The Supreme Courtroom has sought the Earnings Tax Division’s response on whether or not set up of cell web site towers by telecom firms in current telecom circles amounted to ‘extension of current enterprise’ or offering higher connectivity to clients for taxation functions.
A bench led by Justice U U Lalit issued discover to the income authorities on the Vodafone Thought’s enchantment towards the Delhi Excessive Courtroom’s order in June final yr that mentioned the set up of cell web site towers in current telecom circles amounted to ‘extension of current enterprise’ of offering telecom service as stipulated in proviso to part 36(1)(iii) of the Earnings Tax Act, 1961, thus warranting proportionate disallowance of curiosity.
Vodafone had merged with Thought Mobile in August final yr and the resultant firm was subsequently re-named as Vodafone Thought.
In line with the brand new entity, the set up of cell-site towers in current telecom circles didn’t tantamount to extension of current enterprise however, in actual fact, amounted to solely carrying on the prevailing enterprise extra effectively and for offering higher connectivity to its clients.
“Accordingly, the curiosity expense incurred by the corporate on loans raised for set up of cell-site towers in current telecom circles didn’t come inside the ambit of extension of enterprise, warranting disallowance u/s 36(1)(iii) of the Act,” senior counsel Arvind Datar and counsel Sachit Jolly, showing for the corporate, acknowledged.
The corporate mentioned that the HC wrongly concurred with the findings of the Earnings Tax Appellate Tribunal that the cell web site towers have been put in to achieve higher variety of clients and thus for growing subscriber base. As an alternative, the aim of the set up of cell-site towers was to offer higher connectivity and the rise in new clients was merely incidental, it acknowledged.
The impugned order has a cascading impact on quite a few different circumstances for various AYs and would drastically impact its monetary place, it added. The counsel submitted that for the related Evaluation 12 months 2009-10, Vodafone Thought declared ‘capital work in progress’ of Rs 278.96 crore in its steadiness sheet.