SPECIAL CIVIL APPLICATION NO. 16454 of 2012

AKIL KURESHI AND MS. SONIA GOKANI, JJ.

S.N. Soparkar and B.S. Soparkar for the Petitioner.
Ms. Paurami B. Sheth for the Respondent.

Akil Kureshi, J. - Heard learned counsel for the parties for final disposal of the petition.

2. The petitioner has challenged notice for reopening of assessment previously framed after scrutiny. For the assessment year 2006-2007, such notice was issued on 7.3.2012. At the insistence of the petitioner, Assessing Officer supplied his reasons recorded for reopening the assessment. Such reasons read as under :

"A survey action u/s.133A of the Income Tax Act was carried out in the case of certain telecom companies including M/s. Vodafone Essar Ltd., in Mumbai.

Non-deduction of TDS on prepaid mobile SIM cards and recharge vouchers :

During the survey in the case of M/s. Vodafone Essar Ltd., it is seen that they were offering mobile cellular service to their customers under both prepaid categories as well as post paid services. In the course of survey it was found that in the case of postpaid services, the initial sale of SIM cards is done through a network of distributors acting as agents of the telecom companies and for each SIM-card sold (subscriber added), a certain amount around Rs.400-500/- per connection is paid to the distributor as commission. Further during the survey, on examination of the accounts, it was found that TDS is paid on this amount of discount paid for postpaid connection u/s.194H.

The survey revealed that the modus operandi in the case of prepaid SIM cards was very much the same, in the sense that prepaid SIM cards and recharge vouchers were again sold through the network of distributors and agents who remit the sale proceeds back to the telecom companies, after retaining an amount of approximately 3-4% which is termed as "discount" in the industry. This "discount" represents the income of the distributor on account of the services provided for the sale of SIM-cards and re-charge vouchers and the monies received by the telecom companies are net of such discount. Thus the facts pertaining in this regard are para material with that of post post cards in respect of sale of SIM-cards.

Because the same channel of distributors selling the post paid SIM-cards, also sell the prepaid and recharge vouchers and thus the services being offered by the distributors are identical. Thus, the nature of income earned by distributors, in its very substance and effect, is commission which is paid for services rendered by the network of distributors. On analysis of facts, it is clear that in the case of the telecom operators, the margin retained by the distributors which is termed as 'discount' is nothing but commission payment for the services rendered by the distributors on which, like in the case of postpaid connections, TDS is required to be deducted u/s.194H on margin retained by distributors on sale of prepaid SIM-cards and recharge vouchers.

On this very issue, the Kerala High Court, the Calcutta High Court and the Delhi Bench of the ITAT have given the decisions in favour of the Department in the following cases :

In the Calcutta High Court's decision which is the most recent, the Hon'ble High Court has observed :

Accordingly, the Hon'ble High Court has held that the relationship between the tax payer(telecom companies) and distributors are of principal to agent. The Hon'ble High Court therefore, had supported the contention of the Department that as per the wording of sec.194H of the Income Tax Act, 1961, commission or brokerage may be received or receivable indirectly also by a person acting on behalf of another person. Therefore, it is clear that the discount given by the tax payer (telecom companies) was in the real sense commission paid to the distributors indirectly and the same is covered u/s.194H of the Income Tax Act, 1961.

However, in the case of Vodafone Essar Gujarat Ltd for A.Y. 2005-06 TDS has not been deducted on such payments made to distributors/agents. Consequently, the entire expenditure claimed by the assessee in his books needs to be disallowed u/s.40(a)(ia) of the Act. The assessee has neither disclosed this fact nor filed any details in respect of the fact that the TDS has not been deducted on such expenditure during the assessment/reassessment proceedings. Therefore, the assessee has not made full and true disclosure of all material facts necessary for his assessment.

Non-deduction of TDS on roaming charges:

During the course of survey, it is also seen that the assessee was not deducting TDS on roaming charges. The charges paid on account of roaming charges are similar to the interconnectivity charges, in the sense that these charges are paid for making use of the network of another operator whose services are utilised for connecting the call. In the present survey, it was seen that TDS was being deducted by the assessee on interconnectivity charges but not TDS was being deducted on roaming charges. There does not appear to be any justification for this discrimination.

The payment made by Vodafone Essar Gujarat Ltd. on account of interconnectivity charges is in the nature of payment for fees for technical services and TDS needs to be deducted on it. Since the services rendered for which roaming charges and interconnectivity charges paid are essentially the same, TDS needs to be deducted for roaming charges in the case of Vodafone Essar Mobile Services Ltd. However, TDS has not been deducted on such payments (roaming charges). Consequently, the entire expenditure claimed by the assessee in his books needs to be disallowed u/s40(a)(ia) of the Act. The assessee has neither disclosed this fact nor filed any details in respect of the fact that the TDS has not been deducted on such expenditure during the assessment/reassessment proceedings. Therefore, the assessee has not made full and true disclosure of all material facts necessary for his assessment.

As per the amendment to section 115JB vide finance act, 2009, clause(i) to explanation 1 to section 115JB has been inserted w..e.f. 1-4-2001, which states that the book profit needs to be increased by amount or amounts set aside as provision for diminution in the value of any asset. However, in the case of the assessee the provision for diminution in the value of asset has not been added back to the book profit and consequently it is to be added back for the purpose of computation of book profit. The assessee has neither disclosed this fact nor has added back such diminution in the value of asset to the book profit during the assessment/reassessment proceedings. Therefore the assessee has made full and true disclosure of all material facts necessary for his assessment.

In view of the above facts I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the act. As per the provisions of section 149(1) (b), the income chargeable to tax, which has escaped assessment for the AY 2006-07 is likely to amount to more than Rs. 1 lakh. The assessee has also has not made full and true disclosures of all material facts necessary for his assessment."

3. The petitioner raised objections to such proposal for reopening under communication dated 22.5.2012 contending inter-alia that the petitioner had disclosed truly and fully all material facts. Reopening therefore, beyond four years was not permissible. Assessing Officer however, rejected the objections vide his order dated 16.11.2012. Hence, this petition.

4. Having heard learned counsel for the parties, we notice that Assessing Officer had recorded three separate reasons for issuing the notice for reopening. First was that the petitioner had paid commission to various dealers on prepaid Sim-cards and recharge vouchers without deducting the tax at source. Second reason was that the petitioner had paid roaming charges to various telecom service providers without deducting tax at source. Third was that as per the amendment to section 115JB of the Act, vide Finance Act 2009 with retrospective effect on 1.4.2001, explanation(1) to the said section had been inserted. According to such statutory change, the book profit under section 115JB had to be reworked.

5. To our mind, none of the reasons would permit the Assessing Officer to reopen the assessment beyond a period of four years.

6. In case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, the Constitution Bench of Supreme Court held and observed that to confer jurisdiction on assessee to issue notice of reopening of assessment beyond a period of four years, two conditions are required to be simultaneously satisfied. Such conditions are that the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have been under- assessed and the second is that he must also have reason to believe that such under-assessment has occurred by reason of either omission or failure on part of the assessee to make return of his income or omission or failure on part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the taxing officer could have jurisdiction to issue notice for the assessment or reassessment beyond a period of four years. It was further observed that such duty would not extend beyond true and full disclosure of material facts. Once such primary facts are before the Assessing Officer, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for the assessee to tell the assessing authority what inferences, whether of facts or of law, should be drawn. It is not necessary to list the long line of decisions along this line. We may however, refer a recent decision of Division Bench in case of GVK Gautami Power Ltd. v. Asstt. CIT (OSD) [2011] 336 ITR 451/[2012] 20 taxmann.com 710 (AP), wherein referring to large number of authorities on the question of reopening the assessment, Division Bench culled out various principles, relevant of which read as under :

"(xiv) The words failure to disclose fully and truly all material facts necessary for his assessment, in the first proviso to Section 147, postulate a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. (Calcutta Discount Co. Ltd. (1961)41 ITR 191(SC).

(xv) Every disclosure is not, and cannot be treated to be, a true and full disclosure. A disclosure may be false or true. It may be a full disclosure or it may not. A partial disclosure may very often be misleading. What is required is a full and true disclosure of all material facts necessary for making assessment for that year. (Sri Krishna Pvt. Ltd. [1996] 221 ITR 538(SC)

(xvii) The expression "material facts" refers only to primary facts which the assessee is duty bound to disclose. There is no duty cast on the assessee to indicate or draw the attention of the Income Tax Officer to the inferences which can be drawn from the primary facts disclosed. Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC) and Associated Stone Industries (Kotah) Ltd. [1997] 224 ITR 560(SC)

(xviii) What facts are material, and necessary for assessment, will differ from case to case. (Calcutta Discount Co. Ltd. [1961] 41 ITR 191(SC)

(xx) The assessee's obligation, to disclose all material facts necessary for his assessment fully and truly, is in the context of the two requirements - called conditions precedent - which must be satisfied before the Income Tax Officer gets jurisdiction to re-open the assessment under Section 147/148. This obligation can neither be ignored nor watered down. Sri Krishna Pvt. Ltd. [1996] 221 ITR 538 (SC)"

7. In the present case, with respect to requirement of deducting tax at source on prepaid SIM-cards and recharge voucher, petitioner's case is two fold. Firstly, it is contended that in fact tax was deducted at source and duly deposited with the Government. In the objections raised opposing notice for reassessment, such contention was pointedly taken. The Assessing Officer however, while disposing of such objections did not dispute this averment of the petitioner. Further in the petition also on oath the petitioner has stated that on such payments, tax was deducted at source. This important averment has not been denied in the affidavit in reply filed by the respondent. Even before us during the course of oral submissions, counsel for the Revenue was unable to dispute this factual aspect.

8. Additionally, we also notice that during the original scrutiny assessment, the Assessing Officer had raised several queries. In response to such queries, the petitioner made a detailed reply under communication dated 10.12.2008. In the said communication, with respect to commission, it was conveyed as under :

"Commission paid with respect to services rendered :

As regards the details requested by your goodself regarding the commission paid with regards to services availed, the details of the commission paid to parties in excess of Rs.50 lacs is enclosed as Annexure 2"

9. Correspondingly, Annexure-II to such letter provided details of the commission paid in excess of Rs.50 lakhs as under :

10. To our mind on both counts this ground must fail. Firstly, as noted, the petitioner's contention that deduction of tax at source as required under law was made, has not been rebutted by the respondent. Equally importantly, such fact was at large before the Assessing Officer. Full details of payment of commission were available. There was no failure on part of the petitioner to disclose true and full material facts. It is true that the petitioner supplied only the details of those agents who received commission in excess of Rs. 50 lakhs. However, to our mind, this was not material. It is not even the case of the Assessing Officer that requirement of deducting tax at source had any relevance to the payments in excess of Rs. 50 lakhs or below.

11. With respect to second reason namely, of the payment of roaming charges to other telecom service providers, also in response to a query raised by the officer, the petitioner pointed out in communication dated 14.8.2008 as under :

"The details of Roaming charges as per Annexure- I"

12. List Annexure-I to the said communication contained details of large number of such payments in the nature of roaming revenue and roaming expenses. Total of roaming revenue collected by the petitioner during the year under consideration came to 38.29 crores(rounded off). Correspondingly roaming charge expenses incurred by the assessee came to Rs.33.73 crores(rounded off). Thus, full details of such payments were readily available with the Assessing Officer during the original assessment itself. Surely, this cannot be stated to be case of failure on part of the petitioner to disclose true and full facts.

13. The third reason is to be referred only for summary rejection. Third ground was retrospective amendment in section 115JB of the Act. Surely, beyond a period of four years this cannot be a ground for reassessment on assessment. Such legal proposition requires no authority of law. Nevertheless, we may refer to decision of Division Bench of this Court in case of Denish Industries Ltd. v. ITO [2004] 271 ITR 340/140 Taxman 456, wherein it was held and observed as under :

"It is true that when there is a statutory amendment with retrospective effect, the statutory amendment has to operate as if the law as amended was there on the statute book. However, as per the settled legal position the fiction is to operate within the field for which it is meant. Hence, if the proceedings were pending on 1st April, 1986 when the statutory amendment was made, whether assessment proceedings or proceedings by way of appeal or revision or reference, Expln. 8 would have certainly operated. However, on the question whether the assessee had failed to disclose fully and truly all material facts necessary for assessment, it is obvious that when the assessee had filed its return in 1983 it could not have assumed that such a legislative amendment was going to be made in the year 1986 with retrospective effect from the year 1974. In the facts of the present case, it could never be said by any stretch of imagination that in the year 1983 when the assessee filed return claiming investment allowance on the capitalisation of interest paid after the date on which the machinery was first installed and put to use, the assessee had failed to disclose all material facts. On the contrary, the assessee would have got the benefit of the entire interest amount for the post-installation period as revenue expenditure which would have been much higher than the amount of investment allowance and depreciation allowance taken together."