaking were to expand or add services .

Shlok Chandra, Sr. Standing Counsel with Ms Madhavi Shukla, Ms Priya Sarkar, Jr. Standing Counsel and Mr Ujjwal Jain,Advocates appear for revenue and Mr Deepak Chopra, Ms Manasvini Bajpai and Ankul Goyal,advocates appeared for Respondent/Assessee

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