By TIOL News Service

NEW DELHI, MAR 11, 2019: THE ISSUE IS - Whether deduction u/s 80IA(4)(ii) which is available to basic Telecom Service Providers is also available to franchisees of such service providers, even if it is only putting EPABX system. YES IS THE ANSWER.

Facts of the case

The assessee filed return of income for the relevant AY. The returned income was accepted. Subsequently, notice u/s 143(2) of the Act was issued. On scrutiny of the accounts, the AO observed that the assessee had claimed deduction of Rs. 2,07,91,043/- u/s 80IA of the Act. According to the assessee, it had shown income from telecommunication. It was submitted before the AO that in earlier years also such deduction was claimed by the assessee, it was disallowed by the AO. However, when dispute travelled to the Tribunal deduction was granted to the assessee. The AO observed that right from the AY 1997-98 to 2001-02 such deduction was disallowed to the assessee, though CIT(A) and Tribunal had allowed the deduction to the assessee, but department had not accepted the order of the Tribunal and carried the matter before the Gujarat High Court. The AO did not accept the claim of the assessee, because in earlier year, Department went in appeal before the High Court. Accordingly, the AO disallowed the claim of the assessee. On appeal, CIT(A) passed order in favour of Assessee.

On appeal, Tribunal held that,

++ jurisdictional High Court has adjudicated this issue in favour of the assessee, wherein it has been held that the assessees who are franchisees of BSNL and who have been permitted to install, maintain and operate in dialing EPABX under the franchisees to support the department can be treated to have provided “basic telephone services". This would amount to creation of infrastructure entitling them for deduction under section 80IA. Relying on authoritative pronouncement of the jurisdictional High Court in the assessee's own case, it was viewed that question referred to Bench deserves to be answered in favour of the assessee, and against Revenue;

++ the appeal has also been transferred to the Special Bench. Considering the opinion of Special Bench coupled with ratio laid down by the High Court in assessee's own case, it was held that the assessee is entitled for deduction u/s 80IA(4)(ii) of the Act. The CIT(A) has rightly granted the same to the assessee. No merit was found in appeal of the Revenue. In the result, appeal of the Revenue is dismissed.

(See 2019-TIOL-624-ITAT-AHM-SB)