Videsh Sanchar Nigam Ltd. Vs. Commissioner of Income Tax - Court Judgment

Excerpt:
1. this appeal is filed by the assessee, for the asst. yr. 1996-97. it is directed against the order of the cit(a)-xxiv at mumbai dt. 29th nov., 2002. the appeal arises out of the assessment completed under section 143(3) of the it act, 1961.2. the assessee is a body corporate registered in india under the companies act, 1956. it is engaged in the business of providing international telecommunication services in india in terms of a license granted by the government of india, in the department of telecommunication.3. the assessee company has filed its return of income for the impugned asst. yr. 1996-97, declaring a total income of rs. 600,88,54,056. the said return filed on 30th nov., 1996 was revised on 16th dec, 1997 restating the total income at rs. 577.82 crores. the revised return.....

Judgment:
1. This appeal is filed by the assessee, for the asst. yr. 1996-97. It is directed against the order of the CIT(A)-XXIV at Mumbai dt. 29th Nov., 2002. The appeal arises out of the assessment completed under Section 143(3) of the IT Act, 1961.

2. The assessee is a body corporate registered in India under the Companies Act, 1956. It is engaged in the business of providing international telecommunication services in India in terms of a license granted by the Government of India, in the Department of Telecommunication.

3. The assessee company has filed its return of income for the impugned asst. yr. 1996-97, declaring a total income of Rs. 600,88,54,056. The said return filed on 30th Nov., 1996 was revised on 16th Dec, 1997 restating the total income at Rs. 577.82 crores. The revised return was initially processed under Section 143(1)(a) resulting in an adjustment of Rs. 33,00,000. The intimation was passed on 19th March, 1998. The return was selected for scrutiny and thereafter an assessment under Section 143(3) has been completed.

4. The assessee had commissioned two telecommunication earth stations in the previous year relevant to the assessment year under appeal. One earth station was commissioned at Calcutta in May, 1995 and the second one was commissioned at Madras in June, 1995. The assessee company treated these earth stations as new undertakings and claimed deduction under Section 80-IA in respect thereof. The income attributable to the earth stations has been computed by the assessee, in a separate exercise.

5. The AO examined the claim of the deduction made by the assessee company under Section 80-IA in a detailed manner and held that an earth station by itself cannot be construed as an undertaking. He was of the opinion that earth station is a link in a long chain which started from the telephone instrument through which a subscriber makes a call and culminated at the receiver's end, passing through various landlines, earth station and satellite. He held that an earth station is a part of the transmitting chain and not an independent undertaking. The AO was of the view that an earth station is like a sub-station in an electric supply network. He also held that the assessee should have commenced providing telecommunication services on or after 1st April, 1995 so as to qualify for the deduction under Section 80-IA, whereas in the present case, the assessee has been providing the service right from 1986. He further held that an undertaking in its normal meaning is a complete business by itself as an independent unit for which he relied on the decision in S.Y.C.W & S. Mills AIR 1969 Mysore 280 at 291 The assessing authority further held that in order to claim the deduction, the assessee should provide telecommunication services of the nature prescribed in Sub-section (4C). That is the assessee should provide basic telecommunication services or cellular telecommunication services. Assessee company does not have a case that it is providing cellular services. Its contention is that it is providing basic telecommunication services. The assessing authority held that the services rendered by the assessee company could not be construed as basic telecommunication services. The assessee company is providing technical services to other telecommunication companies which are providing basic services in the nature of direct services to the end customers. Therefore, he held that the earth stations are not eligible for deduction under Section 80-IA. He also questioned the calculation made out by the assessee in respect of the income attributable to the earth stations. For the above reasons elaborately discussed in the assessment order, the claim of deduction under Section 80-IA made by the assessee company was disallowed by the assessing authority. The disallowance of deduction claimed under Section 80-IA was one of the grounds raised before the CIT(A), in first appeal. The assessee company explained before the CIT(A) that the deduction claimed under Section 80-IA in respect of earth stations needs to be examined on a conjoint reading of Sub-section (1) and Sub-section (4C) of Section 80-IA.According to those sub-sections, an assessee would be entitled to claim deduction under Section 80-IA if the income of the assessee included profits derived from any business of providing telecommunication services and that the undertaking started providing such services after 1st day of April, 1995. The assessee explained before the CIT(A) that the above two conditions have been satisfied in the present case. The assessee also placed reliance on the decision of the Supreme Court in the case of Textile Machinery Corporation Ltd. v. CIT and the decision of Madras High Court in the case of Rajeswari Mills Ltd. v. CIT (1963) 50 ITR 29 (Mad).

6. After considering the detailed arguments of the assessee company in a comprehensive manner, the CIT(A) held that the earth stations set up by the assessee company could not be equated with an undertaking as expressed in the provisions of Section 80-IA. The CIT(A) felt that the description of an "earth station" falls greatly short of the meaning of "undertaking" in the sense construed in Section 80-IA. The CIT(A) examined the facts of the case and held that the decision of the Supreme Court in the case of Textile Machinery Corporation Ltd. v. CIT (supra) would not be applicable to the present case for the reason that in the case decided by the Supreme Court, the assessee had set up a separate jute mill as an industrial undertaking in addition to the existing industrial undertaking of the assessee engaged in the manufacture of boilers and machinery parts. The CIT(A) held that in the present case, the activity of providing telecommunication service remained the same before and after commissioning of the earth stations except the fact that the earth station is an extra device to increase its output and quality of service. The CIT(A) held that the basic nature of the service provided by the assessee always remained the same and by setting up of an earth station, the assessee company has not established an undertaking in its commercial sense. Ultimately, he held that the assessing authority was justified in declining the claim of deduction made by the assessee under Section 80-IA.7. The assessee company is aggrieved by the order of the CIT(A) in confirming the disallowance of claim made under Section 80-IA and therefore has filed this second appeal before the Tribunal. In fact the only issue raised in this appeal relates to the claim made under Section 80-IA. The grounds raised by the assessee in respect of the above issue read as below: 1. Re. Disallowance of claim made under Section 80-IA of the IT Act in respect of new undertakings commissioned after 1st April, 1995 1.1 The CIT(A) erred in not holding the undertakings in respect of which appellant is claiming relief under Section 80-IA as eligible undertakings.

1.2 The CIT(A) erred in confirming the disallowance made by the AO in respect of relief claimed under Section 80-IA of the IT Act.

1.3. The appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the CIT(A) ought to have held that the claim made by the appellant under Section 80-IA of the IT Act was deductible in computing its total income.

1.4 The appellant submits that the AO be directed to delete the disallowance of claim made by the appellant under Section 80-IA of the IT Act.

8. When this appeal was placed for hearing and disposal before the regular Division Bench on 7th Feb., 2006, the Division Bench felt it proper to recommend the constitution of a Special Bench for considering the grounds raised by the assessee company in its appeal on the issue of deduction under Section 80-IA. The reference made by the Division Bench recommending the constitution of a Special Bench is extracted below: The issue requiring our adjudication in this appeal is whether or not the CIT(A) was justified in confirming the action of the AO in declining the deduction under Section 80-IA of the IT Act, amounting to Rs. 2,290 lakhs in respect of the telecommunication earth station commissioned by the assessee in the relevant previous year.

This is a repetitive issue inasmuch as not only this issue will come up in the case of this very assessee but it will also come up in the cases of other companies commissioning telecommunication earth stations. It is also important to bear in mind the fact that a number of companies will be affected by Tribunal's decision on this issue, that this issue also has substantial revenue implications and is likely to come up at different stations.

In view of the above, we are of the considered opinion that the Registry be directed to place the case records before the Hon'ble President. Hon'ble President may consider constituting a Special Bench to decide the following question or such other question, as he may deem fit or proper or to constitute a Special Bench for disposing of this appeal: Whether, on the facts and in the circumstances of the case, the telecommunication earth station, as is commissioned by the assessee in the relevant previous year, is entitled to be treated as eligible undertaking for the purposes of Section 80-IA of the IT Act, 1961 ?'.

9. On recommendation of the Division Bench, the Hon'ble President, Tribunal has constituted this Special Bench to hear and dispose of the entire appeal in the light of the question referred before it. The question referred before the Special Bench is: Whether, on the facts and in the circumstances of the case, the telecommunication earth station, as is commissioned by the assessee in the relevant previous year, is entitled to be treated as eligible undertaking for the purposes of Section 80-IA of the IT Act, 1961 10. Shri Dinesh Vyas, the learned senior counsel appeared for the appellant along with Shri Sunil Lala and Raju Vakharia and argued the case at length. The assessee company has caused to file detailed paper books before the Tribunal containing details regarding the various aspects of the claim of deduction made by the assessee company along with charts and photographs to support the technical aspects of its contentions aimed towards establishing that the earth stations commissioned by the assessee company were in fact undertakings eligible for deduction under Section 80-IA. The assessee company has also caused to file copies of various judgments relied on by it along with a gist of the arguments advanced before the Bench.

11. Shri Krishna Mohan Prasad, the learned CIT appeared for the Revenue and defended the case of the Revenue. The Revenue has also filed paper books containing various technical details in support of its arguments that the earth stations do not amount to undertaking so as to qualify to claim deduction under Section 80-IA.12. Shri Dinesh Vyas the learned senior counsel appearing for the assessee, explained at the first instance the various technological aspects of earth stations commissioned by the assessee company, in his effort to convince the Bench that earth stations are undertakings by themselves and they are not just buildings but are in the nature of functional factories. The detailed arguments of the learned senior counsel on this first phase of the issue focused on the technological aspects are summarised below: 1. An earth station is a station located on earth that can transmit or receive satellite communication. It is a critical undertaking in the business of international telecommunication, which involves the transmission of an international telephone call between an Indian party and an overseas party. Each station provides the capability to access satellite communication with adequate bandwidth, quality and reliability.

2. An earth station consists of multiple sophisticated sub-systems such as modulator, up-converter, high power amplifier, satellite dish antenna, low noise amplifier, down-converter, demodulator, computerized servo controlled mechanisms for satellite tracking etc.

All of the above required specialised technical knowledge and skills for their operation and maintenance. In an earth station, a satellite dish antenna is erected on the ground and a building is constructed adjacent to it, to house communication equipments, uninterrupted power system, diesel generation set, air conditioning equipments etc.

3. All the technical sub-systems of an earth station are very crucial in providing international telecommunication services. The modulator processes information signals in a globally accepted transmission format and enables the transmission feasible over long transmission media. Combiners are necessary wherever outputs are coming from multiple modulators feeding into an up-converter. The up-converter converts the intermediate frequency to microwave/radio frequency which ensures that there is lesser loss of signal. R.F. combiner is installed for combining the output of various up-converters and the high power amplifier enhances the power from milli watts to kilo watts. The SOMC bifurcates between the carrier going out from the earth station and coming from the satellite. The satellite dish antenna provides the means to transmit the radio frequency signal to the satellite and equally receive the signal from the satellite. Likewise low noise amplifier, RF divider, down converter, IF divider, demodulator etc. function in different critical areas in the whole operation of providing telecommunication services.

4. Therefore an earth station is a processing unit which converts the input signal into an entirely different form while sending it to the satellite. The signal received from the satellite is reconverted into intelligible information signal by the earth station.

5. Prior to satellite earth stations, international links were established on high frequency links or under sea cables which provided very low capacity and low reliability. The optical fibre cables that were used initially were very rudimentary and the capacities of these cables were very limited. Effective 1995, international telecommunications are predominantly carried out through satellite communications using earth stations. The communication through earth stations provided wide coverage over many countries. Earth stations do carry substantial chunk of international telecom traffic. As the requirement for additional capacities in satellites rose, there is a process of launching multiple satellites, which for the first time work in two frequency bands (C and Ku). The assessee company has established the earth stations to meet the shortfall and also to cater to the new services. Commissioning of the earth stations has resulted in the following advantages, in carrying out the telecommunication services: -It has an inbuilt back up facility so that the same antenna is able to work on C and Ku band satellite transponders.

-Ensure high uptime and reliability and the circuits were free of cross talk.

13. At the second phase of his arguments, the learned senior counsel explained how according to him the functional properties of the earth stations are commercially recognised to be undertakings. The detailed arguments of the learned senior counsel on those propositions pertaining to the commercial identity and functional nature of the earth stations are briefed below: 1. That the earth stations are not just buildings in supporting the telecommunications offered by the assessee company, but they are centres of complicated technological manipulations competent to provide distinct services to the assessee company in its operational activities.

2. The earth stations are new, as they were commissioned in the previous year relevant to the assessment year under appeal and of absolutely distinct technological pace and by virtue of these factors of identity, the earth stations are undertakings by themselves.

3. The argument of the Revenue that the earth stations are forming a segment of existing business carried on by the assessee company is not a bar against the assessee company for claiming the relief under Section 80-IA for the reason that despite of such segmental relationship earth stations are providing new, distinct and advanced services to the assessee company.

4. That the technical input provided by the system of the assessee company is converted to a product in the nature of "voice" by the earth stations and therefore there is no difficulty in identifying the commercial activities carried on by the earth station.

14. The learned senior counsel thereafter harnessed his arguments on the basis of legal propositions and judicial pronouncements.

15. In the above context, the first proposition made by the learned senior counsel is that the Revenue has erred in equating an undertaking with the company or the assessee. It is his contention that an undertaking is not to be equated with companies or assessees. In support of the above proposition, the learned senior counsel has relied on the following judicial pronouncements: It has been held by the Court that it is not the manufacture or production of articles by the company but the manufacture or production by the undertaking, which is different from the company, that is contemplated under Sub-section (7). A company may own or run many undertakings some of which may be entitled to the benefit of Section 84 and others may not be so entitled and hence it is not possible to equate the undertaking with the company. In this case the Court was examining the eligibility of the new unit for deduction under Section 84(7) of the assessee company, set up to manufacture lathes and grinders on the basis of an industrial license.

In this case the assessee company had obtained an industrial license for substantial expansion, which enabled the assessee to increase the number of spindles from 20,000 to 50,000. The additional spindlage was provided through an expansion programme and the Tribunal held that the expansion amounted to setting up of a new industrial undertaking on the basis of the license and the assessee therefore was entitled for deduction under Section 80J. The Madras High Court upholding the decision of the Tribunal held that the word "undertaking" is not to be equated with the legal entity, which may own the undertaking. A single legal entity may own and operate more than one industrial undertaking and the fact of common ownership does not render undertakings, which are otherwise capable of being separated into a common undertaking.

While considering the exemption available to an assessee under Section 15C of the IT Act, 1922, the Court held that exemption is confined to profit derived from the industrial undertaking and cannot operate in respect of any profit derived by the assessee from any trade or business other than the industrial undertaking. In this context, the Court held that Section 15C of the IT Act, 1922 does not make an industrial undertaking per se the unit of assessment.

There is a clear distinction between the assessee and the industrial undertaking.

In this case the Court was considering a case of special deduction provided under Section 80HH of the IT Act, 1961. In that context, the Court held that Section 80HH is intended to encourage the setting up of new industrial enterprises and hence will have to be construed liberally in a broad commercial sense keeping its object in view. The Court further observed that Section 80HH(2) refers to "industrial undertaking" and not to the assessee or his other business. The Court held that if a new industrial unit is established as a part of an already existing industrial establishment and if the newly established unit is itself an integrated independent unit in which new plant and machinery is put up and that by itself is capable of production of goods independently of the old unit, the said unit could be classified as a newly established industrial undertaking and will qualify for the relief.

In this case again, the Calcutta High Court was considering a case in the light of Section 15C of the old IT Act, 1922. The Court observed that Section 15C makes a distinction between the assessee and the industrial undertaking. The unit of assessment is the assessee and not the industrial undertaking. The Court held that the exemption conferred by Section 15C is confined to the profits derived from the industrial undertaking and not to the profits derived from any trade or business carried on by the assessee other than the industrial undertaking.

While considering again the scope of Section 15C of the IT Act, 1922, the Court held that the new industrial unit would not lose its separate and independent identity even though it has been set up by a company which is already running an industrial unit before the setting up of the new unit.

16. The learned senior counsel has also relied on an official letter F.No. 15/5/63-IT(Al), dt. 13th Dec, 1963 wherein the nature of new industrial undertaking has been explained in the context of taking over of the unit by another assessee within the period of exemption. The content of the letter is that the benefit available under Section 84 is attached to the undertaking and not to the owner thereof.

17. In the light of the above judicial pronouncements, the learned senior counsel contended that the earth stations commissioned by the assessee company, even though formed integral part of the telecommunication system operated by the assessee company, nevertheless are "undertakings" for the purpose of Section 80-IA and such a functional identity has to be assigned to the earth stations. He explained that only for the reason that the earth stations are boosting the activities of an existing network it does not take away the physical, functional and commercial identity of earth stations as undertakings.

18. After explaining on the distinction between the undertaking and the company or the assessee, which owns the undertakings, the learned senior counsel continued to present his arguments on the legal concept of "undertaking". The learned senior counsel argued that the contour of an undertaking has to be viewed in a broad commercial sense and from a commonsense point of view. The physical integration of the earth station with the overall system of the assessee does not undo the independent character of "undertakings". In this regard, the learned Counsel has relied on the decision of the Bombay High Court-Nagpur Bench in the case of CIT v. Chanda Diesels (supra) and that of Calcutta High Court in the case of CIT v. Orient Paper Mills Ltd. . In the first decision, the Bombay High Court has pointed out the necessity of a liberal interpretation in a broad commercial sense while dealing with such issues in taxation. The Calcutta High Court has held that the expression "undertaking" and other analogous expressions must be understood in a broad commercial sense from a commonsense point of view.

19. Again, adventing upon the true import of "undertaking", the learned senior counsel relied on the following decisions so as to highlight the meaning of the expression in a more apparent manner.

The Court has considered the meaning of the expression "undertaking" and has held that in its real meaning it is not anything which may be described as a tangible property like land, machinery or the equipments; it is in actual effect an activity of man which in commercial or business parlance means an activity engaged in with a view to earn profit.

In this case the Court has held that a new activity launched by the assessee by establishing new plants and machineries by investing substantial funds may produce the same commodity of the old business or it may produce some other distinct marketable products, even commodities which may feed old business. These products may be consumed by the assessee in old business or may be sold in the open market. Even then the new activity would be in the nature of new undertaking on satisfaction of other conditions.Mahindra Sintered Products Ltd. v. CIT (1989) 75 CTR (Bom) 83 : (1989) 177 LTR 111 (Bom) In this case, while examining the meaning of "reconstruction", the Court held that a new activity launched by an assessee by establishing a new plant and machinery by investing substantial funds may produce same commodities of the old business or it may produce some other distinct marketable products or even commodities which may feed the old business and in such circumstances production of commodities feeding old business does not amount to reconstruction but qualified to be treated as newly established industrial undertaking.

The Court has held that though the word "undertaking" has not been defined in the IT Act, it is to be taken as a concern started or formed for a specific purpose of a project engaged in.

The Court while examining the true implication of Section 54D held that the expression "industrial undertaking" must be construed liberally and must be given its popular meaning thereby in a wide sense any project or business, a person may undertake.

6. P. Alikunju, M.A. Nazeer Cashew Industries v. CIT The Court was examining the expression "industrial undertaking". The Court held that a provision for exemption or relief in a fiscal statute should be construed liberally and in favour of the assessee and if that rule is followed, an undertaking mentioned in Section 54D must be one maintained by a person for the purpose of carrying on his business. The expression "undertaking" must be construed in the light of the word "business" which is a word of wide import which is to be construed in a broad manner rather than in a restricted sense.

20. Apart from relying on the above judicial pronouncements, the learned senior counsel also relied on the dictionary meaning of term "undertaking". As per Black's Law Dictionary, Seventh Edition 1999 at page No. 1528 the meaning of the term "undertaking" has been given among other things as engagement. The Law Lexicon Second Edition (Reprint) 2001 at page No. 1932 has made reference to the meaning of undertaking as an enterprise, business, project which engages in or attempts as an enterprise analogous to business or trade.

21. The learned senior counsel further argued that the earth stations commissioned by the company are undertakings explained on the basis of its functions so as to state that a new undertaking need not produce any new product or item but it could produce even the old same commodity which may feed the business already carried on by the assessee and the nature of products and services as such is not a crucial issue to decide the character of an undertaking as always argued by the Revenue. The learned senior counsel has relied on the following judicial pronouncements:CIT v. Quality Steel Tubes (P) Ltd. (2006) 200 CTR (All) 400 : (2006) 280 TTR 254 (All).

22. The learned senior counsel thereafter explained the provisions of law relating to the deduction available under Section 80-IA as it stood for the impugned asst. yr. 1996-97 as per Sub-section (4C). The deduction is available to any undertaking which starts providing telecommunication services whether basic or cellular at any time on or after the first day of April, 1995 but before the 31st day of March, 2000. The learned senior counsel submitted that he has already explained at length the inevitability of treating the earth stations commissioned by the assessee company as undertakings in the light of the discussions reflected in paras above. He stated that once the earth stations are treated as undertakings, the next point to be considered is whether the assessee has started providing telecommunication services on or after 1st day of April, 1995 but before 31st day of March, 2000. He explained that both the earth stations one at Calcutta and the other at Madras were commissioned after 1st day of April, 1995 within the previous year period 1st April, 1995 to 31st March, 1996. He explained therefore that this condition also has been satisfied by the assessee company.

23. Thereafter, the learned Counsel came to the third limb of Sub-section (4C) where it has been provided that telecommunication services provided by the assessee need to be basic or cellular. He explained that one of the objections raised by the lower authorities is that the assessee company being engaged in telecommunication services relating to international telephone is not providing any basic services and therefore not entitled for the deduction. The learned Counsel vehemently objected to the finding of the lower authorities and brought out the arguments in the following manner: 1. That v.NL was a company fully owned by the Government of India which later on went for disinvestment. The disinvestment document released by the Central Government on 20th Sept., 1999 has clearly stated in p. 18 of the document that "basic telecommunication services are the principal line of activity and accounted for approximately 86.26 per cent of the company's total income, for the year 1998-99. As per the said document as given in p. 18, the company provides various basic services. One of such services is international service. The company provides basic public international switched telephone services, including facsimile, data transmission services and voice services. The company also provides home country direct services, which permit a caller to speak to an operator in his home country directly and place a collect or charge call. That the said document is signed by the chairman and managing director of the assessee company pursuant to the authority granted by the Government, of India vide D.O. letter No. DDG/(1C&A)/TF/DD/VSNL dt. 23rd June, 1999. That the features explained by the assessee company in its offer document while it was a fully owned Government of India undertaking are irrefutable evidence to show that the assessee company is engaged in the business of providing basic telecommunication services.

2. That the Government, of India, Department of Telecommunication has granted a monopoly for 10 years in basic services (voice telephony) starting from 1st April, 1994 which is evidenced by the letter dt. 23rd Feb., 1994 issued by the Telecommunications Secretary to the chairman and managing director of the assessee company. In the said Government letter also, the services provided by the assessee company are explained as basic services. That the Government of India again in the Department of Telecommunications through its letter dt. 5th March, 1996 has made it clear that the assessee company is the only entity authorised by the Government, of India to provide basic international telephone services to and from India. That again the Government, of India, in the Department of Telecommunication through its letter dt. 14th Jan., 1999 has further clarified that assessee is the only entity authorised by Government, of India to provide basic international telephone services.

3. That the above Government documents in the form of authorised letters and clarifications clearly bring home the point that the assessee company is engaged in the basic telecommunication services.

4. That the Telecom Regulatory Authority of India (TRAI) through notification dt. 14th Dec, 2001 has made regulations for telecom charges and sharing of the revenue by The Telecommunication Interconnection (Charges and Revenue Sharing) Regulation, 2001. In the said regulation, the international calls have been included in basic services and the domain of the assessee company is providing telecommunication services in international calls.

5. That the document released by World Trade Organisation (WTO) on coverage of basic telecommunications and value added services has divided telecommunication services into two categories of basic telecommunications and value added services. As per the said document, basic telecommunications include the relaying of voice or data from sender to receiver and include all telecommunication services both public and private that involve end-to-end transmission of customer supplier information. It has also been stated in the said document that basic telecommunication services are provided through cross border supply and through the establishment of foreign firms or commercial presence, including the ability to own and operate independent telecom network infrastructure.

6. The Telecommunication Interconnection Usage Charges Regulation, 2003 notified by TRAI has included long distance services (STD/ISD) throughout the territory of India into basic telecommunication services.

7. The Indian Telegraph Act, 1885 has defined telecommunication as any transmission, emission, reception of signs, signals, writing, images and sounds or intelligence of any nature by wire, radio, optical or other electromagnetic systems.

8. In the Telecom Regulatory Authority of India Act, 1997, the meaning of telecommunication service has been given as service of any description including electronic mail, voice mail, data services, radio paging and cellular mobile telephone services which is made available to users by means of any transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature, by wire, radio visual or other electromagnetic means.

9. The 34th Report of the Standing Committee on Information Technology (2005-06) (Ministry of Communications and Information Technology-Department of Telecommunications) has considered various aspects of providing domestic and international telecommunication services. It is mentioned therein that the Department of Telecommunication has categorised international telecommunication services as part of basic telecommunication services. The Department has explained before the Standing Committee that the word "basic" has not been defined in the Indian Telegraph Act, 1885 and it can be interpreted keeping in view the situation, circumstances and modern technology prevalent as on date. To add to this, the Department has further stated as a reply to a query put in by the Standing Committee that the word "basic" in the Department means provisioning of voice and data services over voice channel. This facility can be provided by using wire-line or wireless terminals in fixed or limited mobility modes. The report clearly shows that the international voice telephony provided by the assessee company is in the nature of basic telecommunication services.

24. The learned senior counsel explained that the statutory authorities like TRAI, the Government, of India, Standing Committee of the Parliament, international agencies like WTO have all treated the providing of long distance services of telephone as basic telecommunication services. These terms used in telecommunication industry and in the provisions of the IT Act, 1961 have to be construed in a liberal and meaningful manner so that and then only the true import of the services rendered by the assessee company could be understood in a rightful context.

25. Regarding the commissioning of the two earth stations, the assessee has placed a copy of an internal memo of the assessee company wherein it has been stated that the earth station at Halisahar in Calcutta was commissioned in May, 1995 and the earth station at Korattur in Madras was commissioned in June, 1995. He therefore submitted that the establishment of the new undertaking has been made within the qualifying period provided by Sub-section (4C).

26. The learned senior counsel produced before us a copy of the writing issued by PanAmSat where it is stated that earth station is the internationally accepted term that includes satellite communication stations located on the ground. They can be configured and utilised in a number of ways but in order for an earth station to transmit or receive a signal it will require up-link/or down-link equipment. On the basis of the said publication, the learned Counsel contended that the earth station is a compendium of several technologically supported systems, providing satellite communications and therefore fulfil all the necessary conditions of an undertaking construed under the provisions of the IT law.

27. Regarding the computation of revenue attributable to the earth stations, the learned senior counsel has produced before us a copy of the revised return of income filed before the assessing authority where the assessee company has provided the details of computation under Section 80-IA, in Annex. D attached to the revised return. He has also explained the mode of computation of the revenue and the basis of apportionment of various expenses. The learned senior counsel has also relied on the decision of Tribunal Mumbai Bench T rendered in the case of West Coast Paper Mills Ltd. v. Asstt. CIT (2006) 105 TTJ (Mumbai) 344 : (2006) 103 ITD 19 (Mumbai) where the Tribunal has held that it is possible to work out the profits attributable to a captive power plant on the basis of average price paid by the assessee to the State Electricity Board for the power consumed. In the light of the above decision, the learned senior counsel submitted that it is always possible to work out the income attributable to an independent sub-system working under the overall chain of activities carried on by the assessee company.

28. Shri Krishna Mohan Prasad, learned CIT (Departmental Representation) who appeared for the Revenue explained that he has no objection regarding the technological features explained by the learned senior counsel for the assessee on the two earth stations commissioned by the assessee company during the previous year relevant to the assessment year under appeal. He agreed with the contentions of the assessee that the earth stations are basically housed in independent buildings, they have a lot of technical inputs and systems, they have satellite antenna and they do perform complex activities of transmitting international telephone calls.

29. The learned CIT contended that the abovementioned special features of the earth stations do not by themselves qualify the assessee company to claim the deduction provided under Section 80-IA. He explained that the assessee shall be allowed a deduction in computing the total income from such profits and gains derived from an undertaking which starts providing telecommunication services whether basic or cellular at any time on or after the 1st day of April, 1995 but before the 31st day of March, 2000. He explained therefore, that the first condition to be satisfied by the assessee company to claim the deduction is that the two earth stations commissioned by it amounted to undertakings, construed in Section 80-IA. He explained that the assessee is a telecommunication company engaged in international long distance calls.

The assessee is having the entire system of carrying on the telecommunication business of international calls even before 1st day of April, 1995. The assessee company has improved its facilities and quality of service by commissioning the two earth stations in the previous year relevant to the assessment year under appeal. The relevance of these two earth stations does not go beyond this. These two earth stations cannot be treated as undertakings for the purpose of Section 80-IA. The arguments of the learned CIT regarding whether the earth stations commissioned by the assessee company are undertakings or not, are summarised below: 1. The heading of Section 80-IA reads in respect of deduction from industrial undertakings etc. Though the word "industrial" is not there prefixing word "undertaking" in Sub-section (4C) of Section 80-IA, it is very clear that the term "undertaking" in Sub-section (4C) has to be understood indirectly or impliedly in a sense similar to that of an industrial undertaking. The description of an earth station falls greatly short of the meaning of an undertaking in the above sense.

2. The assessee company has been carrying on the same business of providing telecommunication services since its inception in 1986 and it is not proper to say that the assessee has set up two new undertakings in the previous year relevant to the assessment year under appeal for providing telecommunication services. By setting up the two earth stations, the business volume of the assessee might have gone up, technological advancement might be achieved, quality of service might be improved and the capital outlay might have been increased; but all these instances do not make out a case that the earth stations which are basically a supporting system of the telecommunication business carried on by the assessee company partake the character of undertakings.

3. An earth station is only a link in the chain of activities carried on by the assessee company, which starts from making a call and ending in completing the call. The telephone call is carried through various landlines, earth stations and satellite telecommunications and reached to the party on the other end. In this chain of activity, the earth station is only a link and it is like a sub station of an electricity supply network.

4. An earth station by itself is not an undertaking. An undertaking in its normal meaning is a full functional business unit. In the present case, the undertaking is the whole of the assessee company viz. v.NL. The various sub-systems deployed in the operational network of the assessee company cannot be considered as undertaking.

30. The learned CIT relied on the decision of the Supreme Court in the case of Textile Machinery Corporation Ltd. v. CIT (supra) wherein the Court has described certain attributes of an undertaking. The Court has held according to the learned CIT that undertakings are independent as the business of old can still be carried on without them; that an undertaking manufactures or produces articles; earning of profits is clearly attributable to a new undertaking and above all there must be a separate and distinct identity of the unit set up. The learned CIT submitted that even if an existing company could establish any number of new undertakings under the same umbrella, those undertakings newly set up by the existing company must establish that those new units are functionally independent and the existing business could be carried on even without the help of new units and the new units are independently working as centres of profit. The learned CIT explained that none of the above attributes are satisfied in the present case of earth stations explained by the assessing authority.

31. The learned CIT further invited our attention to the various decisions relied on by the learned senior counsel appearing for the assessee. He explained that the facts considered by the respective Courts while arriving at those decisions are different from the facts of the present case. He referred to the decision of the Madras High Court in the case of Madras Machine Tools Manufacturers Ltd. v. CIT (supra). In the said decision, even though the Court has held that an undertaking is different from the company, the Court has contemplated therein that the independent activities to be carried on by the undertaking. Even if it is not possible to equate the undertaking with the company, the undertaking has to justify its independent relevance even though coming under the same umbrella of the mother company. The said decision relied on by the learned senior counsel for the assessee is not applicable here. He also referred to the decision of the Madras High Court in the case of CIT v. Premier Cotton Mills Ltd. (supra). In that case, the company had obtained a separate industrial licence for substantial expansion of the production. The separate unit established by the company could contribute a quantum jump in the production capacity of the company. Likewise the learned CIT referred to all other decisions relied on by the learned senior counsel appearing for the assessee and submitted that those decisions are not applicable to the present case in hand. He also made a special reference to the decision of the Supreme Court in the case of Textile Machinery Corporation Ltd. v. CIT (supra), on which both sides have placed reliance.

32. The learned CIT further contended that the next condition specified in Section 80-IA in Sub-section (4C) is that the undertaking should commence its operations after 1st April, 1995. In the present case, the assessee company, v.NL has commenced its operations way back in 1986 and therefore that condition is also not satisfied.

33. The next important limb of the argument advanced by the learned CIT is on the question whether the undertakings are providing basic or cellular services or not The learned CIT explained that in order to claim the deduction under Section 80-IA, the assessee company, providing telecommunication services should provide either basic or cellular services. It is nobody's case that the assessee company is providing cellular services. Now the question is whether the assessee company is providing basic services or not. The learned CIT invited our attention to the annual report of TRAI for the year 2005-06. In p. 35 of the report, the TRAI has given the names of telecommunication companies providing basic services which included the public sector undertakings BSNL and MTNL as well as licensed private operators like Reliance Infocom Ltd., Tata Teleservices Ltd., Bharati Tele-Ventures Ltd., Shyam Telelink Ltd. and HFCL Infotec Ltd. The learned CIT pointed out that the above details furnished by TRAI have clearly excluded the role of v.NL in providing basic telecom services.

34. Further arguments of the learned CIT that the assessee company is not providing basic telecommunication services are summarised below: 1. As per the history of v.NL available in the website the only service provided by v.NL in India is the introduction of internet services. That in all other aspects, the assessee company is providing international telephone services, not directly to the end consumers but only to the domestic telecom service providers. He explained that as per the profile published by the assessee company itself, the areas of business carried on by the assessee company are the following: 2. That the abovementioned areas do not cover basic telecommunication services.

3. That the v.NL has mainly consolidated its business in its core operation of global satellite and optical fibre connectivity. Their gateways and earth stations are interconnected. The above services do not come under the concept of basic services but they are provided by the assessee company to various companies engaged in the field of providing basic telecommunication services to end users.

4. That the assessee company does not have direct connection to end customers. v.NL is dependent on other cellular and basic telecommunication service providers to route the national long distance and international calls. It has been stated by the assessee company that some of those operators are also competitors of v.NL in the long distance and other markets. Therefore it has become the endeavour of the assessee company to have access to large base of customers in order to compete for its business. This statement itself points out that the assessee company is not providing basic telecommunication services but they are providing connectivity services to other providers of basic services. They are providing such connectivity services on the basis of agreements entered into with domestic cellular service providers and basic operators.

35. The learned CIT has further contended that the earth stations commissioned by the assessee company being an integral link of the total system, cannot be treated as an independent centre and therefore there is no way to calculate the income attributable to those earth stations. No separate identity can be given to the earth stations in the overall performance of the assessee's business and in such circumstances the computation of income attributable to the earth stations is quite illusionary or academic. No revenue or income could be attributed to earth stations as such. Therefore, the computation made by the assessee company so as to make the claim under Section 80-IA is quite unreal.

36. The learned CIT has further elaborated his arguments even in respect of a basic question whether the assessee company is having a proper licence to carry on the business of providing basic services.

According to the CIT, this is for the reason that telecommunication services could be rendered only by such service providers who have obtained licence from the Central Government.

37. Shri Dinesh Vyas, the learned senior counsel appearing for the assessee explained and reiterated his propositions while replying to the arguments advanced by the learned CIT. He explained that the whole confusion is made by the Revenue for the simple reason that the Revenue has ignored the fact that an undertaking in effect is an activity and need not be equated or compared with the mother undertaking itself. He contended that the deduction under Section 80-IA is available to an undertaking and not to the company. He explained that for availing deduction under Section 80-IA, the new undertaking may undertake a part of the activity earlier carried out by the company and the activity need not be altogether a new one.

38. He further argued that Section 80-IA(4C) does not require that the entire telecommunication services from the origination of the call to the termination of the call should be rendered by the assessee. In fact, it is not possible for any company in India or even in the world to render end-to-end international telecommunication services.

Therefore, even if an assessee renders telecommunication service covering a part of the entire chain, it is entitled to deduction under Section 80-IA. He explained that the main question requires to be considered is whether the undertaking provides telecommunication services or not. The words "telecommunication services" are in their import not limited by the words which follow, viz., "whether basic or cellular". The rule of ejusdem generis has no reverse application.

Relying on the Principles of Statutory interpretation by Guru Prasanna Singh, he explained that general words preceding the enumeration of specific words are not governed by the reverse rule and therefore the import cannot be limited by any such principle. He explained that the use of words "whether basic or cellular" does not restrict the fundamental meaning of the term "telecommunication services". He submitted that the deduction is available to a provider of telecommunication services simplicitor and the words basic or cellular no way qualify, restrict the amplitude of the words "telecommunication services".

39. The learned Counsel further relied on the Finance (No.2) Act, 1998 which has inserted the following in Section 80-IA(4C) w.e.f. 1st April, 1995 after the words telecommunication services, whether basic or cellular "including radiopaging, domestic satellite service or network of trunking and electronic data interchange services". He explained that the above extension to the term telecommunication services needs to be widely construed and the phrase "whether basic or cellular" does not in any way restrict the fundamental meaning of the term telecommunication services. For this proposition, he has relied on the decision of the Supreme Court in the case of Allied Motors (P) Ltd. v.CIT , and the decision in V. Verghese and Anr. v. Dy.

CIT and CWT v. India Exchange Traders Association .

40. The learned senior counsel concluded his argument on reinstating (reiterating) his propositions that rule of ejusdem generis has no inverse application, the terms expressed in Section 80-IA have to be liberally interpreted and above all where two views are possible, the view favourable to be assessee should be adopted as stated by the Supreme Court in various cases including C.A. Abraham v. ITO , CIT v. Karamchand Premchand Ltd. etc. He also explained that the expression of telecommunication services in Sub-section (4C) is inclusive in nature, which widens the etymological meaning of the expression or term including therein that which would ordinarily not be comprehended therein for which he relied on the Madras High Court decision in the case of Director of IT (Exemptions) v. Agri-Horticultural Society .

41. We heard both sides in detail. On going through the rival submissions, we find that the issue raised before this Special Bench can be adjudicated in the light of the answers available to the following 4 questions: (i) Whether the earth stations commissioned by the assessee company in the previous year relevant to the assessment year under appeal are "new undertakings" for the purposes of Section 80-IA(4C) (ii) Whether the undertakings have commenced the activity after 1st April, 1995? (iii) Whether the undertakings are providing basic or cellular telecom services (iv) Whether the profit computed by the assessee company, which is attributable to the earth stations is acceptable for quantifying the deduction under Section 80-IA 42. First we will consider the question whether the earth stations commissioned by the assessee company during the previous year relevant to the assessment year under appeal are undertakings or not, for the purposes of Section 80-IA. 1. The learned senior counsel appearing for the assessee company has argued that the expression "undertaking" has to be construed liberally in a broad commercial sense keeping its object in view of encouraging telecommunication services. He has relied on a series of judicial pronouncements to support his argument that the earth station commissioned by the assessee company is an "undertaking".

2. He has relied on the decision of Nagpur Bench of Bombay High Court in the case of CIT v. Chanda Diesels (supra). In that case, the Court held that if a new industrial unit is established as part of an already existing industrial establishment and if the newly established unit is itself an integrated independent unit in which new plant and machinery is put up and that by itself is capable of production of goods independently of the old unit, the said unit could be classified as a newly established industrial undertaking and will qualify for the relief. In that case, the assessee firm which was selling diesel engines purchased new machinery for making fuel injection pipes for diesel engines. In that case, it could be seen that by establishing a new industrial undertaking, the assessee was manufacturing an altogether new item even though much related to the business carried on by the assessee. Further, the new unit is capable of surviving independent of the old unit.

3. This is the same principle embodied in the judgment of the Calcutta High Court in the case of CIT v. Orient Paper Mills (supra) which decision has been relied on by the assessee. In that case, the assessee which was owning paper mills set up another plant for manufacture of caustic soda. Here also new unit is independently survivable producing different product even though formed an integral part of the existing unit.

43. The dictum of the decision of Mysore High Court in the case of S.Y.C.W & S. Mills (supra) relied on by the assessee has been arrived at on a different set of facts as well as law where the Court was examining the concept of "undertaking" in a liquidation matter where the Court held that "undertaking" is an activity of man engaged in with a view to earn profit. That finding is more abstract particularly in legal sense and not directly dealing with the issues arising under fiscal statutes as in the present case.

44. The assessee has also placed much reliance on the decision of the Supreme Court in the case of Textile Machinery Corporation Ltd. v. CIT (supra). In that case an existing heavy engineering business has set up separate new units to manufacture articles to be used in the existing business. The assessee which was carrying on the business of manufacturing boilers, machinery parts, wagons etc. set up two new units, a steel foundry division and jute mill division. The steel foundry division started manufacturing some castings, which the appellant was previously buying from the market but the castings were mostly used by the other existing divisions of the company. In this scenario, the Supreme Court held that the new activity launched by the assessee by establishing new plant and machinery by substantial investments may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities, which may feed the old business. These products may be consumed by the assessee in its old business or may be sold in the open market. In this case also the new units established by the assessee were separate and independent and producing new articles even though the same could be consumed by the old unit, and overall the new units could survive by themselves by selling the products in the open market. The same principles have been upheld by the Bombay High Court in the case of Mahindra Sintered Products Ltd. v. CIT 45. We have already referred to and discussed the various decisions relied on by the learned senior counsel in support of his arguments in paras 15, 18, 19 and 21 of this order that the earth station commissioned by the assessee company is an undertaking. In all those decisions, certain distinguishing features are apparent. An existing unit may start new units; the new units may produce the same articles produced by the old unit; the items produced by the new units may be consumed by the existing unit; there is no quarrel on these factual aspects. But apart from the above common features, the Courts have also held that the new units set up by the existing business houses should be independent units engaged in a distinguishable commercial activity and capable of surviving independent of the existing business. The above features apparent in all the judicial pronouncements relied on by the learned senior counsel endorse the principal view of an "undertaking" as construed in commercial and business circles. An undertaking is not an abstract piece of idea. It is not a concept as such. It can have its own physical identity by land, building, plant and machinery; it can have its own technology but still the new units may very much form part of the existing unit. These are all matters of different permutations and combinations that emerge out of business dynamics in given set of circumstances. But above all, the distinguishing feature of an undertaking eligible for deductions provided under the IT Act is its basic character of independence of function and ability to survive independent of the old units. The case made out by the assessee in the present appeal does not answer to the above distinguishing features that should be invariably apparent in an undertaking. All the cases relied on by the learned senior counsel are distinguishable on facts, even though there is an overlapping of principles and observations.

46. As already stated, in all the cases cited by the learned senior counsel, a new undertaking whether integrated in the existing business or not, has to have an independent functional identity which makes it a separate operational and profit centre.West Coast Paper Mills Ltd. v. Asstt. CIT (supra), the Tribunal Mumbai Bench T was considering the case of a captive power plant commissioned by an industrial company. The company used to produce (purchase) power from outside source like State Electricity Board. In order to augment the power supply, the company has commissioned a power plant run by diesel generators. In this case the captive consumption of power by the industrial company does not cease to make the power plant a new undertaking because the new undertaking is an independent operational unit which could survive by itself by selling the power to outsiders. Therefore, it is very clear that in the commercial sense an undertaking is a separate business personality capable of surviving independent of the group companies and providing identifiable services and making itself a revenue generating centre.

48. In the present case, the earth station commissioned by the assessee company is not a functionally independent unit. The earth station cannot commercially function without the other systems embedded in the chain of activity carried on by the assessee company in providing telecommunication services. The earth station commissioned by the assessee company is not an independent service provider in the true commercial sense. It is not an independent profit centre. The earth station does not provide services to other providers of telecommunication services. The earth station commissioned by the assessee company is in the nature of an internal pathway of its transmission system.

49. The assessee company has stressed its arguments on deployment of substantial funds, independent physical identity, deployment of new technology etc. to argue that the earth station is an undertaking. All those features do exist. There is no doubt. But the crucial test is whether the earth station is self-supporting and independent in function, an independent profit centre in true commercial sense The answer can only be "no". The earth stations are in fact system improvement brought in by the assessee company in upgrading its services through value addition by adopting contemporary and appropriate technology. It is a case of improvement of an existing system. Let us examine an analogous case. Indian Railway was running the trains in the past by using steam engines. Thereafter they adopted new technology and deployed diesel engines to run the trains. Again the railways switched over to engines run by electric power. Tomorrow railways may invent engines run by solar energy. These are all system improvements by adopting more appropriate, efficient, economical and contemporary technologies. It is not possible to say that electric engine is a new undertaking within the railway system. Railway is such a big and versatile system where a lot of segments are working simultaneously in unison for providing the ultimate service of transportation. It is almost like providing telecommunication services.

An improvement brought out in one of the systems cannot be construed as setting up of a new undertaking.

50. Therefore we are of the considered view that the earth stations commissioned by the assessee company in the previous year relevant to the assessment year under appeal are not undertakings for the purpose of Section 80-IA. Section 80-IA provides that the deduction shall be available to an assessee in providing telecommunication services only if it has set up an undertaking which starts providing telecommunication services whether basic or cellular at any time on or after the 1st day of April, 1995 but before the 31st day of March, 2000. In the present case, it is not possible to hold that the assessee company has set up an undertaking to provide telecommunication services for the fact that it has commissioned two earth stations in the previous year relevant to the assessment year under appeal. We hold that earth stations are not undertakings for the purpose of Section 80-IA.51. The second question to be answered is whether the undertaking has commenced providing services after the 1st day of April, 1995. Once we find that the earth stations are not undertakings, this question becomes infructuous. The assessee company as a telecommunication services provider has commenced its business way back in 1986 and it is not possible to hold that the earth stations by themselves have started providing telecommunication services after the 1st day of April, 1995.

Therefore, the answer is negative to the second question also.

52. The third question to be considered is whether the assessee company is providing basic or cellular services or if at all the telecommunication services are to be limited to basic or cellular as per Sub-section (4C) of Section 80-IA. (4C) This section applies to any undertaking which starts providing telecommunication services whether basic or cellular at any time on or after the 1st day of April, 1995 but before the 31st day of March, 2000.

The expression provided above is that an undertaking starts providing telecommunication services, basic or cellular. The simple and literal exposition of the above expression is that an undertaking starts providing basic telecommunication services or cellular telecommunication services.

54. For the purpose of Sub-section (4C), providing of telecommunication services has been confined to providing of services under two categories viz., basic services or cellular services. It is not an inclusive definition as argued by the assessee company. If it was an inclusive definition, the expression would be "starts providing telecommunication services like basic or cellular." 55. At the time of hearing there was a mention about the principle of ejusdem generis; whether the reverse of the principle would be acceptable in law or not. The principle of ejusdem generis, provides that where general terms follow specific terms, the specific terms limit the scope of the general terms whereby the subsequent general terms cannot go beyond the meaning and nuances of specific terms.

Logically speaking, the reverse should be that the specific words of which, the meaning does not limit the scope of the earlier general terms. If such a reversal is permissible, the position would be that the expression basic or cellular does not limit the meaning of telecommunication services. But the learned senior counsel himself has fairly admitted that there is no such concept of reversal of ejusdem generis in interpreting the statutory provisions. Once it is found that such proposition does not exist, the above logical exercise has no relevance.

56. In the present case, we find that the requirement that the undertaking should provide basic telecommunication or cellular telecommunication must be understood in their plain meaning. Then the question to be answered would be whether there is anything like basic telecommunication services or cellular telecommunication services.

Regarding cellular telecommunication services, both parties have no quarrel and it is admitted that the assessee company is not engaged in cellular telecommunication services. Dispute is with reference to basic telecommunication services. The expression "basic" is used in a lucid style as understood by a customer of telecommunication services.

Telecommunication services are a consumer-oriented industry. The expression "basic" is used in a consumer-friendly manner and it is used as such in telecommunication sector.

57. The assessee company has placed reliance on the disinvestment documents issued by the assessee company in 1999 when it was a fully Government of India owned undertaking, wherein it was stated that the basic telecommunication services are the principal line of activity of the assessee company. It is to be seen that in that document, the expression 'basic' telecommunication services has been used in a lucid and generic style which does not answer to the precision necessary in interpreting a provision of law. The assessee has also relied on the notification dt. 14th Dec, 2001 issued by TRA1. The notification related to Telecommunication, Interconnection (Charges and Revenue Share) Regulation, 2000. Even though international calls have been characterised as part of basic telecom services in the said regulation that also is a general statement without specifically pointing out the necessary features attributable to providing of basic telecom services.

58. The assessee has also relied on the 34th Report of the Standing Committee of the Parliament on Telecommunication and Information Technology. In the said report, the opinion of the Department of Telecommunications has been quoted and discussed. According to the Department of Telecommunications, the categories covered by basic telecommunications include international telecommunication services also. The Department also held the view that "basic" means provisioning of voice and data services over voice channel. It has been also stated therein that the word "basic" has not been defined in the Indian Telegraph Act, 1885 and it can be interpreted keeping in view the situations, circumstances and modern technology prevailed as on date.

The assessee has also relied on the statement of WTO wherein basic telecommunication services are stated to cover voice telephone services also.

59. The above authorities relied on by the assessee company do give a general view on the technical aspects of the nature of services rendered in telecom sector. Those documents do not speak out the exact modalities of operations by which service providers could be distinguished as providers of basic services or otherwise. In the notification issued by TRAI, the names of telecommunication companies providing basic services have been included. Those providers are BSNL, MTNL, Reliance Infocom Ltd., Tata Teleservices Ltd., Bharati Tele-Ventures Ltd., Shyam Telelink Ltd. and HFCL Infotec Ltd. The absence of the name of the assessee company is conspicuous in the above list of providers of basic telecommunication services. Likewise, in the statement of WTO, in p. 2, the overall management of telecommunication services in India has been explained wherein the assessee company has been stated to be providing international telecom services whereas, it has been stated that basic telecommunication services are provided by Department of Telecommunications. In the above two crucial revelations of Department of Telecommunications and TRAI, the assessee company has not been characterised as a provider of basic telecommunication services whereas certain other entities have been characterised as providing basic telecommunication services.

60. These aspects of the case show that a generic meaning of the telecommunication services cannot be adopted for the purpose of interpreting the provisions relating to deduction available under Section 80-IA. In a general manner, it has been discussed in the technical literature that voice telephony including international voice transmission amounted to providing of basic telecommunication services.

But wherever specific references are to be made on official documents, the assessee company has not been treated as a provider of basic telecommunication services. This is a crucial point to be considered.

61. The meaning of basic telecommunication services has to be understood in its normal commercial sense as understood by an ordinary user of telecommunication services. The meaning of the expression "basic telecom services" is also to be understood in its contextual meaning; it is relative. In the context of an ordinary user, basic telecommunication services means the services provided directly to an end customer. Traditionally speaking such services could be provided through the connectivity of a landline. Now with the advent of new technology, the connectivity could be even wireless. But anyhow, it should connect to an ultimate customer. It should satisfy the basic needs of an ultimate customer in telecommunications.

62. The meaning of the term "basic" given in the Concise Oxford Dictionary, Ninth Edition is "confirming or serving as a base; fundamentally; simplest or lowest in level". In the light of the above, basic telecommunication services means telecommunication services of lowest level/first level rendered to an end customer.

63. The assessee company is providing the telecommunication services not directly to the end customer. It is providing the services of international communication to other providers of basic telecommunication services. The assessee is connecting the basic service providers. It is true that the assessee company is also serving the end customer in an indirect manner. The basic service providers cannot extend their services to the end customer, in the matter of international telecommunications without the help and support of the assessee company. The learned senior counsel has also rightly explained that it is impossible for any service provider to extend an end-to-end service in international telecommunication.

64. We do agree. If not impossible, it is highly improbable that a single telecom provider can extend international telecommunication services on an end-to-end basis. But, the expression "basic" does not mean "end-to-end service". It is sufficient, if the service provider has direct linkage with the ultimate customer at one end. The assessee company can have one end connectivity with the ultimate telecommunication customer in India. That would satisfy the requirement of basic telecommunication service. There needs to be a first level inter-connectivity with the service user (ultimate customer) so as to say that the services provided by the assessee company are basic telecommunication services.

65. In this context, we should also refer to the argument of the learned senior counsel that the deduction should not be denied to the assessee company, which is operating not in any other area except in telecommunication services. We do not think that there is any room for such a grievance. We also think that even if such a grievance is there, there is no remedy available in Section 80-IA(4C). The scheme of deduction is provided by the Government on consideration of various economic and industrial priorities leading to infrastructural development. Deduction is provided in the Act to basic service providers for the reason that there is a need for enlarging basic telecommunication services in India with more and more providers coming into the field. Such deduction meant for basic service providers may not be found necessary by the Government to persons like the assessee who are providing direct services to other basic service providers in the area of international telecommunication; may be for the reason that the tariff rate enjoyed by such secondary service providers itself would take care of the need of incentives.

66. Therefore, we find that the assessee company is not providing basic telecommunication services as stated in Section 80-IA(4C). The assessee is providing international connectivity to other providers of basic services in India. The services rendered by the assessee company is one step above the basic telecommunication services. Therefore, it is to be seen that the assessee company does not satisfy the condition provided in Sub-section (4C) regarding the nature of telecommunication services so as to become eligible for the deduction provided under Section 80-IA.67. We must also refer to the argument of the learned senior counsel that the extension of the meaning of the expression "basic or cellular" brought in by the Finance (No. 2) Act, 1998 w.e.f. 1st April, 1995 (1999) supports the case of the assessee company. The addition of the words "including radio paging, domestic satellite service or networking of trunking and electronic data interchange services" does not in any way provide any indication that the services rendered by the assessee company are basic services.

68. The last question to be considered is whether the method of computation of revenue attributable to the earth station adopted by the assessee company is acceptable for quantifying the deduction available under Section 80-IA. This question arises for consideration if and only if the assessee company is otherwise found eligible for the deduction provided in Section 80-IA. We have already held in the above paras that the assessee is not an undertaking for the purpose of Sub-section (4C) and the telecommunication services provided by the assessee company are not basic or cellular as again provided in that sub-section. We have found therefore that the assessee company is not entitled for deduction provided under Section 80-IA. It follows that it is not relevant to consider the question whether the method of computation is acceptable or not.

69. The question referred before the Special Bench is "Whether, on the facts and in the circumstances of the case, the telecommunication earth station, as is commissioned by the assessee in the relevant previous year, is entitled to be treated as eligible undertaking for the purposes of Section 80-IA of the IT Act, 1961 ?" We hold the answer in the negative that the assessee is not entitled to be treated as eligible undertaking for the purposes of Section 80-IA of the IT Act, 1961. The only ground raised by the assessee in the impugned appeal is the disallowance of claim made under Section 80-IA. As we have found that the assessee is not entitled, the ground raised by the assessee in this appeal fails.

71. After going through the order proposed by my learned Brother, Dr.

O.K. Narayanan, AM, I am in agreement with the final conclusion reached by him but for different reasons given hereafter. Therefore, I think it appropriate to pass a separate order.

72. The question for consideration of the Special Bench is whether the assessee is entitled to exemption under Section 80-IA of the IT Act, 1961 (Act) in respect of the profits derived from the activity carried on by the assessee through the earth stations set up by it. Since long, the assessee has been in the business of providing connectivity of phone calls at the international level i.e., between India and other countries through the sea cables laid by the assessee. However, due to advancement in technology, the assessee set up two earth stations at Madras and Calcutta in the year under consideration. It is in respect of the profits from these stations, the assessee has claimed deduction under Section 80-IA of the Act which was rejected by lower authorities.

Facts as well as arguments of the parties have already been set out in detail by my learned Brother in his order and, therefore, need not be repeated here. If necessary, reference would be made at the appropriate place.

73. The claim under Section 80-IA can be allowed in the case of assessee if it is shown that the earth stations set up by the assessee, from where the activity of connecting overseas phone calls was carried on, can be said to be the undertakings providing telecommunication services whether basic or cellular as per the provisions of Section 80-IA applicable to the year under consideration. So, the first question to be considered is whether such earth stations can be said to be undertakings for the purpose of Section 80-IA.74. The word 'undertaking' has not be defined in the Act. In the absence of the definition, the Courts can always look into the scheme of the Act, the judicial decisions available on the subject, the dictionary meanings as well as the rules of interpretations in order to ascertain the intention of the legislature in using such words or expression. At this stage, it would be appropriate to reproduce the relevant portions of the provisions of Section 80-IA, as applicable to the year under consideration, as under: Section 80-IA-Deduction in respect of profits and gains from industrial undertaking, etc. in certain cases-(1) Where the gross total income of an assessee includes any profits and gains derived from any business of...providing telecommunication services whether basic or cellular...(such business being hereinafter referred to as the eligible business), to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee a deduction from such profits and gains of an amount equal to the percentage specified in Sub-section (5) and for such number of assessment years as is specified in Sub-section (6).

This section applies to any undertaking which starts providing telecommunication service whether basic or cellular including radio paging, domestic satellite service or network of trunking and electronic data interchange services at any time on or after the 1st day of April, 1995 but before 31st day of March, 2000.

Perusal of the above shows that legislature has used the expression "profits derived from the business of providing telecommunication services whether basic or cellular" in Sub-section (1) while Sub-section (4C) provides that this section would apply to an undertaking providing such services. So, the combined reading would infer that deduction under Section 80-IA is available in respect of the profits derived from the business of undertaking providing telecommunication services whether basic or cellular.

The word 'business' has received the judicial consideration in the case of Naiam Swadeshi Weaving Mills v. CEPT , wherein the Hon'ble Supreme Court observed that "the word 'business' connotes some real, substantial and systematic or organized course of activity or conduct with a set purpose". Such legal provision has to be kept in mind while defining the scope of undertaking.

75. The word 'undertaking' has been defined by various dictionaries as under: The word 'undertaking' must be defined as "any business or any work or project which one engages in or attempts as an enterprise analogous to business or trade.

The act of one who undertakes any task or responsibility, the task or enterprise, etc. undertaken, a promise, pledge, guarantee.

The combined reading of the above shows that the word 'undertaking' would mean an activity carried on by the assessee. Since Section 80-IA refers to the profits derived from the business of undertaking, in our opinion, it would mean any activity carried on systematically or in the organized manner with a view to earn profit.

76. The view taken by us is fortified by the decision of the Hon'ble Supreme Court in the case of Textile Machinery Corporation Ltd. v. CIT . In that case, the assessee was engaged in the business of manufacturing of boilers, machinery parts and wagons. It set up two new units-a steel foundry division and a jute mill division.

Steel foundry division started manufacturing castings which were used by the existing division of assessee. In the jute mill, the material was supplied by the boiler division. After machining, the parts were given back to boiler division. The assessee claimed deduction under Section 15C of the Indian IT Act, 1922. The claim was rejected by the tax authorities on the ground that these units were not new industrial undertakings but were formed by reconstruction of existing business.

The matter reached the apex Court. The Court allowed the claim of the assessee by holding that a new activity launched by the assessee by establishing new plant and machinery amounted to new industrial undertaking even though articles produced by these units were used by the existing business divisions.

77. In the present case, the assessee had been in the business of providing connectivity of phone calls at international level through the sea cables since 1986. A new activity was launched by the assessee in this year by establishing earth stations at Calcutta and Madras.

However, the AO was of the view that earth station by itself could not be treated as undertaking since in his view the assessee company i.e., v.NL itself was an undertaking. Since v.NL started its business in 1986, it could not be said that any new activity was started in the financial year 1995-96 and consequently, the claim under Section 80-IA could not be allowed. For the benefit of this order, the reasons given by the AO in para 17.5 are being reproduced as under: 17.5 I am of the firm opinion that deduction under Section 80-IA is not allowable on the following grounds: (a) The assessee did not start providing telecommunication services on or after 1st April, 1995. It has been carrying out this function right from 1986.

(b) The earth station by itself is not an undertaking. The assessee's present claim is the equivalent of an electric supply company replacing the electric pole or a sub-station by a new one and claiming that the electric pole or the substation is a new undertaking eligible for deduction under Section 80-IA. An undertaking in its normal meaning is an undertaking as has been defined in S.Y.C.W. & S. Mills AIR 1969 Mysore 280 at 291 as Mows: It is not in its real meaning anything which may be described as a tangible place of property like land, machinery or equipment; it is in actual effect an activity of man which is commercial or in business parlance means an activity engaged in with a view to earn profit. Property, movable or immovable, used in the course of or for the purpose of such business can more accurately be described as the tools of business or undertaking, i.e., things or articles which are necessary to be used to keep the undertaking going or to assist the carrying on of the activities leading to the earning of profits.

In terms of the above definition the sub-station most certainly does not qualify as an undertaking. The undertaking in this case is the whole company namely v.NL itself. Since v.NL did not begin operations in the prescribed period, it is not eligible for the deduction claimed.

The functioning of earth station has been described by the AO in para 17.2 which is also reproduced as under: 17.2 The functioning of an earth station is as follows : An earth station works as a connection between a satellite and a domestic land network for transmission of voice, data and TV signals. An earth station consists multi-flux banks which combine the various incoming channels into one single input for each modem in the modem bank. The modem converts input information into an output which is acceptable to the next link which is a converter. The converter increases the frequency and signal level and sends it to a HPA Bank.

The HPA Bank amplifies the signals and sends it to the dish antenna from where it is sent to the satellite.

78. In my opinion, the reasons given by the AO are without force. The AO has proceeded on the wrong footing by equating the assessee with the undertaking. In law, the position of assessee is quite distinct from the undertaking carried on by the assessee. The assessee may have different sources of income including the profits from an undertaking.

The undertaking is one of the activities, which the assessee may carry on and, therefore, exemption would be restricted to the profits of the undertaking only. If the stand of the AO is accepted, then the entire income of the assessee would be entitled to exemption which is not the intention of the legislature. In this connection, the reference can be made to the Board circular dt. 13th Dec, 1963, wherein, it has been clarified that benefit under Section 84 (now omitted) is to the undertaking and not to the assessee. The relevant portion of the circular is being reproduced as under: 330. New industrial undertaking taken over by another assessee before expiry of five years-Whether benefit under the section available to successor for remaining years.

The Board agrees that benefit of Section 84 attaches to the undertaking and not to the owner thereof. The successor will be entitled to the benefit for the unexpired period of five years provided the undertaking is taken over as a running concern.

The provisions of Section 84 (now omitted) and the provisions of Section 80-IA are similar. Therefore, the said circular would be applicable to the present case.

79. This aspect of the issue is also covered by various judicial decisions. In the case of Madras Machine Tools Manufacturers Ltd. v.CIT , the Hon'ble Madras High Court observed as under: A company may own or run many undertakings some of which may be entitled to the benefit of Section 84 and others may not be so entitled and hence it is not possible to equate the undertaking with the company.(from headnote) This view was reiterated by the Court in the case of CIT v. Premier Cotton Mills Ltd. by observing as under: The word 'undertaking' is not to be equated with the legal entity which may own the undertaking. A single legal entity may own and operate more than one industrial undertaking and the fact of common ownership does not render undertakings which are otherwise capable of being separated into a common undertaking.(from headnote) Similar view is also taken by the Hon'ble Bombay High Court in the case of CIT v. Chanda Diesels , wherein, it was observed "Sub-section (2) of Section 80HH refers to the 'industrial undertaking' and not to the assessee or his other business". The Hon'ble Calcutta High Court in the case of Industrial Gases Ltd. v. CIT , held as under: Section 15C makes a distinction between the assessee and the industrial undertaking. The unit of assessment is the assessee and not the industrial undertaking.

The exemption conferred by Section 15C is confined to the profits derived from the industrial undertaking and not to the profits derived from any trade or business carried on by the assessee other than the industrial undertaking.(from headnote) The Hon'ble Delhi High Court, on somewhat similar facts, in the case of CIT v. Ganga Sugar Corporation Ltd. The new industrial unit would not lose its separate and independent identity even though it has been set up by a company which is already running an industrial unit before the setting up of the new unit.(from headnote) 80. In view of the above decisions as well as the circular, it is held that the AO was not justified in holding that the assessee company itself was an "undertaking. Consequently, the AO was also not justified in holding that since the assessee had started its operation in 1986, exemption could not be allowed in respect of the activity carried on from the earth stations.

81. The AO is also wrong in observing that activity carried on in the existing business cannot be undertaken by the new undertaking. The Hon'ble Supreme Court in the case of Textile Machinery Corporation Ltd. (supra), has clearly observed that a new activity launched by the assessee may produce the same commodity of the old business or some other products which may feed the old business. The decision of the Hon'ble Supreme Court in the case of CIT v. Indian Aluminum Co. Ltd. , is nearer, on facts, to the present case. In that case, assessee was already manufacturing aluminium ingots from the ore at four units at different locations. In the year under consideration, the assessee set up another unit for manufacturing the same item and claimed exemption under Section 15C of the Indian IT Act, 1922. The claim was disallowed by the tax authorities on the ground that considering the nature of the activity, it could not be said that assessee had set up new industrial undertaking. However, the Tribunal allowed the claim. The Hon'ble Supreme Court, following its earlier decision in the case of Textile Machinery Corporation (supra) upheld the view of the Tribunal. In view of this settled legal position, the AO was legally not justified in holding that earth station could not be said to be an undertaking since the existing activity was carried on at such unit.

82. The decision of the Hon'ble Mysore High Court in the case of S.Y.C.W. & S. Mills AIR 1969 Mysore 280 relied on by the AO does not help the case of the Revenue. The AO relied on the following observations of the Court: 'Undertaking' is not in its real meaning anything which may be described as a tangible piece of property like land, machinery or the equipment; it is in actual effect an activity of man which is commercial or business parlance means an activity engaged in with a view to earn profit.

Perusal of the above reveals that mere property like land, plant and machinery would not constitute an undertaking but it is the activity of the man carried on with a view to earn profit which is relevant. There cannot be any dispute to such legal position. The case of the assessee is that exemption is being claimed in respect of the profits derived from the services rendered by the assessee. The income of assessee is not from mere use of machinery but from the activity of connecting phone calls from the customers of Indian territory to the overseas customers and vice versa. The activity of assessee has been narrated in brief by the AO in para 17.2 of his order which has been reproduced by me earlier. The assessee has also given a chart of its activity carried on for connecting the calls of Indian customer to overseas customer and vice versa through the earth stations set up by it. Such activity, undisputedly, is being carried on continuously in a systematic manner and, therefore, the activity carried on by the assessee has to be held as an undertaking.

83. The learned Departmental Representative has relied on the decision of the apex Court in the case of Textile Machinery Corporation (supra) to contend that following conditions should be fulfilled for claiming deduction under Section 80-IA: (i) That the new unit must be established by investing substantial funds; and He has drawn our attention to the statement of accounts of the assessee to point out that investment in setting up of earth station was not substantial considering the total investment of assessee in its business. It was also submitted that such unit could not be said to be an integrated unit as it could not work as stand alone. Further, generation of income for this unit was not ascertainable and, therefore, the same could not be considered as an integrated unit.

According to him, earth station by itself cannot commercially function without the other systems embedded in the chain of activity carried on by the assessee in providing telecom services. Earth station is only an internal pathway of the transmission system. Merely because a new technology has been deployed, the earth station cannot be considered as new undertaking. The true test, according to him, is whether the earth station is self-supporting and independent in function, and an independent profit unit in commercial sense. To prove his point of view, he gave an example of Indian Railway. Initially, the train was running through steam engine but subsequently switched over to diesel engine and then electric engine but mere change of engine technology would not treat the railways running a new unit. It would be a case of old undertaking running in the same business with new technology.

84. In my view, the submission of the learned Departmental Representative is without force. The question of investment in the new unit cannot be compared with the total capital employed by the assessee in its entire business. In the case of Textile Machinery Corporation (supra), it has to be noted, that the Court was concerned with a case where the claim of assessee was denied on the ground that the new unit was formed by reconstruction of old business. It is in this context, the Court held that it would be sufficient if substantial amount is invested in the new plant and machinery. Meaning thereby that the claim could not be rejected if negligible capital of old business is also employed in the new business. The Court never said that substantial investment was to be compared with the entire capital of assessee company. An assessee may have capital of Rs. 100 crores but the new unit may be established with the capital of Rs. 1 crore. In such cases, exemption cannot be denied on the ground that investment in the new unit is only one per cent to the total capital of assessee. Substantial investment was referred to with Rs. 1 crore in above example. According to the Hon'ble Supreme Court, if, for example, Rs. 90 lakhs is invested in the new plant and machinery, then the claim of the assessee could not be denied merely because Rs. 10 lakhs worth old machinery was also deployed. Therefore, the contention of the learned Departmental Representative regarding substantial investment has to be rejected.

85. In my opinion, there is also no merit in the contention of the learned Departmental Representative that the earth station is not an independent and integral unit. The example given by him is also incongruous. The test, in my view, would be whether the new unit can function without depending on the existing activity. In other words, whether the new undertaking can function even if the existing undertaking ceases to function. If the answer is in affirmative, then it would be a case of a new independent/integrated unit. In the example given by the learned Departmental Representative, the existing unit of Indian Railway continues as there is no setting up of a new undertaking. The new technology in engine by itself was not sufficient since the railway track and coaches or wagons remain the same as of existing business. Running of the existing business with the new technology is quite distinct and separate from running of new identifiable unit with the new technology. Even otherwise, the aspect of change in technology is irrelevant since new unit can be set up even to produce the same commodity with the same technology. This view is justified by the judgment of the apex Court in the case of Indian Aluminum Co, Ltd. (supra), wherein the assessee was engaged in the business of manufacturing ingots from the aluminium ore. The assessee set up additional units for manufacturing the same item and claimed exemption. The claim was disallowed by the tax authorities on the ground that such unit could not be said to be new unit as carrying on the same activity. The Tribunal, however, allowed the claim by holding that assessee had set up new units and, therefore, exemption was allowable. The apex Court, following the earlier decision in the case of Textile Machinery Corporation (supra), upheld the order of the Tribunal.

86. In the present case, the new units are identifiable units separate and distinct from the existing one as these were located at places different from the existing one. Even the system of connectivity of phone calls was entirely different from the existing one since the existing activity was through sea cables while the new activity was through the satellite. The investment in plant and machinery, land and building was entirely new one. Therefore, it cannot be said that the new activity was dependent on the existing activity. Conseguently, it has to be held that both the earth stations were functionally independent and, therefore, the activity carried on was integrated one.

87. There is also no merit in the contention of the learned CIT-Departmental Representative that the new unit should also be self-supporting one in the commercial sense. Reference can be made to the judgment of the Hon'ble Calcutta High Court in the case of CIT v.Orient Paper Mills Ltd. , which has been affirmed by the apex Court CIT v. Orient Paper Mills Ltd. . In that case, the assessee set up a unit for manufacture of caustic soda which was an essential chemical for use in the process of manufacture of paper, an existing activity carried on by the assessee. The entire production of caustic soda was consumed by the assessee in the existing process of manufacturing of paper and no part of it was sold. The assessee claimed the deduction under Section 15C of the 1922 Act which was disallowed on the ground that new plant was ancillary to the existing units. The Tribunal allowed the claim of assessee and the High Court as well as the apex Court upheld the view of the Tribunal. This shows that the claim of assessee cannot be disallowed merely on the ground that there is no generation of revenue by the unit itself. The profit can always be computed by attributing the appropriate amount equal to the fair market value of goods or services produced/provided by the new unit. On the contrary, in the present case, there is generation of income which is identifiable with reference to each call made through the earth station. The charge for each call is predetermined and can be quantified. Therefore, this contention of the learned Departmental Representative is rejected.

88. In view of the above discussion, it is held that activity carried on by the assessee through the two earth stations amounts to new undertaking eligible for deduction under Section 80-IA subject to the fulfilment of other conditions.

89. Having held as above, the next question for consideration is whether such undertakings can be said to be providing telecommunication services whether basic or cellular. Let us, therefore, now consider how the legislature has understood the meaning of the word 'telecommunication. The field of telecommunication was governed by the Indian Telegraph Act, 1872, wherein the word 'telegraph' was defined as under: 'telegraph' means any appliance, instrument, material or apparatus used or capable of use for transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature by wire, visual or other electromagnetic emissions, radio waves or Hertzian waves, galvanic, electric or magnetic means.

According to the provisions of this Act, the Government had the exclusive domain on this subject except where license is granted by the Government. Till eighties, it remained exclusive domain of the Government. It is only in nineties, that this field was thrown open to the private sector under the license granted under the above Act. The format of license prescribed by the Government of India defines the words 'telecommunication' as under: 'Telecommunication'-Any transmission, emission or reception of signs, signals, writing, images and sounds or intelligence of any nature of wire, radio, optical or other electromagnetic systems.

In-mid 90s, the Government of India opened this field to the private sector and started granting licenses to private parties in view of the advanced technology of cellular phones. New enactment also came into existence i.e., Telecommunication Regulatory Authority of India Act, 1997 (TRAI). This Act defines the expression "telecommunication services" as under: Telecommunication services means service of any description (including, electronic mail, voice mail, data services, audio tax service, video tax services, radio paging and cellular mobile telephone service) which is made available to users by means of any transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature, by wire, radio, visual or other electromagnetic means but shall not include broadcasting services.

The above statutory definitions reveal that the legislature has considered the expression "telecommunication services" of wide amplitude inasmuch as it includes transmission of voice, images and data through various modes.

90. At this stage, we may usefully refer to the settled legal position that where an expression is defined in an enactment qua the related subject, then the same meaning should be attributed to such expression in other enactment unless defined otherwise. This legal position was laid down by the Constitution Bench of the apex Court in the case of State of Madras v. Gannon Dunkerlay & Co. (Madras) Ltd. AIR 560. In that case, the Hon'ble Court applied the meaning of the expression "sale of goods" as provided in Sale of Goods Act, 1930, while interpreting Section 48, List II of Schedule VII of the Government of India Act, 1935. This legal position has been applied by the Tribunal in the case of Thomas Cook (India) Ltd. v. Dy./Jt. CIT (2006) 105 TTJ (Mumbai) 317 : (2006) 103 ITD 119 (Mumbai). Accordingly, in my view, the meaning of the word 'telecommunication' as understood by the legislature in related enactments (mentioned in the preceding para) should be taken into consideration while interpreting the provisions of Section 80-IA of the Act.

91. In order to encourage the investment by the private sector, the legislature amended the provisions of Section 80-IA of the IT Act, 1961. Knowing well that the expression 'telecommunication services' is of wide amplitude, the legislature, while amending the provisions of Section 80-IA, qualified this expression by the words "whether basic or cellular". This clearly shows that the legislature has restricted the scope of the expression 'telecommunication services'. The word 'cellular' undisputedly refers to voice communication through mobile phone based on the new technology. The word 'basic' is a general word.

It is well settled legal position that when general word is used along with a specific word, then the general word is to be understood in the sense in which specific word is used. This rule is based on the maxim that a word is known by the company it keeps. In support of this proposition, reference can be made to the judgment of the Hon'ble Supreme Court in the case of G.S. Pai & Co. 45 STC 58 (SC), wherein the Court was concerned with the scope of the expression "water supply and fittings". The Court, following the above rule, held that water supply fittings should be understood in the sense of sanitary fittings.

Consequently, it was held that the water supply fittings would only include such pipes as are used in toilets and bathrooms and, therefore, would not include heavy pipes. In view of this ruling, the word 'basic' would, therefore, mean voice communication through the existing system prior to the introduction of the cellular technology. Thus, in my humble opinion, the word 'basic' used in Section 80-IA would only mean voice communication through conventional system i.e. through cable technology which is popularly known as communication through landline phones. Thus, the words "basic or cellular" would mean voice communication either through landline system or through cellular system. The other systems, even for voice communication were, therefore, not intended by the legislature while amending the provisions of Section 80-IA by Finance Act, 1995.

92. In view of the above discussion, it has to be held that voice communication through satellite, based on latest technology, was outside the scope of the expression "telecommunication services whether basic or cellular" used in Section 80-IA. The earth station is part of the system of voice communication through satellite. Earth station and satellite are supplementary to each other. This system is entirely distinct and different from the cable or cellular system. This view is also fortified by the subsequent amendment in Section 80-IA of the Act by Finance (No. 2) Act, 1996 [sic-(1998)] effective from asst. yr.

1997-98 [sic-asst. yr. 1999-2000], whereby, after the words "whether basic or cellular", the following words were added: Including media paging, domestic satellite service or network of trunking and electronic data interchange services.

Had the legislature intended to give the wider meaning to the expression "telecommunication services", it would not have restricted the meaning of such expression by using the words "whether basic or cellular" and subsequently enlarged the scope by including other modes of communication. Service through satellite was included only with effect from asst. yr. 1997-98 which also means that legislature did not intend to give the benefit of Section 80-IA to telecommunication services through satellite or earth station for asst. yr. 1996-97. The legislature was competent to amend the provisions retrospectively i.e., from asst. yr. 1996-97 but intentionally made the amendment effective from asst. yr. 1997-98 only. Therefore, telecommunication services through earth station were not eligible for deduction under Section 80-IA for the year under consideration.

93. The learned Departmental Representative has vehemently contended before us that no assessee can be said to be providing telecommunication services unless such services are provided from one end to the other end. According to him, the assessee is operating as backbone industry and connects the calls received through other service providers and, therefore, does not provide any service to the actual user of the phone. In my opinion, this contention cannot be accepted for the reason that legislature itself has allowed the deduction to telecommunication services through satellite or trunking network. Both these services are provided by backbone industry which does not have any direct link with actual consumer of such services. The customers of satellite network are the service providers who have access to actual consumers like all mobile service providers and Mahanagar Telephone Nigam Ltd., Bharat Sanchar Nigam Ltd., Department of Telecommunication, etc. If the contention of the learned Departmental Representative is accepted, then inclusion of words like satellite service or trunking network would become ineffective. Such construction would be absurd and, therefore, cannot be accepted.

94. Before parting with this issue it may be mentioned that at the end of the hearing of the case, both the parties were requested to furnish further material, if any, which may help the Bench in understanding the meaning of the expression "basic or cellular". In this connection, the assessee has furnished copies of letters dt. 23rd Feb., 1994, 5th March, 1997 and 14th Jan., 1999, issued by the Government of India, Department of Telecommunications, New Delhi. In the letter dt. 23rd Feb., 1994, it has been stated "the Government have decided that v.NL will have monopoly for 10 years in basic services (voice telephoning) starting from 1st April, 1994". In the letter dt. 5th March, 1997, it has been stated "Videsh Sanchar Nigam Ltd. is the only entity authorized by the Government of India to provide basic international telephone services to and from India". To the same effect is the letter dt. 14th Jan., 1999. In view of these letters it is prayed by the assessee that the activity of the assessee regarding transmission of voice through earth station be considered as basic telecommunication services. In my opinion, these letters do not help the case of the assessee, for the reasons-(l) prior to asst. yr. 1996-97, the assessee was engaged in the business of voice communication at the international level through the sea cables which was conventional method of telecommunication and was being considered as basic telecommunication services as discussed in the earlier part of the order and, (2) nowhere in these letters it is stated that telecommunication services through satellite could be considered as basic telecommunication services. The first letter was issued prior to the commissioning of the earth station and at that time the assessee was engaged in the business of providing telecommunication services through sea cables and it is because of this reason, perhaps, the Government of India issued such letters. Further, the first letter was issued in connection with assessee's Euro issue and therefore the same cannot be considered in deciding such legal issue. The other letters are general in nature. In view of the same, the contention of the assessee cannot be accepted on the basis of such letters.

95. In view of the above discussion, it is held that the telecommunication services through earth stations set up by the assessee cannot be characterized either basic or cellular and, therefore, the assessee would not be entitled to deduction under Section 80-IA for the year under consideration.

97. I have had the benefit of going through the separate orders proposed by my distinguished senior colleagues Dr. O.K. Narayanan and Shri K.C. Singhal. The common thread in these two orders is that the appeal filed by the assessee is to be dismissed, even though the reasoning adopted by my learned colleagues is so radically different that there is hardly any other meeting ground. Be that as it may, the majority view of this Special Bench already is that the appeal filed by the assessee is to be dismissed. I also respectfully endorse the same.

I have, however, a few observations to make. Since both the orders have reached as signed orders, after my transfer from Mumbai Benches, I have to add my own little note for this purpose.

98. The assessment year before us is 1996-97. In para Nos. 92 and 93 of the proposed separate order, coupled with the fact in the said order it has been concluded that the assessee had set up a separate undertaking in the relevant previous year; there is an interesting discussion about the legal position for the asst. yr. 1997-98 onwards. It has been concluded that "in view of the above discussions, it is held that the telecommunication services through earth station set up by the assessee cannot be characterized either basic or cellular and therefore, the assessee would not be entitled to deduction under Section 80-IA for the year under consideration". This objection is relevant only for the year 1996-97, because in the later years the scope of the section is expanded. Similarly, once it is held that the services rendered by the assessee were not eligible for deduction under Section 80-IA, it is irrelevant as to whether or not, in order to be eligible for deduction under Section 80-IA, satellite telecommunication services are required to be provided on end-to-end basis. This aspect of the matter cannot have anything to do with the issue in appeal for the asst. yr. 1996-97, but only for 1997-98 onwards. The proposed separate order thus holds that while the appeal for the asst. yr. 1996-97 is to be dismissed, the issue has to be resolved in favour of the assessee for the asst. yr.

1997-98 onwards. In the paper book filed by the learned Departmental Representative (at p. 13), the details of assessment year wise claim are given. These are reproduced below for ready reference: (*The sum of yearwise figures does not add up to the total figure as all the figures are rounded off upto two decimal points).

99. It would thus follow that, in accordance with the conclusions arrived in the proposed separate order, while assessee's claim for Rs. 22.90 crores for the asst. yr. 1996-97 is to be rejected, the claim for the remaining years aggregating to Rs. 2,068.03 crores for the later assessment years is to be allowed. However, we are not concerned with the later years, nor will it be proper for us to pre-empt the decision of the appellate authorities for those years. It will be particularly unjust as the Revenue may not even be in a position to appeal against this order, as prima facie the issue is decided in their favour, and yet observations made in this Special Bench order, which will be binding on the Division Benches, will end up being in favour of the assessee by allowing claim of deduction for Rs. 2,068 crores out of total claim of Rs. 2,090 crores. Whether or not, in order to be eligible for deduction under Section 80-IA, satellite telecommunication services are required to be provided on end-to-end basis obviously cannot have anything to do with the issue in appeal for the asst. yr.

1996-97; this aspect is relevant only for the asst. yr. 1997-98 onwards. The issue before this Special Bench is confined to the asst.

yr. 1996-97. We must leave it at that, and, in my opinion, we must also refrain from doing anything which may, or may even seem to, preempt the decision for the other years. No doubt whatever finding is necessary for the disposal of present appeal, irrespective of whether or not it will have impact in the later years, such a finding is to be given.

This does not, however, extend to the other issues which are not relevant for the present year.

100. While on the subject, I may also add that though the assessee company was a public sector undertaking in the relevant previous year, according to the learned Counsel, it has since been privatized and, therefore, clearance has not been obtained from the Committee on Disputes (Cabinet Secretariat). Learned Counsel contends that the ownership of the assessee company now vests in private sector, and, for this reason, the requirements of Hon'ble Supreme Court's judgment in the case of Oil & Natural Gas Commission and Anr. v. CCE (1992) 104 CTR (SC) 31 do not apply in this case. As learned CIT (Departmental Representative) has conceded this position, we have not addressed ourselves to the broader question whether or not a clearance of the Committee on Disputes is required in a case where the assessee company was a public sector undertaking in the relevant previous year but ceases to be owned by the Government of India at the point of time when litigation comes up for adjudication before a Court or Tribunal.

101. With these observations, I respectfully disassociate myself from the proposed separate order dt. 10th July, 2007, though I agree that the appeal of the assessee is to be dismissed.