COMMISSIONER OF INCOME TAX Vs. BHARTI CELLULAR LTD

JUDGEMENT

(1.) IN all these appeals under Section 260a of the Income Tax Act, 1961 (hereinafter referred to as "the said Act"),"the following substantial questions of law have been framed:-

(2.) THE facts in all these appeals are similar. The respondents/assessees in these appeals are companies engaged in the business of providing cellular telephone facilities to their subscribers. The assessees/respondents had been granted licences by the Department of Telecommunication for operating in their respective specified circles. The assessees are required to set up their own equipments and necessary infrastructure for operating and maintaining their networks. The licences granted to the assessees stipulated that the Department of Telecommunication/mtnl/bsnl would continue to operate in the service areas for which the licences were issued. In respect of subscribers which fell within the specified circles of the assessees, the calls would be handled exclusively through the assessees" own networks. However, where calls were to be made by subscribers of one network to another network, such calls are necessarily to be routed through MTNL/bsnl. The inter connection between the two networks is provided by MTNL/bsnl at interconnection points known as Ports. For the purposes of providing this interconnection, the assessees have entered into agreements with MTNL/bsnl etc. The agreements are regulated by the Telecom regulatory Authority of India (TRAI ). Under these agreements, the assessees/respondents are required to pay interconnection, access charges and port charges. As per the policy document of TRAI, interconnection has been understood to mean the commercial and technical arrangements under which service providers connect their equipments, networks and services to enable their customers to have access to the customers, services and networks of other service providers. Interconnection charges are paid by the interconnection seeker to the interconnection provider.

(3.) THE manner in which this system works can be explained by examples. Example 1: Assume that subscriber "a" of Airtel intends to call subscriber "x" of MTNL within New Delhi. Subscriber "a"s call which originates within the circle of Airtel would have to be handed over (through interconnection) to mtnl"s network so as to reach subscriber "x". In such a case, while Airtel would recover the normal call charges from its subscriber "a", it would have to pay a part of it to MTNL for its inter-connect usage charges. Example 2: Assume that subscriber "a" of IDEA in Maharashtra wants to make a call to subscriber "b" of Airtel at New Delhi. The call would originate within the IDEA network in Maharashtra and would have to be inter-connected with BSNL (being the national long distance service provider) which would carry the call to the Airtel Delhi network and after interconnection would be transferred to the subscriber "b" of Airtel, Delhi. In such a case, following the principle of the inter-connect seeker paying the charges to the inter-connect provider, airtel - Delhi would raise an invoice for inter-connect charges on BSNL which, in turn, would raise an invoice on IDEA (Maharashtra) for the national long distance inter-connect charges. IDEA (Maharashtra) would recover the normal call charges from its subscriber "a" and make the payment to BSNL as per the invoice for the national long distance inter-connect charges. BSNL, in turn, would make the payment to Airtel (Delhi) for the local inter-connect charges.