Union of India vs Association of Unified Telecom Service Providers of India Etc.Etc.

18 – Companies Act, 1956 – ss. 3, 211(3A)-(3C) – Interpretation of Statutes – noscitur a sociis; ejusdem generis – Principle of constructive res judicata – Constitution of India – Arts. 14 and 39 – Service Tax Act, 1994 – s.67 – Income Tax Act, 1961 – s.80 IA (2a).

Telecommunication Laws – National Telecom Policy, 1999 – Objectives of – Discussed.

Indian Telegraph Act, 1885 – s.4 – Telecom Service Providers granted Licence Agreement by the Govt. of India – Definition under, of Gross Revenue – Plea of licensees that revenue has not been defined under license and thus, insisted on the fair valuation method relying on J.K Industries Ltd. case – Held: Submission raised on fair valuation method based on the decision in J.K. Industries case cannot be accepted as the decision is on consideration of different accounting standard which adopts fair valuation method i.e., Ind AS-18 and not relevant for the AS-9 accounting standard – Companies Act, 1956 – ss. 211(3A) & (3C) – Chartered Accountants Act, 1949.

Companies Act, 1956 – ss. 211(3A) & (3C) – Accounting standards recommended by the Institute of Chartered Accountants of India constituted – Relevance of and fundamental difference between AS-9 and AS-18 – Discussed – Chartered Accountants Act, 1949.

Telecom Regulatory Authority of India Act, 1997 – ss.11(1)(a) – Recommendations from the TRAI on the licence fee payable by the licensees – Consideration of, by the Central Government – Discussed.

Companies Act, 1956 – s. 211 – Obligation under, of the companies – Held: s.211 deals with the obligation of the company to comply with accounting standards – In case they do not comply, it has to be disclosed in its profit and loss account, the deviation, reasons for such deviation, and financial effect.

Doctrines/Principles – Rule of Contra proferentum – Commercial Contracts – Telecom Service Providers granted Licence Agreement by the Govt. of India – Plea of licenses that all receipts would not form part of Adjusted Gross Revenue (AGR) and that revenue from non-licensed activities was not part of AGR at all and that the contra proferentum rule requires clauses 19.1 and 19.2 of the license agreement to be interpreted against the maker and prefer the interpretation which is favourable to the licensees – Held: Rule of contra proferentem does not apply to the present case as there is no ambiguity or doubt in the definition of gross revenue in the agreement.

Doctrines/Principles – Doctrine of unconscionable bargaining – Telecom sector – Applicability of in commercial contracts – Licences granted to the service providers stipulated a fixed licence fee payable by the service providers every year – Migration from fixed licence fee to revenue sharing fee – Held: After the introduction of the migration package policy, 1999, there is an exponential growth of the telecom sector – Terms and conditions cannot be said to be oppressive as submitted on behalf of the licensees – It cannot be said that DOT was in a dominant position, or possessed wholly disproportionate and unequal bargaining power– In the matter of commercial contracts, the doctrine of unconscionable bargaining is not applicable – Once benefit has been drawn, the licensees cannot deny validity or binding effect of contract.

Dismissing the appeals of the licensees while allowing that of the DoT, the Court

HELD: 1.1 In Re: Definition of Gross Revenue There was a paradigm shift in Telecom Policy of 1999 from the fixed licence fee to the revenue sharing basis regime, which was advantageous to the Telecom Service Providers. Under the new regime, the Central Government shared the privilege under section 4 of the Indian Telegraph Act, 1885 with the TSPs. It came as a relief against the high licence fee, which used to be charged under the 1999 policy. The migration package contained the stipulation as to no dispute to be raised as to working out sharing of revenue. Experts were consulted in the field of accountancy, and it was their advice that the actual figures should be simple and objective to evolve a system of revenue sharing that does not become as arduous one and litigative, had been evolved. Revenue has been defined in a broad, comprehensive, and inclusive manner not to pose problems of interpretation and to protect from the accounting jugglery. Gross revenue has been defined to be inclusive of specific items mentioned in clause 19.1 and any other miscellaneous revenue, without any set-off for related items of expense, etc. All the licensees accepted the migration package and have signed the agreements. It has turned out to be a substantial financial booster in favour of the licensees as is apparent from figures of the gross revenue earned by them mentioned above. When under a contract signed by the parties, gross revenue and AGR have been given the meaning coupled with the format and the annexures which form part of the contract. Format is contained in appendix to Annexure-II which is part of the agreement in which requisite information has to be furnished. The meaning in clause 19 of the gross revenue and the format mentioned above have to prevail. [Para 44] [726-F-H; 727-A-B]

1.2 The submission raised for adopting fair valuation method relying on S.K. Synthetics is based upon misconception of method applicable to A.S-9. The argument is crafted to get rid of AS-9 and the definition of gross revenue in the agreement. The ICAI issued the AS-9 revenue recognition standard in the year 1985. In the initial years, it was recommendatory for only Level-I enterprises but was made mandatory for all enterprises from 1.4.1983. The meaning of enterprise is as defined in section

3 of the Companies Act, 1956. The IND AS-18 regime has been introduced later on. In AS-9, revenue recognition is at “nominal” value; whereas IND AS-18, the revenue recognition is at a “fair” value. The barter transactions are included in Ind AS-18, whereas this aspect is not covered in AS-9. In AS-9 revenue recognition, interest income is recognised on a time proportion basis, whereas in Ind AS-18, interest income is recognised using an effective interest rate method. AS-9 recognises revenue as per the completed service method or percentage completion method, whereas Ind AS-18 only recognises revenue as per the percentage of completion method. Thus, there is a fundamental difference. The fair value concept has no place in AS-9 as per which the accounts are to be maintained and submitted for determination of gross revenue. AS-9 revenue recognition regime states that the amount of revenue shall be measured by the gross inflow of cash, receivables, or other consideration received. There is no concept of fair valuation. Thus, the submission raised based on a fair valuation method based on the decision in J.K. Industries v. Union of India cannot be accepted as the decision is on consideration of different accounting standard which adopts fair valuation method i.e., Ind AS-18 and not relevant for the AS-9 accounting standard. The submission is wholly devoid of substance. It is not only barred by the principle of constructive res judicata but also indicates that the licensees are raising the similar objections which they have raised earlier and were not entertained by this Court and were rejected. Again precisely, the same attempt is made by submitting; revenue should be taken as defined in AS-9, not in Clause 19.1 of the agreement, submission runs contrary to the decision of the Court, as held in para 48 of the 2011 judgment, which operates as res judicata inter se parties. The meaning of revenue is apparent that it has to be gross revenue, and the licence fee would be a percentage of the same. Thus, the licensees have made a futile attempt to submit that the revenue to be considered would be derived from the activities under the licence; whereas it has been held in 2011 that the revenue from activities beyond the licence have to be included in adjusted gross revenue, is binding. Even otherwise, on merit, the submission raised is baseless. The contractual definition of gross revenue is binding. When there is a contractual definition as to what would be the gross revenue that would be the revenue and also the total revenue, the revenue as mentioned in the mode of accounting AS-9 cannot govern the definition. The general definition of revenue in the mode of accounting cannot govern the contractual definition of gross revenue. The accounting standard AS-9 makes it clear that same is in the form of guidelines, it is not comprehensive and does not supersede the practice of accounting. It only lays down a system in which accounts have to be maintained. Accounting standards make it clear that it does not provide for a straight-jacket formula for accounting but merely provide for guidelines to maintain the account books in systematic manner. Section 211 of the Companies Act, 1956 deals with the obligation of the company to comply with accounting standards. In case they do not comply, it has to be disclosed in its profit and loss account, the deviation, reasons for such deviation, and financial effect. [Paras 61, 65, 67] [736-H; 737-A-H; 738-A-H; 739-A-C-E; 740-C-D]

1.3 The definition of gross revenue is crystal clear in the agreement. How the adjusted gross revenue to be arrived at is also evident. It cannot be submitted that the revenue has not been defined in the contract. Once the gross revenue is defined, one cannot depart from it and the very meaning is to be given to the revenue for the agreement. Overall revenue, has to be taken into account for determination of licence fees without set off, as provided in the agreement. The same was defined to simplify it to rule out the litigation, disputes, and accounting myriads. The submission raised that the term revenue has to be interpreted as the consideration payable in keeping with commercial and financial parlance is what is intended to be avoided. Raising of such submission is a futile attempt that has been made to wriggle out of the definition of gross revenue, which has been held to be binding in the previous judgment in Union of India v. AUSPI (2011). The submission is that the contract recognises the applicability of accounting standards. It is only to maintain books of accounts. To a certain extent, it cannot be disputed that to have clarity, uniformity, and definitiveness; the accounting standards lay down guidelines with respect to financial terms. However, when the financial terms in the agreement are clear in the form of definition of gross revenue governed by Clause 19.1 of the agreement, the definition of Accounting Standard-9 cannot supersede it which is a general one. Submission though attractive, but is again an attempt by taking a rigmarole to get rid of the definition of ‘gross revenue’. Earlier the validity of definition was questioned to confine the meaning of gross revenue how the revenue is sought to be confined to activities under the licence by way of AS-9. The reliance has been placed on statement made by DOT in the reply filed in 2003 that the definition of gross revenue is in line with AS-9, it is by way of explaining and cannot have the effect of changing the definition of gross revenue given in the agreement. The definition in agreement is unambiguous, clear, and beyond the pale of doubt, and there is no confusion in the definition of gross revenue, which is the basis for realisation of the licence fee. Licensees have made a futile attempt to wriggle out of the definition in an indirect method, which was rejected directly in the decision of 2011 between the parties and it was held that these very heads form part of gross revenue. [Paras 76, 79] [748-F-H; 749-A-B; 752-C-E]

General Assurance Society Ltd. v. Chandmull Jain, AIR 1966 SC 1644 : [1966] SCR 500 ; M.R. Engineers & Contractors Pvt. Ltd. v. Som Datt Builders Ltd. (2009)

7 SCC 696 : [2009] 10 SCR 373 – referred to.

1.4 It cannot be said that DOT has taken inconsistent stands at different stages of the same litigation. Their stand is apparent that the gross revenue has been clearly defined in the agreement. Parties have agreed to various inclusions in the agreement and have willingly switched over to revenue- sharing regime under the 1999 policy and same is apparent from the stand and the reliefs prayed in the petitions filed in 2003 and 2005. The licensees were aware of items specifically included in the agreement. TSPs agreed to interpretation and accepted it as held by this Court in 2011 judgment. Licensees are taking inconsistent stands, earlier they have taken the stand that all these items concerning which disputes have been raised, had been included illegally in the definition of gross revenue, the definition may be declared ultra vires, invalid, and be struck down. They have also contended that revenue from activities under the licence cannot be included in gross revenue, which submission has been negated by this Court in 2011, it was held that the gross revenue would include the revenue generated from non-licensing activities. Licensees cannot be permitted to approbate and reprobate and to take inconsistent stands that they are not included in gross revenue as per AS-9. The stand taken rather than buttressing the submissions raised by them, counters and militates against their own interest and paves the way in favour of DOT. The submission raised that the definition is not wide, cannot be accepted, and stands repelled. Clauses 22.1,

22.2 and 22.3 cast obligation upon the licensee to draw, keep and furnish independent accounts for the service. Under clauses

22.1 and 22.2, the licensee has to maintain records quarterly. Accounts have to be audited and can be called for by the licensor or the TRAI, as provided in Clause 22.3. The format of gross revenue is supportive of definition of gross revenue as defined in the agreement. Clause 22 is a rider upon the licensee to maintain the records of activities and other matters such as financial position as enumerated therein. Clause 18.1 of the agreement has also been pressed into service. The submission raised that a single company may hold 5 licences for 5 different service areas; the AGR as suggested by the DOT, cannot be followed as it may end up in paying the licence fee at the rate of

5 times. As the licence fee cannot be charged more than once, there is no room to entertain the submission. It is not what is contemplated in the definition. While computing the licence fee, the gross revenue has to be taken into consideration under a particular licence for which it is being determined. The argument had been raised on a hypothetical basis without foundational facts to raise the same is thus, liable to be and is rejected at the threshold. There is no doubt that the State is a trustee of the natural resources and is obliged to hold it for the benefit of the citizens but also to ensure equal distribution to sub-serve the common good as observed under Article 39 of the Constitution of India. The Government being the sole repository of all the resources in the country, also has the exclusive power to determine the licence conditions at which it parts with the exclusive right to the resources. Government has to make an effort to get the best price for its valuable rights and cannot throw them away, and there would be no arbitrariness in the same. [Paras 83-86] [754-G-H; 755-A-C-F-H; 756-A-F] Suzuki Parasrampuria Suitings Private Limited v. Official Liquidator of Mahendra Petrochemicals Limited (2018) 10 SCC 707 : [2018] 12 SCR 906 ; Jal Mahal Resorts Private Limited v. K.P. Sharma (2014) 8 SCC 866 ; A.P. Dairy Development

Corporation Federation v. B. Narasimha Reddy (2011)

9 SCC 286 : [2011] 14 SCR 1 ; In Re : Natural Resources Allocation (2012) 10 SCC 1 : [2012] 9 SCR

311 ; State of Orissa & Ors. v. Harinarayan Jaiswal & Ors. (1972) 2 SCC 36 : [1972] 3 SCR 784 ; Har Shankar v. Excise & Taxation Commissioner (1975) 1 SCC 737 : [1975] 3 SCR 254 ; Government of A.P. v. Anabeshahi Wine & Distilleries (P) Ltd. (1988) 2 SCC

25 : [1994] 2 SCR 67 ; State of Orissa v. Narain Prasad (1996) 5 SCC 740 : [1996] 5 Suppl. SCR

465 ; State of M.P. v. KCT Drinks Ltd. (2003) 4 SCC

748 : [2003] 2 SCR 574 ; State of Punjab v. Devans Modern Breweries Ltd. (2004) 11 SCC 26 : [2003] 5 Suppl. SCR 930 referred to.

1.5 A licence granted under section 4(1) is in the nature of a contract. As to the provisions of gross revenue there had been consensus ad idem between the parties. The licensees are bound by it as they have executed the licence agreement. The licensees who have taken the advantage under the licence, carry certain obligations. The licensee is bound to discharge the obligation while taking benefit under the licence of migration package, for this purpose. After the introduction of the migration package policy, 1999, there is an exponential growth of the telecom sector. The terms and conditions cannot be said to be oppressive as submitted on behalf of the licensees. It cannot be said that DOT was in a dominant position, or possessed wholly disproportionate and unequal bargaining power. In the matter of commercial contracts, the doctrine of unconscionable bargaining is not applicable as held with respect to migration package. Once benefit has been drawn, the licensees cannot deny validity or binding effect of contract. [Paras 88, 89, 90, 91, 92] [757-H; 758-B; 759-A; 760-B-F-G; 761-C-D]

Assistant Excise Commissioner & Ors. v. Issac Peters & Ors. (1994) 4 SCC 104 : [1994] 2 SCR 67 ; Shyam Telelink Ltd. v. Union of India (2010) 10 SCC 165 : [2010] 12 SCR 927 ; Bharti Cellular Ltd. v. Union of India (2010) 10 SCC 174 : [2010] 12 SCR 725 ; S.K. Jain v. State of Haryana (2009) 4 SCC 35 : [2008]

17 SCR 1378 ; Cauvery Coffee Traders, Mangalore v. Hornor Resource 67 s (International) Co. Ltd. (2011)

10 SCC 420 : [2011] 12 SCR 473 ; R.N. Gosain v. Yashpal Dhir AIR 1993 SC 352 : [1992] 2 Suppl. SCR

257 – relied on.

Khardah Company Ltd. v. Raymond & Co. (India) Pvt. Ltd. [1963] 3 SCR 183; Central Inland Water Transport Corproation v. Brojo Nath Ganguly (1986) 3 SCC

156 : [1986] 2 SCR 278 – referred to.

2.1 In re: Discount and Commissions:

When the definition of “gross revenue” in clause 19.1 of the licence agreement is pon- dered upon, it is apparent that the gross revenue has to be taken into consideration without any set-off for related items of expense. Thus, the gross amount, as per the definition, is the gross revenue, without set-off, is to be taken into consideration including the discounts given. Parties understood right from the beginning that the gross revenue does not exclude discounts, commissions, rebate etc. and specific challenge made to the same had not been accepted in 2011. Now once again by the circuitous method, impermissible attempt has been made to re-write the definition of gross revenue. The definition of ‘gross revenue’ is independent of AS9 as the definition of revenue in AS-9 cannot govern the definition in Clause 19.1 of the licence agreement. What has been defined in AS-9 is revenue, whereas, for a licence fee, gross revenue is the revenue. It would be greatest fallacy to say that while gross revenue has been defined in Clause 19.1 of agreement, revenue has not been defined in the licence agreement. What has been defined as gross revenue is in fact broader definition of revenue and has to be taken as definition of revenue for licence agreement. An attempt has made to wriggle out of the rigour of the definition of gross revenue by banking upon the definition of revenue in AS-9 is to scut- tle the effect of the previous decision in Union of India v. AUSPI (2011). Gross revenue as defined in agreement cannot be diluted in any manner whatsoever based on the submission mentioned above, as AS-9 is only for method of accounting and specific definition of revenue i.e., gross revenue under the licence agreement has to prevail. ‘Gross revenue’ is the revenue has been held in 2011 judgment finding is binding on parties for determination of license fees under the licence agreement and the definition of revenue in AS-9 cannot govern. Reliance upon the affidavit filed on behalf of DOT is wholly misconceived. What is the meaning of the definition of gross revenue has been finally settled inter parties vide 2011 judgment. Thus, there is no scope to entertain the miscon- ceived submission. The concept of fair value is not the basis of Accounting Standard-9. Fair value is the operating concept of IND AS-18. In AS-9, revenue recognition is at nominal value and that the fundamental difference between the two accounting standards. Thus, the nominal value has to be taken as the one which is relevant for AS-9. Under the AS-9 regime, the revenue recognition shall be measured as the gross inflow of cash, receivables, or other consideration received. There is no concept of fair valuation under AS-9. The question of service tax liability has no relevance for determination of licence fee for which definition has been worked out by the Government of India, which has been agreed to by the licensees also as that was beneficial to them as compared to the fixed fee regime which prevailed earlier. They have switched over to the new regime of sharing the revenue earned by them on a percentage basis. The definition of gross revenue has the purpose behind it and was the outcome of prolonged exercise and has already been upheld, and the question cannot be reopened once over again by an indirect method. The trade discounts cannot be deducted from the gross revenue merely on the ground that they represent a reduction of cost. The reliance by the licensees on the Guidance Note filed that discounts are reduction granted by a supplier from the list price of goods or services is of no avail owing to the definition of the gross revenue. Set off of trade discounts is not permissible under Clause 19.1 of agreement against revenue as expenses are not permitted to be netted up. Concerning cash discount, it is apparent that cash discount may be used in various methods. It is an incentive for customers. The customer makes payment after deducting amount of cash discount, if eligible for availing of the same as per the agreement between the entity and the customer. Under AS-9, revenue is recognised at the gross amount and cash discount is regarded as an expense when the seller receives the payment net off discount is not permissible. For example, if A has sold goods to Z for Rs.1000 on 90 days’ credit period, but if Z pays within 50 days, a cash discount of 10% shall be provided by A. It is reasonably sure that Z to pay the amount within 15 days. In the AS regime, the revenue has to be recorded at Rs.1000, and when Z pays Rs.900, the amount of cash discount of Rs.100 will be recognised as an expense. That is the effect of the revenue to be recognised as a gross amount under AS-9. Concerning the volume-based discount, under the AS-9 regime, revenue is recognised at the gross amount received or receivable from the customers. However, the value of trade discounts and volume rebates received cannot be deducted from the gross revenue owing to the definition in clause 19.1. The subscriber’s discount can also be in the form of free calls, some free minutes SMS value. DOT has rightly asked for the licence fee on the no- tional revenue of free calls, SMS, VAS minutes/data. When these amounts admittedly are reflected in the invoice raised on the subscriber as memorandum, it is the gross revenue. It forms part of the gross revenue and cannot be deducted. That is what was intended by carving out the definition to make it free from litigation and accounting jugglery and to free determination of licence fee from the clutches of accounting jugglery. The discounts allowed on international roaming, commission, and discount allowed to distributors on sale of pre-paid vouchers form part of the gross revenue and cannot be deducted by placing reliance on the definition of revenue and certain notes of AS-9 standards; whereas they are explicitly included in the definition of gross revenue. [Paras 107-108, 113-117] [765-F-H; 766-A-F; 768-F-H; 769-A-H]

Union of India v. Bombay Tyres International Pvt. Ltd. (2005) 3 SCC 787 ; Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. M/s. Advani Oorlikon (P) Ltd. (1980) 1 SCC 360 : [1980]

1 SCR 931 ; M/s. United Exports v. Commissioner of Income Tax, Delhi (2009) SCC Online Del 2566 ; IFB Industries Ltd. v. State of Kerala (2012) 4 SCC 618 : [2012] 4 SCR 802 ; Commissioner of Central Excise, Madras v. Addison & Co. Ltd. (2016) 10 SCC 56 : [2016] 9 SCR 591 ; Southern Motors v. State of Karnataka & Ors. (2017) 3 SCC 467 ; Maya

Appliances Pvt. Ltd. v. Additional Commissioner of Commercial Taxes & Ors. (2018) 2 SCC 756 : [2018]

2 SCR 250 – held inapplicable.

2.2 As to pre-paid options, the format of statement of revenue and licence fee contained in Appendix II to AnnexureII provides in the case of prepaid options, sale of pre-paid SIM cards including full value of components charged therein. Revenue from mobile community phone service including full value of all components charged therein has to be considered, revenue from franchisees/re-sellers including all commissions and discounts, etc. have to form part of the gross revenue. How the parties have understood and agreed to pay the gross revenue is apparent from the correspondence and letter dated 22.7.2001 and the ultimate definition mentioned in the licence agreement Clause 19.1 and rejection of TRAI’s recommendations by the Government. The TDSAT has erred in holding that if the discounts are in the form of reduced billing, no addition to be made in the gross revenue. It would mean violating the definition of gross revenue where no set-off is permitted. It is rightly submitted by DOT that discounts over and above the agreed charges are part of overall commercial strategy to enhance the business, and hence, these discounts are like expenses. Expenses are not permitted to be net off under clause

19.1 from the gross revenue under the licence agreement. Similarly, the TDSAT has erred in holding and giving a finding concerning commission and discounts if the invoice is at a discounted price, which is at Rs.90 instead of Rs.100. For the same reason, the finding of TDSAT is not sustainable. The TDSAT has rejected the case of the licensees. Where the bill is for a higher amount and the discount is in the form of volume discount given separately, the billed amount should be taken as the revenue, and the discount may be treated as an expense. That part of the finding is not disturbed. However, for all discounts and commissions allowed on international roaming, and to distributors on sale of pre-paid vouchers, trade discounts, subscribers’ discounts, and volume rebates form part of gross revenue. It has also been submitted on behalf of the licensees that offering discounts is frequently used to increase business in the long run/term. These are inevitable as there were 8 to

10 operators operating in the same geography at highly competitive prices. Discounts help to survive and grow business and augment revenue. Thus it is in the nature of expense for earning the profit and by this method it is admitted that business has grown and there is an increase in revenue, hence the same being part of the commercial strategy to enhance the business, it has to be treated in the nature of expense and cannot be deducted from gross revenue. Thus, the claim for various forms of discounts, commissions, pre-paid vouchers, goodwill waiver etc., raised on behalf of the licensees are rejected and the finding of the TDSAT to the extent it is contrary to the stand taken by DOT is set aside, and it is held that all discounts and commission etc. as discussed form part of the gross revenue for the purpose of payment of licence fee. [Paras 118, 119, 120-122] [770-A-H; 771-A-B]

3. In re: Gains arising out of Foreign Exchange Fluctuations:

Gain from foreign exchange fluctuation is to be taken in the calculation of AGR, and that is the actual revenue and cannot be ignored. Similarly, gain from foreign exchange fluctuation should be added on accrual basis. If later on, the amount has to be spent on the purchase of equipment or settling roaming charges in foreign currency, that is also a gain and results in economic benefit and has to be accounted for while working out the gross revenue as a decrease in liability would be gain. Whatever may be the expenditure, whether it has increased or decreased, must be accounted for as it forms part of the gross revenue. In the definition of gross revenue, any other miscellaneous revenue is included, and when once the item has to be shown in the balance-sheet or profit and loss account, obviously, it has to be accounted for gross revenue, even as a notional figure. Once the amount is receivable, it has to be taken as part of gross revenue. The finding to the contrary recorded by the TDSAT is thus liable to be set aside. Whether the amount is paid for the purchase of equipment, it has to be accounted for and must be accounted for as per the value spent on the date of the banking transaction, which cannot be ignored. Thus, the gains from foreign exchange fluctuations have to be added in the computation of gross revenue, otherwise, the benefit which is accruing will be ignored. Where profit or loss arises on account of appreciation of foreign currency, such gain or loss has to form part of profit from the business or loss. Whether it is profit or loss on account of trading or on account of asset, it has to form part of profit and loss account, thus, it has to account for gross revenue. The fluctuation in the foreign currency has to be accounted for in the account at the time when the amount is received or at the end of the accounting year. Thus, there is no escape from the conclusion that forex gain has to be accounted for as part of gross revenue. When loss can be claimed as an expenditure, profit or gain due to fluctuations in the rate of foreign exchange has also to be accounted for towards gross receipt, which is gross revenue. [Paras 128-129] [773-E-H; 774A-C]

4. In re: Monetary Gains on Sale of Shares:

Given the definition of gross revenue in the licence agreement, every amount which is more than the book value of the current asset and comes to licensee company, has to be considered for calculation of gross revenue without netting off. Thus, the reasons given by the tribunal that any gain over and above the net book value, that is, when the sale proceeds are less than the original purchase cost but more than the net worth of the assets, has to be excluded from the gross revenue, cannot be accepted. The gross revenue for the current year has to be worked out based on the value of the capital assets. Gross revenue for any year is considered in light of the opening statement and also closing statement at the end of the year. What is gain over and above the book value in the year in question, has to be taken into consideration towards gross revenue received. Submission to the contrary raised on behalf of the licensees cannot be accepted. Unable to accept the submission that the money collected on the sale of shares etc. is not like revenue receipt but is a capital receipt. The gain from the sale of capital asset including increase over and above net book value and scrap and not the entire proceeds are to be taken as revenue in calculation of the gross revenue without netting off and should be on accrual basis, is unobjectionably within the ken of definition of gross revenue. To say in case e.g., gain for AGR will accrue when the sale proceeds or the current disposition value of the goods is Rs.60, and if it is sold at Rs.70, in that case, there will be a gain of Rs.10. That shall be taken as a gain for AGR calculation. The result would be the same in case the value of an asset worth Rs.100 has depreciated to book value worth Rs.60 and is sold at Rs.70, as urged on behalf of DOT, Rs. 10 will form part of gross revenue. Again, a futile attempt has been made to get rid of the definition of gross revenue, and confusion is sought to be created by ordinary business activity, which is the expression used in Para 4.1 of AS-9. In contrast, the definition of gross revenue in clause 19.1 includes gross revenue from non-licensed activities also. Thus, the submission is wholly sans substance and stands repelled. Finding to the contrary recorded by TDSAT considering the initial cost is set aside. It has to be seen as book value as on date of sale. The stand of TDSAT is approved in this regard in regard to assets/scrap, shares etc. [Paras 131, 132] [774-F-H; 775-A-F]

5. In re: Insurance claim in respect of capital assets:

The submission raised on behalf of the licensees cannot be accepted as the insurance claim over and above the book value is considered as revenue and not the value of the capital asset as there is an inflow of cash received. It is accounted for in the profit and loss account. It has to form part of the gross revenue as defined in clause 19.1. The artificial bifurcation of insurance claim made by the TDSAT cannot be accepted and is contrary to contractual definition of gross revenue. The finding of TDSAT to the extent it is contrary to revenue is set aside. [Paras 136] [777-B-C]

6. In re: Amount of negative balance of pre-paid customer: It is apparent that the amount of negative balance is a business strategy, and the amount is adjusted in case re-charge is opted. Otherwise also, it is billed and reflected on accrual basis in the account of the customer. Though it has to form part of gross revenue for determination of licence fee under clause 19.1, the number of calls at the full value have to be measured without any discounts or incentive of such business strategy. It is a part of revenue. It cannot be deducted from the gross revenue to be worked out as per the definition of gross revenue under AS-9. Thus, the finding of the TDSAT cannot be said to align with the meaning of gross revenue in factual aspects of the case and is set aside. [Para 139] [778-B-C]

7. In re: Reimbursement of the infrastructure operating expenses

In the definition of gross revenue, the item sharing of infrastructure facility is explicitly mentioned. In the format in Appendix 2 to Annexure-II also, the entire amount is required to be shown. It has been specifically mentioned that there cannot be any setting off of the amount of gross revenue, and the entire money received has to be treated as the gross revenue for the determination of licence fee. It is not the determination of profit. The gross revenue carries a different definition, and the intendment is clear to prevent disputes. Thus the entire amount received by the licensee on account of sharing of passive infrastructure has to be counted in the gross revenue while working out AGR. Thus, the finding to the contrary recorded by the TDSAT is set aside. [Para 145] [779-E-G]

8. In re: Waiver of late fee

Late fee is included explicitly in the definition of gross revenue. As such, it has to be computed as part of gross revenue. Merely by waiver, it cannot be ousted from the purview of gross revenue once it becomes leviable. Thus, the finding of the TDSAT is not sustainable and is set aside. [Para 150] [780F-G]

9. In re: Gains from roaming charges and PSTN passthrough charges Para 49 of the judgment of 2011 takes care of the submission. Once there is a branch, maybe based abroad, its income and the activity of the branch may not require any licence since licensee is undertaking the activity, and the definition of adjusted gross revenue activities includes revenue beyond the licence. The same has to be included in the gross revenue. The submission stands concluded by the previous decision, and no merit is found in the submission. The finding recorded by the TDSAT, to the extent it is contrary to the DOT, based upon certain conditions, is set aside. [Paras 158, 159] [783-C-D]

10. In re: Non-refundable Deposits

The definition of gross revenue is wide enough to cover non-refundable deposits as non-refundable deposits are revenue earned from licensed activities. Non-refundable deposits are to be treated as accrued in the profit and loss account as per Annexure III of the licence agreement. It is apparent that non-refundable deposits are in fact revenue received in advance from the subscribers. Even if they are used for discount etc. in the bills, they form part of revenue. Licensees themselves treat non-refundable deposits as income under section 80 IA (2a) of the Income-tax Act. Be that as it may. The finding recorded by the TDSAT concerning non-refundable deposits not being part of the revenue based upon wrong concession made by the learned counsel appearing for the DOT, is as a result of this is liable to be set-aside. It was expected of the TDSAT to consider the concession following law, as such cases cannot be decided and ought not to be decided on the basis of prima facie incorrect concession of the counsel, it has to be legally tested. In case any admission is made, its correctness has to be examined. [Para 162] [783-H; 784-A-C]

11. In re: Licence fee demand where spectrum is not granted

TDSAT has held that the demands of licence fee based on other activities, are bad, unreasonable, invalid, and unsustainable. During the period in question, the UAS licence came bundled with the spectrum, and it is evident that without a spectrum, the licensee could not work out the licence. The finding recorded by the TDSAT is appropriate. Once there is no activity under a licence, merely on the basis that the licence has been issued, no revenue earned, it cannot be shared. Still, there is no activity under the licence, i.e., based on non-licensed activities, the revenue sharing could not have been asked. It would be an unreasonable and unconscionable bargain to pass on such a liability. Finding recorded by TDSAT in the case of Videocon & S. Tel is agreed with. [Para 163] [784-D-F]

12. In re: Income from interest and dividend There is no scope to entertain the submission concerning the exclusion of interest and dividend from gross revenue. Whatever, interest and dividend earned from the licensing and non-licensing activities, have to form part of gross revenue for determination of licence fee. [Para 164] [784-G-H]

13. In re: Bad-debts written off

The bad debts written off are not allowed as a deduction by the DOT while computing adjusted gross revenue, bad debt is written off when recovered subsequently, it cannot be added to the gross revenue. The TDSAT in the impugned order. TDSAT has not accepted the submission of the licensees. However, at the same time, it has safeguarded the interest of the licensees. In case it is realised later on, it may not be charged again. It should be charged only once. The finding is found to be appropriate. No case for interference in the findings recorded by the TDSAT is made out. [Paras 165, 166] [785-AB-D]

Hindustan Machines Ltd. v. Union of India (1985) 2 SCC 197 : [1985] 2 SCR 686 – referred to.

14. In re: Liability written off

TDSAT rightly held that if it is to be considered as an expenditure, liability has to be treated as an expense, and no discount on the income will be allowed for the sum for determining the licence fee. It cannot be charged for the second time for computation of licence fee. Hence, it is to be treated as an expense, and discount cannot be allowed for determining the licence fee. Hence, it is held that it is to be treated as an expense, and discount cannot be allowed for determining the licence fee. [Paras 168, 170] [786-A-C]

Rajputana Trading Co. Ltd. v. Commissioner of Inco

67 me Tax, West Bengal-I (1982) SCC 775 – relied on.

15. In re: Inter-corporate loan

Interest income from inter-corporate loan has to be included in the gross revenue for working out the licence fee. [Para 173] [786-H]

16. In re: Revenue under IP-1 Registration

It is apparent from the definition of gross revenue that income from licensed activities and even from non-licensing activities and any other miscellaneous revenue of the licensee has to be included. Thus, DOT has rightly included the income of the licensee from IP registration under the CUG licence. [Para 174] [787-A-B]

17. In re: Income from management consultancy services:

When the definition of gross revenue is considered, it has to be included in the adjusted gross revenue to work out the licence fee. The income from management support and consultancy of the licensee cannot be excluded. Submission to the contrary cannot be accepted and is rejected. The TDSAT has also rightly held in the case of Bharti Airtel that the revenue from Cable Landing Station has to be included in the gross revenue. [Paras 175, 176] [787-C-D]

18. In re: Res Judicata

All the submissions which have been raised on merits again have been examined, uninfluenced by the plea of res judicata/constructive res judicata, and no merit is found in the submissions which have been raised. [Para 181] [793-C] Lohia Machines Ltd. & Anr. v. Union of India & Ors. (1985) 2 SCC 197 : [1985] 2 SCR 686; Hindustan Steel Ltd. v. State of Orissa (1969) 2 SCC 627 : [1970]

1 SCR 753 ; Akbar Badrudin Giwani v. Collector of Customs (1990) 2 SCC 203 : [1990] 1 SCR 369 ; Jaiprakash Industries Ltd. v. Commissioner of Central Excise, Chandigarh, (2003) 1 SCC 67 ; Tecumseh Products India Ltd. v. Commissioner of Central Excise, Hyderabad (2004) 6 SCC 30 : [2004] 2 Suppl. SCR

202 ; J. K. Synthetics Ltd. v. Commercial Taxes Officer (1994) 4 SCC 276 : [2015] 1 SCR 627 ; Kailash Nath Associates v. Delhi Development Authority & Anr. (2015) 4 SCC 136 : [2015] 1 SCR 627 ; Central Bank of India v. Ravindra & Ors. (2002) 1 SCC 367 : [2001]

4 Suppl. SCR 323 – referred to.

19. In re: Levy of interest, penalty, and interest on penalty:

It is not levy of penal interest, which is involved in the instant case. When there is contractual stipulation, the interest can be levied and compounded. Resultantly, interest and penalty have rightly been levied. Once an amount of shortfall has not been paid, it has to carry 50% of the penalty on defaulted amount, as agreed. Thus, there is no substance in the submission that interest, penalty, and interest on penalty cannot be realised. It is as per the agreement. In the facts and circumstances, no ground is found to reduce the same, considering the nature of untenable objections raised on behalf of the licensees, which were in fact either barred by res judicata or constructive res judicata but as this Court had remitted the matter to TDSAT to find that demand was based on proper interpretation of licence. Matter was remitted after giving finding on inclusion of the various heads in the definition of gross revenue. Even as per the case of licensees they were not validly included in definition, now reprobating that, stand has been taken that they did not form part of revenue which is not permissible. No litigant can be permitted to reap fruits on such inconsistent and untenable stands and litigate for decades in several rounds which is not so uncommon but is disturbing scenario projected in very many cases. [Paras 197, 198] [809-G-H; 810-A-C]

J.K. Industries Limited v. Union of India (2007) 13 SCC 673 : [2007] 12 SCR 136 – distinguished. Union of India and another v. Association of Unified Telecom Service Providers of India (2011) 10 SCC 543 : [2011] 14 SCR 657 – relied on.

M/s. Everest Industrial Corporation & Ors. v. Gujarat State Financial Corporation (1987) 3 SCC 597 : [1987] 3 SCR 607 ; Punjab Financial Corporation v. Surya Auto Industries (2010) 1 SCC 297 : [2009] 15 SCR 1187 ; Maharashtra University of Health Sciences v. Satchikitsa Prasarak Mandla (2010) 3 SCC 786 : [2010] 3 SCR 91 ; Godhra Electricity Co. Ltd. v. State of Gujarat (1975) 1 SCC 199 : [1975] 2 SCR 42 ; United India Insurance Co. Ltd. v. Pushpalaya Printers (2004) 3 SCC 694 : [2004] 2 SCR 631 ; Industrial Promotion & Investment Corporation of Orissa Ltd. v. New India Assurance Co. Ltd. (2016) 15 SCC 315 – referred to.

Legh-Jones, Longmore et al (Eds.) MacGillivray on Insurance Law (9th Edn., Sweet and Maxwell, London 1997) at p.280; Robert and Me 67 rkin (Eds.), Colinvaux’s; Law of Insurance (6th Edn., 1990) at p.42 – referred to.