Relief for Vodafone West Ltd: ITAT Allows Deduction u/s 80IA on SFIS Income, Cites Broader Language of S. 80IA(2A) [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) deleted the disallowance of deduction claimed under section 80 IA of the Income Tax Act, 1961, in respect of Service From India Scheme (SFIS) income amounting to ₹3,31,38,860, citing the broader language of section 80IA (2A) which governs telecommunication service providers.

Vodafone West Limited (formerly known as Vodafone Essar Gujarat Limited) (assessee) a cellular mobile telephony service provider, received SFIS income, which consists of duty benefits availed by utilizing scripts issued by the Government for the export of services.

The assessee claimed a deduction on this income under section 80-IA on the basis that it accrued directly in the course of its telecommunication business. The Assessing Officer (AO) disagreed with the contentions of the assessee and held that SFIS income was in the nature of an "export incentive".

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The AO also held that the Income from an export incentive cannot be treated as "derived from" the eligible business for computing deduction under section 80 IA of the Act and SFIS income did not have the required first-degree nexus with the assessee's business.

The AO proposed to disallow the deduction claimed under section 80 IA. Since the Dispute Resolution Panel (DRP) did not issue a direction on this specific issue, the AO made the addition in the final assessment order. Aggrieved by the final assessment order, the assessee filed an appeal before the ITAT.

The two-member bench comprising Vikram Singh Yadav (Accountant Member) and Sandeep Singh Karhail (Judicial Member) noted the specific provisions applicable to telecommunication services. It pointed out that section 80IA (2A), which covers undertakings providing telecommunication services, starts with a non obstante clause and stipulates a deduction of "hundred per cent of the profits and gains of the eligible business".

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The tribunal observed that the language of section 80IA(2A) is broader as compared to section 80IA(1) of the Income TaxAct, which requires that profits and gains be "derived from" the eligible business.

The tribunal held that the test of first-degree nexus, as applied by the AO, could not be extended while computing the deduction for a telecommunication service provider under section 80IA (2A) of the Act.

The tribunal relied on the decision of the Delhi High Court in PCIT vs. Bharat Sanchar Nigam Ltd., which similarly concluded that the legislature, by using the non obstante clause in section 80IA (2A), intentionally did not impose the "stringent requirements that the profits so contemplated were to be 'derived from'".

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The tribunal found no merit in the Revenue's submissions and deleted the disallowance by respectfully following the binding judicial precedent. This Ground raised in the assessee's appeal was allowed.

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