Delhi High Court Upholds Deletion of Additions under Section 80IA (of Income Tax Act, 1961) and Section 40(a)(i) (of Income Tax Act, 1961) and (ia) of Income Tax Act

Case Name:

ITA 626/2023 - Principal Commissioner of Income Tax -7 v. Verizone Communications India Pvt. Ltd.

Key Takeaways:

1. The High Court of Delhi upheld the deletion of additions made under Section 80IA (of Income Tax Act, 1961) and Section 40(a)(i) (of Income Tax Act, 1961) and (ia) of the Income Tax Act.
2. The court held that the expansion of services by the same undertaking did not establish a new undertaking.
3. The deductions claimed by the respondent were valid as they fell within the provisions of Section 80IA (of Income Tax Act, 1961).
4. The court found no reason to interfere with the order passed by the Income Tax Appellate Tribunal.

Case Synopsis:

This is a judgment delivered by the High Court of Delhi in the case of ITA 626/2023. The case involves the Principal Commissioner of Income Tax -7 as the appellant and Verizone Communications India Pvt. Ltd. as the respondent.

The appellant filed an application seeking condonation of a delay of 440 days in re-filing the appeal. The respondent had no objection to the delay being condoned, and the court ordered accordingly.

The appeal concerns the Assessment Year (AY) 2011-12. The appellant seeks to challenge the order passed by the Income Tax Appellate Tribunal (Tribunal) on 20.03.2020.

There are two issues that arise for consideration in this appeal. The first issue is whether the Tribunal erred in deleting the addition of Rs. 5,89,34,508/- made under Section 80IA (of Income Tax Act, 1961) of the Income Tax Act, 1961. The second issue is whether the Tribunal erred in deleting the addition of Rs. 179,16,46,819/- made under Section 40(a)(i) (of Income Tax Act, 1961) and Section 40(a)(ia) (of Income Tax Act, 1961) of the Act.

Regarding the second issue, it is not disputed that it is covered by a judgment of the coordinate bench in Director of Income Tax v. New Skies Satellite BV, 2016:DHC:1003-DB. The respondent’s counsel also submits that this judgment has been affirmed by the Supreme Court in Engineering Analysis Centre of Excellence Private Ltd. v. Commissioner of Income Tax & Another, (2022) 3 SCC 321.

On the other hand, the appellant’s counsel argues that the facts in the Engineering Analysis case were different from those in the New Skies Satellite BV case. The appellant has also preferred an appeal to the Supreme Court against the judgment in the New Skies Satellite BV case, which is pending adjudication.

The court notes that no substantial question of law would arise in this court, as the issue is already covered by the judgment in the New Skies Satellite BV case. Therefore, the court does not find any reason to interfere with the impugned order passed by the Tribunal.

Regarding the first issue, the court examines the provisions of Section 80IA(4)(ii) (of Income Tax Act, 1961) of the Act. The court notes that the provision applies to any undertaking that started or starts providing telecommunication services, including internet services, on or after 01.04.1995 but on or before 31.03.2005.

The court finds that the respondent is an undertaking eligible to claim deduction under Section 80IA (of Income Tax Act, 1961), as it was established between the specified period. The denial of deduction by the AO was based on the reasoning that the acquisition of NLD and ILD licenses in 2008 amounted to the expansion of the existing undertaking beyond the cut-off date.

The court examines whether the addition or expansion of services by the same undertaking would take it out of the realm of Section 80IA (of Income Tax Act, 1961). The court finds that there was no material to support the appellant’s claim that a separate undertaking had been established. The only difference was that the respondent expanded its business by providing private internet services to a closed group of users.

Based on these findings, the court concludes that no new undertaking had come into existence after 31.03.2005. The respondent continued to provide internet services, and the expansion of services did not deprive it of the deductions previously claimed and allowed under Section 80IA (of Income Tax Act, 1961).

Therefore, the court does not find any reason to interfere with the impugned order passed by the Tribunal on this issue as well.

In conclusion, the court dismisses the appeal and states that no substantial question of law arises for consideration. The parties are directed to act based on the digitally signed copy of the judgment.

FAQ:

Q1: What was the appeal about?

A1: The appeal challenged the deletion of additions made under Section 80IA (of Income Tax Act, 1961) and Section 40(a)(i) (of Income Tax Act, 1961) and (ia) of the Income Tax Act.

Q2: What did the court decide?

A2: The court upheld the deletion of additions and held that the expansion of services by