Pranav B Prem

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The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has granted substantial relief to Vodafone by deleting multiple additions and disallowances made by the Assessing Officer, holding that they were not sustainable in law. The Tribunal held that the transfer of passive telecom tower infrastructure pursuant to a court-approved scheme of demerger constituted a valid “gift” under Section 47(iii) of the Income Tax Act, 1961, and that the Assessing Officer was not justified in imputing any notional consideration or denying depreciation on such transfer. The Tribunal further ruled that roaming charges do not involve “technical services” requiring human intervention and, therefore, do not attract tax deduction at source under Section 194J. Consequently, the related disallowance was also held to be unsustainable.

 

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The matter was heard by a Bench comprising Sandeep Singh Karhail (Judicial Member) and Vikram Singh Yadav (Accountant Member), while disposing of cross-appeals filed by both Vodafone and the Revenue.

 

The dispute arose from assessment proceedings in which the Assessing Officer had treated the transfer of passive tower infrastructure assets by Vodafone to Vodafone Infrastructure Ltd. under a High Court-approved scheme of demerger as a colourable device. On that basis, the Assessing Officer imputed a deemed sale consideration, reduced the written down value of the assets and disallowed depreciation amounting to ₹31.60 crore.

 

Rejecting this approach, the Tribunal held that a transfer effected under a court-approved demerger without consideration squarely falls within the ambit of Section 47(iii), which exempts transfers by way of gift from capital gains tax. It observed that once the statutory conditions are satisfied, the Assessing Officer cannot disregard the transaction or artificially assign a notional value to deny depreciation. The Tribunal held that the transfer was a genuine gift and that depreciation could not be disallowed on such grounds.

 

On the issue of roaming charges, the Tribunal held that roaming services do not involve human intervention and therefore do not qualify as “technical services”. Relying on settled legal principles, it held that tax was not deductible at source under Section 194J on such payments, and consequently, the disallowance made on account of non-deduction of TDS was liable to be deleted.

 

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The Tribunal also examined the issue of prepaid distribution margins and, following the Supreme Court judgment in Bharti Cellular Ltd. v. ACIT, reported in (2024) 462 ITR 247 (SC), held that such margins are in the nature of trade discounts and not “commission”. As a result, the provisions of Section 194H were held to be inapplicable, and the corresponding disallowance was deleted.

 

With respect to disallowance under Section 14A read with Rule 8D, the Tribunal noted that Vodafone had not earned any exempt income during the relevant assessment year. In view of this factual position, it held that no disallowance under Section 14A could be made and that the consequential adjustment under Section 115JB for Minimum Alternate Tax purposes was also unsustainable. Accordingly, both were directed to be deleted.

 

On the claim of deduction under Section 80-IA(2A), the Tribunal held that telecom undertakings covered by the said provision are entitled to deduction on eligible receipts, including income from the Served From India Scheme (SFIS) and foreign exchange gains arising from operational activities. The Revenue’s appeal challenging the computation and allowability of the deduction under Section 80-IA was dismissed.

 

However, on the issue of network site rentals paid to Indus Towers, the Tribunal held that the matter required fresh factual verification. It therefore remanded this limited issue to the Assessing Officer for de novo examination in accordance with law.

 

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In conclusion, the ITAT allowed Vodafone’s appeal on all major issues, deleting the disallowances relating to depreciation on tower assets, roaming charges, prepaid distribution margins and Section 14A, while also affirming the company’s eligibility for deduction under Section 80-IA(2A). The Revenue’s appeal was dismissed, except to the limited extent that the issue of network site rentals was remanded for fresh consideration.

 

Appearance

Appearance for Assessee: Shri K.K. Ved and Shri N.A. Patade

Appearance for Revenue: Shri Pankaj Kumar, CIT-DR

 

 

Cause Title: Vodafone West Limited (formerly known as Vodafone Essar Gujarat Limited) Vs. Deputy Commissioner of Income Tax Circle- 4(1)(2)

Case No: ITA No. 671/AHD/2015 and ITA No. 1634/AHD/2015

Coram: Sandeep Singh Karhail (Judicial Member), Vikram Singh Yadav (Accountant Member)