- (1.) This appeal by the revenue under Section 260A of the Income Tax Act ("the Act") challenges the order dated 21/8/1989 passed by the Income Tax Appellate Tribunal ("the Tribunal") relating to the assessment year 2004-05.
(2.) Being aggrieved the appellant revenue has formulated the following questions of law for the consideration of this Court: a) Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in holding that the order u/s. 143(3) dated 22.12.2006 was not erroneous and prejudicial to the interest of the revenue when the shares were transferred for settlement of debt of Rs.50 crores and so the borrower got the benefit of remission of debt liability and consequences of non repayment and the full value of consideration in this case was not only the principal component of debt but also the difference between the fair market value and the cost of shares b) Whether on the facts and circumstances of the case and in law, the Tribunal was justified in holding that the order u/s. 143(3) dated 22/12/2006 was not erroneous by holding that the lease hold rights are acquired on periodic payments of lease rent received as advance rent even though the assessee has received IRC fees in one go and the entire income accrued to the assessee in A.Y. 2004-05
(3.) The facts leading the present appeal are as under: a) On 1/11/2004 the respondent-assessee filed its return of income for the Assessment year 2004-05 declaring a loss of Rs.277 crores. The return was also accompanied by computation in accordance with the provisions of Section 115 JA of the Act. The respondent-assessee's case was taken up for scrutiny and thereafter on 22/10/2006 an assessment order was passed under Section 143(3) of the Act determining the loss at Rs.276 crores under the normal provisions of the Act and determining the income of Rs.394 crores under the provisions of Section 115 JB of the Act. b) The Commissioner of Income Tax on review found that the assessment order dated 22/12/2006 appeared to be erroneous and prejudicial to the interest of the revenue on two counts. Consequently, notices for revision under Section 263 of the Act were issued to the respondent-assessee on the following grounds: (i) that 50 crores shares of Reliance Infocomm Ltd. (RIL) were transferred at the rate of Rs.1/- per share ( the face value per share) to one Mukesh Ambani when the market value of the share was Rs.53.01 per share. Therefore, the notice proposed to assess a sum of Rs.2635 crores as a short term capital gain being a difference between market value per share of Rs.53.71 and face value per share was Rs.1/-. (ii) amount of Rs.3037 crores received from Reliance Infocomm Ltd. as fees for grant of Indefeasible Right of Connectivity (IRC) for a period of 20 years was income accrued to the assessee in the assessment year 2004-05 itself. c) The respondent-assessee responded to both the notices and contended that 50 crores shares of the face value of Rs.1/- per share were given as pledge to one Mukesh Ambani for an amount of Rs.50 crores borrowed from him and there was no sale of shares. Alternatively, it was contended that at the highest the short term capital gain could be on the basis of Rs.50 crores received as consideration for sale of the shares and not the market value of the shares. So far as the second ground was concerned viz. Rs.3037 crores received from Reliance Infocomm Ltd. it was pointed out that the respondent assesee were the owners of nationwide network of multiple conduit (LDCA) (long distance calling area). In that capacity the respondent-assessee had entered into an agreement with Reliance Infocomm Ltd. giving it non exclusive IRC right to use the nation wide network of multiple conduit for a period of 20 years and in consideration thereof received Rs.3037 crores. This amount was in the nature of an advance and on a pro-rata basis an amount of Rs.63.28 crores for a period of 5 months from November 2003 to March, 2004 had been offered for tax as income for the assessment year 2004-05. Besides the respondent-assesee also contended that the exercise of powers of revision under Section 263 of the Act cannot be exercised as the conditions precedent for the exercise thereof namely that the assessment order should be erroneous and also be prejudicial to the interest of the revenue were not satisfied. d) In spite of the above submissions the Commissioner of Income Tax by an order dated 9.3.2009 held that the assessment order dated 22/12/2006 was erroneous as well as prejudicial to the interest of the revenue and he exercised powers under Section 263 of the Act. On merits he held that there had been a sale and a difference of Rs.2635 crores (between market value of the shares and the face value of the shares) is assessable to tax as short term capital gain. So far as the amount of Rs.3037 crores is concerned he held that the entire amount of Rs.3037 crores received as fees for IRC is income chargeable to tax for the assessment year 2005-06. e ) Being aggrieved, the respondent-assessee filed an appeal to the Tribunal. By an order dated 21/8/2009 the Tribunal allowed the respondent-assessee's appeal not only on the ground that the exercise of powers of revision under Section 263 of the Act was not called for but also on merits. The Tribunal recorded a finding of fact that there was no transfer/sale of 50 crores shares of Reliance Infocomm Ltd but only transaction of loan by pledge of shares for the purpose of securing a loan of Rs.50 crores taken from one Mukesh Ambani. So far as tax-ability with regard to amount of Rs.3037 crores received as IRC fees from Reliance Infocomm Limited under agreement dated 30.4.2003 is concerned, the Tribunal after a detailed examination of the Agreement concludes Reliance Infocomm Limited has only a right to use the net work during the tenure of the agreement. This was so as the agreement was in the nature of a lease between Reliance Infocomm Ltd. and the respondent-assessee. Further, the agreement could be terminated at the sole discretion of Reliance Infocomm Ltd. Therefore the Tribunal by placing reliance upon Accounting Standards formulated by the Institute of Chartered Accountants concluded that the fees had to be spread over the period of the lease as the entire fees had not accrued during the assessment year 2004-05. The Tribunal upheld the treatment given by the respondent-assessee to the IRC fees received from Reliance Infocomm Ltd. by having offered an amount of Rs.63.28 crores as the income accrued for the five months between November 2003 to March 2004. Further, the Tribunal held that the condition precedent to invoke powers under Section 263 of the Act did not exist and the same was incorrectly exercised by the Commissioner of Income Tax.;