UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM

2.2 As to pre-paid options, the format of statement of revenue and licence fee contained in Appendix II to Annexure- II 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 A B C D E F G H 686 SUPREME COURT REPORTS [2019] 16 S.C.R. A B C D E F G H 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 UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM SERVICE PROVIDERS OF INDIA 687 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; 774- A-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 A B C D E F G H 688 SUPREME COURT REPORTS [2019] 16 S.C.R. A B C D E F G H 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 UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM SERVICE PROVIDERS OF INDIA 689 align with the meaning of gross revenue in factual aspects of the case and is set aside. [Para 139] [778-B-C] A

#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] [780- F-G] B C D E

#9. In re: Gains from roaming charges and PSTN pass- through charges F 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] G H 690 SUPREME COURT REPORTS [2019] 16 S.C.R. A

#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] B C D E F G H UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM SERVICE PROVIDERS OF INDIA 691

#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-A- B-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] A B C D E F G H 692 SUPREME COURT REPORTS [2019] 16 S.C.R. A

#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. B C D E F G H UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM SERVICE PROVIDERS OF INDIA 693

#19. In re: Levy of interest, penalty, and interest on A 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 B C D E F G H A B C F G 694 SUPREME COURT REPORTS [2019] 16 S.C.R.